At dinner parties, it's easier to just not bring up the subject altogether because it tears people apart, and when it does bring people together it's definitely "not in my backyard."
All businesses should ask— why do we exist, why do we deserve to exist, does the world need us, would anyone miss us? Try bringing those up at your next dinner party!
These types of questions are at the heart of conscious capitalism; when answered and implemented they can lead to long-term success for any business. I would love to know if the executives (Mr. Tim Gitzel) and team at Cameco (NYSE:CCJ) have considered these killer questions. How will they position long-term to survive in an industry that many would like to see dead?
Love it or hate it
Uranium is the fuel that burns in 104 nuclear reactors across 31 states. While we might think we could do without, these plants have generated about 20% of Americans' electricity each year since 1990. We all love our electricity -- we can agree on that right?
Mr. Market has experienced fallin' in and out of love with uranium stocks. Cameco used to be his favorite -- it was like the brand name of U308 (slang for uranium). With about 14% of the world's mine production, it is pretty well known in the uranium world. Not only is it the largest supplier to the United States, it has about 465 million pounds of proven and probable reserves throughout the world to back it up (that's a lot). Through Bruce Power LP, Cameco has a stake in the downstream end as well. Perhaps supplying electricity throughout Ontario is another part of its reason for being.
Industry power players
Looking to invest in companies taking market share in electricity generation? Solar technology is on a curve where costs will continue to decline as efficiency increases (that's a winning combo). I can imagine an abundant future where solar and other renewables are dominant sources of energy. Until then, world economies will continue to rely on fossil fuels and uranium to make up the difference. Love it or hate it, nuclear power is here to stay for the foreseeable future. Of late, eight companies marketed 88% of the world's uranium production. You already know Cameco; the other two worth knowing are France-based AREVA and Rio Tinto plc (NYSE:RIO).
As of 2012, AREVA owned stakes in four of the largest mines and supplied 15% of global production. Cigar Lake (50% Cameco / 37% AREVA) is a huge facility in Saskatchewan that is expected to go live in 2014. At full capacity it could produce 18 million pounds of U308 per year. Rio Tinto has 9% market share, and its ERA mine (Australia) and Rossing mine (Namibia) are two of the largest open pit mines on the planet.
Last year, Cameco and Rio Tinto had somewhat of a bidding war for Hathor Exploration, a company with assets in the coveted Athabasca Basin (the Saudi Arabia of uranium?). Rio Tinto paid $578 million for approximately 58 million pounds of indicated resources located 12 km southeast of Cameco's McArthur River mine, so quality uranium deposits can be worth a nice chunk of change.
Are there catalysts for growth?
Spot prices of uranium, around $35 per pound, have steadily declined since December 2010. Post-Fukushima, 14 nuclear reactors have remained shut down in Japan, and there were other sporadic closures worldwide. The Japanese market used around 20 million pounds U308 annually. Their regulatory body is currently in review mode (for five months now?), weighing the possibilities of a restart. Cameco will be meeting with the executives of the closed plants, hoping to firm up relationships and commitments ahead of a decision.
Though these things don't happen overnight, there are currently 69 nuclear reactors under construction -- 30 of them are in China. In addition, consumption has been outpacing supply for quite some time, if demand continues at current levels that trend is not sustainable.
Really, it's all about electricity demand...
It's doubtful that any uranium related companies would be allowed in a "socially responsible" portfolio. If the world is better off without nuclear power, buying stock in uranium could contribute (in some small way) to its continued use. While it may be a quality company, I wouldn't buy AREVA unless it was directly overseas (OTC listing is too illiquid). Rio Tinto provides exposure to other commodities like diamonds, iron ore, and aluminum (more diversified). If you want straight uranium, Cameco is the name.
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