Canadian mining stocks have been on a tear in the last while. This is because natural resources are in demand, and in some cases, undersupplied. These resources help power the world, and grow economies.
Cameco Corp. (TSX:CCO) is a Canadian uranium mining stock that’s outperformed recently but remains a solid long-term investment. Here’s why:
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Nuclear energy: Clean and secure
In the energy sector, two factors dominate all decisions.
The first is the environment. We are all very aware of the global push toward environmentally friendly sources of energy. In fact, there has never been a greater urgency or more action on this front. Nuclear energy is a way to achieve electrification and decarbonization – from a large-scale perspective, it might be the only way.
The second is security of energy supply. Geopolitical turmoil has increased the risk of importing energy from certain countries such as Russia. Disruptions and a lack of reliability have put the energy supply of many countries at risk. It has become obvious that for these countries, achieving energy security is not possible without nuclear energy.
Today in the US, nuclear energy accounts for 18% of total electricity generation, while renewables accounts for 22% and fossil fuels account for 60%. So, we can see the opportunity as the US, alongside the globe, transitions away from fossil fuels.
Long-term fundamentals
I’d like to touch upon the demand/supply fundamentals that can be expected to continue to drive strong momentum for Cameco.
On the demand side, as I’ve mentioned, nuclear energy is increasingly being recognized as the solution to environmental woes and energy security issues. Net zero targets are being put forward in many countries around the world, and nuclear energy is increasingly being recognized as a key solution to achieve these targets. To this end, 28 countries have signed an international declaration that calls for the tripling of nuclear energy capacity by 2050.
On the supply side, years of underinvestment have created low supplies of uranium, and geopolitical tensions are exacerbating this supply shortfall. This situation will likely persist for the next decade.
This supply/demand imbalance will result in many new nuclear reactors being built. It will also drive significant value creation across the fuel cycle and reactor lifecycle.
Cameco riding high on strong fundamentals
Cameco is well-known as one of the world’s leading global providers of uranium. It is, in fact, home to the world’s largest high-grade reserves and low-cost operations.
The strong fundamentals in the uranium industry have boosted Cameco’s financial results, as well as its stock price. Today, Cameco stock trades above $74, 88% higher than a year ago and 220% higher than three years ago. These returns are a reflection of the strong momentum in the uranium market. This momentum is being driven by strong long-term fundamentals that show no signs of easing.
As for Cameco’s financial results, in the company’s first quarter of 2024, the core uranium segment was strong. For example, net earnings increased 34% and adjusted EBITDA increased 16%. This was due to a 27% increase in the average realized price, which was offset by lower deliveries and a higher cost of sales.
The bottom line
The nuclear industry is in the midst of a very strong secular growth trend. It’s a long-term trend that will take years to play out, and Cameco is one of the biggest beneficiaries. All considered, an investment in Cameco stock will likely be a good investment.
