Stock Preacher

Denison Mines Corporation (AMEX: DNN)

Denison Mines Corp. is an intermediate uranium producer in North America, with three active mines in the United States; mines on stand-by in Canada and the United States; development possibilities in Mongolia and Australia; and a late-stage project in Zambia, Africa.  The Company also manages the Uranium Participation Corporation (TSX:U), which invests in uranium and uranium hexafluoride.  Formally known as International Uranium Corporation, the Company is headquartered in Toronto, Canada.

Source: Reuters.com, SEC Filings.

Financial Summary

Analyst Consensus

The mean of thirteen analysts polled by Thomson Reuters rate shares of DNN a “Hold.”

Analyst Recommendations and Revisions

Source: Reuters.com

Investment Highlights

Uranium Market

Over the next decade, uranium prices are expected to be tied to the energy market.  Global electricity usage is anticipated to reach 22 trillion kilowatt hours in by 2020, according to Casey Research.  Increased power shortages in the United States and Canada leave few options to meet growing demand as the world leans heavily toward cleaner forms of energy generation other than coal and natural gas burnimg utilities.

Meeting this demand will increasingly point to nuclear energy as a viable solution, which has been the predominate source of electricity in France for more than two decades.  China appears to be the next major economy to adopt nuclear energy, with the People’s Republic planning for an average of two and a half nuclear reactors each year for at least then next decade.  Statistics show that despite concerns about safety and waste issues associated with nuclear power 20% of all electricity generated in the United States is derived from nuclear power, second to coal.

Demand for uranium came from the United States and the USSR during the cold war, with both countries amassing nuclear warheads by the tens of thousands.  The subsequent fall of the USSR, nuclear weapons reductions treaties, the Three Mile Island scare, and the Chernobyl disaster created a massive drop in demand for uranium and a plunging price of the commodity to $6.50 per pound.

Beginning in 2003, the price of uranium soared nearly 21 times in price to a record $136 per pound in June of 2007.  The price steadily dropped due to overbought conditions during the summer of 2007, and continued its sell-off following the Bear Sterns collapse and the realization that the credit crisis may push the global economy into economic depression.  In March of 2009, the price of uranium reached a multi-year low of $40, but since then has rallied back to $47 in mid-October of 2009.

The “green” movement and growing concerns surrounding evidence of peak oil production have substantially increased demand for uranium from China, which plans to build 30 nuclear facilities by 2020 in anticipation of short supplies of crude and other fossil fuels worldwide.  China is expected to allocate $50 billion to build its nuclear plants, with estimates of 40 gigawatts of electricity production available to facilitate its continued rapid economic growth.

The Iranian controversy not withstanding, the nations of the Middle East have announced their plans for nuclear power plants, as well.  Nations of the Gulf Cooperation Council have been negotiating with the companies from the United States, France , Britain and Russia to build nuclear power facilities.  Saudi Arabia, United Arab Emirates (UAE), Qatar, Morocco, Kuwait, Oman, Bahrain, Libya, Jordan, Egypt and Tunisia have all expressed interest in the development of nuclear power.  Because of security issues forwarded by Israel, some of these countries may have difficulty developing nuclear power sponsored by the West.  The Middle East region, however, is expected to be a source of growing demand for uranium.

Last year, Saudi Arabia and the UAE have signed agreements for nuclear technology from the United States.  France has signed cooperative agreements with the UAE last May and pledged to aid Morocco and Qatar in their pursuit of nuclear power programs.

France opened its first military base in the UAE, and has aggressively lobbied to secure a $40 billion deal for as many as six nuclear reactors with the third-largest oil producer in the region.

The uranium sector has grown faster than any other mining sector since 2003, but has received little mainstream media attention.  This may change as escalating fossil fuels prices return to challenge all-time highs in the future.  In the short-term, however, supply appears to be running ahead of demand.  The World Nuclear Association said supplies of uranium will exceed consumption by 3,012 metric tons next year, compared with short supplies totaling 2,029 tons this year.

The U.S. Dollar and the  Uranium Market

Since the majority of all oil transactions are conducted in the U.S. Dollar, the anticipated continuation of the Dollar’s decline will attract hedge funds and institutions into purchasing oil, natural gas, coal and uranium as a currency hedge to further declines in the Greenback.

As the Dollar reach record lows on the USD Index, oil and uranium prices were reaching record highs.  A re-test of the lows of the U.S. Dollar increases demand from institutional and hedge fund managers for oil and natural gas, as these markets are the deepest and most liquid in the commodities space.  The uranium sector will be among many beneficiaries of the bear market in U.S. Dollar as the demand for a substitution for high fossil fuels prices sources grow in demand and in price.

Recent News: Uranium Miners’ Shares Jump Following  BHP Report

On October 20, Reuters reported an apparent force majeure at the Olympic Dam mine in Australia, implying an imminent supply disruption in the uranium market and higher uranium prices.  Shares across the uranium space jumped on the news.

According to The Australian newspaper, the owner of the Olympic Dam mine, BHP Billiton, plans to contact its uranium customers to inform them of the anticipated delays in deliveries of the metal because of damaged equipment at the main shaft of the mine.

The Olympic Dam mine supplies approximately 10% of the world uranium market, and any disruption to the thinly traded uranium market may affect the spot price in the metal, and may prompt customers to seek alternative suppliers to meet delivery obligations.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui?s=dnn

DNN trades above its 13-day moving average. This bullish sign is less significant, however, because the 13-day moving average is trending downwardly.

The MACD for DNN currently indicates a bearish signal.  The MACD is below the signal line, a 9-day moving average.  The MACD is above the critical level of 0, which implies that the underlying moving averages are trending higher.  Overall, the chart is neutral, with the recent past pattern indicating a consolidation.

Comparative Analysis

Source: Thomson Financial

Insider Trading Activity

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