Cameco is on a run due to uranium’s good fortune. In previous uranium articles, I spoke about how the technical charts were hinting at some downside. This did occur and charts we use to assess the uranium price hit our support levels, or price floor. Uranium itself was at a key psychological level testing the $50 zone on a corrective pullback. I say corrective because the long term uptrend was still in play.
Now the uranium bulls are excited and celebrating. This is what happened when uranium tested $50:
Boom! Now that’s a rip roaring rally!
What adds even more excitement to this move is the technical breakout. Uranium has broken out above the recent resistance, or price ceiling. This means the next target is now the 2022 highs at around $65. With the $53.30 zone now being support in case of a pullback or retracement.
What is the reason for the price rip? According to trading economics:
Uranium prices soared to $57.75 per pound in June, the highest in 14 months, amid increasing concerns that the current capacity of producers throughout the cycle is not fit to meet bullish long-term demand. Major economies continue to announce plans to increase nuclear power capacity to strengthen energy security and lower carbon emissions, solidifying expectations of strong uranium buying activity for decades to come. In the meantime, two bills to ban the import of Russian uranium were approved by US government committees, aligning with many European utilities that have voluntarily shunned Russian supplies. The developments pressed imports from one of the top producers of enriched nuclear fuel, placing pressure on the capacity of scarce Western converters and enrichers. Supply concerns were exacerbated by Russian firms winning contracts to mine uranium in Kazakhstan, threatening the neutrality from the world’s top uranium miner and increasing purchasing competition from China.
In simple terms, a supply shortage. And higher prices are needed to incentivise new production. According to Canaccord Genuity, US$60-90/lb is the new consensus price to incentivise new projects to come online. Currently, uranium spot price is nearing US$60/lb.
Bank of America analyst Michael Widmer is forecasting price to hit $75/lb by the end of 2025. The bank also forecasts a production deficit of 60 million pounds in 2035 – on par with Kazakhstan’s (15% of global reserves) annual output.
Of course this is positive for the sector and uranium stocks as a whole. Even the juniors will benefit as more discoveries and supply will have to be found. But one company making the headlines with this uranium pop is Canada’s largest uranium producer, Cameco Corp (CCO.TO).
The stock is up over 40% year to date! And a major technical breakout has occurred.
The stock has been restricted by resistance at the $40 zone. We have rejected it three times since 2022. But on June 1st 2023, Cameco finally broke out. The stock then pulled back and completed a successful retest at $40 just confirming the importance of this zone. The uptrend has now hit another major resistance zone. Let’s zoom out:
Above is the monthly chart of Cameco. Each of these candles represents a full month of price action. Note the zone we have tested this month. If you look to the left, this zone around $44 has been support and resistance way back between 2005-2011. Is this zone important today? You bet. Traders and speculators tend to base their trading around major support and resistance zone. Longs tend to take profits at this zone. This means we could see a bit of a pullback here to retest the $40 zone. Alternatively, a major breakout above would be a super bullish sign, hinting at price eventually retesting previous all time record highs.
What about the fundamentals for the stock?
Cameco announced in April that it would extend a long-standing arrangement to supply fuel until 2040 to Bruce Power, Canada’s only private sector nuclear generator. Some analysts believe the Cameco deal suggests that enough uranium supplies have been placed aside for future contract deliveries.
Cameco also s signed a 10-year contract with Westinghouse to provide enough natural uranium hexafluoride (UF6) to run the Kozloduy 5 Reactor at the Kozloduy Nuclear Power Plant (NPP), which is the only nuclear power plant in the Republic of Bulgaria. Cameco will be a part of a nuclear fuel supply agreement led by Westinghouse that also involves Urenco. The contracted enriched uranium product will be shipped to a Westinghouse factory in Sweden and utilized to manufacture the fuel assemblies for the Kozloduy NPP.
Cameco is in the process of acquiring 49% of Westinghouse Nuclear which provides fuel fabrication, operating plant services, and new plant technology, all worldwide. This will make Cameco a vertically integrated company covering uranium mining, fuel cycle, new plant construction, operating plant services and decommission.
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