What happened
Wednesday is looking like a rough day for investors in the alternative energy space, with shares of fuel cell star Plug Power (PLUG -5.17%) down 5.5% through 10:45 a.m. ET, and uranium miners Uranium Energy (UEC -0.59%) and Cameco (CCJ -0.14%) falling even harder -- down 7.5% and 16.4%, respectively.
In the case of Plug Power, the good news is that there's no obviously bad news dragging Plug down -- no bad news specific to the stock, that is to say. The stock market does still seem shaken up by JPMorgan Chase CEO Jamie Dimon's warning of an impending 20% drop in stock prices, however, and a recession arriving in no more than "six to nine months."
In contrast, the reasons for Uranium Energy and Cameco going down are pretty clear.
So what
In the case of Uranium Energy and Cameco, it's merger and acquisition (M&A) activity that is the catalyst for today's declines. This morning, Uranium Energy announced it will spend $150 million in cash and stock to acquire Rio Tinto's Roughrider uranium mining operation -- still in development -- in eastern Canada.
Uranium Energy calls Roughrider a "world-class project in a premier uranium mining jurisdiction, with the potential to yield as much as 58 million pounds of uranium oxide ore over time -- and says this acquisition will make it second only to Cameco in the size of its "diversified resource base" in Canada.
Cameco is also making an acquisition -- and it's much bigger than Uranium Energy's. Partnering with Brookfield Renewable Partners, Cameco will acquire nuclear power services company Westinghouse Electric Company for an estimated $4.5 billion (or $7.875 billion with included debt). Cameco's portion of this purchase price will amount to $2.2 billion (plus debt), also paid in cash and stock, and it will receive 49% ownership in Westinghouse in return.
Now what
The logic behind both of these acquisitions in the nuclear power sector is clear: Energy supplies around the world are under strain from the Russian invasion of Ukraine, and the sanctions on Russian oil, gas, and -- potentially, eventually -- uranium, that have been imposed as a result of the invasion. With Europe heading into a chilly winter in which gas supplies look constricted, governments around the world are urging energy conservation efforts and reconsidering whether nuclear power, and the uranium that fuels it, might be a more reliable option than Russian gas.
The moves by Uranium Energy to acquire more uranium supply today, and by Cameco to "lock in" a customer for the uranium it's already got, could be the first in a wave of consolidation in the nuclear sector. If the working theory, that nuclear power is about to get a whole lot more popular, proves correct, then both of these bets could pay off for the companies making them.
On the other hand, Uranium Energy is gambling more than 12% of the value of the company on this bet, and Cameco is betting closer to 24% of its market cap on a famously troubled nuclear company -- maybe more than 24%, if you factor in the debts that will come with Westinghouse.
That's a whole lot of new risk to take on in an economy barreling toward (or even already mired in) recession. Again, these bets may pay off in future years, but right now, investors don't seem inclined to take any chances. They're selling first, and they'll see how these M&A deals work out later.
