Cameco Stock Surges Amidst Growing Nuclear Energy Demand

Cameco CCJ shares have appreciated 28.4% in the past month, outpacing the industry’s return of 9.3%. In comparison, the Zacks Basic Materials sector and the S&P 500 have gained 2.4% and 3.9%, respectively. Recent developments in the nuclear energy sector have sparked interest in Cameco. As one of the world’s leading uranium producers, with operations covering the entire nuclear fuel cycle from exploration to fuel services, CCJ is in a strong position to benefit from these trends.

Impressive Monthly Gains for CCJ

Image Source: Zacks Investment Research

CCJ stock is currently trading above its 50-day and 200-day moving averages, reflecting strong investor confidence and a positive market outlook.

Trading Trends: Above Key Averages

Image Source: Zacks Investment Research

Closing yesterday at $51.71, the CCJ stock is 8% below its 52-week high of $56.24 and 46% above its 52-week low of $35.43.

Factors Fueling Cameco’s Success

Global Nuclear Energy Initiatives Boost CCJ

Rising population numbers, a heightened focus on electrification and decarbonization, along with energy security issues, have fueled a global objective to triple nuclear power capacity by 2050. Uranium serves as the fuel for carbon-free, emission-free baseload nuclear power, making nuclear energy one of the cleanest energy sources available.

Currently, uranium prices are on the rise, reaching $83 per pound, their highest level in two months. Stimulus packages in China, aimed at promoting sustainable energy development through nuclear power, have significantly increased uranium demand as China is in the process of constructing 28 nuclear reactors. Additionally, interest in nuclear energy continues to grow in the United States.

In September, Constellation Energy CEG signed a long-term power supply agreement with Microsoft Corporation MSFT. To fulfill Microsoft’s clean energy needs over the next 20 years, Constellation Energy is set to reactivate the nuclear-powered Three Mile Island Unit 1, which has been inactive for five years due to economic challenges. Meanwhile, Oracle is developing a data center that will run on three small modular reactors. A coalition of 14 global banks and financial institutions has also committed to supporting the tripling of nuclear energy by 2050.

Years of underinvestment in uranium mining has caused a significant gap between global production and the demand for uranium, a situation that is expected to worsen. As existing mines reach their limits, new sources of production will be necessary to satisfy current and future needs. This supply strain, coupled with solid demand fundamentals, is likely to lead to sustained high uranium prices, which bodes well for Cameco.

Cameco’s Comprehensive Portfolio Supports Future Growth

Cameco ranks as the second-largest uranium producer, responsible for 16% of global output in 2023. Its operations cover the complete nuclear fuel cycle, including uranium production, refining, uranium oxide (UO2), and uranium hexafluoride (UF6) conversion services, along with CANDU fuel manufacturing for heavy water reactors.

CCJ holds a 69.8% interest in the McArthur River mine and 83% in the Key Lake mill, both known as the largest high-grade uranium mine and mill globally. The mine boasts proven and probable reserves estimated at 265.6 million pounds of uranium, with an average grade of 6.72%, and is expected to produce 18 million pounds in 2024 (on a 100% basis).

Additionally, Cameco owns a 54.5% stake in Cigar Lake, noted as the world’s highest-grade uranium mine, possessing proven and probable reserves of 113.8 million (CCJ’s share), with a targeted production of 18 million pounds (on a 100% basis) in 2024.

Cameco also holds a 40% interest in Inkai, which includes 104.7 million pounds of proven and probable reserves, averaging 0.04% in grade. The company’s exploration initiatives, such as those in the Cree Extension-Millennium project in Canada and Yeelirrie and Kintyre in Australia, also hold promise for boosting its resource base.

With substantial sales commitments to supply over 75 million kilograms of UF6, Cameco’s fuel service business accounts for approximately 21% of the world’s primary conversion capacity. In 2023, CCJ enhanced its capabilities by acquiring a 49% interest in Westinghouse, allowing the company to meet the rising demand for secure and reliable nuclear fuel supplies, services, and technologies.

Moreover, Cameco owns a 49% stake in Global Laser Enrichment LLC, which is in the process of testing innovative technologies that could offer significant benefits to the global nuclear energy sector.

Long-Term Contracts Provide Stability for Cameco

CCJ benefits from a contract portfolio that spans over a decade. For the upcoming five years, the company has secured contracts for average annual deliveries of 29 million pounds of uranium. These long-term contracts help cushion the company against potential declines in uranium prices.

Cameco’s Strong Financial Position Supports Growth Plans

As of June 30, 2024, Cameco reported $362 million in cash and cash equivalents, $1.4 billion in total debt, and a $1.0 billion undrawn credit facility. The company’s total debt to total capital ratio was 0.18, which is lower than the industry average of 0.29.

Cameco plans to maintain its financial health and flexibility to pursue growth, focusing on increasing production to take advantage of market opportunities. Initiatives are underway to extend the mine life at Cigar Lake to 2036, while production at McArthur River/Key Lake is targeted to rise from 18 million pounds to its licensed capacity of 25 million pounds (100% basis).

Challenges Ahead: Supply-Chain Issues and Tax Hikes May Impact Cameco

Cameco’s Inkai site faces challenges linked to procurement and supply-chain issues, particularly affecting sulfuric acid deliveries. The company has indicated that the production target of 8.3 million pounds of uranium (100% basis) for 2024 remains tentative, hinging on adequate sulfuric acid supply.