Cameco Corp.
(CCO-T, CCJ-N) C$37.25 | US$27.49
Uranium Contract Book at 7-year High
Event
We have adjusted our model to reflect Q1/23 results.
Impact: POSITIVE
On average, over the next five years, CCO has 26 million pounds of uranium under long-term contract, the highest level the company has achieved in seven years — and a 5 million pound increase relative to what the company reported with Q4/22 results (Exhibit 1). The q/q increase reflects the addition of the Ukrainian and Bulgarian contracts that were announced over the past several months. CCO reported that it now has 215 million pounds of uranium committed under long-term contracts (an increase from 180 million pounds reported with Q4/22 results) and more than 70 million kgU of UF6 conversion services with deliveries spanning more than a decade.
With its long-term uranium contract book now in good shape, we should expect the pace of new contracting to moderate somewhat. CCO can afford to be selective and match forward contracting with its production profile. At 26 million pounds/year covered over the next five years, the contract portfolio exceeds or matches CCO's attributable annual production, including its equity share of production from Inkai, for the next several years. CCO can continue to grow its contract book and match that with increased production capability from McArthur River (capacity can be increased to 25 million pounds per year from 18 million pounds currently, on a 100% basis) and/or extend the production life at Cigar Lake beyond 2031. In our view, CCO's production optionality to expand brownfield production into a growing nuclear fuel market is one of its greatest strengths.
TD Investment Conclusion
We are maintaining our ACTION LIST BUY recommendation; our target price has increased slightly to $51.00 (from $50.00). We agree with CEO Tim Gitzel's comments in the Q2/23 report that "I am not sure there’s ever been a better time to be a pure-play investment in the growing demand for nuclear energy". CCO noted that although it is having success adding to its contract portfolio, the overall industry has not yet achieved replacement rate contracting; so future uncovered requirements continue to grow.