Well, all good things must come to an end, and the HEU will no longer exist after 2013.
The odds of the program being extended are slim to none, and the cancellation of the agreement will remove about 22 million pounds worth of supplies off the market. Perhaps more important for investors, the end of the agreement will allow Russia to sell their supplies to the highest bidder on the markets. And as we noted above – there are a lot of potential bidders.
Once again, we have a commodity with exponentially rising demand and falling supplies. That’s a recipe for higher uranium prices and profits for smart investors.
Betting On Uranium Oxide
Spot uranium prices are currently around $40 per pound. However, the potential HEU shutdown and new plant construction could double that price in a few short years. According to investment bank JPMorgan, uranium will hit $58 per pound in 2014, $70 per pound in 2015 and a whopping $90 per pound in 2016. While that’s still well below the mineral’s all-time highs of around $140 per pound, it’s still more than double today’s prices.
That leaves plenty of potential profit for uranium producers.
One producer set to gain big is Cameco (CCJ). The firm controls roughly 14% of all uranium production and features some of the largest proven and probable reserves — currently 465 million pounds. The bulk of those reserves lie in stable and friendly Canada with extremely high ore grades. That steady Canadian production allows Cameco to prospect across the globe — in places like Australia and Kazakhstan — to grow its production and reserves.
Perhaps more importantly, those high ore grades and sound production strategies allow CCJ to be profitable even with uranium prices currently in the basement. In fact, Cameco has been able to realize average prices for its production above the current uranium spot prices based on the quality of its mines. Any bump up in spot prices will only serve to better the company’s profits and margins.
CCJ shares currently trade for a forward P/E of less than 16 and a yield of 1.9%. While that’s not super cheap, given Cameco’s status as the world’s top uranium miner the slight premium is worth it. After all, the company’s top reserves command top dollar. Strengthening uranium prices will only make things better.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.