2017 is turning out to be a bummer year for Cameco Corp. (NYSE:CCJ). Shares of the Saskatchewan-based uranium producer slumped 6.5% on the Toronto Stock exchange, or roughly 3% on the NYSE, last month, extending its losses and now down almost 15% in the past three months. Cameco isn't the only one cracking up, though -- smaller player Denison Mines is also down by double digits in the past three months.
While Denison has its own set of problems to deal with, blame uranium prices for Cameco's decline in June.
As the world's largest uranium producer, uranium prices are bound to affect Cameco's prospects. Now uranium doesn't trade on the open market like other commodities, and its prices depend on the deals between the buyers and sellers.
Uranium prices remained under pressure in June, with average spot prices down almost 15% since January. Year over year, the average spot for June was down almost 22%, reflecting the weak demand for uranium from nuclear utilities and reactors. With prices down more than 50% since 2012 and hovering around $20 per pound, uranium mining isn't lucrative anymore.
In what can be seen as another blow to the industry, Western Australia banned any further mining last month. Thankfully, the government has decided to allow mining at both of Cameco's deposits in the region along with two other proposed mines. But with Cameco reportedly having already spent $1 billion on the two projects, any unfavorable ruling or policy by the government in the future could be a major setback for the company.
For now, Cameco's Western Australia operations aren't facing any threat. As for prices, Cameco's revenue is pretty resilient when compared to the drop in uranium prices, simply because 40% of the company's contracts are fixed priced and long term. That explains why Cameco realized 60% higher average selling prices last year versus the spot price last year.
Meanwhile, Cameco is restructuring operations to curtail costs, has maintained its dividends, and stands to be the top beneficiary when the uranium markets turn around given its leadership position in the industry. Uranium prices appear to have bottomed and Cameco could be headed for better days, which means any drop in the stock can be considered an opportunity by patient investors.