Cameco nov. 6th, 2018

After preparing this analysis I sold my Cameco shares. In the actual share price is a lot of hope on a turnaround already included. This analysis is not updated anymore! 

This is not a recommendation or proposal to do anything. It is my private personal opinion. 

 

Cameco is one of the biggest uranium miners situated in Canada with revenues exceeding 2bn$(Can). It has mines with the the highest uranium grades as Cigar Lake 15% uranium grade (50% Cameco), Rabbit Lake (100%), Mc Arthur River 24% uranium grade (69.8% Cameco) plus more mines in Kazakhstan and USA. Cameco runs as well a highly profitable a nuclear fuel conversion and fuel elements manufacturing business for the Canadian Candu reactors that unfortunatly generates 1/6 of the total revenues only.  

Cameco a bet on rising uranium prices. 

Chances & Risks:

The uranium price collapsed after a nuclear accident in Japan 2011 as all nuclear power plants in Japan and half of the nuclear power plants in Germany went offline and plenty of uranium contracts were cancelled. The uranium market is rigid as miners are often government owned or influenced and have other priorities than economics.  The uranium surplus is decreasing as some of the Japanese nukes are restarting, some newly build nuclear power plants are connected to the grid. Private uranium exploration was nearly stopped. Privatly owned mining projects were stopped and existing mines went out of business. All in all it looks like a turn around situation. 

CCJ put its biggest mine Mc. Arthur River under maintenance & Care. In case of higher uranium prices this CCJ mine and others will be brought back in production. 

All in all CCJ is a bet on a turn around of the uranium price. Long range contracts act in the actual low price situation in a helpful way in a turnaround they might delay a high profitability by years as well. 

A uranium price of 50$ (US)/lb could increase the profit might increase after dead time (long range contracts!) to 1.2 $(can)/share and hence a target price of 15$ (can) price target.  

Observations

Cameco runs a fuel service division wir gross revenues of 313 mio. $ (can) and a gross profit of 64 mio. $(can) of total revenues of 2200 mio. $ (can) . 

Part of it is the only canadian uranium conversion service (UO2 -> UF6) with yearly turn around of about 8000to annualy. Conversion prcices of uranium are at about 12$ (US)/Kg -> it generates revenues of app. 100 Mio. $ (US).  

Part is the Cameco Fuel Manufacturing (CFM) ​is one of two fuel manufacturers serving Canada’s reactor fleet. It is the largest Canadian-based supplier of in-core reactor components for CANDU reactors around the world.

Cameco has a 24% interest in Global Laser Enrichment which is testing a third-generation technology that, if successful, will use lasers to commercially enrich uranium. The other partners in GLE are General Electric (51%) and Hitachi (25%). Laser enrichment might be the future of uranium enrichment a multi billion $ market. 

 

Some Data:

WKN: 882017 / ISIN: CA13321L1085, Symbol: CCJ

Number of common Shares (2017):  395,792,732 

Proven reserves: 458 mio. lb =208.000 to uranium + 154.000 to probable reserves. 

long-term commitments to deliver about 150 million pounds of uranium concentrates, 68000tons.  

Quarterly dividends of actually 8c (can)/share

1 $ (US) = 1.3 $ (Can) Nov. 5th, 2018

Net earnings of $28 million (Q3/18), 1260 mio. $ (can) revenue (1 - 9/2018).

Cash from operations outlook 2018, $715 million to $775 (can) million

Results were impacted by care and maintenance costs of $65 million, which includes severance costs of $27 million related to the permanent layoffs at McArthur River/Key Lake, severance costs of $13 million related to the workforce reductions at corporate office (Q3/18)

Major Uranium Mines

                        Production Capacity        Proven+ probable  Reserves         U Grade     Pot. Revenue 50$ (US)/lb

Cigar Lake           4100to (CCJ share)        90.000to (CCJ sh.)                     14.91        586 mio$ (Can)

Mc. Arthur River  3541 to (CCJ share)       163.000to (CCJ sh.)                      9.63        506 mio $ (Can)

Inkai (ISR)        1900to (CCJ share)          122.443 (CCJ sh.)                        0.03        270 mio.$ (Can)

Major Projects actually not followed due to low uranium prices

Yeelirrie (Au)                                             58.000 to                                   0.16

Kintyre (Au)                                              17000 to                                    0.62

Uranium Market

The consumption of uranium is very stable as nuclear power plants are employed in the base load electricity generation. Despite of that the fluctuation of the uranium market is high. Nearly 70% of primary production is in the hands of stateowned enterprises about. That is why the market is not sensitive to price changes. 

(1)

In the last couple of month the uranium price soared up to 27.9$(US)/lb (oct. 29/2018).

Nuclear Power Generation

The nuclear power generation is somehow stagnating. Due to an accident in Japan 2011 most nuclear power plants in Japan are idle, nuclear power plants in Germany were shut down due to green religious reasons. It is the dent in the graphic. 

(3)

 

 

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Some References

Cameco Invest 

Annual Report https://s3-us-west-2.amazonaws.com/assets-us-west-2/annual/cameco-2017-annual-report.pdf

18/11 (4) https://www.uxc.com/p/prices/UxCPrices.aspx

18/11 (3) WNN http://www.world-nuclear.org/getmedia/b392d1cd-f7d2-4d54-9355-9a65f71a3419/performance-report.pdf.aspx

18/11 (2) https://www.uxc.com/

18/11 (1) https://www.indexmundi.com/commodities/?commodity=uranium&months=120

18/10 https://www.stockwatch.com/News/Item.aspx?bid=Z-C:CVV-2673085

https://www.fool.com/investing/2018/08/23/why-cameco-corporation-investors-should-be-wary-of.aspx