TORONTO () -- Despite today's little wake-up call, the valuations currently being ascribed to a number of uranium exploration companies are dangerously out of whack with reality. Of course, a truism though this may be, the greater fool game of monetary musical chairs seems to be perfectly acceptable to market participants who are either married to these speculations or believe that smart timing will leave someone else holding the bag.
RI has been extremely successful with most of its uranium exploration names, but this has really had more to do with a rising tide than any kind of fundamental developments or progress, or even success through the drill-bit. It clearly doesn't help that meaningful news flow is hardly a regular feature of any of these companies, as drill programs are always months away and always take months to complete.
Today's mini-correction in the resource space should be seen as a reminder of how quickly things can turn and how quickly bids disappear, particularly for plays driven by little more than hype, hope and greed. Although just about everything is getting hit, uranium stories, and particularly the exploration shots are mostly down a minimum of 10% - for all of the cheerleaders that have been piling in at ridiculous valuations over the last few weeks, we hope that this hits home.
Not to pick on anyone in particular, but a few examples that come to mind were discovered early on by your correspondent and therefore serve to illustrate the point quite nicely.
Titan Uranium [TSXv:TUE] was to the attention of readers in June of 2005, when it was trading at 53 cents and had a market capitalization of only $6 million. At the time of writing, the stock is down a whopping 20% to C$2.33 a share today.
Pitchstone Exploration [TSXv:PXP] was in late October of 2005 at a price of 70 cents with a market capitalization of about C$15 million. Today, the stock is off about 15% to the C$4 level and has a market capitalization of about C$120 million.
While those are just a few examples of how the market is valuing most of these explorers, we cannot emphasize enough the need to enter these trades at cheap valuations. In that vein, we will endeavour to furnish readers with some cheaper uranium exploration names in the coming weeks.
The idea is that as long as the market is willing to bid up any company looking for yellowcake it makes sense to be long, but at the right price. In this market one only need be long at the right price to make money, whether or not the company ever delivers on a fundamental basis.
Investors should carefully review their portfolio to ensure that they are appropriately positioned to profit from this mania, rather than watch their portfolios plummet.
