No, Cameco Has Not Turned Bearish On Uranium
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A reader wrote in to ask if Cameco’s (CCJ, CCO.TO) latest news releases might indicate that the world’s ultimate uranium insider is turning bearish in the near term. It’s not that Canada’s premier uranium miner has swung back to making losses—which Cameco did—but that it reported some new secondary supply from Japan hitting the market. This prompted some analysts to downgrade the stock.
Note: I do not own shares in Cameco.
That said, I do like and follow the company, and I think the referenced analysts’ reports are misreading the situation.
In the first place, the context was Cameco giving its take on the current dip in uranium prices, not its outlook. The company’s Q1 2019 MD&A said:
In late March, we saw some motivated selling from a number of market participants. It seems these players had built up a uranium position in anticipation of short-term demand in the market, and misread the timing of that demand. When the demand didn’t materialize on the timelines expected, they began to sell material into a very illiquid spot market, which drew a few other sellers into the market as well.
In other words, they think some speculators timed the market wrong—nothing to do with outlook or large, new supplies hitting the market. Cameco tested this by offering to buy a million pounds of uranium, and found that there wasn’t enough supply to meet their request.
In explaining their strategy for buying at the lowest possible prices, they did cite the potential Japanese selling:
For example, we are hearing that one of the Japanese utilities is looking to sell a modest amount of its inventory, less than 150,000 pounds per year for the next several years. While the volumes are small, and we have not seen a broader shift in Japanese utility behavior, we believe this selling could have an impact on market sentiment. Our response will be the same as in the first quarter, we will wait for the material to come to the market. We may purchase this material, but will do so at the lowest price possible.
Now, 150,000 pounds is almost nothing in a market that consumes about 190 million pounds per year. I also find it telling (and amusing) that Cameco could just buy this amount if the price is right, and then resell it to their higher-priced, long-term contract customers. But they key point is that Cameco is saying—and they can’t be called disinterested, but they should know—that they don’t see Japanese utilities as a group switching back to selling.
As far as Cameco’s uranium price outlook goes, the bottom line is quite positive:
We see growing support for nuclear, and with more than 50 reactors under construction, demand is certain and predictable. However, supply is uncertain and declining. We have seen meaningful production cuts, and reductions in producer inventories, which has led to increased demand for uranium in the spot market from producers and financial players.
And their own outlook, they say, is also bright:
As a result of the uncertainty created by declining primary supply and all the other moving pieces, we are starting to have off-market conversations with some of our best and largest customers about what it takes to support the operation of our tier-one assets longer term. These customers are recognizing the risk overreliance on finite sources of supply poses to security of supply longer term and want first mover advantage. In light of market access and trade policy issues affecting our market, they are increasingly looking for stable, commercial suppliers with long-lived assets and a proven operating track record.
Again, I wouldn’t call Cameco a disinterested party, but they do know the industry. I do not agree that they have turned near-term bearish. And I don’t see any cause for alarm in the few words about Japanese secondary supply used in an example regarding their own purchasing practices.
Best of all, Cameco’s bullishness doesn’t mean that they’re about to shoot themselves—or the sector—in the foot by rushing to increase production. This brings me to my favorite quote in their news release:
And while we are encouraged by the contracting activity, make no mistake, there is still a long way to go before we decide to restart McArthur River/Key Lake.
In short, nothing has changed. There’s no evidence of a large new wave of primary or secondary supply about to take uranium prices much lower. The fundamentals remain solid and the trend remains upward.
Personally, I’m still looking to deploy more cash in this space—ideally before Donald Trump makes his Section 232 decision.
If you want to know which uranium stocks I’m buying, The Independent Speculator is dedicated to covering exactly what I’m doing with my own money. For more general updates on this and other metals markets, please give my free, no-spam Speculator’s Digest a try.
Either way, you now have my take.