The Motley Fool

Billionaire George Soros Bought $45 Million of Cameco Corporation; Should You Buy, Too?

It’s one of my favourite ways to invest in the Canadian resource sector — and apparently legendary investor George Soros agrees with me.

The company is Cameco Corporation (TSX: CCO)(NYSE: CCJ), the world’s largest uranium producer. Its key asset, McArthur River, is one of the largest and highest-grade mines in the world. It alone accounts for more than 10% of the industry’s output.

Cameco is an unusual bet. As anyone who has been following the industry can tell you, the past six years have been hard on uranium miners.

Uranium prices collapsed between 2007 and 2010, where spot rates fell as low as US$40/lb. Then Japan’s Fukushima nuclear disaster hit in early 2011. Prices took a second leg down as the country scrapped its atomic energy program. Just take a look at the chart below.

As you can see, uranium has been the world’s most despised commodity ever since. Only a few months ago, prices hit a nine-year low. But that’s about to change.

uranium

Source: IndexMundi.com

Today, uranium trades at US$36/lb. However, the average cost to produce one pound of uranium is more than twice that — about US$75/lb. Miners are hemorrhaging money.

That can’t last. Large players will curb operations. Small miners will go bust. Eventually, prices will rise to meet the cost of production.

And despite critics, uranium demand is still growing. Nuclear power currently produces nearly a fifth of U.S. electricity. Developing countries like China and India need atomic energy to power their economic growth.

As supplies tighten and demand grows, common sense says that uranium prices will go up. Of course, we don’t know exactly when that will happen. But because the situation cannot get much worse, the downside risk here is low.

Apparently, Soros is also bullish on uranium miners. According to recent SEC filings, the billionaire investor disclosed that he owned 2.3 million Cameco shares. As of June, that represented an investment stake of US$44.7 million.

As the largest producer in the world, Cameco is like the Wal-Mart Stores, Inc. of the uranium industry. The company has the raw scale needed to survive the sector’s current doldrums. And because of the leverage inherent in its business model, Cameco’s profits could rise much faster than the underlying commodity.

What’s interesting is that Soros paid between $22 and $27 per share for his recent acquisitions, up to 36% above Thursday’s closing price. If Soros is buying at even higher prices, then Cameco has a lot of upside from here.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

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 Robert Baillieul has no position in any stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.