Cameco reported second-quarter revenue of $598mn, up 24%. Underlying cash profit (EBITDA) rose from $54mn to $337mn. Performance was driven by the largest business unit, Uranium, which benefited from record long-term contract pricing. Profits were given a boost by the recent acquisition of a 49% stake in Westinghouse (a nuclear plant technologies, products and services business).
Uranium production rose 61% and sales volumes rose 13%, in line with typical delivery patterns. The average realised price on Uranium sales was up 15%, a reflection of the increase in price from market-related contracts.
Net debt improved from $1.2bn to $1.0bn since the beginning of the year, and free cash flow rose from $47mn to $213mn.
2024 guidance remains unchanged, looking for revenue of $2.85-3.00bn.
*Currency = Canadian Dollars
The shares were flat in pre-market in early trading.
Our view
Cameco is a company at the epicentre of the clean energy transition. This Canada-based giant is engaged in providing uranium fuel to generate clean, reliable baseload (the minimum amount of electric power needed to be supplied to the electrical grid at any given time) electricity around the globe. The company also offers nuclear fuel processing services, refinery services and it manufactures fuel assemblies and reactor components.
Second-quarter results saw revenue softer than expected, but a beat on the cash profit line. We would urge investors not to follow quarterly numbers like a hawk, the industry is inherently lumpy, so longer term trends are what we pay attention to. Contracts tend to be long term in their nature too, so it can take some time for higher prices to fully reflect in results.
Revenue jumped 39% last year, partly because of rising uranium prices and volumes. We don’t expect the same jump this year, but there are still longer-term price and volume tailwinds playing out.
Attitudes towards nuclear energy show signs of shifting in Cameco’s favour. Policymakers are more proactively proposing nuclear as an important part of energy plans. In some cases, full-scale anti-nuclear stances are being reversed. We think the market is primed to grow from here. Not only because of the helpful megatrend of cleaner energy solutions, but because there is limited uranium supply coming online at a time when demand is increasing.
There are many reasons for this heightened demand. A big one is geopolitical tensions, especially in Russia, meaning countries are looking for ways to reduce reliance on the region for energy production.
Cameco is primed to benefit. It has several approved and built assets in less volatile regions ready to fire up. Almost 90% of uranium consumption is in countries with little-to-no primary production and Cameco has controlling ownership of one of the world’s largest high-grade uranium reserves.
Cameco is exposed to political risk. We think policymakers will remain on a more nuclear-friendly course, but this isn’t guaranteed and could change, which would affect Cameco. Any nuclear disaster events would badly hurt the valuation, too. Also, uranium is a commodity, and that makes Cameco exposed to a cycle it has little control over.
Ultimately, rising concern about energy supply and a re-evaluation of nuclear energy's role means we’re at an inflection point for uranium demand. Cameco is a well-placed name to capitalise on this, and high barriers to entry keep competitors at bay. Although share prices can fall as well as rise.
Environmental, social and governance risk
Mining companies have high ESG risk. Emissions, effluents & waste and community relations are key risk drivers in this sector. Operational carbon emissions, resource use, health and safety, labour relations, and bribery and corruption are also contributors to ESG risk.
Cameco’s overall management of material ESG issues is strong.
There is board level responsibility for overseeing ESG issues, however, ESG reporting is not in accordance with leading reporting standards. Executive remuneration is explicitly linked to sustainability performance targets. Scope 1 and 2 emissions are disclosed and carbon intensity tracks below the industry average. There are also programmes in place to reduce own emissions, with targets and audits. Cameco has not been involved is any major community relations controversies.
Cameco key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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