The Japanese government has come out with a new draft energy plan that will erase its post-Fukushima “escape from nuclear” declaration. The new draft energy plan describes nuclear power as an “important source of electricity for Japan”. After the 2011 disaster, Japan began to depend on more imported fossil fuels to make up the energy shortfall.
There is also the recent election of a pro-nuclear governor who has the backing of the Japanese Prime Minister. Combined with a population that is becoming more comfortable with nuclear power, this has led to the shift in energy policy.
For companies like Cameco (TSX:CCO)(NYSE:CCJ), this announcement closes the book on several years of uncertainty in the nuclear market. Prior to the Fukushima disaster, Japan was the third largest user of nuclear power, and nuclear power makes up 30% of the nation’s power grid. When Japan initially showed signs of a disinvestment in nuclear energy, uranium prices plummeted nearly 50%. This turn around will most likely raise the price of uranium, which could help erase a lean 2013 for Cameco.
So much for lower demand
Back in early February Cameco announced that it would be scaling back on its projected uranium output of 36 million pounds by 2018 to 24.3 million pounds. Cameco originally cut back its production numbers because of declines in demand, as the market became oversaturated with the drop in Japanese consumption.
This news from the Japanese government may force Cameco to revaluate its production numbers as the days of uncertainty appear to be ending. It is estimated that Japan will begin to reactivate up to six of its reactors by the second half of 2014, a small step to reactivating the country’s 50 available reactors.
Foolish bottom line
The markets were quick to react to this draft energy plan, and Cameco’s stock has climbed from $23.49 before the announcement to a closing price of $26.81 on Friday. The potential growth for Cameco could be compounded as this energy plan becomes policy.
BMO Capital Markets has assigned an “outperform” recommendation for Cameco in light of this news. Another positive factor is the growth of nuclear power in China, which is expected to grow from 18 gigawatts to 59 gigawatts in the next six years.
Further, uranium prices are expected to jump dramatically from its current price of U.S.$35.50 per pound to a forecasted U.S.$56 per pound by 2015 — and Cameco’s profits should head up too.