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Cameco: Our Top Mining Pick

The narrow-moat company stands to benefit from an increase in uranium demand and is trading at a 40% discount to our fair value estimate.


David Wang: We believe uranium offers a second chance at the China growth story.

China's structural slowdown has led to the end of a decadelong boom for most commodities, including coal, copper, and iron ore.

But, we expect Chinese uranium demand to surge as the country doubles the size of its nuclear reactor fleet in the next five years, quadrupling it in the next 10. China is shifting away from coal-powered generation to less pollutive forms of energy. Nuclear is chief among the alternatives to replace coal due to its base-load generation characteristics.

Uranium supply will struggle to keep pace with demand growth. The recent price declines have led to mine closures and disincentived mining projects from moving forward. We expect the current oversupplied market will turn into a market deficit in the next five years. This should drive uranium prices to more than double from current levels.

Canadian uranium miner Cameco is our top pick to play this theme. It's a low cost producer with a strong production growth profile and excellent balance sheet.

Shares have taken a beating over the past year and now trade at more than a 40% discount to our fair value estimate.

David Wang, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.