Cameco Corporation (USA) (CCJ 0.16%) is the largest publicly traded uranium miner, providing the fuel that powers nuclear power plants around the globe. If you're interested in uranium mining, this is the one company that you need to know about. Here's why.
Size matters
One of the big stories in the uranium mining space recently was Energy Fuels' acquisition of Uranerz Energy Corporation. Stephen Antony, CEO of Energy Fuels, explained that his company's goal is to become the largest uranium mining company serving the U.S. market, stating that, "Energy Fuels is clearly emerging as a leading integrated producer of uranium in the U.S."
Before you rush out and buy shares in this "emerging" uranium miner, take note of its size. The company's market cap is $100 million. Competitor Cameco sports a market cap of nearly $6 billion. It starts to put things in perspective because most of the other public uranium miners are of Energy Fuels' modest scale. That makes pure play Cameco the real story in uranium, and the one miner you need to watch.
It ain't pretty
The interesting thing is that uranium hasn't been the best market lately. In fact, uranium prices peaked in around 2007, and despite a quick bounce in 2011, have basically been trending lower since. One of the big problems recently is image.
Source: Cameco Investor Presentation
After the Fukushima disaster, a number of nations pulled back from nuclear power, notably Japan and Germany. However, after dealing with the impact of that decision, Japan has once again decided to run its nuclear power plants.
Why? Without nuclear, Japan had to import huge amounts of dirty carbon fuels to make up for the shuttering of its entire nuclear power fleet. That was a costly move, and one that pushed the pollution needle the wrong way.
In fact, despite nuclear's bad image, it happens to be a relatively clean power source. It's just that, when things go wrong with a nuclear power plant, they go wrong in a big way. It's the same front-page news issue that airlines face. Overall, though, nuclear reactors and airplanes have solid performance track records.
What does it all mean?
Despite the image problem, nuclear is hardly going away. For example, Cameco notes that there are 437 nuclear reactors generating power today. By 2024, 52 are expected to be shut, but 133 new reactors are on the drawing board to be built. That's a net addition of 81 reactors. Better yet, 63 of those reactors are currently under construction.
Source: Cameco Investor Presentation
What's all this building going to do to the uranium market? Increase demand... big time. By 2024, uranium consumption is projected to reach 230 million pounds. Only today's production is 155 million pounds, which, without investment, will fall to 140 million pounds by 2024. In other words, uranium is going to be in demand; but without more production, it's going to be in short supply.
Cameco is ready to add supply when the time is right. It has room to increase current production at new facilities like Cigar Lake, which is expected to produce 6 million to 8 million pounds this year, but should be able to produce as much as 18 million pounds down the line. And it has plenty of reserves built up that it can tap in the future with new development.
From the big picture, Cameco and other uranium miners appear to have a bright future. But not all miners are positioned equally.
Energy Fuels is focusing on the U.S. market. But U.S. nuclear plant additions are expected to offset attrition for a net change of zero during the next decade or so. The big markets for nuclear power growth are in Asia, specifically China and India. These two countries combined will build 73 of the 81 net new reactors between now and 2024. Cameco has supply deals with both countries.
Is that all there is?
If you are looking for stocks to watch in uranium, by now you're probably wondering if these are your only options. They aren't.
For example, international mining giant Rio Tinto plc (ADR) (RIO 2.25%) also mines for uranium. It produced over four million pounds of it last year. But Rio isn't a pure play. So for more conservative investors seeking exposure to uranium, but not a focus on it, Rio may make sense. But you have to juxtapose that against the fact that uranium made up just a little over 1% of the company's revenues in 2014. So you get diversification with Rio, but you really don't get much uranium exposure.
So, if you like the long-term demand profile for nuclear power, there's really only one notable public company to watch: Cameco. That doesn't mean you shouldn't buy a smaller competitor like Energy Fuels or a more diversified player like Rio, but that you should couch any decision you make in the outlook of the industry giant. Just don't be surprised if you opt for the big fish once you compare and contrast the options.
