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Why Cameco Corp.'s Stock Is Melting Up Today

By Matthew DiLallo - Sep 27, 2018 at 11:24AM

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The uranium miner received some good news on its tax dispute.

What happened

Shares of Cameco Corp. (CCJ 1.51%) shot up more than 16% by 10:30 a.m. EDT on Thursday after the Tax Court of Canada ruled in favor of the uranium miner.

So what

The Tax Court ruled that Cameco's marketing and trading structure, which involved "foreign subsidiaries and the related transfer pricing methodology used for certain intercompany uranium sale and purchase agreements," where in full compliance with Canadian laws. Because of that, the court referred the matter back to the Minister of National Revenue to issue new reassessments for the 2003, 2005, and 2006 tax years. That could result in the company getting a refund with interest. Furthermore, the company believes this ruling suggests that the other tax years in dispute will ultimately receive the same outcome. Because of the favorable ruling, Cameco plans to apply for the recovery of the costs it incurred during this process.

A judge holding gavel in courtroom.

Image source: Getty Images.

The favorable ruling in Cameco's case could have far-reaching implications for other Canadian mining companies. That's why shares of Wheaton Precious Metals (NYSE: WPM) also surged on the news, rising about 5% by the mid-morning. That's after an analyst from Scotiabank sees a greater opportunity for a settlement in Wheaton Precious Metals' case in light of Cameco's positive outcome.

Now what

While the court ruling in Cameco's favor in this tax dispute is a positive development, it doesn't yet put an end to these proceedings. The Canada Revenue Agency has 30 days to appeal. If it does, that process could take two years before the Federal Court of Appeals decides on the matter. From there, it could go all the way to the Supreme Court, adding another two years. These appeals would add to the company's legal bills while increasing the risk of an adverse outcome. As a result, there's still a risk that the stock could melt down again in the future.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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