Cameco Corporation (NYSE: CCJ) - Canadian uranium company, products of which are used by nuclear enterprises in 15 countries. The company's nuclear capacity is one of the highest in the world., it has to 7% in global uranium production and 24% in primary fuel processing.
About the industry
2010—2020s. The past decade has been very difficult for the entire uranium sector against the backdrop of a terrible accident in March 2011. As a result of the earthquake and the ensuing tsunami in Japan, a radiation accident occurred at the Fukushima-1 nuclear power plant, which was later recognized as the second largest nuclear disaster in the history of mankind.
This led to the fact that, that nuclear power has become highly toxic, and many countries, under public pressure, decided to abandon it. For example, Germany to shut down its nuclear power plants by 2022, and Japan by 2020 reduced their share in the country's energy balance from 28 to 2%.
All these actions brought down the prices of uranium products.: from the highs of 2007, it fell five times - from 100 to 20 $, is why many industry enterprises had to reconsider their investment plans.. For example, Cameco Corporation reduced production, mothballed some mining facilities and abandoned assets, which are far from the operating infrastructure of the company.
Perspectives. The current global trend is the fight against climate change, under which many countries ratified the Paris Agreement of 2015 and committed themselves to making the transition from “dirty” fossil energy to low-carbon.
However, the transition to renewable energy without nuclear power, which is also considered pure and could play a backup role, extremely difficult and costly to implement. For example, Japan after the displacement of nuclear power plants is forced to use 140 coal plants, and Europe in 2021, According to Bloomberg, came to an energy crisis against the backdrop of a radical transition to renewable sources and their unstable work.
But not all countries follow the German and Japanese scenario and abandon their nuclear energy.. By the beginning of 2021, the total number of operating reactors in the world was 443 pieces, plus more 52 new reactors were built. The largest growth in demand Cameco Corporation is now recording from Asia and the Middle East.
As for the results of the current year, then in 2021 spot prices for uranium for the first time since 2012 exceeded the mark 50 $ against the backdrop of increased demand and a possible shortage of raw materials.
Number of nuclear reactors operating
| 2015 | 441 |
| 2016 | 447 |
| 2017 | 448 |
| 2018 | 451 |
| 2019 | 447 |
| 2020 | 443 |
441
New reactors under construction
| China | 12 |
| Asia | 12 |
| ES | 8 |
| India | 6 |
| Africa and Middle East | 4 |
| Eastern Europe | 3 |
| Russia | 3 |
| America | 2 |
| USA | 2 |
12
About company
Cameco Corporation does business in five countries: Canada, USA, Kazakhstan, australia, Switzerland. It covers the entire nuclear fuel cycle: reconnaissance, enrichment, fuel production. The company divides its activities into two segments.
Uranium segment. This is the main unit, which includes own uranium mining and purchase from other representatives, for example, Inkai has a joint venture between Cameco Corporation and the Kazakh company Kazatomprom. In 2020, with total sales of 30.6 million pounds of uranium to a Canadian company, 33.5 million, plus another 5 million the company produced itself. In 2021, these numbers will change slightly.: sales will be 23-25 million pounds, purchase - 11-13 million pounds, and production - 6 million pounds.
The segment's key product is triuranium oxide, U3O8, which the company subsequently sells around the world. To date, Cameco Corporation has entered into long-term contracts with 32 enterprises to supply 113 million pounds of U3O8. The main clients of the Canadian firm are located in North America with a share 48% in overall results, Asian companies come next - they have 28%, and European enterprises close this list with an indicator 24%.
Fuel production. Cameco Corporation is an integrated supplier of uranium fuel, which offers processing services, fuel conversion and production. The company accounts for 24% world capacities for the primary conversion of UF6 - uranium fluoride, and the current volume of the company's contracts is 53 million kilograms of UF6.
The main customers of this segment are North American companies, their share in total sales - 66%, followed by European firms with an indicator 24%, and Asian consumers close this list - 10%.
Additional investment. Besides, Cameco Corporation has a stake in one prospective development. Canadian society owns 49% at GLE, engaged in the study of third-generation enrichment technology, which, if successful, would use lasers for commercial uranium enrichment.
Outlook for 2021. Management announced the following goals:
- Uranium production rises from 5m pounds to 6m as Cigar Lake mine recovers, which was stopped due to COVID-19 and forest fires.
- Increase in revenue to USD 1.3-1.5 billion due to fuel segment revenue growth.
- Forecast average selling price of uranium at 32,1 $.
- Capital expenditures will amount to USD 130-150 million, of which the company will spend 9 million on exploration of new areas.
The structure of the company's income, million dollars
| Revenue | Share in the overall result | |
|---|---|---|
| Uranium | 201,6 | 72% |
| Fuel production | 80 | 18% |
Dividends and financial results
Ten-year crisis in the industry, which led to a multiple reduction in prices for uranium products, greatly crippled the financial results and dividends of Cameco Corporation. Since 2018, the company has reduced the distribution of profits to a minimum and switched from quarterly payments to annual.
Financial results for the last 5 years, billion dollars
| Revenue | EBITDA | Net profit | net debt | |
|---|---|---|---|---|
| 2016 | 1,807 | 0,167 | −0,049 | 0,869 |
| 2017 | 1,654 | 0,154 | −0,159 | 0,705 |
| 2018 | 1,595 | 0,301 | 0,125 | 0,584 |
| 2019 | 1,400 | 0,277 | 0,057 | −0,049 |
| 2020 | 1,346 | 0,101 | −0,037 | 0,059 |
| 6м2021 | 0,514 | 0,016 | −0,034 | −0,050 |
Comparison with competitors
| EV / EBITDA | P / E | P / BV | net debt / EBITDA | |
|---|---|---|---|---|
| Cameco Corporation | 92,82 | Otric. | 2,19 | −0,54 |
| Kazatomprom | 11,09 | 18,27 | 4 | −0,18 |
| NexGen Energy | Otric. | Otric. | 6,77 | Otric. |
| Denison Mines | Otric. | Otric. | 4,33 | Otric. |
Arguments for
Production potential. Cameco Corporation has large uranium reserves, and if the market situation improves, the company can easily increase its own production. In 2020, a Canadian company produced just 5 million pounds of raw materials using the Cigar Lake uranium mine, and the remaining six sections of the enterprise were simply mothballed. Including the largest uranium deposit in the world - McArthur River with proven reserves of 273.6 million pounds of uranium.
Rising prices for uranium. Since the beginning of 2021, the exchange price of natural uranium has increased by 43% — with 30 to 43 $, and 22 September 2021 even recorded a ten-year high - 50,25 $. The main reason for the rise in prices is the closure of large mines and the entry into the spot market of new investment funds. The largest of these is the Sprott Physical Uranium Trust., its current reserves are 26 million pounds U3O8, which corresponds 14% annual consumption of uranium in the world.
Debt load. Cameco Corporation is financially stable, this allowed the company to go through a period of low prices without additional injections from shareholders, when uranium prices dropped to 20 $. At the moment, the net debt of the company is negative and amounts to -0.05 billion dollars, and the net debt / EBITDA multiplier is −0.54.
Overclocking by Reddit. In September 2021, members of the well-known investment forum Reddit showed increased interest in the quotes of Cameco Corporation, as a result of which the shares of the Canadian company with 1 on 13 September grew by 37% — with 19 to 26 $.
Arguments against
There is a stronger competitor. It's fair to admit, that Cameco Corporation ranks second in the nuclear sector in terms of investment attractiveness, and the best choice now is the industry leader, Kazakhstan company Kazatomprom, which in the current situation shows a decent result.
Poor results. For the past five years, the Canadian company has shown inconclusive financial results amid falling prices for uranium products. Wherein, unlike other representatives of the sector, excluding Kazatomprom, Cameco Corporation still generates positive EBITDA.
Growth of quotations. Cameco Corporation quotes have more than quadrupled since March 2020 lows, and in case, if prices for uranium products fall below 40 $, nothing will save a Canadian company's stock from a correction.
What's the bottom line?
Cameco Corporation is a Canadian uranium company, which may appeal to investors, if they are interested in this sector, they believe in a recovery in uranium prices higher 50 $ and for some reason do not want to buy shares of the Kazakh company Kazatomprom - for example, because of political risks or public administration.
