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Cameco Corporation's Asian Nuclear Deal Is Bigger Than You Think

By Reuben Gregg Brewer - May 10, 2015 at 7:00AM

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This niche miner just inked a nuclear deal with an up and coming emerging market, it's big news and set to get much bigger

Cameco Corporation (USA) (CCJ 1.38%) is one of the world's largest uranium miners, tying it to the ebbs and flows of the nuclear power market. The big headline news recently was Japan reopening reactors, but the more important story for Cameco came out of India. And the Indian news has decades to run.

In the dumps
Nuclear power has a bad name, a fact bolstered by Japan's horrible Fukushima meltdown. To be fair, that incident involved an earthquake and a tsunami, so it was by all accounts a perfect storm. That, however, doesn't change the impact it had on this low carbon power source's image. And then there was the very real impact of Japan shutting down its reactors on nuclear fuel demand.

Japan shuttering all of its nuclear power plants put downward pressure on uranium demand and prices, bolstered by countries like Germany that announced plans to shutter their nuclear reactors, too. So it's been a rough ride for Cameco, which mines uranium and sells the fuel to power plants. In fact, Cameco has lost money in two of the last three quarters. And the 2014 earnings tally of $0.48 was just a fraction of the company's peak earnings of $2.82 five years earlier in 2009.

That's why Japan's announcement that it was finally reopening some reactors was such big news. It signaled that demand might finally start to pick up again. But this news isn't about the future, it's about reestablishing past relationships.

India calling
The future is emerging markets like China and India, both of which have big plans for nuclear power. So, when Cameco inked a deal with India to supply the country with nuclear fuel, it was hitching itself to a growth platform that's likely to be increasingly important. The deal is with the, "Department of Atomic Energy of India to provide 7.1 million pounds of uranium concentrate under a long-term contract through 2020."

This was a country to which Cameco had no exposure prior to this agreement (it was already working with China, in case you were wondering). So every ounce of uranium that goes to India is an expansion of the miner's business. But, more important, Cameco now has a foot in the door of a country on the verge of a major nuclear expansion.

Right now, India generates around 3% of its power from nuclear. It's fleet consists of 21 plants and produces 6 gigawatts of power. Current plans call for another six reactors to come online by the end of 2017, adding another 4.3 gigawatts of power. So there's definitely demand in the pipeline for Cameco to satisfy.

But that's not the end of it. By 2032, India plans to have 45 gigawatts of nuclear capacity up and running. That's over seven times the power nuclear provides today in this emerging economy. In other words, Cameco is really getting in on the ground floor of India's nuclear expansion plans.

Don't get excited now
All of this said, Cameco CEO Tim Gitzel summed the deal's impact up pretty well during the company's first quarter earnings call: "... 7 million pounds, which is important in our portfolio, but not going to overly move the needle. It's the fact that we've got our foot in the door in India ..." So, as you watch Cameco's earnings, the price of uranium, which is still wallowing at low levels, is going to be the most important issue right now.

But longer term, gaining entry to a growing uranium demand center that was previously off limits is a factor to watch closely. If this relationship blossoms into something larger, Cameco's prospects improve notably. If the deal flounders, Cameco could again find itself on the outside looking in to an important market. Watch the relationship with India if you own Cameco, this deal could be a real growth driver in the future.

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