Good News for Cameco
Although shares rose after Kazakhstan announced production cuts that should support a recovery in uranium, the narrow-moat miner remains undervalued.
Following Cameco’s (CCJ) November announcement that it would cut production beginning in January 2018, Kazakhstan followed with its own production-cut announcement on Dec. 4, strengthening our conviction that uranium prices will rebound to $65 per pound in real terms by 2021, compared with about $23 per pound currently. While Cameco shares rose 13% on the news, we still see considerable upside. We are maintaining our fair value estimate of USD 17 per share and CAD 22 per share. Our narrow moat rating is unchanged.
NAC KazAtomProm, the government-owned uranium miner, plans a 20% production cut that will coincide with Cameco's January 2018 cut and is slated to last for three years. Kazakhstan accounts for almost 40% of global primary uranium production, so this is a meaningful move. Collectively, supply cuts from Kazakhstan and Cameco should allow uranium prices to recover more rapidly as China continues to build out its massive nuclear reactor fleet, increasing long-term demand.
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Kristoffer Inton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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