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TheStreet Open House

These Mining Stocks Could Go Higher

By David Sterman

NEW YORK ( TheStreet) -- What's one of the hottest micro-cap stocks of the last three months? I'll give you a clue: it's a mining company that's stock tripled in value since mid-August.

But instead of mining gold, silver or platinum, this company digs something else entirely different out of the earth. If you guessed lithium, it's a good guess, but you'd be wrong.

The company in question, Uranium Resources (URRE), actually mines uranium, as you might guess. Uranium Resources' surging shares have company. Shares of Uranerz Energy (URZ) and UR Energy (URG) have roughly doubled, while most other uranium plays have also tacked on strong gains in recent months.

The surging stocks are the result of rising prices for uranium on the spot market. In late October, the radioactive metal tacked on a 10% gain in just one week to around $52 per pound. The question now is whether the rally can continue, or is a pullback the next move?

To understand the road ahead, you need to look back. Uranium slumped to a multi-year low of $40 per pound in June 2010. The key culprit for weak prices: Kazakhstan, which single-handedly altered the supply/demand equation for uranium by boosting production from 19 million pounds in 2008 to estimates of more than 40 million pounds this year. Much of that Kazakh production went straight to China, which has been stockpiling uranium in anticipation of a massive build out of its nuclear power sector, and the rest went to the open market, pushing supply ahead of demand.

China also explains why prices are rising now. The China-Kazakh long-term supply deal is winding down, and China has allegedly returned to the open market to buy even more uranium. Yet two factors will conspire for uranium prices to hit a ceiling in the near-term. First, China is building a backlog for future needs and is unlikely to pay much higher prices if it can simply wait for the supply/demand equation to change. Industry analysts think that's about to happen. Many high-cost mines were shuttered when uranium fell to $40 a pound, but would be brought back on line as uranium moves toward $60 a pound.

At this point, with few-near-term catalysts, uranium prices could be hit by profit-taking, likely creating a better entry point for near-term gains. You can track uranium spot prices at this web site.

A Solid Long-Term Play

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CCJ $13.87 -1.10%
URZ $1.10 -0.90%
URG $0.96 -3.00%
URRE $1.31 -0.76%
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