Friday, April 29, 2011
Hot Rocks Down Under
Uranium mining sector valuations are in a severe contraction following the crisis at
Japan’ nuclear reactor, making it timely to consider uranium stocks for growth portfolios. I believe the first place to look for uranium is “down under” in Fukushima . Australia
Next on our list is the real powerhouse behind
Australia’s uranium mining sector - Rio Tinto (RIO: NYSE ADR; RIO: AXS; RIO: LXS). Rio Tinto reported $56.6 billion in total sales in the most recently reported twelve months, providing $14.4 billion in net income. Like BHP Billiton, it is a widely diversified global operation, with production in aluminum, copper, diamonds, coal, iron ore, uranium, gold and industrial minerals. Although most of its production is from Australia and North America, the Company operates in more than 50 countries. Rio Tinto's uranium interests are located at two mines: the Ranger Uranium Mine in Australia and the Rössing Uranium Mine in . Through these two assets the company is the third-largest producer of uranium in the world. Namibia
For investors who want a more direct ownership in uranium mining, Rio Tinto’s partner in Australia, Energy Resources of Australia Ltd. (EGRAF: OTC/BB; ERA: ASX), is a true small-cap vehicle. Energy Resources reported a profit of $51.0 million on $636.3 million in sales in the most recently reported twelve months.
is a major customer. China
Rio Tinto owns two-thirds of Energy Resources shares but there is room for others to play. The company’s ADR in the
is currently trading near 52-week lows and offers a yield of 1.6% at the current share price. A beta near 1.00 is also appealing. Unfortunately, the shares quoted in the U.S. trade by appointment, making it necessary to trade on the Australian exchange to command a position of size. Analysts are expected a small profit in the year 2011, but have forecast a rebound in earnings next year. On a forward basis the stock is trading at 7.0 times 2012 estimates, suggesting that investors with an extended investment horizon and some patience could fare well in ERA/AU despite the added expense of investing in the Aussie dollar and exchange. U.S.
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.