Is Cameco Corporation a purchase? – The crazy Motley

The uranium industry is at a good time. Major uranium miners like Cameco Corporation (NYSE: CCJ) are using to rebalance demand and supply in the marketplace as the debate about potential hazards nuclear reactors, encouraged by Fukushima Japan Daiichi disaster 2011, continues. (Nuclear reactors are the main users of uranium fuel.)

Investor sentiment is becoming more and more positive, as evidenced by the 21% increase in Cameco shares since the beginning of the year. ;year. I see more benefit for the stock than falling. Here's why.

Uranium prices have plummeted in recent years because of fears of oversupply, but almost all uranium producers now believe that the market is too much cautious and underestimated. latent demand for fuel

Is Cameco a risky bet, or will it reward you? Image Source: Getty Images

This is what some uranium producers have had to say in recent months:

There are some great things that have happened recently in our industry, that which suggests a tightening of supply.
– Leigh Curyer, CEO of NexGen Energy (NYSEMKT: NXE) in an interview with Investing News Network

I I really think that there will be a growing share of renewable energies, but if we look at the World Energy Outlook [International Energy Agency’s] we see that the demand for electricity in the world will double in the 2050s. And it will have to emit two times less CO2, four times less carbon per megawatt hour. For that, the nuclear can really make its contribution
– Philippe Knoche, CEO of Orano (ex-Areva), in an interview with Politico

We think that the uranium is fundamentally and structurally badly valued on the current market, and on
– Andre Liebenberg, CEO of Yellow Cake

The air is clearly thick with the expectations of a recovery of the industry from the 'lil'. uranium. Yellow Cake has, in fact, added an interesting angle to the story

There is a lot going on in the uranium industry

Yellow Cake, named after the concentrate of # 39, raw uranium, is a new uranium company. London will raise funds to buy up to 8.1 million pounds of uranium for $ 170 million from Kazatomprom, the largest uranium producer in the world. As this represents nearly 25% of Kazatomprom's annual production, Yellow Cake hopes to acquire everything that uranium will help to reduce the overabundance of supply.

Source: Getty Images

It remains to be seen how Yellow Cake will impact the supply or prices of uranium, but heavyweights, including Cameco and Kazatomprom, have already switched to action. uranium markets. Last year, Cameco decided to suspend operations at its McArthur River and Key Lake mines. McArthur River is also the largest high-grade uranium mine in the world. Shortly after, Kazatomprom announced plans to cut 20% of production between 2018 and 2020. Paladin Energy, based in Australia, was the last to follow the suspension movement of the Langer Heinrich mine because of Unfavorable business conditions

are significant developments as Cameco and Kazatomprom are also the largest uranium suppliers in the world. The Uranium Participation Corporation, based in Canada, has just unveiled an interesting fact in its latest press release: The global production of uranium has risen from 162 million pounds in 2016 to 154 million pounds in 2016 and is expected to fall to 135 million pounds this year, according to UxC Consulting. The consulting firm is also projecting uranium demand at around 192 million pounds in 2018.

If these projections come to fruition, a substantial portion of the uranium is expected to come out of the market this year even though the decline production goes deeper. In fact, production of uranium concentrate in the United States has dropped 64% sequentially to levels never seen in 20 years in the first quarter, according to the US Information Energy Administration. The United States could be among the small uranium producing countries, but any decline in supply is currently favorable to the industry.

Image Source: US Energy Information Administration.

Uranium prices seem to have collapsed: the average price of spot uranium rebounded from $ 20 a pound last October and remained well above $ 21 the pound since, even reaching $ 22.73 a pound in May. 19659003] With the decline in industrial production and the fact that Yellow Cake is preparing to make uranium purchases, the price recovery could be imminent. That's exactly what Cameco needs to increase its margins, even as it strives to cut costs, facilitate inventory, maintain a manageable debt and increase cash flow.

Foolish Take Away

The Cameco management takes all the necessary and appropriate steps to weather the storm, and all it needs is a recovery in the prices of the company. Uranium to resume the path of growth. It will not come fast and easy, and investors may have to endure weaker sales from the company, at least this year.

Yet Cameco's history is exceeding its target and investors need to focus more on the trend of its cash flow, especially since the 12-month operating cash-flow of the company reaches several years highs. With a stock that is still trading at a historically low P / E of 6.5, Cameco is the best bet for patient investors about the future of nuclear power.