Cameco The Ultimate Survivor (CCJ, DNN)

May 26, 2008 | By Mark Whistler

As we're all painfully aware, oil is trading over $130 a barrel and doesn't look as if it is showing any signs of abating soon. With this in mind, there's another energy paradigm shaping up that investors will likely want to be aware of.

Nuclear power is a clean, carbon-free source of energy, something that is badly needed. With the rise of nuclear power, the driving fuel, uranium, is also an industry on the rise. Last summer, the spot price for uranium oxide (U308) hit highs at $138 per pound, but has since fallen to $60 per pound. Now uranium could be on the verge of another major run, propelled by the price of oil and the world's efforts to find cheaper alternative to traditional fossil fuels.

Uranium Stocks for Savvy Investors
Within the uranium universe, there are really only a few key players, Denison Mines (AMEX:DNN) and Cameco (NYSE:CCJ) in Canada, BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RTP) in Australia. In this article we'll examine the two pure plays from the North and save the Aussies for another day.

Denison Mines Ready To Rebound?
Denison Mines has certainly made some bold headway in the past year, as seen in the May 14 earnings results for the three months ended March 31. The company reported a net loss of 6-cents per share, versus a 3-cent loss in the year ago period.

While the loss looks a little rough on paper, the bulk of the company's earnings this year will come from the third and fourth quarters, where Denison expects to sell 1.8- 1.9 million pounds of U3O8 in 2008, including 1.1-1.2 million pounds from U.S. production. The company is presently also exploring in the Athabasca Basin in Canada, which holds unconformity geological settings, which is the highest yielding geological makeup for uranium. Should Denison hit another Cigar Lake-type deposit, the stock could rocket.

Cameco - You Can't Keep A Good Cockroach Down
Canada's Cameco is the presently the largest uranium producer in the world. After the company found problem after problem in its mining operations over the past year, Cameco's stock has been severally beat up. Much of the trouble started in 2006, when the Cigar Lake mega-mine located in Saskatchewan flooded while the company was attempting to develop the property. Consequently, the actual commencement of mining has been pushed back until 2011, while the company pumps the water out and repairs the damage. Despite this massive setback, in the first quarter earnings increased of 130%, due to price improvement of legacy contracts. (For further reading, be sure to check out Earnings: Quality Means Everything.)

Looking forward, the market has priced in plenty of uncertainty surrounding the company, including potential delays at the McArthur River mine, suspension at the Port Hope uranium hexafluoride plant and concern over regulatory issues in the Kyrgyz Republic, where the company holds a stake in Centerra Gold. The final uncertainty lies within the company's state-owned partnership in Kazakhstan for the Inkai uranium deposit.

Even though the whole picture looks absolutely dismal, Cameco continues to perform. The real picture here, beyond the bad news, is that if Cameco can still post profits during the rough years, it will likely blow the doors off of earnings when everything is working out for the company. Canada's Globe and Mail reported on May 16 that Cameco is now seeking out new uranium investments (i.e. smaller uranium producers), to bolster production and the bottom line in the future. Cameco is seeking these investments because the price of uranium has fallen and in the present environment, there's never been a better time to buy. Cameco's drive for ownership in smaller companies that have amazing potential can be seen in its 19.5% ownership of UNOR (CDNX:C.UNI), which could be sitting on some of the largest uranium deposits in the world.

Bottom Line
Cameco knows to buy when everyone else is selling, something savvy investors should consider too. At the end of the day, there's never been a better time to buy Cameco stock