Cameco Corporation nearing a bottom?
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Topic: Uranium Mining Stocks — November 11th, 2008
We’ll start with a quote from Jerry Grandey, Cameco’s president and CEO:
“Cameco is blessed with high quality customers whose requirements for uranium are independent of the state of the global economy. Since nuclear is among the lowest cost generators of electricity our customers will continue to operate their plants to meet base load electricity requirements,”
However these fine words did little for Cameco’s stock price, which fell 5.22% today to close at $18.71. The third quarter net earnings were 46% lower than in the third quarter of 2007. Interesting to note that revenue was 18% higher than in the second quarter of 2008 at $729 million in this quarter of 2008. This was largely due to increased volumes in the uranium albeit at lower prices, fuel services, electricity and gold businesses. To read the report in full please click this link.
The question we wrestle with is; is it at or at least close to the bottom yet?
The above chart shows that Cameco has traded as high as $59.90 to a low of $14.33, followed by a short rally to $22.50 and now back to $18.61. The technical indicators have been at both ends of their respective ranges in what has been a roller coaster ride for investors.
The long-term price for uranium is holding at $70/lb and the spot price is $46/lb, which is up ever so slightly. Should uranium prices start to rise we could witness a rush back into this sector, however we think it is too early to discern an upward trend. Cameco should benefit, however, the shadow of Cigar Lake with its water ingress problems still hangs over the company which puts a bit of a damper on the stocks progress. Not for us just yet.
Cameco Corporation has a market capitalisation of $6.45 billion, a P/E ratio of 15.52 with 344.47 million shares outstanding.
Cameco Corporation trades on the Toronto Stock Exchange under the symbol of CCO and the New York Stock Exchange under the symbol of CCJ.
Have a good one.
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Cameco will stop getting cheap Russian uranium in 2013 - and without a secure source of replacement (Cigar Lake) - there is still a bunch of uncertainty going forward….regardless of how the stock has performed.
Comment by Chris — November 12, 2008 @ 1:17 pm
I’ve always thought of Cameco as being the ‘Gold Standard’ as far as the Uranium producers go and to be fair it has ‘only’ fallen to 1/3 its peak value as other smaller operations have been almost completley wiped out. The question is then this: If you believe that Uranium has a bright future do you invest in one of the smaller players that will -by definition- have a much greater upside (if they survive!) or do you plump for the ’slow and steady as she goes’ Cameco?
…and a P/E of 15+ is NOT historically cheap, it could lose a 1/3 more from here as could the S&P 500…
Nick.
Comment by Nick Outram — November 12, 2008 @ 3:19 pm
I have to second the uncertain outlook. With the uncertainty of Cigar Lake, and further price weakness possible, I’d expect lower prices in the near future. The market is not bottoming, there are going to be more hedge fund liquidations to come (forced selling which means more commodity stock liquidation), as well as tax selling at the end of the year. As we head into a multiyear recession, I think it’s a bit hard to call a bottom, and patience will pay off in the longterm.
Comment by Thomson — November 12, 2008 @ 4:05 pm
How are you guys in Nth America seeing the new Obama policy re nuclear power plants ? Will he get more built ?
Comment by Warwick Hughes — November 12, 2008 @ 6:53 pm
“the bottom” ??? On every stock, in every sector, people are asking where is the bottom?…when will we hit it?
Crystal ball gazing….dubious at best.
#1 Seems to be though, the uranium sector seems to have cycle, yes? How much is stock-piled? when will it run out? etc etc etc. So this is good, no??
#2 not sure on Cameco and the issue of Big Guys VS little players. It’s a classic rick and reward scenario…going with the rock and rollers win big / loose big. OR is a smaller company that is well-managed and “in control” be better? Only input I would have is A) VOLUME will dictate the share price B) invest in PRODUCERS not Uranium DEVELOPERS.
Comment by Ron L. — November 12, 2008 @ 7:08 pm
I’ve had a bit of a ‘realisation shock’ just recently and its this:
I always thought a ‘Peak Oil’ type event would naturally be good for Uranium as -long term- it would force transition essentially to an electrical based society (especially transport: PHEVs, EVs, trains, etc.)
But look at what has happened:- we have had very high prices and now a recession (”PO Lite”?) and Uranium has been absolutley hammered…
The IEA report out yesterday is screaming transition, transition, transition. 21 Trillion of spending required, “BAU is unsustainable”, wind, solar, nuclear needs to go up as we ‘decarbonise’, etc.
…And yet you can ‘buy’ the Uranium miners -suppliers of a key transition fuel- for pennies on the pound / cents on the dollar…
This is NOT what I thought would happen and the only conclusion I can come to is that 99%+ of people that invest still don’t get it. These are the ones looking after our pensions, the ’smart’ ones who get the big bonuses and live in Penthouses in the city.
We have built a mountain of leveraged paper assets on top of the back of cheap energy foundations and now we are approaching an inflexion point in its availability the pile is on fire.
Non-discretional commodities will roar back in the decades ahead as the laws of physics reveal that you cannot simply print them into existing…
Nick.
Comment by Nick Outram — November 13, 2008 @ 9:48 am
Thanks for the newsletter, but frankly, you have to be joking! Does anybody give a hoot what Jerry Grandey says nowadays. Here are some of Mr. Grandey’s accomplishments over the past 7 years:
i) could have purchased the entire uranium universe anytime from 2001 to 2003 using cash flow and the company’s share equity for debt acquisitions but he didn’t think the metal’s spot price was sustainable in the $30 to $40 price range which was where the spot price was when he was quoted.
ii) allowed the world’s most promising uranium mine to flood not once, but twice rendering any discussion of the mine’s future prospects moot. Serious uranium investors could be forgiven for forgiving the first flood, but two? I appreciate how difficult the ‘ bail out ‘ of the mine is, but didn’t any of Cameco’s engineers figure out how the first flood occurred?
iii) allowed their tailings disposal facility to shut down through lack of equipment expenditure. What? Is this the man you want running any facility that processes spent fuel? Or any facility ( or mine ) in the possession of a dangerous ore
iv) discusses the future of the nuclear industry in the blandest terms and with no insight as to the role of nuclear during and after the dusk of carbon based power. I’m certain he has an opinion more reasoned than the pablum we’re fed, but I guess the CEO of the world’s largest uranium mining company thinks we’re either not ready for it, or it isn’t important.
I have no idea where the future of the uranium industry will rest. As of this moment, I have no idea who amongst the best placed companies will succeed and who amongst their leaders will represent and promote the industry with the enthusiasm it deserves.
Jerry Grandey is yesterday’s man in the uranium industry. It won’t be him!
Comment by Anon — November 21, 2008 @ 1:38 am