Call me mean, but I'm going to take a "kick 'em while they're down" approach to Uranium Energy
The uranium miner's report highlighted some positives, including the company's balance sheet, which sports $33.2 million in cash with zero debt. Also of note, Uranium Energy produced 49,000 pounds of triuranium octoxide from its Palangana mine in its first full quarter of operations. Adding to the 21,000 pounds Uranium Energy had prior to this quarter, the company now has a stockpile of 70,000 pounds of triuranium octoxide.
But remember that whole kick 'em while they're down approach I mentioned earlier? Well here it comes ...
Avoiding a meltdown
Despite the remarkable production, the company hasn't yet secured a contract to sell any of its uranium. While uranium prices vacillate between $55/lb and $60/lb, Uranium Energy is essentially forced to sit on a stockpile of product that it simply can't move. Also keep in mind that the company is competing against larger rival Cameco
Also consider the recent decision by Germany to discontinue the country's nuclear program by 2022. This decision doesn't send shockwaves just through nuclear reactor builders Siemens
Since the Japan earthquake, spot prices for uranium have taken a big hit, with prices falling by roughly one-quarter of their pre-earthquake value. This could bode poorly for the entire sector, given that the uranium sector relies on the large margins associated with a steadily rising uranium spot price to cover its rather high production costs. Not only is Uranium Energy struggling to sell its product, but the price of its product has been steadily contracting for three months.
Luckily for Uranium Energy, other sector rivals, like Uranium Resources
As a whole, the uranium sector looks like it's poised for more pain after the situation in Germany. Only a strongly positioned company like Cameco looks to be in good enough shape to weather a protracted downturn. While Uranium Energy's balance sheet gives shareholders ample time to expect a turnaround, I simply don't see the light at the end of this tunnel.
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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that doesn't glow in the dark.