Why I’m long uranium producer Cameco, despite Japan – M. Arold (CCJ)

Author: Michael Arold

Model: Technical Swing

Disclosure: Long CCJ

Cameco Corp. (CCJ) is the world’s largest uranium mining company and obviously affected by the nuclear catastrophe in Japan. The stock declined over 30% during the recent market sell-off. However, I believe that the company was overly punished and that CCJ could benefit from a rebound in investors’ sentiment.

Let’s look at some facts: According to the US Energy Information Administration (EIA), generated electricity in China and India alone will growth from 5.4 trillion kilowatt-hours (kWh) in 2010 to 8.6 trillion kWh in 2020, an increase of 59 percent. To put these numbers in perspective: in 2010, total electricity generation worldwide was 19.4 trillion kWh, according to EIA. So additional demand from China and India will be significant on a global scale.

China and India (I’m even neglecting other countries with nuclear ambitions such as e.g. Brazil) want to growth and they will not give up their economic goals because of a bottleneck in energy supply. In order to meet demand, both countries are planning to add significant nuclear capacity: India is currently running 15 reactors and plans to add additional 30 in the next 20 years, according to the World Nuclear Association. Numbers from China are even more impressive: the country operated 16 reactors in 2010 and has currently 77 reactors in the construction or planning stage. In both countries, there is simply no alternative to nuclear energy in order to generate electricity without an extensive increase in CO2 emission. I doubt it would be even technically feasible to meet additional demand by solar and wind energy alone.

Put these numbers in perspective with the recent news from Germany. As far as I know it’s the only country, which decided to change their energy policy as a result of the Fukushima event: Germany announced temporary shutdown of seven of their plants. The decision is not only negligible on a global scale, Cameco even confirmed at a recent conference call that the revenue share resulting from German nuclear plants was “very, very small.”

By looking at the numbers, it seems unlikely that Cameco will be overly affected by the Japanese crisis. In fact, Cameco’s business overview brochure states right on page one: “Cameco aims to double uranium production by 2018.” I like the company because it is the most conservative play on a rebound in nuclear stocks when the world will start to realize that emerging countries cannot suspend their nuclear ambitions.

“International Energy Outlook 2010” United States Energy Information Administration. http://www.eia.doe.gov/oiaf/ieo/electricity.html

“Nuclear Power in India” World Nuclear Association 2/11. http://www.world-nuclear.org/info/default.aspx?id=338&terms=India

“Nuclear Power in China” World Nuclear Association, 2/11. http://www.world-nuclear.org/Search.aspx?search=China

“Cameco Annual Report” Cameco Corporation. http://www.cameco.com/common/pdf/annual_report/2009/business_overview/Cameco_-_AR_2009_business_overview.pdf