Via Investopedia

This past week, President Obama announced an $8.3 billion loan guarantee for the first new nuclear power plant to be constructed in 27 years…The case for nuclear energy is gaining steam in the U.S. as the president wants to triple the previous loan guarantee program to nearly $54 billion dollars and develop a plan for dealing with the generated waste.

Nuclear power plant producers have witnessed a nice push upwards after the announcement, yet actual Uranium U308 plays have received less than stellar bumps.

For example Denison gained less than 1%. Cameco pushed up only 3%. One way to gain full exposure to the overall nuclear energy category, yet not be fully exposed to the up-down nature of uranium stocks is to enter an ETF.

Market Vectors Nuclear Energy ETF (ticker NLR). Here are the funds top 10 holdings as of Feb 22nd, 2010:

As we can see the ETF does hold a large percentage of familiar names. Here’s the breakdown of the fund on a percentage basis.

With expense ratio’s capped at 0.65% this ETF offers an attractive option for those looking to expand out into the nuclear industry, all the while not being tied exclusively to uranium plays.

Regarding the most recent earnings loss ($91.3 million in third quarter) the Denison CEO said the following:

On the uranium side, it’s not that we couldn’t sell, but we used our discretion and chose not to sell into the spot market during the traditionally slow summer period.

Spot prices current hover around $45 and $47.

Currently Denison share prices sit at $1.40. The somewhat recent Denison downgrade by RBC (from $1.70 to $1.25) on October 1st is starting to look rather prophetic

The Story:

Coming across the newswire at the beginning of the Sept 30th session was an announcement from Denison. They will begin a 7500 metre drill program on the Wheeler River Property located in northern Saskatchewan.

The Wheeler property itself is a joint venture with three other companies. Denison controls 60% of the interest, Cameco 30% and JCU Exploration owns the final 10%.

The budget for the drill program is $1.5 million. 15 holes will be drilled.

The market itself reacted favourably during the Sept 30th session and in after-market trading. But the following morning RBC cut their DNN price target from $1.70 all of the way down to $1.25. This represents more than a 35% cut.

This has impacted the stock in the short-term trading, as DNN is down close to 10% on higher than average volume during the October 1st session.

Spot Price Swings

Last week spot prices took a big hit, losing over 10% of its value, dropping $5 to a U3O8 price of $47 per pound.

Yet this did not seem to affect share prices, as the majority of Uranium stocks stayed within 3% of their previous weeks prices.

This week the spot price gained back a portion of its previous losses, gaining a $1.50 to close at $48.50.

Until we witness tangible shifts in share prices that correlate with movements in the spot price we will shift our focus away from spot price fluctuations.

USEC Bounceback

The so-called media frenzy on the ‘hammering’ of Uranium shares following the USEC denied loan news appears to be over-blown.

From July 29th Tickerspy

Uranium stocks got hammered on Wednesday after the Department of Energy denied USEC’s request for $2 billion in loan guarantees.

Share Prices on July 28th and August 4th

Paladin: $3.99, $3.95
Denison: $1.72, $1.69
Cameco: $27.35, $28.56

Hardly the sector-wide destruction that some of the bears were anticipated.

The continued pressure in the current bear market is accelerating losses amongst uranium shares.

The spot price for uranium has fallen off a cliff over the past four trading sessions, dropping from a steady rate of $65 to the current level of $46.

While some will argue about the actual validity between spot price and contract price, one thing is for certain. Uranium stocks have taken a beating off late.

While some were hoping that things couldn’t possible get any worse, we now see Cameco and Dennison testing current and multi-year lows.

3 Month CCJ Chart

CCJ Price as of Oct 16th: $12.14
52 Week Trading Range: $12.00 – 52.33

5 Day DNN Chart

DNN Price as of Oct 16th: $1.32
52 Week Trading Range: $1.32 – $8.72

At this point uranium stocks have fallen to the wayside amongst commodity investors. It’s becoming more and more difficult to stay “rosy” about the sector at this point.

Denison Mines hit an all-time low on its american traded shares DNN (Amex) and was just six cents off of a near five year low on their Canadian traded shares DML (TSX). Following the American traded DNN, the shares 52 week range is a low of $1.87 on yesterdays close to an adjusted high of $8.86.

Here is a chart outlining the America side decline since inception. Do keep in mind that this chart does not take into account the semi-recent split.

When searching the TSX and Yahoo Finance Denison has not released any news since September 18th. This stock, while having no problem dropping on its own of late, is one of many metal plays swept up in the recent sector downtrend.

With no free cash flow, a negative ROIC (return on invested capital) and shrinking margins it is difficult to get behind Denison. It will be interesting to see if these shares can bounce back when (maybe if) the markets begin to improve.

Options traders do remain relatively optimistic, with 2.50 strike levels trading at around the $0.80 level for April 2009 contracts.