The Motley Fool

When Uranium Prices Return, Cameco Corporation Will Fly

Uranium and solar, in my opinion, are the two forms of generating electricity that will last well into the 21st century. It’s becoming increasingly clear that if we want to prevent polluting the Earth, we need cleaner energy. In particular, uranium plays a central role in providing that low-cost, clean energy.

By 2023, there are going to be close to 100 new nuclear reactors, which is good news for one company in particular: Cameco Corporation (TSX:CCO)(NYSE:CCJ). All of these reactors are going to need fuel to power them and Cameco is one of the largest providers of that uranium.

Unfortunately, it takes so long to get a reactor powered up that Cameco is dealing with an issue of oversupply. Specifically, utilities are able to buy small amounts of secondary uranium on the spot market, rather than signing long-term contracts with suppliers like Cameco. That limits the amount of money that Cameco can generate.

However, even with the low demand for uranium right now, the company is still doing all right. It continues to pay its dividend and generate revenue, albeit at a much lower rate. The big reason for that is because Cameco is a really low-cost provider of uranium. Being able to keep costs low means it can continue to stomach the low prices that it has to deal with.

The tax man is a risk

Cameco is currently dealing with some legal issues with the Canadian Revenue Agency. The CRA is suggesting that Cameco didn’t pay enough taxes. Cameco says that it paid exactly what it needed to. If the CRA is right, Cameco could owe $650 million. If that were to happen, the dividend that Cameco has continued to pay its investors could be in serious danger.

I don’t believe the CRA hit would be enough to bankrupt the company, though. Therefore, that wouldn’t be reason enough to avoid the stock if you’re not looking at it as an income investment.

Should you buy?

Frankly, buying shares of the stock now is not a bad decision. It already has the tax hit priced into it, so if Cameco wins, you could make a quick buck. Further, when those reactors all get started, there will be quite a bit of money to be made. However, waiting for the tax fight to be over would be a safer investment.

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 Jacob Donnelly has no position in any stocks mentioned.

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