Cameco Corporation: Is a Recovery on the Horizon?

Here’s what investors need to know about Cameco Corporation (TSX:CCO)(NYSE:CCJ).

| More on:
The Motley Fool

Cameco Corporation (TSX:CCO)(NYSE:CCJ) is trading near its lowest point in more than a decade, and investors are wondering when the situation will finally improve.

Let’s take a look at Canada’s top uranium miner to see if it deserves to be in your portfolio.

Fallout from Fukushima

Uranium traded for US$70 per pound in early 2011. That was before the tsunami hit Japan and caused the planet’s worst nuclear disaster since Chernobyl.

In the wake of the accident, Japan shut down its entire fleet of nuclear reactors, and that decisions sparked a five-year slump in the global uranium market. Today uranium trades for about US$28 per pound in the spot market, and there is little indication things will improve in the near term.

Effects on producers

Cameco and its peers continue to adjust to the difficult situation. New uranium developments have been delayed or cancelled and companies are reducing output.

Cameco is a low-cost producer, but the current price recently forced the company to close its longest-running mine, Rabbit Lake. The facility is the world’s second-largest uranium mill and has been in operation since 1975. Cameco will also reduce output at its McArthur River facility, the world’s largest mine, but it will continue to ramp up production at its Cigar Lake mine, which is a lower-cost site.

Supply situation

Primary output is actually not enough to meet current demand, but secondary supplies are filling the gap, and that is why uranium prices remain under pressure. Stockpiles are slowly being reduced, and the time will come when the market could shift to a shortage position.

This is why contrarian investors are interested in Cameco.

A new uranium mine takes up to 10 years to go from the planning stage to production, so producers won’t be able to increase output very quickly when demand starts to pick up.

Demand dynamics

Japan has only restarted two of its nuclear reactors, but the country has more than 40 facilities that could eventually go back online.

At the same time, the rest of the world is moving ahead with new projects. In fact, more than 60 new reactors are currently under construction, and Cameco estimates annual uranium demand will rise from today’s level of 160 million pounds to 220 million pounds over the next 10 years.

Should you buy?

A near-term catalyst is probably not in the cards, so there isn’t a rush to pick up the stock, but contrarian investors should keep a close eye on the market. At some point, the cycle will turn, and Cameco is poised to surge when that happens.

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 Andrew Walker has no position in any stocks mentioned.

More on Metals and Mining Stocks

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 »

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 »