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    Junior Market Shows Some Efficiency

    By David J. DesLauriers
    26 Oct 2006 at 02:56 PM EDT

    TORONTO ( -- The junior market is rarely efficient, which is precisely why there are many mispriced securities out there that represent bargains, or overvalued dogs waiting to crash. It is the lack of efficiency in Canadian junior markets that allows those who know what they are doing and have a nose for value, to make multi-baggers in 12-24 month time frames. This gradually occurs as others see what you saw, and which, by the time Joe Six-Pack gets involved, has probably become glaring and obvious.


    A couple of days ago when Cameco [NYSE:CCJ; TSX:CCO] announced delays at Cigar Lake, it was remarkable to see the small number of better known, larger uranium players listed in Canada instantly jumped 10% as Cameco was dropping by 10%. In no particular order, International Uranium Corp. [TSX:IUC], UEX Corp. [TSX:UEX], Paladin [TSX:PDN], SXR Uranium One [TSX:SXR], Ur-Energy [TSX:URE] and UrAsia Energy [TSXv:UUU] all did very nicely.

    The gains didn’t trickle down to the smaller uranium companies, most of which are explorers, which is probably fair enough.

    Will the Gains Hold?

    The fact is that the price of uranium goes up almost every week, and the companies that saw their share prices rise won’t likely be making large adjustments to their production outlooks based on Cameco’s misfortune.

    Nevertheless, Cigar Lake was slated to produce a very meaningful double-digit share of global uranium production, something which will probably still happen, just with some delay.

    It is telling that the Uranium Participation Fund [TSX:U], which essentially tracks the price of uranium, jumped 20% in two days on the back of Cameco’s news. This may indicate that the next uranium price quote which is published, will see yellowcake in the mid $60 range per pound.


    Shares in the aforementioned so-called near-term producers (more likely for some than others) have continued to rally, while Cameco has not recovered.

    If Cameco were to bite on just one of these producers, maybe Paladin or UrAsia, the whole sector would go nuts.

    As it is, if gains continue to hold, then the uranium market even for the juniors may well be on its way back again, and it may be time for investors to re-load some of their favourite names, which are not as core as the near-term production bunch.

    Indeed, as fellow RI correspondent Michael DesLauriers noted in August, “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.”

    And just two weeks ago, RI stated: “It is RI’s firm conviction that uranium names will have their turn again soon, as investors rotate back into the space, and that when that time comes, battered quality names will receive the majority of lift.”

    That has now happened, or is beginning to happen. Next to go will be quality junior names with high-impact potential and first-class sponsorship.


    There will likely be more action to come in the near-production names before the juniors start to move. When they do however, because the majority are at or near their 52-week lows, some very good money will be made. This calls for a watching brief.
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