How Will the Trump Presidency Affect Uranium Producer Cameco Corp.?

Now that Trump has taken the oath, what can Cameco investors expect? Not much, I'm afraid.

Reuben Gregg Brewer
Reuben Gregg Brewer
Jan 24, 2017 at 10:42AM
Energy, Materials, and Utilities

Now that Donald Trump is the president of the United States, investors might be wondering how the outlook for uranium miner Cameco Corp (NYSE:CCJ) has changed. The answer is more complicated than you might think. For starters, the global trends in nuclear power suggest that the forecast for Cameco is bright, but the United States' new commander and chief won't make much of a difference. Here's why.

Cameco employee checking core samples at the Millennium mine. Image source: Cameco Corp.   

Embracing the old

One of the hallmarks of President Trump's run for office was his embracing of older power options like coal and nuclear. Although he didn't exactly say he was against emerging, cleaner alternatives like solar and wind, one way he could support uranium is to scale back environmental regulations that help "clean power" compete. Another way to aid nuclear power would be to trim government incentives supporting wind and solar. Aimed specifically at nuclear power or not, these types of changes would be helpful for the uranium industry.    

But they won't be enough to materially alter the direction of the U.S. nuclear power industry. For example, when nuclear power giant Entergy Corporation (NYSE:ETR) announced it was closing the iconic Indian Point power plant in New York, Bill Mohl, president of Entergy Wholesale Commodities, explained:

Key considerations in our decision to shut down Indian Point ahead of schedule include sustained low current and projected wholesale energy prices that have reduced revenues, as well as increased operating costs.   

That's pretty much the case across the U.S. power industry. But here's the linchpin; Mohl added:

Record low gas prices, due primarily to supply from the Marcellus Shale formation, have driven down power prices by about 45 percent, or by about $36 per megawatt-hour, over the last ten years, to a record low of $28 per megawatt-hour.

No mention of solar or wind...just the economics of competing with cheap natural gas. Trump has voiced support for natural gas and the fracking revolution that has made it so cheap and abundant.   

Reactor growth, the global view. Image source: Cameco Corp.   

The uranium future is still bright

However, none of this should be a huge problem for the future of uranium or Cameco. In fact, even if Trump does nothing to support uranium, Cameco should be just fine. That's because nuclear reactor growth is expected to more than offset reactor closures between now and 2025. And the vast majority of the new reactors are expected to come from Asia, where demand for power is still increasing rapidly.  

To put that in perspective, through November of last year, there were nine new nuclear reactors brought online. Seven of them hailed from Asia; China alone accounted for five. Right now there are around 57 reactors in some state of construction. China, India, and Korea account for roughly half that total. Basically, nuclear power growth is happening in Asia, and that's what's going to drive long-term demand for uranium. President Trump will have little to no impact on that.  

Cameco is changing with the times. Image source: Cameco Corp.   

This trend helps explain the changes in Cameco's business, too. For example, in 2007, Asia accounted for just 7% of the company's business. Today, that's up to around 41% and is easily the largest piece of the puzzle. As new reactors open in the region, it's reasonable to expect this shift to continue.

No Trump effect

There are things President Trump can do to support nuclear power, like softening environmental regulations and pulling back government incentives for alternatives like wind and solar. But the fact is, a bigger part of nuclear's problem in the states is low natural gas prices that have, in turn, led to low power prices. Fixing that doesn't appear to be on President Trump's agenda.

Luckily for Cameco, though, the United States is only a small part of the still-bright growth forecast for nuclear power and the uranium that feeds reactors. The real growth is coming from Asia. And that's an increasingly important region for Cameco. So, in the end, President Trump and the United States aren't likely to be a big part of Cameco's future growth, and that's OK.