The Best Way to Play the Nuclear Power Renaissance

Cameco is in a class by itself in the uranium business. More than any single company, it's vertically integrated business model gives investors direct exposure to a resurgence of nuclear power.

Jul 1, 2014 at 3:11PM

Cameco (NYSE:CCJ) is the best uranium company on the planet. Its vertically integrated business model gives investors direct exposure to the nuclear power renaissance. The only other large, vertically integrated, public company that's readily investable is French giant Areva (NASDAQOTH:ARVCF). Areva has operations all over the world, but most notably in Niger where it operates two multi-million pound uranium mines. Areva has had well-publicized problems renegotiating mine operating deals in Niger. It recently signed a new 5-year deal agreeing to pay up to 12% in royalties from just 5.5% previously. Areva is a higher risk play than Cameco as it needs higher uranium prices to thrive. 

Cameco has far and away the best uranium assets
Unlike Areva's assets in risky places like Africa, Cameco's assets are almost entirely in Canada and the U.S. In Canada, Cameco dominates the Athabasca region of Saskatchewan. This is highly important because the uranium grades there are up to 100 times greater than in most other uranium mining regions. Denison and a number of junior uranium companies have assets in Saskatchewan, but those companies are years away from first production. 

Cameco's McArthur River mine produced 14 million pounds of uranium in 2013. This low-cost mine is one of the largest and most profitable in the world. It's a tremendous cash cow for Cameco. Even more exciting looking forward is the company's Cigar Lake operation that just went into production this year. Cigar Lake could grow to an astonishing 18 million pounds of annual production by the end of the decade. Importantly, that's only if market conditions warrant that supply growth. 

In total, Cameco has the capacity to expand to 36-38 million pounds per year with the vast majority coming from McArthur River and Cigar Lake. No other company has this kind of upside, which makes Cameco a good long-term buy. 

But, current uranium market conditions couldn't be worse
Due in large part to the terrible Fukushima incident that hit Japan in March, 2011, the global supply or uranium used to fuel nuclear reactors has overwhelmed demand. Japan has 50 operable reactors, about 1/8th of the world's supply, but all 50 are offline. Therefore, the spot price of uranium has fallen by 60% from the low $70's per pound to an 8-year low of $28 per pound. Once Japan begins turning its reactors back on, sentiment could change, sending uranium prices higher. 

Cameco will be a good stock to own when spot prices rebound. It offers compelling risk reward compared to peers like Paladin Energy (NASDAQOTH:PALAF). Like Areva, Paladin has operations in Africa which are high-cost and low-grade, especially compared to mines in Saskatchewan. Paladin is also saddled with a large pile of debt relative to its market cap. Net debt is twice its market cap. I think Paladin is too risky to bet on at this time.

An interesting high-beta play
Like Cameco, Denison Mines (NYSEMKT:DNN) has great assets in Canada, but the company is years away from first production. Denison is a 60% JV partner with Cameco on the Wheeler River Project. Denison also owns 22.5% of a key uranium mill in the region, making the company a widely anticipated takeout target. Denison is a high-beta play on uranium that could be a good bet if one thinks that the uranium spot price will spike higher later this year. 

Rarely does a single company dominate an industry the way that Cameco dominates the uranium sector, especially in North America. In the long run, nuclear power will continue to play a very important role in the world's energy needs. Cameco is already a leader, one of the largest producers of uranium, and has the capacity in place through Cigar Lake to add up to 18 million pounds of annual supply. That is why I think Cameco is a great company and an attractive long-term buy. 

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Peter Epstein has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information