Cameco (CCJ)

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See all Bulls Reasons Bulls: Reasons To Buy watch out! 100% agree watch out! Butt pirates invade! Buy buy boy. View or Edit Reason 1 votes 100% agree Uranium rises for the first time in a year 0% agree Uranium rises for the first time in a year June 30th) Uranium-oxide concentrate for immediate delivery climbed for the first time this year, up a dollar to US$58 per pound. Six sales, totalling 600,000 pounds, took place last week. This marks the end of a seven-month drop in which the metal price decreased by almost 40%.... read more View or Edit Reason 0 votes 0% agree Uranium Prices 0% agree Uranium Prices Uranium Prices: Demand for uranium is expected to outstrip supply over the next decade. This excess demand will continue to put upward pressure on the price of uranium. This will benefit Cameco given that it controls more than 45% of identified new uranium production that is... read more View or Edit Reason 0 votes 0% agree See all Bears Reasons Bears: Reasons To Sell Cyclical nature of uranium prices 0% agree Cyclical nature of uranium prices Cyclical nature of uranium prices. Uranium contracts have decreased from the $140 range to the $90 range in the last half of 2007. This will negatively affect Cameco's margins as well. View or Edit Reason 0 votes 0% agree Political risk in Kyrgyz Republic and Russia 0% agree Political risk in Kyrgyz Republic and Russia Political risk. Cameco had to sell its gold reserves in the Kyrgyz Republic because of pressure from its autocratic government. It is currently renegotiating its contract with Russia for buying uranium from dismantled Soviet era submarines, presumably at a lower price. This affects Cameco's costs and ultimately lowers its profit margin. View or Edit Reason 0 votes 0% agree Coal demand has been surging in recent times 0% agree Coal demand has been surging in recent times Coal Power. Coal demand has been surging in the past six months. Low prices, coupled with a cheap dollar, has lead an increase in coal power as a share of US and global electricity generation. As Clean Coal progresses, the premium paid for nuclear energy may not seem as attractive. View or Edit Reason 1 votes 0% agree Send the authors a comment or suggestion Even though Cameco is the largest uranium producer in the world, it has significant international... more [Dismiss] [Done] I see from the stock chart that the stock price of CCJ increased dramatically a few years ago and... more [Dismiss] [Done] See All Suggestions

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Cameco (NYSE:CCJ) is the world's largest producer of U3O8 uranium, a mineral whose only commercial use is to fuel nuclear power plants. Nuclear power accounts for about 15% of the world's electricity ^[1]. Cameco accounts for 20% of world production and has 500 million pounds of proven and probable reserves and extensive resources. Cameco is involved in all stages of the uranium mining process, which includes exploration, fuel fabrication and electricity generation (the latter through Bruce Power, a partnership with British Energy (LON:BGY). Cameco is one of only three conversion suppliers in the western world and controls about 40% of the western world's capacity to produce uranium hexafluride (UF6). Cameco also has a 53% stake in Centerra Gold Inc ^[2].

[edit] Business Financials

As seen in the charts below, uranium production from 2004 to 2006 increased by only 4% while revenue nearly doubled. This difference can be explained by the dramatic increase in uranium prices during the past few years.

[edit] Key Trends and Forces

• Demand for Uranium Outstrips Supply: Every year since 1985, the world's consumption of uranium has been greater than its production. The shortfall in demand for uranium has come from several renewable and non-renewable sources, including reprocessed uranium and plutonium as well as from the dismantling of Russian and U.S. nuclear weapons. As one of the least expensive energy sources on a per unit basis, nuclear energy may see increases in demand as the appetite for energy in large growing economies such as China steadily increases.

• Uranium Prices Dictated by Long Term Contracts: Uranium spot prices have increased dramatically since 2003, when the commodity was under $10 per pound. Its peak spot price in 2007 was over $125 per pound and have since fallen to about $85 as of September 2007. Cameco's stock price appreciated 8-10 fold over the same time period. Most utility companies secure a significant percent of their uranium fuel through long-term (i.e., multi-year) contracts with companies such as CCJ. These contracts are often priced in accordance to market conditions with uranium spot prices (i.e., short-term purchases for uranium within one year).

• Alternative Energy May Displace Nuclear Power: The increased adoption of ever-cheaper alternative energy sources such as coal, wind, hydroelectricity and solar could put downward pressure on the demand for uranium.

• Nuclear Power Regulations: Nuclear energy--and hence uranium demand--is dependent on key legislation issues, including environmental and safety concerns surrounding nuclear power plants as well as electricity deregulation. In addition, deregulation of utilities in the U.S. could lead to the decrease of nuclear reactors, which are expensive to maintain and build.

• 90% of Cameco's Production Comes from Canada: Cameco mined all of its 21.4 million pounds of uranium from Canada (89% of total) and the U.S. (11% of total). Environmental legislation in Canada or the U.S. regulating the mining of uranium could play a major factor in the company's future production. The world production of uranium in 2005 was approximately 105 million pounds of U3O8, 90% of which came from eight countries, which are, in order of greatest to least production: Canada (30 million pounds, 29% of world production); Australia; Kazakhstan; Niger; Russia; Namibia; Uzbekistan; U.S.

[edit] Competition

In 2005, Cameco was the biggest uranium mining player in Canada, the largest uranium-producing country, accounting for 21.4 of 30 million pounds of production in that country.

In 2003, over 80% of the estimated world production of U3O8 uranium came from eight companies:

• Cameco is the largest uranium producer in the world
• Cogema (France, with the French state having a majority stake and petroleum company TotalFinaElf, S.A. (TOT) having a minority stake)
• Energy Resources of Australia Ltd. (Australia)
• KazAtomProm (Kazakhstan)
• WMC Resources Ltd. (acquired by BHP Billiton in 2005)
• Rossing Uranium Limited (Namibia)
• NAVOI Mining Metallurgical Kombinat (Uzbekistan)
• Priargunsky Industrial Mining and Chemical Enterprise (Russia)

[edit] Uranium Reserves and Supply

Cameco is the world’s largest uranium producer with diversified sources of supply. Its supply of uranium comes from a variety of sources including primary and secondary sources such as excess inventories, uranium made available from defense stockpiles and the decommissioning of nuclear weapons, re-enriched depleted uranium tails, and used reactor fuel that has been reprocessed. Cameco has more than 500 million pounds of proven and probable reserves, including the world’s richest high-grade reserves in northern Saskatchewan, Canada. In addition to their uranium production, Cameco has commitments to purchase annually about 7 million pounds of uranium through 2013 from Russia.^[3] In November 2007, Cameco’s rating was cut by RBC Dominion Securities and CIBC World Markets because of a risk that there may be a significant increase in the cost of uranium from Russia. Cameco purchases its uranium from Tenex, a Russian state-run company, which is considering a new pricing structure to take a larger share of increased uranium prices. Uranium prices have skyrocketed since the contract was signed between Cameco and Tenex in 2001. Investors fear that Cameco may be forced to renegotiate at much higher prices.^[4]

[edit] Notes

1. ↑ World Nuclear Association
2. ↑ http://www.cameco.com/
3. ↑ http://www.cameco.com/investor_relations/annual/2006/index.php
4. ↑ http://www.theglobeandmail.com/servlet/story/LAC.20071102.RCAMECO02/TPStory/Business

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