Cameco Is Not a One Quarter Story

Cameco shares dipped after announcing quarterly results. However, it’s important to keep the big picture in mind when evaluating this company.

| More on:
The Motley Fool

Cameco (TSX:CCO,NYSE:CCO), the uranium juggernaut, announced its Q4 and full year 2012 results this morning and shares were trading down by more than 4% at one point.  Guidance for the first quarter of 2013 was disappointing due to lower expected uranium sales volumes and lower electricity generation out of Bruce Power.  In addition, the company is in a tax spat with the Canada Revenue Agency (CRA).  Perhaps these were the rationale for the stock’s soft open, however, Cameco’s tale is bigger than these rather insignificant issues.

Cameco owns some of the largest, lowest cost uranium reserves in the world.  The supply and demand of uranium dictate the company’s prospects.  Nuclear energy drives uranium demand.  Nuclear energy has been through a rough patch in recent years due to the Fukushima disaster in Japan.  Long-term however, the supply/demand balance appears very favourable for Cameco.

Several key supply/demand updates were provided in Cameco’s quarterly release.  It is here that investors should be focused.

Supply

  • At the end of 2013, 24 million pounds of annual uranium supply will be removed from the market with the expiration of the Russian Highly Enriched Uranium Agreement (HEU).  To put this into context, Cameco, one of the world’s largest producers, expects to produce 23 million pounds in 2013.  The removal of the Russian supply is significant.  The HEU was a 20 year agreement signed back in 1993 by the U.S. and Russia that mandated Russia to convert 500 tonnes of nuclear warhead uranium to nuclear fuel.
  • Throughout 2012 there was a great deal of new uranium supply that was either deferred or destroyed.  Simply, the uranium spot price is currently well below the level where new projects are economic.

Demand

  • The Fukushima disaster in Japan has caused significant issues with the demand side of the uranium equation, as has a general economic slowdown across the globe.  Cameco highlighted two encouraging developments out of Japan.  First, a new Nuclear Regulatory Authority is now in place to draft safety standards that will be used to evaluate reactor restarts.  In addition, the recently elected Liberal Party has a positive history of being nuclear friendly.  Nuclear energy is expected to play a role as they attempt to turnaround the Japanese economy.
  • Cameco now expects total world nuclear generating capacity of 510GW by 2022 vs. 392GW today – average annual growth of 3%.  64GW are currently under construction.  The company compares the growth outlook for nuclear energy to that of the 1970’s when the likes of France, Germany, and the U.S. were building out their nuclear energy programs.

The Foolish Bottom Line

In many ways, Cameco shares a story that is similar to its Saskatchewan based neighbor, Potash.  While both face short-term uncertainties, the supply/demand outlook for their respective industries line up very nicely for these two global leaders.  Cameco’s quarterly results will fluctuate, but the long-term trajectory for this company seems very positive.

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Iain Butler does not own shares in any of the companies mentioned in this report at this time.  The Motley Fool has no positions in the stocks mentioned above.

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.

More on Investing

Canadian Dollars
Stock Market

Where to Invest $5,000 in April 2024

Do you have some extra cash to spare? Here are five companies to invest $5,000 in next month.

Read more »

Plane on runway, aircraft
Stocks for Beginners

Up 53% From its 52-Week Low, Is Cargojet Stock Still a Buy?

Cargojet (TSX:CJT) stock is up a whopping 53%, nearing closer to 52-week highs from 52-week lows, so what's next for…

Read more »

Question marks in a pile
Bank Stocks

Should You Buy Canadian Western Bank for its 4.8% Dividend Yield?

Down 35% from all-time highs, Canadian Western Bank offers a tasty dividend yield of 4.8%. Is the TSX bank stock…

Read more »

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

tsx today
Stock Market

TSX Today: Why Record-Breaking Rally Could Extend on Thursday, March 28

The main TSX index closed above the 22,000 level for the first time yesterday and remains on track to post…

Read more »

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 »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »