Cameco also owns a 40% stake in the Inkai mine, which has been facing procurement and supply-chain issues, mainly related to sulfuric acid deliveries. Transportation challenges, construction delays and inflationary production costs are other headwinds.

Fuel services production for 2024 is expected to be 13.5-14.5 million kgU, suggesting a rise from the 13.3 million kgU reported in 2023. Sales deliveries are expected to reach 12-13 million kgU in 2024, whereas it reported 12 million kgU in 2023.

These anticipated improvements in production and sales for uranium and fuel services for the full year are likely to have positively influenced CCJ’s third-quarter performance. However, routine maintenance at Cigar Lake, McArthur River and Key Lake in the third quarter is likely to have somewhat impacted production figures. Despite this, we expect uranium production in the third quarter of 2024 to be more than the 3 million pounds produced in the third quarter of 2023. Uranium sales are also likely to have been higher than the 7 million pounds sold in the year-ago quarter, as Cameco is likely to have capitalized on the higher uranium prices through the quarter.

In the third quarter of 2024, fuel services production and sales are expected to surpass 2 million kgU and 2.1 million kgU, respectively, in the year-ago quarter. 
Higher sales volumes in both uranium and fuel services segments, coupled with increased uranium prices, are expected to have benefited Cameco’s top-line performance.

Meanwhile, the average unit cost of production at McArthur River/Key Lake is expected to have been higher in the quarter as it ramps up production.  The average unit cost of sales in the fuel services segment is likely to have been elevated than the prior-year quarter’s actual due to the lower production expectations at the Port Hope conversion facility. CCJ will continue to incur care and maintenance costs for the ongoing curtailment of its tier-two assets, which are expected between $50 million and $60 million.

Cameco has been progressing to lower administration, exploration and operating costs, and capital expenditure. This will help offset the impacts of elevated costs on CCJ’s earnings.

In November 2023, CCJ acquired a 49% interest in Westinghouse Electric Company. Westinghouse is expected to incur a net loss of $170-$230 million in 2024 due to the impacts of the purchase accounting, which requires the revaluating of Westinghouse’s inventory and other assets at the time of acquisition, and the expensing of some non-operating acquisition-related transition costs. Of the expected net loss for Westinghouse in 2024, $170 million has already been incurred in the first half. Due to normal variability in the timing of its customer requirements, and delivery and outage schedules, we expect the Westinghouse segment to have seen a stronger performance in the third quarter of 2024.

CCJ’s share of adjusted EBITDA from Westinghouse is expected between $445 million and $510 million in 2024.  Of this, $197 million of EBITDA was realized in the first half of 2024 and the major part ($248-$313 million) remains to be realized in the second half of 2024. We, thus, expect the third-quarter contribution from Westinghouse to have been higher.

CCJ’s Price Performance & Valuation

 

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Cameco shares have appreciated 33.7% in the past three months, outpacing the industry’s return of 7%. In comparison, the Zacks Basic Materials sector and the S&P 500 have gained 2.7% and 9.5%, respectively.

Meanwhile, the company’s peer Energy Fuels UUUU and Denison Mine Corp. DNN have gained 21.8%  and 31.8%, respectively.

The Cameco stock is trading at a forward price-to-sales ratio of 9.36 compared with the industry’s 1.21. It is also above its five-year median of 5.56.

 

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The company is, however, cheaper than peer Uranium Energy’s UEC price-to-sales ratio of 33.27.

Investment Thesis on Cameco

Geopolitical events, energy security concerns and the global focus on the climate crisis amid rising low-carbon energy demand have created tailwinds for the nuclear power industry. Given CCJ’s low-cost and high-grade assets, and diversified portfolio spanning the nuclear fuel cycle, it is well-poised to capitalize on these trends. It is the second-largest uranium producer, accounting for 16% of 2023 global production. Supported by a strong balance sheet, Cameco is making investments to boost its capacity. For the next five years, the company has contracts for average annual deliveries of 29 million pounds of uranium per year. These offer CCJ a buffer against potential declines in uranium prices.
The ongoing procurement and supply-chain issues, and construction delays at Inkai are headwinds for Cameco. Also, changes to the Mineral Extraction Tax for uranium in Kazakhstan, which will take effect in 2025, will impact its earnings.

Should You Buy CCJ Stock Now?

Cameco is likely to deliver improved results in the third quarter, supported by higher sales volumes and uranium prices. Regardless of the earnings outcome, investors already owning CCJ shares should retain the stock in their portfolios to benefit from its solid long-term fundamentals. However, given CCJ’s premium valuation and ongoing challenges at Inkai, new investors can wait for a better entry point.

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