Rob Chang, an analyst with Cantor Fitzgerald, discussed how one uranium company's upcoming facility closures should affect the market.
Cameco Corp. (CCO:TSX; CCJ:NYSE) intends to halt uranium production at its McArthur River and Key Lake operations for 10 months beginning in February 2018, Chang reported in a Nov. 8 research note.
He indicated this "major production cut" will drop total estimated 2018 uranium production by about 9%, which equals about 13.7 Mlb.
As for the overall effect this could have on the market, Chang concluded, "We expect strength in uranium prices and equities on the back of this news. This is the type of supply shock that will spur strength in the spot U3O8 price as a significant amount of expected production for 2018 is removed."
The analyst qualified those statements, however, noting the change may be slow to take effect for three primary reasons:
1. The market is "less efficient" due to the limited number of existing, qualified uranium purchasers today, Chang wrote.
2. Utilities are not under pressure to buy uranium soon, the analyst noted. They have "shored up what were once large shortages through spot purchases or short contracts," leaving an estimated under 10% of total uranium demand for 2018 and 2019 "uncovered."
3. Current inventory levels could "dampen" the expected price movement, said Chang. "We estimate that there are 800–1,200 Mlb of total above-ground inventory of which about 700–800 Mlb are held by utilities." However, not all of that supply is available for purchase, as significant portions are held for strategic purposes and necessary utility needs."
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Additional disclosures about the sources cited in this article
Disclosures from Cantor Fitzgerald, Cameco Corp., Oct. 30, 2017
Potential conflicts of interest
The author of this report is compensated based in part on the overall revenues of CFCC, a portion of which are generated by investment banking activities. CFCC may have had, or seek to have, an investment banking relationship with companies mentioned in this report. CFCC and/or its officers, directors and employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. Although CFCC makes every effort possible to avoid conflicts of interest, readers should assume that a conflict might exist, and therefore not rely solely on this report when evaluating whether or not to buy or sell the securities of subject companies.
Disclosures as of October 30, 2017
CFCC has not provided investment banking services or received investment banking related compensation from Cameco within the past 12 months.
The analysts responsible for this research report have, either directly or indirectly, a long or short position in the shares or options of Cameco.
The analyst responsible for this report has visited the material operations of Cameco. Assets visited include: McArthur River, Cigar Lake, and the Key Lake Mill. No payment or reimbursement was received for the related travel costs.
Analyst certification
The research analyst whose name appears on this report hereby certifies that the opinions and recommendations expressed herein accurately reflect his personal views about the securities, issuers or industries discussed herein.
