U.S. race to expand nuclear power could depend on this mining company

Published Wed, Dec 6 202310:17 AM ESTUpdated Wed, Dec 6 202310:28 AM EST

Canadian mining giant Cameco Corp. is poised to play a pivotal role in U.S. plans to dramatically expand its nuclear power capacity, which will depend on a secure source of uranium amid rising geopolitical tensions. Nuclear power took a back seat for the past decade, especially in the West. Instead, governments and investors focused their energy efforts away from burning fossil fuels and toward a reliance on expanding renewables in the push to transition to a net-zero carbon emission economy by mid century. But there is growing recognition now that nuclear is a crucial complement to renewables, providing clean, reliable electricity when wind and solar are not available due to weather conditions. With the climate crisis growing more urgent, the U.S and a coalition of more than 20, predominantly Western nations pledged to triple nuclear power capacity by 2050 at the U.N. Climate Change Summit in Dubai last weekend. The U.S.-led coalition's ambitious nuclear energy goals come as China is already building or planning dozens of new reactors, potentially triggering a race to secure tightening global uranium supplies. Russia and India also have plans to dramatically expand nuclear. The world's uranium reserves are concentrated in just a handful of nations, several of which, such as Kazakhstan and Uzbekistan, face rising geopolitical risks. Other leading uranium miners are state-owned companies controlled by China and Russia. Enter Canada-based Cameco, which runs the largest uranium mine in the world at Cigar Lake in the remote northern reaches of Saskatchewan. Cigar Lake produces 14% of the world's uranium, according to the World Nuclear Association . Altogether, Cameco accounts for up to 20% of global uranium production, according to RBC Capital Markets. Cameco stock has more than doubled in 2023, fueled by soaring uranium prices, and adding more than $10 billion to its market capitalization which now stands at some $20 billion. CCJ YTD mountain Cameco shares have more than doubled in 2023. RBC still sees 10% upside in Cameco shares, carrying a stock price target of $50.59 against Tuesday's close of $45.72. Cameco's earnings before interest, tax, depreciation and amortization could more than double by 2035, according to RBC. "In an increasingly polarized world, we believe Cameco will be a safe, reliable partner, without the geopolitical strings attached to state-backed competitors," RBC analyst Andrew Wong wrote in a November note, describing the mine as a "nuclear champion for the energy transition" Kazakh dominance Western nations confront a precarious world when it comes to uranium supplies. Kazakhstan, for example, produces 43% of the world's uranium, according to the World Nuclear Association. A former Soviet republic landlocked between China and Russia, there are concerns about how to get uranium out of the country, said Jonathan Hinze, president of UxC, a nuclear industry market researcher. Kazakhstan was wracked by civil unrest, leading to a state of emergency and a Russian-led military intervention in early 2022. Moscow itself produces about 5% of the world's uranium but plays an outsize role in the U.S. market. U.S. uranium production peaked in 1980 and the country now relies on imports to meet domestic demand. While Canada is the largest source, the U.S. imports 12% of its uranium from Russia and 36% from Kazakhstan and Uzbekistan combined. Some members of Congress are trying to ban uranium imports from Russia in the wake of Moscow's invasion of Ukraine, which would remove an important source of U.S. supply. Russia also accounts for 40% of the world's uranium enrichment capacity. Russian dependence The West needs to move away from its dependence on Russia and enhance its own enrichment capacity, according to RBC. That will require significantly more uranium, which could lift Western demand by as much as 15% through the late 2020s, according to RBC. Although Cameco does not currently have enrichment capacity, it owns a 49% stake in Global Laser Enrichment , which uses laser technology that promises cheaper, more efficient enrichment. Global Laser Enrichment's facility in Paducah, Kentucky could start production as early as 2028, according to RBC. Cameco also now owns 49% of Westinghouse Electric Co. after an acquisition closed last month . Brookfield Renewable Partners owns the other 51%. Westinghouse is the creator of a third-generation nuclear reactor, the AP1000, that has significant growth potential, according to RBC. "Over the next decade, we imagine a realistic scenario with Cameco further expanding across the nuclear sector to become a Western-aligned full-service nuclear company," Wong, the RBC analyst, wrote. Soaring uranium prices Cameco CEO Timothy Gitzel told analysts during the company's third quarter earnings call that interest in nuclear energy is at a level not seen in half a century, while the uranium "supply picture is more uncertain than ever," challenged by rising demand and depleted mines. "Compared to previous price cycles, the market does not have the inventory or secondary supplies to absorb market shocks," Gitzel said. As a result, uranium spot prices have surged 68% this year to $81 a pound in late November from $48 in January, according to UxC. The Sprott Physical Uranium Trust has surged more than 71% for the year, while the VanEck Uranium+Nuclear Energy ETF has jumped about 34%. Cameco has slashed its uranium production guidance for the year due to equipment issues, a shortage of skilled personnel, and supply chain issues, according to September update from the company. Production at Cigar Lake was slashed to 16.3 million pounds of uranium concentrate, down from 18 million previously forecast. Production at its McArthur River and Key Lake operations has been cut to 14 million pounds, down from 15 million pounds previously. But high uranium prices could support a 60% rise in Cameco's production by 2030, according to RBC. Arkady Gevorkyan, an analyst with Citibank, wrote in October that an "unprecedented incremental rise in geopolitical risks" is creating speculative activity that is pushing uranium prices higher. "We don't expect these risks to subside anytime soon and, with time, perhaps even intensify," Gevorkyan wrote. Uranium prices might even exceed RBC's 2-3-year forecast of $75-$95 per pound, Wong wrote. A move to $100 a pound would spark still more investor interest in mining companies looking to develop projects, Hinze at UxC said. For its part, Cameco argues that the future has never been brighter for uranium, and the nuclear fuel cycle. "We are experiencing the industry's best ever market fundamentals," Gitzel, the CEO, said in late October.