The Next Winner in the (Next!) Uranium Boom

It’s been a tough couple of months in the uranium space. After rallying 42% from April through December, the price of the white-hot metal has gone nowhere since.

But don’t look away now. You’ll miss the next big winner.

First, let’s look at the price action …

Why did uranium’s rally run out of gas? Many feel that the entire industry is holding its breath, waiting to see how the U.S. rules on the Section 232 investigation currently before it.

That’s a petition filed by two U.S. uranium companies, Energy Fuels (NYSE: UUUU) and Ur-Energy (NYSE: URG). They warn that the artificially low price has led to a flood of state-sponsored uranium imports into the U.S., and that has an effect on our nation’s security.

What are they asking for? They say limit the amount of foreign imports, effectively reserving 25% of the U.S. market for U.S.-produced uranium.

Utilities definitely don’t like the quota idea at all. Why?

For one thing, U.S. producers currently provide about 3 million pounds per year.

Source: U.S. Energy Department

Foreign suppliers provide about 40 million pounds of uranium per year to U.S. utilities. But the two U.S. petitioners say they could ramp-up over time.

However that ruling turns out, it could affect how uranium is mined and marketed in this country.

The section 232 uranium petition was filed in January 2018. The Department of Commerce has nine months to conduct its investigation and make recommendations to President Trump, and he has three months to act on those recommendations or take other actions.

That’s a long, roundabout way of saying the uranium market is in limbo right now. But one company isn’t waiting for limbo to end. One company has already swung from a loss to a profit.

I’m talking about Cameco (NYSE: CCJ). The Canadian uranium miner just reported adjusted earnings per share that beat the HIGHEST estimate. The company earned $0.3834 per share; the highest forecast was $0.2405 per share.

That nice ring of the cash register is a big swing from the LOSS Cameco reported a year earlier. And this is the first annual profit for Cameco since 2015.

This happened even though Cameco suspended production at its rich, huge MacArthur River and Key Lake operations last year.

How does the company make more money when it shuts down mines? Because it’s cheaper for Cameco to buy uranium on the spot market than to mine it. This is a problem I’ve pointed out in the past; it remains true. Just as I’ve also said that the long-term bullish forces in uranium are undeniable.

In its earnings call, Cameco said that investing in new mines makes zero financial sense right now. The price is still too low. The company also says there is “significant upside potential” to its 2019 outlook.

Image credit: Cameco investor presentation

Why could that be? I have a couple ideas.

First, let’s look at this chart showing that utilities need to purchase 1.9 billion pounds of uranium through 2035. Where is all that uranium going to come from? At recent prices?

I’d say that supply might come along, but at HIGHER prices.

What if prices in the spot market go up? Will Cameco get squeezed out? The company is sitting on $830 million in cash. It will dominate the spot market like an 830-pound gorilla.

My other idea about why Cameco could do so well relates to that Section 232 investigation.

Here’s the thing: We know Cameco as a Canadian uranium producer. And it is. But it also has dormant uranium projects in the U.S.

In fact, Cameco is the largest permitted U.S. producer. It has a capacity of 6.5 million pounds of uranium oxide per year, should it choose to do so.

So, if the U.S. petitioners get everything they want from the Section 232 ruling, the biggest beneficiary could be … Cameco!

In its earnings call, Cameco mentioned that it has the ability to “restart and expand existing tier-one and tier-two assets.”

I’ll bet it does. And it will be very interesting to see which side of the border those assets are on.

Subscribers to my Wealth Supercycle newsletter already own Cameco, and at lower prices. I’ll have more uranium picks for them when this market heats up again.

But Cameco is already igniting its atomic jets. This company is going places. You might want it in YOUR portfolio, too.

All the best,

Sean

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