Uranium producer Cameco Corporation (NYSE: CCJ)
stock has been breaking out through multi-year highs on the renewed interest in clean energy
spurring uranium demand. Uranium is used to fuel nuclear power plants that provide 20% of the electricity and up to 55% of all clean energy in the U.S. The U.S. uranium reserves plan coupled with the Biden administration's clean energy agenda has changed the sentiment for nuclear energy. Nuclear is clean but not renewable like solar or wind
, thus require a continued source of uranium
. Unlike junior and developmental companies like Energy Fuels (NASDAQ: UUUU)
and Dennison Mines (NYSE: DNN)
, Cameco is already processing and selling uranium, making them the real deal for investors looking for exposure in this industry. Cameco has 43 projects in the works and will implement those that enable them to capture demand and provide leverage for higher prices in 2021. Prudent investors looking for a uranium-producing miner can watch for opportunistic pullback levels to build a position.
Q4 2020 Earnings
On Feb. 10, 2021, Cameco reported its fourth-quarter 2020 earnings for the quarter ended December 2020. The Company reported earnings of C$0.12 per-share, excluding non-recurring items, versus consensus analyst expectations for a loss of (-C$0.05), a C$0.017 beat. Revenues fell (-36.9%) year-over-year (YoY) to C$550 million versus C$395.88 analyst expectations. Due to COVID-19 restrictions, the Company had to suspend operations at its Cigar Lake mine twice in 2020. The Company produced only 5 million pounds in 2020 as a result. The Company purchased 11.5 million more pounds at an annual cost of $40.41 per pound, compared to the expected life-of-mine operating costs of $15 to $16 per-pound at Cigar Lake. The Company incurred $55 million more in care and maintenance costs which were offset by receipt of $37 million under the Canada Emergency Wage Subsidy program. The profits were basically generated due to the hedging and purchasing of U308 spot to fulfill contract obligations. Cameco owns a 40% stake in the Inkai mine in Kazakhstan, which is producing uranium, but accounted in the financials as purchases. The Company ended the quarter with C$918.3 million in cash, C$1 billion in an untapped revolver, and C$52.2 million in net debt.
Conference Call Takeaway
Cameco CEO, Tim Gitzel, summed up the improving narrative for uranium, “We’re excited about the future for our industry and our ability to support the transition to a net-zero carbon economy through both traditional and non-traditional uses of nuclear power.” He stated that demand for nuclear power is “becoming more certain as fundamentals improve” and uranium supply shrinkage. He noted the global initiative for decarbonization will require nuclear to be in the toolbox to achieve both electrification and decarbonization since fossil fuels still provide 80% of the world’s electricity. Using China as an example, the country has a goal of 25 million electric vehicles (EVs) by 2030 and the goal of being carbon neutral by 2060. This will require a 380% increase in nuclear power or the equivalent of 200 nuclear reactors, which is double the total U.S. fleet. Nuclear is the only low-carbon source producing low-carbon heat which can be used to produce clean hydrogen and freshwater. Demand for nuclear means demand for uranium at a time when supply is dwindling.
On Feb. 11, 2021, Bank of America (NYSE: BAC) downgraded Cameco to Neutral from Buy with a $17.50 price target citing valuation. Current pricing assumes U308 pricing of $52/lb. versus current spot prices around $29.50/lb. Analyst Lawson Winder acknowledges Cameco as the largest and “most liquid Western uranium producer at a time when uranium fundamentals are improving” but thinks shares have gotten ahead itself.
Tax Dispute Resolution
On Feb. 18, 2021, Cameco announced it had resolved its tax dispute with the Canadian Revenue Agency (CRA) as the Supreme Court of Canada rejected the Leave to Appeal request by the CRA. The resolution for the dispute relating to 2003, 2005, and 2006 tax years, will result in C$5.5 million refund with interest and C$10.25 million in legal fees, and up to $C17.9 million in cost awards from previous decisions. The timing of the payout has not been determined. The Company is confident this precedent will free up the remaining dispute pertaining to the 2007 through 2014 tax years for which the CRA holds “approximately $785 million in cash and letters of credit that Cameco has been required to pay or otherwise secure for the 2007 through 2014 reassessments issued”, according to the Company.
CCJ Opportunistic Pullback Levels
Using the rifle charts on the monthly and weekly time frames provides a broad view of the landscape for CCJ stock. The monthly rifle chart is uptrending with a rising 5-period moving average (MA) support at $12.20 as it surpassed its upper Bollinger Bands (BBs) at $15.00. The 15-period MA overlaps with the $10.26 Fibonacci (fib) level. The monthly stochastic has a unique pattern called a double pretzel mini pup where the stochastic initially crosses down then reverses back up and repeats this motion twice to viciously squeeze the short-sellers. The monthly market structure low (MSL) buy triggered above $10.41. The weekly rifle chart has a strong pup breakout uptrend with a rising 5-period MA support at $14.89. The weekly MSL buy triggered above $12.80, however, a market structure high (MSH) sell trigger looms if shares fall under $15.06. Prudent investors can monitor for opportunistic pullback levels at the $15.06 weekly MSH trigger, $14.35 fib, $13.10 fib, $12.40 fib, $10.90 fib, and the $10.40 monthly MSL trigger/fib area. Upside trajectories can range from the $19.60 fib upwards to the $25.67 fib. Keep an eye on peers UUUU and DENN as these junior uranium miners move together.
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