Will Cameco Corporation Be the Next Silver Wheaton Corp.?

Silver Wheaton Corp. (TSX:SLW)(NYSE:SLW) shares fell by nearly 12% in one day, all because of tax issues. Will Cameco Corporation (TSX:CCO)(NYSE:CCJ) suffer a similar fate?

| More on:
The Motley Fool

Shareholders of Silver Wheaton Corp. (TSX:SLW)(NYSE:SLW) got a rude awakening on Tuesday when the company’s shares fell by nearly 12%. The steep drop came because of tax issues—Silver Wheaton pays practically no tax thanks to its subsidiaries in the Cayman Islands and Barbados. And it now looks like the Canada Revenue Agency (CRA) is really coming after the company.

This episode has taught investors some valuable lessons. One, it’s important to diversify. Two, you rarely want to bet against the tax man.

So, with that in mind, are there any other companies that could suffer a similar fate? The answer is a strong yes.

Cameco and the tax man

Cameco Corporation (TSX:CCO)(NYSE:CCJ) is one of the world’s largest uranium producers, holding some of the world’s highest-grade deposits in Saskatchewan. Yet during a six-year period ending in 2012 Cameco’s Canadian operations racked up a cumulative $1.3 billion in losses. Meanwhile, over the same period, the company’s Swiss subsidiary recorded $4.3 billion in profits. What exactly is going on?

It all dates back to 1999. Cameco set up a subsidiary in Luxembourg, eventually moving it to a low-tax jurisdiction in Switzerland. It then entered into a 17-year contract with that subsidiary, one that would see Cameco’s Canadian operations sell its uranium to its Swiss subsidiary. The price per pound would be fixed for the entire time and “reflected market conditions,” as put by CFO Grant Isaac in 2013.

Here’s where the plan benefits Cameco: the uranium price was severely depressed in 1999, and the company’s executives thought this price would rise. They were absolutely right. As a result, Cameco’s Canadian operations began selling uranium for below-market value, resulting in losses. Meanwhile, the Swiss subsidiary was able to buy at below-market prices, ensuring big profits. These big profits faced minimal taxes.

The CRA began investigating Cameco as early as 2006, and has already reassessed the company’s tax obligations. Cameco is fighting the CRA in the courts, and the outcome is still very uncertain.

How big of a deal is this?

If Cameco loses its case, the company estimates it would owe roughly $1.5 billion in back taxes, plus some additional penalties.

To put this in perspective, such a penalty would be worth roughly $4 per share. Even worse, Cameco only has about $600 million in cash on its balance sheet, although the company claims that any penalties could be paid over time.

Here’s the good news: Cameco may have to pay nothing at all. The company claims it has done nothing wrong, so we’ll just have to see what the outcome is.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned. The Motley Fool owns shares of Silver Wheaton. (USA). Silver Wheaton is a recommendation of Stock Advisor Canada.

More on Metals and Mining Stocks

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Stocks for Beginners

Cameco Stock and More: 3 TSX Commodity Titans to Watch in 2024

Cameco stock and these others will provide you with growth that goes beyond just a year or two, with all…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Stocks for Beginners

3 Reasons to Buy Lundin Stock Like There’s No Tomorrow

Lundin stock (TSX:LUN) has been killing its production of copper and plans on blowing its records out of the water…

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

Gold bars
Metals and Mining Stocks

Will Gold Stocks Rally in 2024?

Down almost 30% from all-time highs, Franco-Nevada is a gold mining stock trading at a discount to consensus price target…

Read more »

A miner down a mine shaft
Stocks for Beginners

Canadian Mining Stocks: Buy, Sell or Hold?

Canadian mining stocks have seemed like such a strong investment, but with shares down significantly this year, what should we…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Great News for Gold Stock Investors!

Gold has hit an all-time high! Which is good news for some gold stocks, and really good news for others.

Read more »

Gold bullion on a chart
Metals and Mining Stocks

If Gold Prices Continue to Climb, These 3 Stocks Could Skyrocket

Market certainty and geopolitical tensions typically enhance the demand for gold, and this rise is reflected in a wide range…

Read more »