Cameco rebounds but Japan woes hit nuclear sector

TORONTO Tue Mar 15, 2011 6:02pm EDT

TORONTO (Reuters) - Shares of Cameco Corp (CCO.TO) staged a stunning recovery from an 11 percent fall on Tuesday to close more than 1 percent higher, as investors became less rattled by the nuclear crisis in Japan.

The world's No. 2 uranium producer closed at C$32.07, up 1.17 percent, after falling 22 percent over two days as Japan raced to avert a radiation catastrophe at a quake-crippled nuclear plant northeast of Tokyo.

"In my opinion (the selloff) was a knee-jerk reaction," said GMP Securities mining analyst David Wargo of the sharp retreat by uranium stocks.

He added that positive news out of Japan would be a catalyst to bump uranium and nuclear industry stocks back up.

In the days since the deadly quake, fears over the worst nuclear accident since the 1986 Chernobyl disaster have battered the shares of companies that build nuclear reactors and produce the uranium that fuels them.

Industry giant General Electric (GE.N), which built two of the reactors at the disabled Fukushima Daiichi plant, closed down 1.4 percent on Tuesday.

Shares of U.S. utilities such as Entergy (ETR.N), NRG Energy (NRG.N), Public Service Enterprise (PEG.N) and Exelon Corp (EXC.N) also fell as the future of nuclear power in the United States came under scrutiny.

On the mining front, Canada's Uranium One UUU.TO tumbled as much as 21 percent to C$3.41, after UBS cut its target price for the stock to C$4.80 from C$6.70. The shares rebounded a bit to close down 13.46 percent at C$3.73.

Among other uranium producers, the Toronto-listed shares of Australia's Paladin Energy (PDN.TO) closed down 5.18 percent at C$3.48, while Denison Mines (DML.TO) fell 5.65 percent to C$2.34.

The Japanese nuclear crisis "is on the headline of every newspaper," Wargo said. "So, until that ends, the overhang on equities and the uranium market overall won't change."

GOOD BUYS

With uranium miners and nuclear industry shares down significantly over a two-day period, there are buying opportunities to be had, said analysts.

After Cameco fell 22 percent, investors saw their window and started snapping up Canada's top uranium producer, said John Kinsey, a portfolio manager at Caldwell Securities.

He noted that speculative buyers sold off stock on Monday, and then started buying back once it bottomed out.

"You get people that come in, sort of bottom-fishers, who feel 'well now we've got some value'," he said.

Analysts said that uranium producers that are tied to the spot market price will see a slower recovery than Cameco, which sells much of its uranium into long-term contracts.

Uranium One, which fell 43 percent over two days, and Paladin, which was down 30 percent in the same period, are both "sensitive" to spot market shifts. They were the top stocks by volume on the Toronto Stock Exchange on Tuesday.

The spot uranium price fell 9.8 percent to $60 a pound this week, its biggest weekly drop since the global financial crisis in late 2008.

BMO Capital Markets mining analyst Edward Sterck said the price could drop further as the impact of the nuclear crisis in Japan becomes more apparent, but he said he does not expect a serious fall.

"I can't see us pulling back to the lows of just above $40 that we had the mid-point of last year," he said.

(Additional reporting by Euan Rocha; editing by Janet Guttsman and Peter Galloway)

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