Are Cameco Shares Set to Soar?

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Uranium prices have been very weak over the past several years after skyrocketing just before the financial crisis of 2008 – 2009.  The uranium price started the 21st century at under $10/lb. only to skyrocket to well over $100/lb. before the financial crisis. Like other commodities, uranium collapsed during the crisis only to rebound immediately following it. However, with the price exceeding $70/lb. in 2011, we saw a new bear market develop as the Fukushima debacle created fear in the uranium market that we would see stricter regulation and a greater emphasis on forms of energy other than nuclear. This sent the uranium price down to $35/lb. where it sits today. This is the lowest level since 2005.

But despite the low uranium price, and despite the aforementioned fear that uranium demand would abate in response to environmental concerns, demand is rising as was expected prior to the Fukushima disaster. While there are environmental groups concerned about another Fukushima or Chernobyl governments throughout the world, especially in developing nations, nuclear power is a cheap and reliable source of energy that is safe if properly regulated.

Therefore, we see a disconnect between the uranium price, which sits at its lowest level in 9 years, and demand, which is rising steadily. The end result is that the uranium price has to move higher.

While there are several uranium mining companies for investors to choose from, most of them are small exploration companies or high-cost producers that cannot turn a profit at $35/lb. uranium. For investors looking for a uranium investment that is cash flow positive, has several producing mines, and pays a dividend, there is really only one option – Cameco Corporation (NYSE:CCJ).

Cameco Corporation is the world’s largest uranium producer. It has a market capitalization of nearly $10 billion. While it trades at a high multiple to earnings — about 33-times trailing earnings — investors have been bidding up the shares in anticipation of a rebound in the uranium price.

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