UrAsia to Lead in Uranium Share Recovery

UrAsia to Lead in Uranium Share Recovery

Thursday, August 10th 2006

Uranium stocks have taken a remarkable beating over the last couple of quarters, and for the most part, probably for good reason. Hundreds of junior exploration names were beginning to command significant market valuations with very little, if anything, to show for them. Despite the rout which has taken place across the board, the price of uranium has continued its inexorable march to higher levels, with recent prices coming in around $47.25/lb.

There is little doubt that the entire universe of uranium stories will have another run, good and bad alike, if only as a result of price action in the metal itself, and a concomitant swelling in speculation. The important thing to consider is that, like other areas within the resource sector, there is such a thing as the best of breed. In the case of uranium plays the top of the heap are those companies which are near production, or already in production.

Investors may recall that your correspondent took a shining to a Kazakhstan uranium production story which started trading back in November of last year. UrAsia Energy [TSXv:UUU] had come off a bit and was going for C$1.58. The story subsequently got up as high as C$4 per share, before pulling back with the rest of the sector, and currently going for about C$2.60.

It was our conviction in late 2005 that, ”If strong production growth over the next few years is able to coincide with higher uranium prices, the vehicle will have done exactly what it was designed to do, and rewards for early investors in this play could be quite substantial. Uranium producers attract a high-multiple because there are so few listed options, and UUU has positioned itself to quickly become the household name for uranium investors.”

Indeed, UrAsia is very much on the right track, and with rising production and yellowcake prices, things are likely to keep getting better for shareholders. The company also has well over 100 million in cash, allowing it to aggressively pursue construction at its South Inkai and Kharassan projects.

Going forward, as investors begin to rotate back into uranium, UrAsia will be the first to move, likely testing old highs before speculators work their way down to the food chain to the dill hole dreams – plays that will more than likely never come anywhere close to commercial production, or even economic grades. The underlying strength of the uranium market and the many positive indications of robust performance in the future make the commodity, and best-of-breed related equities a fairly good bet. Investors should also keep in mind that there are very few producers of uranium, and fewer still with new production coming on-stream anytime soon ”“ the laws of supply and demand suggest that significant investment dollars chasing limited product could result in serious upside, even if it means that valuations get totally out of whack.

Shares in UUU closed at C$2.57 Tuesday, down eight cents on below-average volume.

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