Things may be looking up for uranium producer Cameco, but prepare to be patient

Cameco Corp.’s stock has been resurrected this year by the potential of nuclear power to help address the climate crisis. But it could be a long and painful wait for that potential to become a reality.

Case in point: The past week saw steep losses inflicted on the entire uranium space, as a broader stock-market selloff punished the most speculative pockets of the market. Cameco’s share price dove 9 per cent on the week.

Looking past short-term volatility, a brighter future almost certainly lies ahead for uranium producers such as Cameco, said Ross Healy, the chairman of Toronto-based research firm Strategic Analysis Corp. The urgency to reduce carbon emissions has several governments planning to build new nuclear power plants, ensuring plenty of future demand for uranium.

“The question for an investor in Cameco is: How patient are you?” Mr. Healy said. “This is one of those stocks you have to put away and almost ignore it.”

While hardly a forceful bull case, it’s a big improvement on the prevailing investor attitude toward the company over the past decade.

In 2011, when a 9.1-magnitude earthquake struck off the coast of Japan, it triggered enormous tsunami waves that killed thousands and triggered meltdowns in the reactors of the Fukushima Daiichi power plant.

The disaster cast a pall over the entire business of nuclearpower generation. Japan initially shut down its entire industry, then the world’s third-largest, while other countries decommissioned reactors. The clean energy movement focused instead on wind and solar.

Demand for uranium, the fuel used in nuclear reactors, collapsed. A global glut forced Cameco to shut down its McArthur River mine in northern Saskatchewan, and the company still has no plans to fire it back up.

From its peak in 2011 until a year ago, Cameco’s stock steadily diminished, losing roughly 70 per cent of its value.

But with the urgency around decarbonization rising, nuclear is getting another look. China has 150 new reactors planned over the next 15 years, France is expanding its nuclear energy program for the first time in decades, and even Japan has vowed to restart plants that have been shuttered since 2011.

“There is no clear pathway to sustainably achieve both electrification and decarbonization, while maintaining a secure, affordable and stable electricity grid, without having nuclear in the toolbox,” Tim Gitzel, the chief executive officer of Cameco, said in a call with analysts in October.

That new vision for nuclear has captured the imagination of the retail investing masses congregating on stock forums such as Reddit.

A speculative rally in all things uranium pushed up Cameco’s stock by 55 per cent over a onemonth stretch beginning last August.

“Speculators grabbed the thesis and ran with it,” Mr. Healy said. “At this point, we’d need earnings to go up five times to make the stock even remotely reasonably valued.”

Even after this week’s dip, Cameco’s stock is still trading at well over 100 times next year’s forecasted earnings.

Even though uranium is currently changing hands for about US$46 per pound, Cameco’s stock has been trading at levels that would be associated with a price of about US$80, said Bryden Teich, a portfolio manager at Avenue Investment Management.

“There’s a lot of optimism being priced in,” he said.

And while he agrees that nuclear power is crucial to the emissions reduction targets set out in the COP26 climate agreement, Mr. Teich is skeptical of the political process required to build reactors that will run for several decades.

“It requires very, very longterm planning from government, and I’m not seeing a ton of that in the West or Europe,” he said. “These things are highly susceptible to shifting political winds.”