Declines among uranium producers - correction or trend change?

Yesterday we observed one of the most dynamic sessions among companies producing uranium, the raw material that is the basic component of nuclear fuel. However, the market still lacks information on what could have been behind such a sudden big sell-off. Currently, prices of uranium companies in pre-session trading are at yesterday's closing levels:

• Yesterday, the share prices of the largest 'western' uranium producer Cameco (CCJ.US) slid nearly 10%, the biggest loser was the US producer Uranium Energy Corp where declines reached nearly 17%; 

• No fundamental information was released yesterday that could be behind such a drastic decline, so some long-term investors may interpret it as a correction in the growing upward trend and look for opportunities to increase positions.

• The uranium sector is still characterized by very high volatility, and a significant number of companies have not yet started mining and are waiting for permits. Fueling the declines may have been the weakened investor sentiment around energy companies yesterday;

• Shares of uranium companies have recently enjoyed dynamic valuation increases due to changes in energy policy in Europe and the US caused by the Russian invasion and CO2 reduction policies. At the same time, China and India, where a total of over a dozen reactors are currently under construction, intend to expand their reactor fleets;

• The U.S. administration announced yesterday the bailout of six nuclear reactors that were scheduled for closure. Due to the difficult situation on the energy market and the efficiency of nuclear power plants, the US authorities are changing the somewhat restrictive policy towards nuclear energy after Chernobyl and Fukushima. The advantages of returning to nuclear energy were emphasized, among others, at the world climate forum COP26, which was attended by almost all significant world leaders, politicians and representatives of the energy sector;

• U.S. uranium producers, the largest of which is Uranium Energy Corp, have surged in the face of the Biden administration's contemplated embargo on Russian uranium and the listing of uranium as a strategic resource within the National Uranium Reserve. Uranium transported and enriched in Russia in recent years has accounted for the bulk of U.S. supplies while there has been a lack of domestic production of the resource, despite rich deposits in the states of Wyoming or Texas;

• Uranium Energy Corp announced yesterday that it has secured physical delivery of 400,000 pounds of uranium under a program through which the company already has 5 million pounds of hedged feedstock at an average price of $38 per pound. At current uranium prices in excess of $65, this gives the company a strategic reserve and nearly $125 million in unrealized profit. The company does not intend to sell physical raw material at this time because it expects higher valuations;

• UEC in 2022 completed the acquisition of Uranium One Americas for nearly $120 million in cash. This was both the largest acquisition in the history of uranium companies in the US. This gave the company access to seven projects in the Powder River Basin. Three of these are already fully permitted and another five in the Great Divide basin. These areas contain exploration and production development programs. Additionally, a report to the SEC was released 2 weeks ago reporting that UEC has reached record deposits in Wyoming;

• A portion of UEC's mining projects may be pursued using the 'in-situ' uranium ISR mining method, which is considered the most efficient and cost-effective for both producers and buyers. To date, the world's largest company in terms of raw material production, Kazatomprom (KAP.UK), has had access to huge uranium deposits where the raw material has been extracted using ISR for years. A small stake in Kazakh mines is also held by Canada's Cameco, which will report Q1 2022 financial results on May 5.

Uranium Energy Corp (UEC.US) chart, H4 interval. The stock has risen nearly 150% at the peak since the breakout, but yesterday it experienced a dynamic sell-off that pushed the price close to the psychological $5 level, where the trend line is located. The company's share price has often had problems crossing the $5 mark in the past, and the highest trading volumes occur in this area, so we can consider this level as support. The declines stopped yesterday at the Fibonacci retracement level of 38.2, which coincides with the closing price of $5.10. The opening below this price may deepen further discount towards $4.20 and herald a longer correction in the dynamic upward movement. On the other hand, an upward session may mean that the dynamic trend may continue in line with the forecasts of analysts who have recently raised their target prices for uranium companies. Source: xStation 5