Cameco Releases Annual Report

| About: Cameco Corporation (CCJ)

Summary

Nuclear and uranium have been out of favor.

Cameco has a strong balance sheet.

The time to buy a commodity producer is when it is out of favor.

Canadian uranium producer Cameco (NYSE:CCJ) has just released its Annual Report. Cameco is the world's largest uranium miner and refiner. Nuclear energy and uranium have been out of favor which is why the stock is a buy.

There are 395.8 million shares and the stock price is $11.33. The market cap is $4.484 billion. The company pays a 30¢ dividend and the yield is 2.65%. Earnings per share were a loss of 16¢. It takes 75¢ to buy a Canadian dollar.

The company produces 17% of the world's uranium and holds 415 million pounds of proved and probable reserves. Its main operating properties are: MacArthur River and Key Lake in Saskatchewan, Cigar Lake in Saskatchewan, and Inkai in Kazakhstan. It has three more "curtailed" properties in Wyoming, Nebraska, in Saskatchewan. Three properties are under development in Australia and Saskatchewan. Cameco has three refining and conversion facilities in Ontario. Only 0.7% of the isotope can be converted U-235 which is the atom used to produce energy.

Japan-based Tepco cancelled a major order for 9.3 million pounds going out to 2028. It is estimated that this will cost Cameco $1.3 billion in revenue. Tepco claims that because of the Fukushima disaster in 2011, that it has the right to cancel this order.

There are 58 nuclear reactors under construction which will come online in the next three years. 21 are located in China. Cameco has commitments to buy 21 million pounds of uranium between 2017 and 2028. Its five largest customers for U3O8 are located: 36% in Americas, 44% Asia, and 20% Europe. For UF6 conversion: 33% Americas, 38% Europe, and 29% Asia. The four largest uranium producing countries are: Kazakhstan (39%), Canada (22%), Australia (10%), and Niger (7%).

Cameco's MacArthur Lake operation has the richest ore grade in the world. Its grades are 100 times the average and can produce 18 million pounds a year. Phenomenal. Areva owns 31.195% of the mine. The costs at MacArthur and Key are $15.08 Canadian. Cigar Lake's costs are $15.77 Canadian. Cigar Lake and MacArthur are underground and Key Lake is open pit.

A pound of U3O8 ranged between $41.75 and $52.13 in 2012 and $34.70 and $18 in 2016. The price has bounced up to $24 recently. Not bad. The market reacted when Trump won the Presidency.

Revenues were $2.431 billion Canadian ($1.82 billion) in 2016 and $2.75 billion Canadian ($2.06 billion) in 2015. There was a loss of $60 million Canadian ($45 million) in 2016 and gain of $63.4 million Canadian ($47.6 million) in 2015.

The balance sheet shows $320 million Canadian ($240 million) in cash, $242 million Canadian ($182 million) in receivables, and $1.3 billion Canadian ($975 million) in inventories. That inventory is a big helper. The liability side shows $313 million Canadian ($235 million) in payables and $1.49 billion Canadian ($1.12 billion) in debt. S&P rates Cameco's debt as BBB. I'd agree with that.

Cash flows from operations were $312.38 million ($234 million) and $217.8 million ($163 million) in capital expenditures. Free cash flow was $95 million ($71 million). Management still made a positive free cash flow in a bad year.

Guessing what's going to happen with nuclear energy is very challenging. The Germans don't like it, the French do, the Japanese have gotten burned, and America is not too crazy about it. The Chinese want to clean up their environment but may get their own mines and stay out of the loop with global supply and demand. Democrats don't like it because it can be dangerous and competes with wind and solar. Republicans (oil money at least) don't like it because nuclear competes with natural gas. At this point, it costs far less to construct gas plants and the U.S. has an abundance.

I like Cameco for one reason-it seems to be at the bottom. When the bad news from Tepco came out, the stock only fell a few dollars. There would have to be quite a bit of bad news to kill the stock price. The risk is that the price of uranium turns and goes down to $10 a pound. It could happen. Still, my theory on commodity producers is to buy when everyone has counted them out and are running for the hills.

Disclosure: I am/we are long CCJ.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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