There are plenty of uranium mining companies that you can invest in, but most have tiny operations and come with multiple financial red flags. With that in mind, it really is best to stick to larger uranium stocks when considering your investing options.
Uranium does have a certain allure for investors. While prices have crashed 60% after the Fukushima disaster in 2011, and several American nuclear reactors have been scheduled for closure in recent years, it makes sense that atomic energy would play an important role in a clean-energy future. That prospect alone hasn't resulted in a major breakout yet -- and may never yield investing success -- but understanding the landscape is crucial for investors. So, what makes these the best uranium stocks to buy?
Let's get the list's weakest candidate out of the way up front. Rio Tinto has seen revenue from uranium operations fall 10% in the first half of 2016 compared to the same period last year. The good news is that the same segment posted net income for the latest period totaling $18 million -- a drastic improvement from a $38 million net loss in 2015. While this is an encouraging result, the company generates just 1.4% of total sales and less than 1% of operating income from uranium mining operations.
Investors should expect a continued slump as Rio Tinto carries through with current plans to wind down uranium operations. The company is working to close its largest uranium mine in Australia and even had to lend the owner $100 million to cover estimated costs. And the most promising developmental uranium asset -- Ranger 3 Deeps -- was abandoned due to the project's economic challenges and opposition from indigenous Australians. Perhaps nothing sums up the insignificance of the ore to Rio Tinto better than the fact that the word "uranium" wasn't uttered a single time on the company's second-quarter and half-year conference call.
...and rising up
While Rio Tinto works to close the world's third-largest uranium mine, BHP Billiton and Cameco are looking at uranium ore as an increasingly undervalued asset in a world that takes decarbonization seriously. The former's Olympic Dam mine produces uranium ore as a byproduct of copper production. That limits uranium output by coupling it to another commodity (a common reality in ore mining), but BHP Billiton announced plans to increase the mine's copper production 27% from 2014 levels by 2018. Olympic Dam, which also produces gold and silver, accounted for 6% of global uranium ore production that year.
Meanwhile, Cameco is far and away the leading uranium mining stock on the list above. It alone accounts for 18% of global ore production from mines in Canada, the United States, and Kazakhstan -- including the world's largest mine at McArthur River and the world's largest undeveloped high-grade uranium mine at Cigar Lake, both of which are located in Canada. In fact, nearly all of the company's 410 million pounds of proven and probable reserves reside in the country.
Cameco trades at a fraction of the market valuation of Rio Tinto and BHP Billiton because it focuses exclusively on uranium mining, whereas the others are diversified into various mineral and metal ores. That has its downside, too. The company has witnessed a 23% decline in revenue during the first half of 2016 compared to the same period in 2015. Earnings per share fell from $0.29 to a loss of $0.16 in the same periods, while cash flow from operations deteriorated from inflows of $68 million to outflows of $328 million.
What does it mean for investors?
The difficult headwinds facing the industry have not been kind to Cameco investors, who have ridden a steadily declining stock price since the beginning of 2014. Worse yet, the company's market cap has fallen from $16.3 billion in 2011 -- before the Fukushima disaster -- to just $3.5 billion at present. Investors looking for exposure to uranium mining won't do much better than Cameco, but that hasn't amounted to bragging rights in recent years. Just be aware that risks abound when investing in uranium mining stocks.
Maxx Chatsko 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.