As the largest uranium miner in the world, Cameco Corp. (NYSE:$CCJ) is in a class of its own. If you want to invest in uranium, this is one of the best options on the market. That said, there are still a number of factors which weigh it down as an opportunity for investment.
Keep reading to get a better understanding of those factors if you are starting to invest in uranium and you want to do so through Cameco Corp.
Market weakness.
For over six years, weak and fluctuating uranium prices have affected Cameco and a number of other uranium miners. Following the 2011 Japanese earthquake and tsunami, there was extensive damage to the Fukushima reactor, which caused an immediate effect on the demand for uranium. This, in turn, drove the price down from US$70 per pound to US$20 per pound.
As a result of the low demand for uranium, Cameco had to deal with an overabundance of inventory, which has proven difficult to get rid of. In an attempt to counteract the slowdown, Cameco lowered output and cut costs over the past couple years. That said, Cameco will not experience a full recovery until the prices of uranium start to improve. Unfortunately, as a result of this, the stock price for Cameco has significantly decreased. Their stock prices fell from roughly $40 per share to the $13 per share.
To compensate, Cameco Corp. has shut down facilities that cost a significant amount to run as well as enforcing cost-cutting procedures. As Cameco continues to miss earnings estimates (they missed it for four of the past five quarters), the company has started to consider selling a number of assets in order to improve the health of their company.
Additionally, the Chapter 11 filing of the Westinghouse Electric Company has played a defining role in the weighing down of the uranium industry. If you were planning on making a uranium investment with Cameco Corp., it’s important for you to know that Westinghouse is owned by Toshiba Corp. (TYO:$6502), who have stated that US$6 billion has been lost from the nuclear power sector in 2017, and that figure could increase to US$10 billion.
Cameco has a long-standing feud with the CRA.
As if market weaknesses and missing earnings estimates weren’t enough, right? To top it off, Cameco also has a feud with the CRA over earnings from a foreign subsidiary. This matter is still being considered by the courts, and it is likely that we will know the outcome of the decision within the next year.
Luckily for Cameco, this feud is known amongst investors, and experts have stated that the CRA feud is already considered in the present stock price.
The benefits of investing in Cameco.
There is considerable evidence suggesting that the circumstances in the uranium market are going to start improving. Prices in uranium have increased in 2017, finally breaking the US$23 per pound, and long-term prices have moved past US$33 per pound.
Additionally, the demand for nuclear power has improved significantly. In particular, India and China have created infrastructure projects which rely on new nuclear reactors which are being built to absorb a number of their growing energy needs.
Following the 2011 disaster, Japan now has tight rules and regulations which have caused delays and at one point, there was the potential that there would be permanent reactor closures in Japan.
With that said, the belief around the nuclear power sector is starting to change. Just recently an Osaka court disagreed with some of these closures, and, as a result, a number of reactors will restart in the coming weeks. With this, many believe that additional restarts will follow shortly after, as one reactor restarting could cause a domino effect.
Currently, there are 60 reactors that are under construction, with roughly twice that number in different stages of planning and approval. Once these reactors officially restart, they will need the uranium that Cameco produces. Generally speaking, this will mean that there could be a reduction of the current oversupply and that uranium prices could be pushed further up the ladder.
Keep in mind that even though Cameco faces issues which are holding them back, the long-term forecast for the uranium market appears to remain relatively positive. If you are looking to start uranium investing and you want to either add to your current holdings or you would prefer to buy Cameco for the first time, know that you can still take advantage of the current (low) price of the stock. That said, this can only happen if short-term changes do not persuade investors.
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