Don't Expect Uranium Frenzy to Resume

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The S&P/TSX composite index is down 11%, uranium spot prices have fallen 23%, but uranium equities have fallen 54% from their respective 52-week highs.

The S&P/TSX composite index is down 11%, uranium spot prices have fallen 23%, but uranium equities have fallen 54% from their respective 52-week highs. This re-rating has brought uranium stocks back to perspective, notes Wellington West's Leonie Soltay.

Despite the sector pull back, the uranium cycle is far from over, the analyst said in a note to clients, pointing to rising nuclear power capacity in places like China, India and Russia. While TradeTech's spot price indicator remained at US$105 per pound last week - after falling substantially in previous weeks - Wellington's forecast for 2008 remains at US$97, with a long-term target of US$50.

Peaking at US$136 per pound at the end of June, spot uranium helped fuel a 172% average jump for equities since the start of August 2006.

Falling short-term demand and excess supply has helped bring down uranium prices, but the sell-off of global equities is only making things worse for stocks in the sector. "The simultaneous pullback in uranium equities indicates that fund selling is responsible, underscoring the vulnerability of the market to a loss of confidence by investors," Ms. Soltay wrote.

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