Is Cameco Stock a Buy Now?

With artificial intelligence (AI) increasing demand for electricity, nuclear energy is becoming a more viable option. In fact, all three big cloud computing companies have announced major investments in nuclear power.

Microsoft started the ball rolling when last fall it signed a 20-year power purchase agreement with Constellation Energy in which the power company would restart its Three Mile Island nuclear facility to power Microsoft's data centers. Alphabet and Amazon, meanwhile, have turned toward small modular reactors (SMRs). SMRs are much smaller than traditional nuclear reactors and offer more flexibility in their deployment. There are currently no SMRs in the U.S., but both China and Russia have operational SMRs.

This growing interest in nuclear power means there will also be increasing demand for uranium. One of the best ways to play this nuclear trend is with Cameco (CCJ 5.51%).

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A solid future

Despite a solid longer-term outlook, uranium prices are actually down about 40% from February 2024 at recent prices. Part of this stems from increasing tensions between the U.S. and Canada. Canada is the largest supplier of uranium to the U.S., representing about 27% of its total supply in 2023.

Canada's Cameco, meanwhile, is the world's second-largest uranium miner. Not surprisingly, its stock price has fallen given the pressure uranium prices have been seeing. However, it is worth noting that Cameco sells its uranium through long-term contracts at pre-negotiated prices. It has commitments to sell on average 28 million pounds of uranium a year over the next five years. It noted its total book of business is for about 220 million pounds of uranium.

To put that in context, the company owns part of two Tier-1 uranium mines in Canada and one in Kazakstan. Its two Canadian mines have a combined 43 million pounds a year in capacity, with McArthur River Key Lake (69.8% ownership) at 25 million pounds and Cigar Lake (54.5% ownership) at 18 million pounds. It also has a 40% stake in the Inkai mine in Kazakstan with 10.4 million pounds of capacity, as well as other uranium assets such as refiners and conversion facilities.

It delivered just under 34 million pounds of uranium in 2024 while producing about 23.4 million pounds. It is looking to produce 18 million pounds at each of its McArthur River Key Lake and Cigar Lake mines in 2025 on a 100% basis, which means total production regardless of its ownership. It is still in discussions with its partner Kazatomprom on what its purchase allocation for 2025 will be with its Inkai mine. Inkai mine production has been impacted by ongoing supply chain issues in Kazakhstan.

The company does not expect a direct 10% tariff to have a material impact on its financial results in 2025. It said historically non-tariff countries just raise prices due to the inelasticity of uranium demand. Cameco also noted that it has a lot of new customers in Central and Eastern Europe that it never had before.

Another reason behind the decline in uranium prices involves the potential lifting of sanctions on Russia and the impact this would have on the uranium market. For its part, Cameco thinks it would take quite some time for those sanctions to be moved to the side, while the U.S. and other countries don't want to start relying on Russian uranium and low enriched uranium (LEU). Russia is the sixth-largest uranium miner, but accounts for only around 5% of the world's production. However, state-owned Rosatom is the leader in uranium enrichment, and Russia was the largest supplier of enriched uranium to the U.S. commercial sector in 2022 and 2023.

That said, if Russian uranium were to hit the market, Cameco said that there is still "a very significant structural deficit" with growing uranium demand and that Russia is not a big enough supplier to impact that.

Thus while uranium prices are currently down, future demand from current projects bodes well for prices. Meanwhile, Cameco's book of business and contracts look to be in good position when these new projects start to come online.

In addition to its mining business, Cameco also owns a 49% stake in Westinghouse Electric Company, which provides mission-critical technologies and services to the nuclear power sector. As new reactors come online and older reactors are recommissioned, this business should benefit. It also tends to have a nice recurring component.

Is the stock a buy?

Despite the near-term weakness in the stock, Cameco is still one of the best ways to play the long-term trend in nuclear energy. Its long-term contracts protect it in the short term, while it should see solid growth in the outer years. It also has a number of solid Tier-2 mines and assets that become more valuable when uranium prices are high.

Cameco looks like a solid option for investors to buy at current levels. I think the stock should be a long-term winner, although there could still be some near-term bumps. However, it's best to look five years out with the uranium market, not just the next five months.