Reuben Gregg Brewer, The Motley Fool
5 min read
In This Article:
-
Cameco is a uranium miner closely tied to the nuclear power industry.
-
The company has been working to reduce its revenue volatility.
-
The shares have soared over 50% in the past three months.
Shares of Cameco (NYSE: CCJ) have been on a rocket ride over the past three months or so, gaining a massive 50%-plus in a very short period of time. Is that a warning sign that Wall Street is baking in overly optimistic expectations or is the miner set to see a material improvement in its business over the coming years? There's a lot to unpack before you run out and buy Cameco stock right now.
At its core, Cameco is a miner. Mining is a very capital-intensive business, given the cost of finding good places to build a mine, getting the approval to build a mine, building and operating a mine, and then, ultimately, returning the mine site back to its original state once the mine is closed. Complicating things a great deal is the fact that most miners produce commodity products, so their revenue and earnings are heavily impacted by often volatile commodity prices.
Cameco is no different from other miners in this regard. But the uranium it mines does set it apart from the pack in some important ways. For starters, uranium is the fuel that powers nuclear power plants. So Cameco's fortunes are tightly tied to the nuclear power industry's ups and downs. Given the high-profile nature of nuclear plant disasters, that can be a very negative thing at times. And the bad times tend to linger until the fear over the risks of nuclear power disasters subsides.
That said, nuclear power happens to produce energy without producing greenhouse gases. In other words, it is a source of clean energy. Nuclear power is also capable of running at full nameplate capacity on an ongoing basis, making it a great complement to intermittent power sources like solar and wind. Given the ongoing shift in the world toward cleaner power options, nuclear power is seeing something of a renaissance. (The fact that the last nuclear power plant meltdown happened in 2011, quite some time ago at this point, is also a big help.)
At the same time, Cameco can't avoid the fact that the price of the commodity it sells has a major impact on the way Wall Street views its business. With nuclear power seen as an increasingly important power source, uranium prices have benefited. And so, too, has Cameco's stock price. The tie between uranium prices and Cameco's stock price will likely never change, so a significant drop in uranium prices would lead to a big drop in Cameco's stock price, too.
