EUR 850.00 For Business Accounts Only

Morningstar | CCJ Updated Star Rating from 02 May 2019

We think the market is mispricing narrow-moat uranium miner Cameco. Uranium offers a rare growth opportunity in metals and mining. China's structural slowdown portends the end of a decade-long boom for most commodities--but not for uranium. Uranium prices have fallen each year from 2011 to 2017, owing to the supply glut caused by delayed Japanese reactor restarts. This situation won't last much longer, with prices beginning to recover in 2018. We expect global uranium demand to rise roughly 40% by 2025, a staggering amount for a commodity that saw next to zero demand growth in the past 10 years. We expect new reactor capacity to drive the strongest uranium demand growth in decades. A quadrupling of China's reactor fleet headlines this growth. China's modest nuclear reactor fleet uses little uranium today. That's set to change in a major way. Beijing is pivoting to nuclear in order to reduce the country's heavy reliance on coal. New reactors in India, South Korea, and Russia as well as restarts in Japan lend additional support. The mined supply of uranium will struggle to keep pace amid rising demand and falling secondary supplies. Low uranium prices since Fukushima have left the project cupboard bare, and we expect a cumulative supply deficit to emerge by 2023. These shortfalls should begin to affect price negotiations in 2019, since utilities tend to secure supplies three to four years before actual use. We forecast that contract market prices will rise to $65 per pound to encourage enough new supply.As one of the largest and lowest-cost producers globally with expansion potential, Cameco should benefit meaningfully from higher uranium prices. The company benefits from stellar ore grades, large scale, long life, and an attractive operating cost profile.