Nuclear Power Explodes Back Into The Spotlight

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Includes: CCJ, DNN
by: Tusk Media

Summary

Cameco to halt uranium production at McArthur River mine.

Uranium prices will jump due to market supply.

Competitors will enjoy higher prices as Cameco is sidelined.

Canadian company Cameco (NYSE:CCJ), one of the world’s largest uranium producers, announced on Wednesday that it will be suspending production at the McArthur River mine. Plans to cut the workforce by almost 80% will go into effect by the end of January. 845 employees will experience layoffs, with only 210 essential personnel running the operation for as long as 10 months.

Cameco CEO and President Tim Gitzel stated: “There’s just too much uranium out there.”

With the price of uranium dropping throughout the year, the nuclear disasters in Japan, and severe pressure from regulatory agencies, Cameco has had a tough time staying competitive. Ben Nye states:

“The combination of all of this has conspired for a very depressed market in uranium.”

The clean-up costs can be astronomical. As a result, uranium producers find it difficult to continue operations as prices drop. The issue is compounded by the fact that coal and natural gas prices have also gotten cheaper.

“This {issue} will probably only increase with the advent of solar power, and of course the further proliferation of wind power.” - Ben Nye

So, what can we expect for the competition as Cameco significantly halts production? Typically, this benefits the competition quite a bit. The price of uranium will rise without a supply heavy market, and Cameco’s competitors will enjoy that premium. Cameco is taking the bullet for the entire market in a sense.

Denison Mines (NYSEMKT:DNN) for example, another Canadian based uranium producer, could stand to benefit from the McArthur River shutdown.

“When prices go up, that option value also increases…so Denison is almost an option in and of itself.” - Ben Nye

Keep an eye on announcements out of Cameco and Denison, as well as the price of uranium.

Disclosure: I am/we are long DNN.

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.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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Tagged: , , , Industrial Metals & Minerals, Canada
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