Uranium Energy drops on ‘unfounded allegations’

Uranium Energy (NYSE-MKT: UEC) shares have plunged more than 30% since a negative blog post about the company triggered an investigation by two New York-based law firms of the Texas-based firm, leaving at least one analyst baffled.

Cantor Fitzgerald analyst Rob Chang, who has covered Uranium Energy since December 2013, says he’s taken aback by how a previously unknown blog, TheStreetSweeper.org, is the source behind the investigations.

“I am surprised at how much weight the biased opinions of anonymous writers can have. Legal actions based on one blog that also disclosed that it has a short position does not seem sufficient grounds to initiate an investigation,” Chang said in an emailed response to The Northern Miner.

The article, published on June 18, opines Uranium Energy will see gloomy days ahead for several reasons, including that it has made “zero sales in the past seven quarters” from its sole uranium mine, Palangana, in South Texas.

However, curbing production in a sector with low spot prices and oversupply has been common among uranium miners since the Fukushima disaster in 2011.

The article points out that Uranium Energy recently added US$3 million to its cash position by selling a large part of its inventory. It claims that the company has little means of generating more revenue and may have trouble staying afloat if the outlook for the uranium market doesn’t improve.

This prompted New York-based legal firms Pomerantz LLP and Bronstein, Gewirtz & Grossman LLC to initiate separate investigations on June 19. Both firms have cited the blog post in their initial releases, calling for Uranium Energy investors to contact them.

Uranium Energy says the investigations have “absolutely no merit” and rely on “unfounded allegations made by a third party whose motives are questionable.”

The junior said it “will not comment further on the possibility of groundless, frivolous litigation.” Uranium Energy is looking at seeking “legal and equitable relief” for any damages it and its shareholders have suffered.

Commenting on the firm’s move to sell much of its uranium inventory, Dundee Capital Markets analyst David Talbot says it was rational and that the company reported the sale. “UEC never said it wouldn’t sell uranium, but only wishes to remain 100% unhedged. The business model has not changed.”

Talbot says he treats Uranium Energy as a developer with a solid project pipeline, and that the company is doing all it can during a uranium downturn, including shelving production, conserving cash and preparing projects “for better days,” among other activities.

The stock, which is set to join the Russell 3000 and the Russell Global indexes, closed June 19 at US$1.80, falling US80¢ per share over two trading days.

Talbot sees an opportunity in the share price drop, and has a “buy” and US$4.60-per-share target. Chang also has a “buy” recommendation on the stock, with a US$3.10 target.

On June 23, the firm announced a US$10-million financing to strengthen its balance sheet.