Cameco Corp. (CCJ, Financial) is a large-scale uranium producer responsible for approximately 18% of the global supply. The company could benefit in the coming years due to uranium's use case as a nuclear fuel material.
There's been a long-standing debate over nuclear energy's part in a renewable energy world. Some say that nuclear energy is a dangerous method of producing power due to grim historical nuclear reactor accidents; however, others say it is a must if we are to achieve net zero by 2050.
The war in Ukraine has dealt an array of unwanted secondary effects. One of the effects is a pending European energy crisis caused by an abandonment of Russian oil and gas. As a result, there has been a more friendly attitude toward nuclear energy by previous naysayers as the eurozone desperately needs to garner power from as many sources as possible.
Since the turn of the year, coal has played a big part in backfilling European energy shortages. However, this is a temporary solution as nuclear energy is considered a future cornerstone.
Another factor to support a bullish outlook for uranium is China's recent uptake of nuclear energy, which could spark a massive demand spike. China is forecasted to be the largest producer of nuclear-powered energy. According to Markit, it will likely be responsible for 60% of global new-build plants in the coming decades, with output growing exponentially.
How will uranium demand impact Cameco's stock?
As mentioned before, Cameco is the world's leading supplier of uranium. Cameco's 15% net profit margin conveys its powerful market position as its economies of scale have settled into its income statement.
Much of the company's prospects were in doubt during the Covid-19 pandemic as its Canadian operations went offline due to operational risk policies. However, it is in the process of bringing most of its projects back online in the coming years. Additionally, Cameco's flagship Inkai mine in Kazakhstan has not delivered any inventory this year due to the Russia-Ukraine war; however, the asset is ready to go and could add significant value to the stock once the project comes back online.
While a majority of Cameco's operations have been temporarily defunct, its Cigar Lake and McArthur River assets have flourished amid rising uranium prices and increasing geopolitical support. These assets and Cameco's fuel sales business produced $588 million in second-quarter revenue, beating estimates by $174.89 million.
Concluding thoughts
Geopolitical alignment and robust alternative energy demand could support Cameco systemically. Many of the company's operations have been offline since the start of the pandemic and one mine has been affected by the Russia-Ukraine war. However, it is well aligned to benefit from systemic support once it resolves its idiosyncratic issues in the coming quarters.
