(By Kevin Donovan) Nuclear power has been under a mushroom cloud of uncertainty since the March 2011 tsunami wrecked the Fujishima plant in Japan, but atomic fission still appears to be an acceptable and growing part of the mix to meet the globe's energy needs.
Canadian-based Cameco Inc. (CCJ), which accounts for 16% of the world's uranium production and has 480 million pounds of proven and probable reserves at its mines in Canada and the United States, thinks so too. It aims to double its current annual production of 40 million pounds by 2018.
And Cameco recently filed a prospectus with Canadian and U.S. authorities indicating it could raise as much as $1 billion in the capital markets. With its ongoing projects well covered by cash flow, it has been speculated that the company will seek to acquire smaller producers.
This is not the tactic of a company in a contracting market, despite the tsunami that virtually shut down Japan's nuclear power generation and renewed worldwide concerns about safety.
Tim Gitzel, president and CEO, acknowledges the near-term uncertainties concerning Japan's nuclear future and the decision by Germany to phase out nuclear power, but remains convinced that nuclear energy is a growth industry.
"We believe that Japan's reactors will eventually be brought back online, not just because the country needs power and reliance on other energy sources is costly, but because we see the Japanese companies continuing to invest in uranium mining and exploration," Gitzel said on a conference call following the company's first quarter earnings report.
"All of the signs seem to point to Japan eventually bringing reactors back online, which could be a major catalyst to helping the industry move out of the near-term uncertainty that we are currently in. As I've said in the past, the real story for nuclear isn't the near term, it's the long-term fundamentals of the industry, which remain very strong."
In the U.S., about 20% of electricity is produced by 104 nuclear generating plants. Licenses for the first new U.S. plants in decades have been granted at sites in Georgia and South Carolina.
Worldwide, 96 new reactors are expected to be on line by 2021, with 63 under construction right now, Cameco says. China and India are expected to be the biggest sources of demand growth.
Cameco reported adjusted first-quarter earnings of $0.31 per share vs. $0.21 in the year-ago quarter. Higher volumes and higher realized prices fueled the gain.
At $19.19, Cameco trades at a current PE of 15.84, a forward PE of 11.84 and a price-to-book value of 1.55. Its balance sheet is solid, with a debt-to-equity ratio of 0.20. The company also sports a dividend yield of 2.11%. Cameco has traded between $16.42 and $28.41 in the past year and is up about 6% in 2012. Using the current PE on earnings of $1.61 analysts estimate for next year, we derive a share price of $26, which we think conservative given the outlook for demand. Certainly, supply will be crimped once the Russian Highly Enriched Uranium commercial agreement ends after 2013, requiring new production.
Growth in energy demand should assure demand for uranium. Cameco is hitching its fortunes on that outlook.