Denison Mines Corporation: Buy while there is blood in the streets

Sunday, March 20, 2011 at 06:31PM

As the above chart shows the stock price of Denison Mines Corporation (TSX:DML) (NYSE AMEX:DNN) had been decimated largely due to the nuclear power plant problems emanating from Japan.

In weighing up the situation we are skeptical that this incident will be an Armageddon for uranium stocks and have therefore decided to purchase some Call Options on Denison Mines and they are the July 2011 series with a strike price of $4.00, for which we paid the princely sum of $0.15 per contract .

Denison Mines has been hit hard losing up to 50% of its stock price and now trades at $2.61, a price you would have jumped on before this incident. Now, we can wait and hope to get a lower price, which is possible as a lot is hanging on what happens to this nuclear power plant this week. Should the rescue workers get a grip of the situation then the downward pressure on uranium stocks should ease. If there is a massive explosion then uranium stocks will take it on the chin with stock prices going much lower. Of course it is a very hard call to make as the variables are extremely difficult to evaluate, however, we do see it as not only a problem, but also as an opportunity.

The time to buy is when there is blood in the streets and for this tiny sector the outlook appears to be fairly bleak. Uranium stocks have been sold off heavily and it may be a little early to be acquisitive so go gently with your purchases. As we see it the bad news is out and factored into prices. There will be a lot of rhetoric especially from politicians who are trying to hang onto their seats and who see this situation as an opportunity to pick up a few Green votes. Beyond that we believe that it will soon be business as usual and so we made this purchase.

We will continue to monitor the situation and look to seek out more buying opportunities in the near future.

This clip from The Telegraph demonstrates the trepidation that abounds at the moment.

Britain may scale back its plans to build a new generation of nuclear plants in the wake of the Japanese disaster, the Energy Secretary indicated on Sunday.

Chris Huhne said that the meltdown at Japan’s Fukushima nuclear plant had undoubtedly cast a shadow over the renaissance of the nuclear industry.

The Government has ordered an urgent review of the safety of Britain’s nuclear power plants, to be conducted by the chief nuclear officer.

The review will report in May.

In an interview on Sunday, Mr Huhne appeared to raise the spectre of scaling down or even abandoning the country’s new nuclear programme.

Despite being opposed to nuclear power before entering the Government he has recently been a cheerleader for the need for new plants.

However, he said on Sunday: I am not ruling out nuclear now. There are a lot of issues outside of the realm of nuclear safety, which we will have to assess. One is what the economics of nuclear power post-Fukushima will be, if there is an increase in the cost in capital to nuclear operators.

He added: Globally, this undoubtedly casts a shadow over the renaissance of the nuclear industry. That is blindingly obvious.

The Government has drawn up plans for five new nuclear plants with at least 10 new reactors over the next decade. The shift to nuclear is a key part of meeting Britain’s pledge of cutting carbon emissions by 80 per cent by 2050.

However, Mr Huhne said: We can do the 80 per cent reduction in emissions by 2050 without new nuclear, but it will require a big effort on carbon capture and storage and renewables.

As you can see these words are far from conclusive as the UK doesn’t have an alternative in our view. We regard this as nothing more then white noise so don’t let it blind you to opportunities in this sector.

Finally a quick look at the DNN chart where we can see that DNN has bounced a tad since being sold off heavily. The technical indicators are well into the oversold zone suggest a correction could be on the cards.

Denison Mines Corporation trades on the AMEX under the symbol of DNN and on the Toronto Stock Exchange as DML.

Market capitalization is $1.00 billion, average volume ranging from 2 -3 million shares traded, however it can spike by as much as 20 million shares, has a 52 week high $4.52, a 52 week low $1.08 and closed recently at $2.61.

So there you have it.

Many thanks to those of you who have recently signed up for our options trading service, its very much appreciated, a gentle reminder for those of you who are still thinking about it, the new pricing structure will apply as of 2nd April 2011.

Our model portfolio is up 138.05% since inception, Average return of 41.27% per trade, 67 closed trades, 65 closed at a profit or a 97% success rate. Average trade open for 43.21 days.

The above progress chart is being updated constantly. However, to see exactly how it is going, please click this link .

So, the question is: Are you going to make the decision to join us today, before we decide to cap membership.

Stay on your toes and have a good one.

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