Nuclear power is the black sheep of the clean energy industry. That said, it's got notable tailwinds that should help it soar in the years ahead. And one big beneficiary of increasing nuclear power production will be uranium miners like Cameco Corporation (NYSE: CCJ), Denison Mines, and Uranium Energy Corp. Here's a list of uranium mining companies you need to know, and the one miner that's best positioned to benefit from the positive outlook for nuclear power's growth.
A quick uranium stock list
When you start digging into uranium mining, you'll quickly find there aren't too many companies worth looking at in the space. For example, international mining giant Rio Tinto (RIO 0.34%) is a notable player, and a perfectly fine company as far it goes. But uranium makes up a measly 1% of the company's top line. Sorry, but that's not really a good way to get exposure to uranium.
A uranium mine at work. Image source: Cameco.
Then there's Energy Fuels Inc. This company is a pure play on the uranium space, with a goal of becoming a leading uranium supplier in North America. The only problem is that this company, created through the merger of two smaller players, is still kind of tiny, with a market cap of just $120 million or so.
There are a few more small fries to mention, too, before we get to the industry's 800-pound gorilla. Like Australian-listed Peninsula Energy Ltd, Uranium Energy Corp. a roughly $90 million market cap company, Ur-Energy Inc. at around a $65 million market cap, Uranium Resources, Inc. with a market cap of just $10 million, and Denison, which is more of a start up working on developing mines. See the trend, here? Small and getting smaller. Sure, they mine for uranium (or building mines), but their tiny sizes (and foreign listing in the case of Peninsula) makes them hard to buy and a riskier proposition than, say, a uranium miner with a $4.5 billion market cap.
That miner, and the only one really worth doing any more research on, is Cameco Corporation. Cameco is the largest pure-play public competitor in the space by a wide margin. To give you an idea of just how big the company is beyond looking at market cap, Cameco sold roughly 32 million pounds of uranium last year. Energy fuels sold around one million pounds. So, if you're looking at the nuclear power industry and think uranium is a good way to play it, Cameco is probably the single best uranium stock to buy today.
Where the new reactors are coming from. Image source: Cameco.
The nuclear tailwind
Now that you have a uranium stock to think about, here's the backstory. Despite its image, uranium has proven to be one of the most reliable power options that doesn't emit green house gases. Yes, the small number of big disasters grab headlines, much like airplane crashes, but the vast majority of the time nothing goes wrong, with nuclear providing relatively cheap base load power once a plant is up and running.
To be fair, building a nuclear plant is pretty expensive, but that's not stopping the progress in developing markets that are desperate to supply their increasingly affluent populations with electricity. Here are some numbers: Between 2013 and 2035, global demand for electricity is expected to increase by nearly 60%. The vast majority of that increase is expected to come from less developed markets.
There are 65 reactors under construction today. Roughly two-thirds of those are expected to come on line in the next five years or so, with the big push coming from China and India. China has around 30 reactors or so today but is expected to have more than 80 by 2035. India has 21 reactors today and six under construction. Cameco has had a supply deal with China for a while, but its recently inked contract with India is all upside for the miner on the demand side.
Balancing act
Are there negatives? Absolutely. Developed markets aren't a growth platform for uranium use. Japan shut down all of its reactors after the Fukushima disaster and is only slowly bringing them back on line. The size of the U.S. fleet is likely to be flat to lower over the long term. And European demand should be relatively weak, too, with countries like Germany saying "no thanks" to nuclear in something of a knee-jerk reaction to Fukushima. But these markets were already mature, and the increases from emerging markets will more than offset these changes.
In fact, Cameco estimates that uranium consumption will outstrip supply by more than 50% by 2025 if new mines aren't opened up and old ones expanded. In other words, if Cameco is right, there's a bright future for uranium miners. But here's the opportunity today: Cameco's shares are down roughly 70% from the commodity market peak in 2011. Despite the positive industry outlook, the stock remains beaten down.
With its scale and global reach, particularly in developing markets, Cameco looks set to be a big beneficiary as nuclear power's global footprint expands. If you're looking at the industry right now, Cameco is probably the single best uranium stock to buy in 2016.
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