Shareholders of uranium exploration company Summit Resources Ltd (Australia) (ASX: SMM) have certainly had a great start to the year.
Following the 60% jump in its share price to 64.5 cents yesterday, Summit Resources shares have now provided shareholders with a whopping year-to-date return of 616%.
What caused the incredible rally?
In 2016 uranium was the worst-performing commodity. Due largely to the shutdown of nuclear reactors in Japan, a subsequent oversupply of the metal led to prices to tumble 41% to a 12-year low of US$18 a pound.
But with Japan set to bring a number of its nuclear reactors online this year and major Kazakhstan-based uranium producer Kazatomprom cutting production by 10% in 2017, uranium prices have started to recover.
According to management the uranium spot price was US$26.50 yesterday, approximately 45% higher than its low in mid-December.
Unsurprisingly fellow uranium producers Paladin Energy Ltd (ASX: PDN) and Energy Resources of Australia Limited (ASX: ERA) have also rallied strongly this year. Year-to-date their shares are up 80% and 68%, respectively.
Should you invest?
An investment in Summit Resources is too high risk for my risk profile. Whilst I still think uranium prices could yet go higher, I feel this has been priced into the company’s shares already.
This could put its share price at risk of a severe drop in value should further improvements in uranium prices fail to materialise. I’ll keep a close eye on the company, but I won’t be investing at this point in time.