Cameco (CCJ 0.08%) is a supplier to the nuclear power industry. There appears to be something of a nuclear renaissance taking shape, which positions the company for near-term success. But the Canadian uranium miner did something recently that could be a very important game changer over the long term. Here's why Cameco's growth story could be better today than it ever has been.
What does Cameco do?
Historically speaking, Cameco has been a miner. The product it pulls from the ground is uranium, which it also processes into nuclear fuel. Although the company's business is largely driven by long-term contracts, those contracts are still based on the price of a volatile commodity. Thus, Cameco's financial results have largely been driven by the swings in uranium prices.
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Given the high-profile events that take place in the nuclear power industry, most notably nuclear plant meltdowns, uranium prices have a habit of rising and then suddenly falling into deep and prolonged funks. The last big drop occurred after the Fukushima meltdown in 2011 and lasted for roughly a decade. During such price declines, Cameco's top and bottom lines can take a big hit.
That said, Cameco has some notable positives to support its business over the long term. First, it is one of the few large publicly traded uranium miners. Second, its operations are largely in developed nations with stable governments. A utility trying to find a reliable supplier has most certainly spoken to Cameco.
Cameco changes the game -- a little
Recognizing that uranium is a volatile commodity and that nuclear power appears to be gaining more support, Cameco has looked to change up its business plan. The big move was partnering with giant Canadian infrastructure investor Brookfield Asset Management (BAM +0.00%) to buy Westinghouse Electric. Cameco owns 49% of the business, while Brookfield owns the remaining 51%.
That's a big enough stake to give Cameco a place at the table when Westinghouse does just about anything. It also gives Cameco a nice chunk of anything that Westinghouse earns. This is where it gets interesting because Westinghouse is a key supplier to the global nuclear power industry. It is a leading name when it comes to nuclear power plant designs. It is a leading name when it comes to building nuclear power plants. And it is a leading name when it comes to maintaining and servicing nuclear power plants.
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Key Data Points
That will likely mean that Cameco receives a fairly consistent cash stream from this investment. That cash could provide a counterbalance to the more volatile commodity revenue it generates from its mining operations. This would be a big win for Cameco and its shareholders, as it could reduce the volatility of the company's shares. But there's another benefit.
If Cameco has a seat at the table for anything that Westinghouse does, it will be present when Westinghouse is inking new deals and when it is supporting currently active nuclear power plants. That should give Cameco an even more prominent position in the industry than it already has. So the Westinghouse deal can both add stability to Cameco's business and help push the accelerator on growth.
Cameco is not for the faint of heart
If you are looking for a picks-and-shovels investment in the nuclear power sector, Cameco is a good option. The Westinghouse deal has definitely increased Cameco's importance to the industry. Still, Cameco is a high-risk investment given the nature of commodity-driven businesses in general and the unique features of the nuclear power industry. But if you have a positive view of nuclear power and are willing to take on a more aggressive investment, Cameco's Westinghouse acquisition may have materially changed the company's story for the better.
