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Analysis on Uranium One Inc. (UUU)

September 11, 2012

Overview

Uranium One Inc., (Uranium One) along with its subsidiaries, is engaged in the acquisition, exploration and development of properties for the production of uranium in Kazakhstan, the United States, Tanzania and Australia. Uranium One’s principal projects are the Akdala Mine, the South Inkai Mine, the Karatau Mine, the Akbastau Mine, the Zarechnoye Mine and the Kharasan Mine in Kazakhstan. The Company also operates the Honeymoon Project in Australia in a joint venture with Mitsui, and owns a 13.9% interest in, and operates, the Mkuju River Project in Tanzania. Apart from other early stage development projects and Powder River Basin of Wyoming in the United States of America various exploration properties in the United States of America and Australia. The mines produce uranium (U) in the form of uranium oxide concentrate (U3O8), commonly known as yellowcake.

The closing price for the stock of Uranium One Inc. as on Sep 12, 2012 is $2.51. In this analysis, we are not considering just 52 weeks history, we are considering 5 years history as well. The purpose to consider 5 year’s history is to accommodate the lows and highs of the business cycle.

Stock Exchange Info

Uranium One Inc. is listed in Toronto Stock Exchange with ticker UUU. It falls under sector Basic
Material
and industry Precious Metal & Mineral.

Historical Analysis

Chart 1 : 5 Years Analysis

Chart 2 : 52 Weeks Analysis

If we look at the 52 weeks pricing trend, low is $1.85 and high is $4.49.The current price is towards the lower side based on 52 weeks price range. If we look at the 5 years pricing trend, low is $0.85 and high is $16.55, the Current price is again towards the lower side based on 5 years price trend. This indicates that it is a good entry point. (See chart 1 and 2)

Table 1: High / Low Prices for UUU

Reason for fall / spike in the price of stock

After the accident in Fukushima Daiichi nuclear power plant in Japan during tsunami in Feb 2011, there was fall in the Uranium demand which led to the fall of Uranium One Inc. stock. Uranium price before the tsunami / accident was around $75. There is a 33% of fall in uranium prices compare to today’s spot price of uranium.

Industry info

Table 2: High / Low Uranium Spot Price

Table 3: Uranium Spot Price Analysis

Uranium Industry is going through bad times. 5 years before, Uranium spot price was $100, 5 year high is, also, $100, 5 years low is $40 and current is $50. If we assume that the normal spot price is the mean of high / low of 5 years, i.e., $70 and is normalized to current period, the current spot price is 50% lower than the normal price. This indicates that there is a potential for increase in the spot price. (See Table 2)

Industry Growth

Table 4 : Nuclear Power Production

At present 433 reactors are in production. 15% of reactors in production, i.e., 65 reactors are under construction. Further, 37% of reactors in production, i.e., 160 reactors are under planning stage and 75% of reactors in production, i.e., 323 reactors are proposed. This indicates that the demand for Uranium in future will increase. Consequently the spot price of Uranium / profit of UUU too will increase.

Volume analysis

Average daily volume is 1.2M shares, which is equivalent to $3M based on the current price. This means that the average $3M deal completes in one day. The maximum level of $30,000 is suggested to invest to keep high liquidity.

Options Price Analysis

N/A

Valuation of the stock

Table 5: Valuation of UUU

The liquidation value is $1.77, which is 30% lower than the current price. We can consider this 30% as maximum risk associated to the investment in UUU. Value of the stock, based on the free cash flow is $0.36 which is 86% lower than the current price. This low is temporary and the stock price will rise, once uranium price increases.

Risk / Opportunity

Risk vs. Opportunity ratio may be defined as the comparison between the strength of the opportunity and the risk involved in the investment. For UUU, the opportunity is 3x of the risk based on 52 weeks analysis and 9x based on 5 years analysis. (See chart 1 & 2)

Price Earnings Ratio

Price Earnings Ratio for UUU is lower than the Precious Metal & Mineral industry. This shows there is a potential to grow in UUU to align with industry.

Conclusion

It is worthwhile to invest in Uranium One Inc. (UUU), based on the above analysis. The value of the investment is less risky than the opportunity available.

Related Links

http://www.world-nuclear.org/info/reactors.html

http://www.world-nuclear.org/info/inf17.html

http://www.reuters.com/finance/stocks/analyst?symbol=UUU.TO

Written By: Gulshan Malhotra

4 Comments
  1. September 14, 2012 12:14 PM

    Amazing analysis on Uranium one . The main difference between other analysis and this one is that it not only give you a complete picture base on a 5 year trend an not just 52 week high low, it actually links commodity price of uranium with the uranium one trend. The post gives enough detail to an investor I the investment is worth doing or not .
    These type of analysis are available in the market , but only on paid subscription . Plus one to monetize .

  2. Dave permalink
    September 17, 2012 4:23 PM

    Who are Uranium One’s major competitors? What advantages does UUU have over the competition?

    • September 18, 2012 10:29 AM

      Uranium One competitor is Comeco. Uranium One is highly volatile than Comeco. If you have a good entry point, it is suggested to invest highly volatile. Your volatility risk is offset by good entry. Further you avail better opportunity because of high volatility.

  3. Tai Du Luong permalink
    September 20, 2012 1:59 PM

    Thanks again for another insightful posting.

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