We are long Cameco Corporation (NYSE:CCJ) at just under the $9 level. This company is one of the biggest uranium produces in the world. We continue to see more upside in this position. What is interesting is that the multi-year descending triangle on the Uranium chart is coming to an inflection point pretty soon. As we can see from the chart below of URA, the price of the ETF is trying to break out of the upper trend-line of the triangle. If it can manage a successful breakout, we feel that volume and price should significantly increase in this market. This obviously will be bullish for Cameco Corporation.
The chart below also shows Cameco has been able to print higher lows and higher highs since its 2016 lows. Cameco is also close to breaking out above its upper multi-year trend-line.
I think the important metrics which distinguishes whether Cameco is a value play or value trap are its earnings and balance sheet. Despite the carnage in this sector, Cameco has been able to remain a profitable company. Yes, the firm will have to buy more Uranium from the open market in 2019 to fulfill contracts, but the average price of the commodity this year should result in the company remaining profitable. This is important from a value investor's standpoint.
Cameco still has almost $5 billion of equity on its balance sheet as opposed to around $3 billion of liabilities. Throughout the past decade, the balance sheet has remained in good stead. This also brings stability to the table. Why? Because this company is now trading very close to its book value as the market cap of the company hovers around $5 billion.
Cameco over the past few years left many of its assets in the ground due to the price of the underlying commodity at the time. Other mining companies simply couldn't do this due to the state of their balance sheets. Now that the market looks like it is coming full circle, Cameco will be able to decide when it believes the time is right to restart production at its mines. The spot price of Uranium is obviously what will drive that decision along with how Cameco views the general demand equation. All in all, Cameco looks to be in a solid place, given the low cost profile of its mines in general.
One just has to see the pace at which China is buying Uranium on the global market. Although China trails the US in its number of reactors at present, the rate at which reactors are going up there will mean that China will surpass the US's 98 reactors over the next decade. Russia, South Korea, and India are expected to come to the fore also with nuclear projects over the next few years.
How does all of this affect Cameco? In one major way. Although many countries, for example, may not buying at the scale China is buying, any new project scheduled to start within the next 3 to 5 years will need to begin contract negotiations for uranium pretty shortly. Therefore, an elevated amount of buying contracts will increase demand and the spot-price accordingly. This then gives Cameco ample time to decide how it wants to fulfill those contracts. It can supply the uranium from its mines or partially from its mines which it is doing at present.
Therefore, to sum up, with shares trading at just over $12 a share, one can buy plenty of the company's assets here for this share price. The Uranium market has been literally crucified over the past 8 years, but we believe the 2018 lows will end up being multi-year lows for this commodity. The fundamentals and technicals both are reading bullish projections. Demand is heating up. We continue to see little downside risk here.
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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.