While Cameco's (NYSE:CCJ) recent operational experience is essentially an exercise in Murphy's Law, this company is still the nuclear option for investors. Because Cameco is a vertically integrated nuclear energy company, you can have your yellowcake and eat it too.
As ConocoPhillips (NYSE:COP) operates across the full petroleum pathway from well to gas tank, so does Cameco participate in the full nuclear supply chain. In addition to being the world's top uranium miner (at nearly one-fifth of global production in 2007), Cameco has a hand in refining, fuel conversion, and fabrication, as well as power generation. Just about the only missing piece is in-house uranium enrichment, but the company has stated its intent to enter that business in due time. Given the troubles faced by USEC (NYSE:USU), you can hardly blame Cameco for taking an opportunistic approach.
On account of Cameco's unique asset base, uranium mining is the company's cornerstone operation. Your average uranium deposit's ore grade runs around 0.2%. In Saskatchewan's Athabasca Basin, however, Cameco holds deposits that are 100 times richer. Potash Corp. of Saskatchewan (NYSE:POT) clearly isn't the only company reaping that province's mineral bounty. Cameco's total reserves, at north of 500 million pounds, are simply massive. Global mine production is expected to come in around 125 million pounds in 2008.
Given the 80-plus reactor additions anticipated worldwide by 2017, Cameco can't just rest on its Canadian cache. The firm has interests in exploration ventures as far-flung as Gabon, Mongolia, and Paraguay. Wherever the next major uranium discovery is made, Cameco won't be far behind.
The falling spot price of uranium has given uranium junkies serious jitters. Fronteer Development Group (AMEX:FRG) doesn't even explore for uranium, but its equity interest in a company that does has obliterated the share price. Cameco offers protection via both its long-term supply contracts, which now provide both a price floor and strong upside participation, and its diversification across the fuel cycle. At the same time, there are plenty of reasons to expect uranium prices to hold up longer term, meaning Cameco will continue to cash in.
