Denison Mines (DNN or DML-T)

[Churchwork]

Denison Mines chart. I expect this stock to go up from 1.19 to over $4 within 24 months.

Why? Because we are still in a commodities boom. And because the price to book on this stock is 0.3.

It doesn't get cheaper than that. This is the second largest uranium producer in Canada, and Canada 1st or 2nd largest producer of uranium in the world.

[Churchwork]

Denison just made the largest uranium discovery in Canada in years. That's why it popped to $2.90. I still think it should be at least over $4 by the end of 2010, because oil is moving up in the middle of a depression and the shortfall of uranium supply to meet demand is amazing with no major supply coming online anytime before 2013. Plus Russia might want to hold onto a few more nukes than originally anticipated because the world is heating up over oil. If for no other reason than they need the uranium for their own nuclear power plants and it is such a cheap price at $50.



I don't usually following charting, but this is as nice a chart as you can ask for on increased volume. If it takes off, it will be anticipating the price of uranium to be $75 to $100 within the next 12.

I haven't found Jim Dines to be wrong yet. He is calling for uranium plays to be the next big move. He was the lone voice last time, and I have never heard him so confident as he is this time.

It's a no brainer really. The commodity and energy boom is far from done with 7 billion people on the planet and we are past the Hubbert's peak curve for oil of using up half the world's 4 trillion barrels of oil.

[Churchwork]

“Frequently, something out of the blue like this, an extraordinary event, really creates a buying opportunity. I have seen that happen in the United States, I have seen that happen around the world. I don’t think Japan will be an exception” – Warren Buffett, March 21, 2011.

The world needs nuclear as part of its energy solution. Renewables are preferable, but can't currently fill the gap on their own due to storage and transmission constraints. Lady Judge points to nuclear being the only energy source that addresses all three major energy concerns: 1) Security: is there enough? Nuclear plants can be built to the size needed. 2) Dependence: where is it located? Nuclear plants can be built where they are needed, without having to transport fuel across borders. 3) Climate change. There is no alternative to nuclear if the world wants to meet its carbon emission targets.

(All calculations in Canadian Dollars unless stated othwerise)

All the proposed uranium mines will not come online for the next several years and will not be that profitable if uranium goes under $60 so they will delay them. Just like silver several years ago had two massive mines of 50 million ounces shut down causing a shortage of supply, 8 of the 10 largest uranium mines shut down in 2010 permanently because their resources were run out. Juniors apparently are finding it hard to finance their projects, so existing producers have it good right now. My thinking is Dominic Frisby's article on March 31, 2011 is the thinking of an American, but Americans are irrelevant to the Uranium story. That is not where the growth comes from so it doesn't matter what some girls and boys think at a luncheon table next to him that he overheard. It's what those students in China and India and Russia and Indonesia and Brazil think who are desperate for energy. Obama is pushing forward uranium in USA anyhow. The youth have no impact in the nuclear renaissance. Who is going to make up the energy shortfall if not uranium? There is nobody, there is nothing that can satisfy the demand but nuclear and thorium power plants.

Warren Buffet says this is a great buying opportunity with so much fear in the uranium sector. He says every time he knows of in history from such exogenous events when there was this kind of sentiment it is time to buy. Jim Rogers admits he is a bad timer and he says it is an opportunity, but he wants to wait a year or so before entering as he says these things take time to play out. But he did say the demand picture for uranium is not going away so he is contradicting himself and caught up in the fear. He believes the demand picture for uranium is very positive! These are billionaires. I go with the smart money. But Buffet is richer than Rogers by far.

Of all the commodities, the most depressed is uranium. Watch for the price of uranium to spike to levels far and above other commodities.

I smell Frisby's fear. If he were touting uranium positively I would be fearful, but because he is fearful and rationalizes his reasons, I am greedy. I like being long what everyone is afraid of, especially kids who have no money and those who take their advice. When I read Frisby's article the key point I thought he missed was the large mines that will be coming online are still 5 to 10 years away, and if they didn't come online the supply shortage for uranium would be horrific along with oil over $200. The reason why the oil sector is not as good as the uranium is because units of production will continue to go down for oil, but uranium price and demand will increase exponentially.

Fact of the matter, demand will be 200 million pounds very soon and we are still only producing 154,000,000. Since all those mines Frisby is talking about are not coming online anytime before 2016 to 2020, the next 5 years should be great! And with capacity of every plant ever increasing, expect 200 million pounds per year to be a low ball estimate. With hundreds of plants right now being planned and 65 plants being built right now and many to be online soon, the operators purchase 3x as much uranium as they would normally need to start up the plant and they do it 5 years before the plant opens. Get the picture? Since the cost of uranium itself is less than 5% of a uranium plant's variable expenses, uranium like a hockey stick could shoot up in price to $120 or $180 with no significant material impact. Think of the profits to be had with uranium at $180 and costs down at $50.

For example, Denison Mines would have a profit of $650 million on 5 million pounds (they will be able to produce as much as 10 million per year by 2020). 650 million divided by equity of 867,000,000 = 75%. That's a 75% return on equity. Unheard of! That's earnings of 650,000,000/385,000,000 shares = $1.69 per share. The shares currently trade at $2.30 with a book value of $2.30. The Future PE is 2.30/1.69 = 1.36x. A normal PE in this very profitable environment might be 18x so 18 x 1.69 puts the stock price at $30.42. That is more than a 13 fold increase. You would be set for life. Currently the price to book value is 2.30/2.30 = 1x. It doesn't get much cheaper than that consider the average price to book value of stocks on the S&P 500 are trading near 2.50x. It would take over a decade to get the price to book value to get down to that of Denison Mines. At the previous peak of about $27 in US Dollars the book value was about $4 so that was a 7x price to book value. Right now the price to book value is 1x. If it were to shoot up to 3x the price of Denison today could be 2.30 x 3 = $6.90 a 200% return.

A low interest rate environment is great for nuclear power plants.

Lastly, I was trying to calculate the loss of demand for uranium due to the plants closing down for the Japan accident (first time in history Japan experienced a 9 magnitude earthquake, largest it experienced was 8.4, first time an earthquake of that magnitude hit the pacific in 1200 years, and the Fukushima plants prevented a much worse disaster). One had already been shut down for maintenance. It appears 2 were already shut down in Germany so the 5 temporarily shut down will be back online June 11, 2011. 3 months of lost demand in relatively small plants is not that much. The extension of their plants by 12 years is not going away and will be reinstated by June. A nuclear summit held in June will reflect positively so I expect June to be the final bottom at the latest. The bottom for uranium stocks has been reached. I expect Cameco to remain above $30 permanently (currently at 28) and Denison to remain above $2.50 very soon (currently at 2.30). Even if the stock price were to remain at such depressed levels that's still a better return than the overall stock market or bonds.

Only 4 of the 11 plants in Japan are offline; one was slated to be shutdown this year anyway; they are very old and very small plants so their impact is small. All the rest are online or will be back online shortly. One analysts noted the net loss in demand is nothing because all the uranium exploration companies out there are going to be curtailed due to lack of financing for them. So we are talking 3 months lost demand in a few small plants. No big deal! And interestingly, demand for the next 12 months is not impacted since this temporally lost demand for a couple months does not impact immediate sales so that's why uranium shot back up to 62 from 50. The long term price remains at 73 which is only 22 off the all time high of 95.

I expect within days the spot price will head back up to 70 and higher, and the long term price will make an all time new high so expect a pop in uranium stocks soon.

All the rhetoric is actually quite irrelevant. In the business world, business is as usual! I like watching Alex Jones but he such a nut, such an extremest even though much of what he says is true. Taking iodine in in USA is ridiculous and Fukushima is not a meltdown just some leakage in some spent rods. The containment if it was breached would produce Chernobyl or Three Mile Island results.

[Churchwork]

Obama said 100% of all vehicles in the government fleet by 2015 will use alternative fuels for electric cars. Electric cars need nuclear power since natural gas and coal are too polluting. The tax on natural gas and coal will continue to go up and up making them less profitable than nuclear. The units of production of coal and natural gas will go down or remain stagnant, while the units of production of uranium (and later thorium) will go up.

More units of production increase economy of scale.

[Churchwork]

Comparing Deaths.