Morningstar | Cameco Extends Shutdown of McArthur River and Key Lake Indefinitely as Uranium Price Slow to Recover
Amid the noise of a Department of Commerce probe into U.S. uranium imports, uranium prices are still slowly recovering. Spot prices now sit just above $23 per pound, only slightly above year-to-date lows of $21 per pound and last year’s price of $20 per pound. Given the continued weakness in the market, Cameco has announced that it will continue the shutdown of McArthur River and Key Lake until uranium prices improve. In the meantime, the company plans to increase its purchases from the market to meet its delivery contracts. By drawing down existing inventory and purchasing pounds from the market, Cameco is continuing to do what it can to help avoid extending price weakness. Although this is likely to eat into margins in the near term, we believe it’s the right move for the company’s long-term profitability.Our longer-term outlook is unchanged. China's nuclear fleet continues to expand, which we think will be the driving force behind significant growth in uranium demand. Although prices have shown some recovery, we think today’s uranium prices continue to underestimate the heft that Chinese demand will bring to the market.
Cameco made minor adjustments to its 2018 guidance and provided production guidance for 2019. The company’s lower 2019 production offsets time value of money effects on our fair value. As a result, we’re maintaining our fair value estimates of $17 per share and CAD 22 per share for narrow-moat Cameco.
For details on our uranium supply and demand forecasts, please see our report "Cameco: Down but Not Out.â€
Cameco and its subsidiaries are engaged in the exploration for and the development, mining, refining, conversion and fabrication of uranium for sale as fuel for generating electricity in nuclear power reactors in Canada and other countries. Co. has three reportable segments: uranium, which explores for, mines, mills, purchases, and sells uranium concentrate; fuel services, which refines, converts and fabricates uranium concentrate, and purchases and sells conversion services; and electricity, which generates and sells electricity through its 31.6% interest in the Bruce Power Limited Partnership, which operates four nuclear reactors and manages the overall site in southern Ontario.
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