Last quarter, Cameco
If a miner like Yamana Gold
A big reason for the cost jump is that Cameco was very busy purchasing uranium at near-spot prices during the quarter. These costs are dramatically higher than Cameco's cost of production, so margins took a real hit. What could justify such behavior?
Well, think about what happens in the oil industry when near-term prices are far below those attainable via futures contracts. In such a situation, called "contango," oil majors like ConocoPhillips
Cameco has less visibility on future uranium prices, given the much thinner market for this fuel, but the principle is rather similar. The company isn't just saying that prices are headed higher, as Denison Mines'
With exchange-traded funds and especially Chinese utilities representing two significant sources of demand going forward, I think Cameco shareholders may benefit handsomely from this bottom call.
Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool owns shares of and sold calls on Cameco, and has a radiation-free disclosure policy.