EUR 850.00 For Business Accounts Only

Morningstar | CCJ Updated Forecasts and Estimates from 02 Nov 2018

In the third quarter, spot market uranium prices continued to improve. At the end of October, prices have reached roughly $28 a pound, nearly 25% higher since June and roughly 40% higher than a year ago. However, contracting activity has not resumed to normalized levels, and the long-term price remains at roughly $31 per pound, 7% higher since June and just 3% higher from a year ago. Amid production cuts, falling producer inventories, and the construction of new reactors, the uranium supply and demand balance will continue to improve.

However, Cameco warns that long-term contracting has not returned in meaningful quantities, leaving prices too low to restart any production. In addition, a number of financial investors who’ve acquired uranium as an investment during the downturn will still need to unload their inventory, which will probably weigh on the spot market's recovery for some time. We think Cameco’s strategy makes sense, though, as it leaves production offline to prevent market oversupply and inventory buildup. The company continues to purchase tons out of the spot market to deliver contracted tons. So while the ongoing recovery has yet to hit long-term prices and thus Cameco’s contracts, more attractive market conditions are yet to come.

With minimal new information in narrow-moat Cameco's third-quarter earnings release that affects our outlook, we’re maintaining our fair value estimates of $19.50 per share and CAD 25.50 per share. The shares look undervalued as the uranium price recovery remains in early stages.

For details on our long-term Cameco outlook and our uranium supply and demand forecasts, please see our report "Cameco: Down but Not Out.”