Hey Friends!
Cameco is the largest non-state owned public listed uranium miner, with uranium interests in Kazakhstan, US, Australia, and Canada. In Canada, the company operates the Cigar Lake mine in the Athabasca Basin in Saskatchewan, currently the world's highest grade mine. In Kazakhstan, the company is in a Joint Venture with Kazatomprom, the state-owned (and now publicly listed) uranium miner which operates the Inkai mine. The company has several other mines under care and maintenance, notably the McArthur River/Key Lake mine, also in Saskatchewan, erstwhile the world's highest-grade mine. And Cameco has made the right moves through the uranium bear market, shutting down its higher-cost mines, shelving development projects, and cutting its dividend to conserve cash.
However, with uranium spot prices lower than the cost of production of even its Tier 1 mines, the company is aggressively purchasing uranium in the spot market to meet its contract obligations.This will preserve the value of its pounds in the ground as it waits out the bear market, and may also become a hidden balance sheet item in the way that Goldcorp used to accumulate bullion in its earlier days of existence.
Cameco’s long term price contracts provide a hedge too.
Based on the contracts it had in place as of Q2, the company would receive $40 per pound if the spot price was $40 per pound in 2020, $53 at a $60 spot price, and so on. If the company purchases uranium at the current spot price ($25.3/lb) and sells it at $30+ under its long-term contract, it makes a riskless profit, which is precisely what management has been doing and the reason why they are in no hurry to re-start their shuttered mines. If spot prices were to jump to $60/lb, we can see from the table that Cameco will receive $53/lb.
Using their current all-in costs, that would translate to a 64% gross margin, netting $480 million in net income, based on our back of the envelope calculations. Cameco trades at 7.2x the forecast PE.
For a conservative investor, Cameco is the safest bet among the primary uranium producers.
Stay ahead of the masses,
Seth Maniscalco
Founder, Crypto Wealth Coach LLC
Owner, Modern Wealth Management LP
www.CryptoWealthCoach.com/VIP
Cameco is the largest non-state owned public listed uranium miner, with uranium interests in Kazakhstan, US, Australia, and Canada. In Canada, the company operates the Cigar Lake mine in the Athabasca Basin in Saskatchewan, currently the world's highest grade mine. In Kazakhstan, the company is in a Joint Venture with Kazatomprom, the state-owned (and now publicly listed) uranium miner which operates the Inkai mine. The company has several other mines under care and maintenance, notably the McArthur River/Key Lake mine, also in Saskatchewan, erstwhile the world's highest-grade mine. And Cameco has made the right moves through the uranium bear market, shutting down its higher-cost mines, shelving development projects, and cutting its dividend to conserve cash.
However, with uranium spot prices lower than the cost of production of even its Tier 1 mines, the company is aggressively purchasing uranium in the spot market to meet its contract obligations.This will preserve the value of its pounds in the ground as it waits out the bear market, and may also become a hidden balance sheet item in the way that Goldcorp used to accumulate bullion in its earlier days of existence.
Cameco’s long term price contracts provide a hedge too.
Based on the contracts it had in place as of Q2, the company would receive $40 per pound if the spot price was $40 per pound in 2020, $53 at a $60 spot price, and so on. If the company purchases uranium at the current spot price ($25.3/lb) and sells it at $30+ under its long-term contract, it makes a riskless profit, which is precisely what management has been doing and the reason why they are in no hurry to re-start their shuttered mines. If spot prices were to jump to $60/lb, we can see from the table that Cameco will receive $53/lb.
Using their current all-in costs, that would translate to a 64% gross margin, netting $480 million in net income, based on our back of the envelope calculations. Cameco trades at 7.2x the forecast PE.
For a conservative investor, Cameco is the safest bet among the primary uranium producers.
Stay ahead of the masses,
Seth Maniscalco
Founder, Crypto Wealth Coach LLC
Owner, Modern Wealth Management LP
www.CryptoWealthCoach.com/VIP
