Should Cameco Stock Be on Your Watch List?

Cameco (TSX:CCO,NYSE:CCJ) is one of the largest uranium producing companies in the world. It produced 28.4 million pounds of uranium in 2015, up from 23.3 million a year earlier, and has plans to continue growing.
Overall, the miner is responsible for roughly 18 percent of the world’s production, with about 410 million pounds of proven and probable reserves in projects in Canada, the US and Australia. It’s 69.8 percent owned McArthur River mine is the largest uranium mine in the world, responsible for 13 percent of global production.
In that light, it certainly makes sense for uranium investors to keep an eye on Cameco stock price movements. Whether market participants are interested in junior miners, developers or other large producers, Cameco stock activity can be a valuable indicator of how the overall market is doing.

Cameco stock and uranium prices

Cameco’s share price has been on the downtrend so far in 2016. It’s lost 7 percent since January and 17 percent over the past year, and is currently trading at $15.87 on the Toronto Stock Exchange. In New York, Cameco stock has fared better, gaining 0.81 percent since the start of the year to trade at $12.43.
Over the past five years, Cameco has lost 44.57 in Toronto and 58.36 percent in New York.
That might sound like bad news for the stock. However, as with many other companies in the uranium space, that loss has been largely driven by the 2011 Fukushima nuclear disaster in Japan and the ensuing drop in uranium prices.
A Tsunami triggered by an earthquake caused three nuclear meltdowns and led the country to put its entire nuclear capacity on hold. The move, coupled with a broader commodities price rout that began a couple of years later, has brought uranium prices down from $63.50 per pound in March 2011 to roughly $29 per pound today.
Reactor restarts in Japan had investors predicting higher uranium prices early in 2015, but so far, prices have remained under pressure. Still, some market participants are calling for higher demand and a lack of new supply coming online to boost uranium prices in the next one to two years.

What’s next for Cameco?

In the meantime, Cameco is doing its best to make due at current prices. Results of a preliminary economic assessment (PEA) were recently released for the Wheeler River project in Northern Saskatchewan, indicating strong results using a base case price of US$44 per pound. David Sadowski of Raymond James noted that the figure “refreshingly, [was] in-line with the current posted long-term price.”
Cameco owns a 30 percent interest in the project, with JCU (Canada) Exploration owning a 10 percent interest and Denison Mines (TSX:DML,NYSEMKT:DNN) owns 60 percent.
More importantly, Cameco also recently released an updated NI 43-101 technical report for its 50 percent-owned Cigar Lake mine. Among other things, the report included a revised mine plan and development method, as well as a much higher capital cost. Sadowski stated in a note to clients that the increase “speaks to both the complexity of the Cigar Lake orebody, as well as the difficulty of bringing-on high-grade uranium production in general, but particularly at sandstone/unconformity-hosted deposits.”

While the Motley Fool points out that Cameco is still battling Canada Revenue Agency (CRA) over tax issues, it also notes that Cameco holds some of the highest grade deposits in the world, arguing that the miner is well positioned to benefit from a recovery in prices.
On the other hand, Sadowski suggested that things might not be that simple, and was hesitant about some of the other projects in Cameco’s pipeline. In it’s latest note on the company, Raymond James kept its ‘overweight’ rating for Cameco stock, but lowered its price target from C$25 to C$22 per share.
In any case, that’s still a fair return over where the stock is currently sitting, at $15.87. And as mentioned above, Cameco is still one of the largest uranium producers in the world, and is thus one to watch for those keeping an eye on the uranium market.
Cameco has a market capitalization of 6.23 billion, and has traded within a 52-week average of $14.56 and $21.44 per share.
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Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.