wearmanyhats

About four years ago, Cameco (CCJ)  became the darling of all the prescient financial newsletter writers who saw nothing but a bright future for them.  CCJ was selling at a fairly cheap price, something between $5 and $17 and the picture was rosy.

Then a series of incidents began to take place that knocked this uranium miner right on its duff.  First, a mine called Cigar Lake filled with water, and all of the promise of pulling out uranium dried up.  But that was all that dried up.  The mine certainly didn’t and as hard as Cameco has, the mine still is flooded. 

Then the price of uranium, which had been zooming upward, fell back to earth, and with it went the profit potential of Cameco.  That’s not to say that they are not profitable.  On the contrary, they do have a positive net each year, and that says a lot in an industry like mining.

So why has the stock been heading south for so long?  The problem is that investors had run it up so high that it fell back down to where it was more reasonably priced.  And that is where it is hitting right now: the more reasonably priced category.

So does that mean it’s a buy?  Absolutely not.  The P/E ratio is just now hitting 20, and it the technical charts indicate that it is on a serious downhill trend.  The lower price of uranium is the cause for the serious drop in revenue that it had second quarter.  And on top of that, countries are now becoming quite proprietary about its mines.  Legislation to keep mined materials in the country has been introduced in Australia, though new elections could change that.

So why bring up Cameco at all?  It’s too busy of a bee to not watch.  Sooner or later all of its efforts, regardless how exhaustive they are, will pay off.  Sooner or later those 120 new nuclear power plants in China will need uranium.  And when they do, the demand for the uranium should make the price rise, the profitability for the companies like Cameco should escalate as well.  We’ll be watching and hoping the soggy Cigar Lake mine can actually dry out.  Until then, we wait.

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