Streetwise Reports Cameco
Original Entry Price - $3.25 (reflects 3 for 1 split than 2 for 1)
Streetwise Company Fact Sheet 2023/5/20 3:04:03
(CCO:TSX - CCJ:NYSE)
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Cameco Corp. (CCO:TSX; CCJ:NYSE) is the largest publicly listed uranium producer by market capitalization and has had tremendous contracting success recently. In 2022, there were approximately 114 million pounds of total long-term contracts per UxC, and Cameco alone accounted for 80 million pounds.
The chart below, also from Sprott, shows the longer-term bull cycles in uranium.
We did extremely well with Cameco, buying it in 2000 and watching the stock split twice in the bull run up to 2007.
This gave us a buy price of US$3.25 and a 3.7% dividend yield. It has been on my Millennium index for 22 years, with my next longest pick there at 14 years.
It is currently about 1100% above our buy price, and that does not include dividends, but is Cameco a buy now?
This next bull run in uranium has much further to go, especially as nuclear energy is coming back in favor of the green push. Microsoft founder Bill Gates is behind developing smaller, cheaper reactors that could supplement the power grid in communities across the U.S.
Tennessee Valley Authority President and CEO Jeff Lyash put it simply: You can't significantly reduce carbon emissions without nuclear power.
"At this point in time, I don't see a path that gets us there without preserving the existing fleet and building new nuclear," Lyash said. "And that's after having maximized the amount of solar we can build in the system."
A recent poll released by the Angus Reid Institute found that 57% of Canadians who were surveyed would like to see further expansion of nuclear energy in the country. That's an increase from 51% support just a year and a half ago.
While 500 kilometers was an acceptable distance between one's home and a nuclear plant for 58% of respondents, 42% said they would not be comfortable with that proximity, according to the poll. This is an issue that small modular nuclear plants would fix.
Canada has four nuclear power plants — three in Ontario and one in New Brunswick. Bruce Power in Ontario is the biggest, supplying about 30% of Ontario's electrical needs. Cameco did own a 31.6% interest and sold that in 2014 for US$450 million.
In March, U.S. President Biden and Prime Minister Trudeau affirmed their intent to promote enhanced collaboration on nuclear energy and technology between their two countries.
On May 11, 2023, the Italian parliament voted in favor of bringing back nuclear.
The representative sample of 1,005 French people questioned online in January 2023 are 70% in favor of this low-carbon energy available in their country, while only 34% had an above all positive view of it when a previous edition of the study was conducted at the end of 2019. I could go on; interest in nuclear is climbing around the world. It is clear to see in this chart from Cameco's presentation.
These nuclear plants take many years to construct and cost tens of billions each. New smaller modular plants will soon add to this mix, and Cameco will benefit from that as well.
In April, Cameco announced it had extended its long-term exclusive nuclear fuel supply arrangement with Bruce Power (Canada's only private-sector nuclear generator) for an additional ten years to 2040. The agreement is estimated to represent an additional US$2.8 billion in business. Cameco also finalized its agreement with Energoatam, Ukraine's state-owned nuclear energy utility, ten to provide all of Ukraine's nuclear fuel needs from 2024 to 2036, estimated at 40-67 million pounds of U3O8 equivalent.
Finally, Cameco signed a ten-year supply contract with Westinghouse Electric Company to support Bulgaria's UF6 needs. Nuclear power accounts for more than 30% of Bulgaria's electricity supply, and with this agreement, Cameco will deliver an estimated 2.2 million KgU as UF6 (or 5.7 million pounds U3O8 equivalent).
Cameco is more a net buyer in spot markets than a seller. Pretty much all of their production is for long-term contracts. This still gives them exposure to higher prices and, at the same time, protection from lower prices.
They currently have 215 m pounds in long-term contracts going out over a decade. This graphic from their presentation shows their key producing assets with planned production for contracts.
Cameco sold 25.6 m pounds of uranium in 2022 at an annual average price of Cdn US$57.85.
In Q1 2023, they had very strong profits of US$119 million, more so than all of 2022 combined.
Cameco will also benefit from current and future geopolitical events, they point out. The global nuclear industry is reliant on Russian supplies for approximately 14% of uranium concentrates, 27% of conversion, and 39% of enrichment, the geopolitical realignment is also highlighting the security of supply risk associated with the growing primary supply gap and shrinking secondary supplies while increasing the focus on the origin of supply.
Nearly 80% of primary production is in the hands of state-owned enterprises, over 70% comes from countries that consume little-to-no uranium, and nearly 90% of consumption occurs in countries that have little-to-no primary production. In April, five of the G7 Nations, including Canada, the US, France, Japan, and the United Kingdom, announced an alliance to develop shared supply chains for nuclear power.
According to a joint statement, they have "identified potential areas of collaboration on nuclear fuels to support the stable supply of fuels for the operating reactor fleets of today, enable the development and deployment of fuels for the advanced reactors of tomorrow, and achieve reduced dependence on Russian supply chains."
The stock shows it had a great run. I believe there is great long-term value, but near and medium term, the stock might struggle. I am expecting another down leg in equity markets and looking at that time to add to positions or initiate one if you currently don't own the stock. That said, a break out above the US$40 resistance area could change my mind.
