There are two reasons investors should be bullish on Canadian uranium stocks.
The first is nuclear power’s massive potential.
Nuclear is a green energy that doesn’t get nearly the attention of other environmentally friendly energy solutions. Yes, nuclear plants are expensive to build in the first place, but once the asset is in place it’s an incredibly efficient way to produce energy for decades.
There are two main downfalls to nuclear energy.
The first is a risk of a meltdown, something that has been minimized by increases in technology over the years. I won’t argue that nuclear energy is 100% safe, but it’s pretty darn close.
The other downfall is nuclear waste, but today’s efficient reactors hardly generate any waste. Even with these downfalls – which have been improved significantly over the last couple decades – nuclear is still a great power source that doesn’t get nearly the attention it deserves.
The other reason to be bullish on uranium is the commodity is currently depressed.
Thanks to the Fukishima disaster of 2011, new construction of plants hit a standstill. There are still perfectly functional plants that still haven’t been brought back online in Japan.
As I type this, uranium trades for about US$30 per pound. To put that into comparison, the average price was as high as US$100 per pound in 2007 and it surged to more than US$70 per pound in 2011.
This weak market is despite many top uranium mines stopping production over the last few years. Supply has dwindled, but so has demand.
Fission Uranium Corp (TSX:FCU) doesn’t just have a catchy name. The company is also poised to be a major uranium producer.
The company owns a 100% interest in the advanced, high-grade and near-surface Triple R uranium deposit, an asset that is located near the Athabasca basin by the Alberta and Saskatchewan border.
The company is excited about the asset because it’s located near other proven uranium reserves, and initial testing has shown the location boasts plenty of high-grade minerals near the surface, something that should keep extraction costs down once production starts.
Other investors are excited about the project, too. Sprott Asset Management, which is perhaps the most prominent precious metals investor, just lent the company US$10 million towards starting production.
CGN Mining, a Chinese company, also owns a 19% stake in the company. With China planning to build more nuclear reactors, it only makes sense for a Chinese company to take an interest in a potential major supply source.
There’s just one big issue, however. Fission will continue doing tests throughout 2020, and the company is still nowhere close to production from its marquee asset. Look for Triple R to finally start producing product sometime in 2022 or 2023.
That might not be soon enough for some impatient investors.
Uranium Participation Corporation (TSX:U) is a little different than the other two companies on this list. Rather than owning the means of extraction, Uranium Participation owns the physical uranium itself. The assets are stored at various facilities in Canada, the United States, and Europe.
Let’s face it; there’s a lot of risk in operating any kind of mine. First, these assets often take hundreds of millions of dollars in start-up capital to just get the infrastructure in place.
Then there’s operational risk, which is the chance of management screwing something up. Finally, such an asset is somewhat high risk, since it needs a certain price in order to be feasible.
A mine producing uranium at a $30 cost per pound produced would be unprofitable if the commodity price didn’t cooperate. Such a mine could easily shut down, which is not good for shareholders who helped finance it.
Another nice thing about Uranium Participation Corp is it’s easy for investors to value the assets. After all, it’s all easily measured.
At the end of March, the company had a net asset value of $5.04 per share, while shares traded under $4 each.
Although the stock has rallied smartly since, that’s mostly because uranium prices are increasing. Thus, the discount to net asset value has stayed largely the same.
Simply put, Uranium Participation Corp gives investors uranium exposure in pretty much the safest way possible. The only problem is you’re not getting as much upside potential as with our top uranium stock pick.
Cameco Corporation (TSX:CCO) is a behemoth in the uranium business. It’s the world’s largest publicly traded uranium producer and it extracts nearly 20% of the world’s annual supply of the mineral. The company has nearly 500 million pounds of uranium reserves, ensuring it’ll be a big player for years to come, too.
Major assets include a 50% ownership stake in Cigar Lake, a large uranium mine in Saskatchewan.
It also owns 40% of Inkai, a uranium mine with low extraction costs located in Kazakhstan. Both mines are actively producing today, and Cameco also buys product from other producers and resells it to customers.
If uranium prices do shoot higher, it’s likely Cameco will reopen another important asset. It owns a 70% stake in Macarthur River, the world’s largest uranium mine located in Northern Saskatchewan. It operated from 2000 to 2018 before being shuttered due to low uranium prices.
Meanwhile, Cameco has steadily improved its balance sheet.
It repaid $500 million worth of debt and has $1 billion left outstanding, an amount that is more than offset by the $1.1 billion it has in the bank. And there’s potential for a big tax refund as the company has a hearing with the CRA over what it feels was unnecessarily harsh tax treatment.
The bottom line on uranium stocks
It’ll take a big increase in nuclear power for these uranium stocks to be a good investment. Fortunately, it sure looks like that’s coming. Japan will likely restart their shuttered nuclear plants in a few years. Both China and India are building more, and nations like U.A.E. are also joining the party.
With uranium prices only marginally above a multi-year low, it could very well be a great time to enter the space. It isn’t very often we see a sector with this kind of potential.