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CCJ is the world's largest publicly traded pure-play nuclear fuel company. They are involved in the extraction of the uranium ore taken all the way to its enrichment where it will eventually be pressed into pellets and sold as nuclear fuel. This involvement includes 4 key steps:
Within these four steps, CCJ is heavily involved in the first three steps of mining to conversion. Their involvement drops with enrichment as they usually utilize third-parties for enriching and selling the nuclear fuel. However, they have expressed interest in creating their own enrichment business. Currently, they own a 49% stake in Global Laser Enrichment (GLE).
CCJ's involvement primarily comes in three business segments:
The broader industry
The uranium market can be split into two sections:
Since 2011, the spot market price of uranium has been much lower than the long-term contracts price of uranium. Both are incredibly depressed from their highs in 2011.
This can be attributed to the 2011 nuclear reactor disaster in Fukushima, Japan which has been called the 2nd worst nuclear reactor meltdown since Chernobyl. Due to this disaster, Japan stopped its nuclear program completely and gutted the demand for uranium. Since then, prices have plummeted. The number of nuclear reactors around the world, while increased from 2011, has remained relatively stable over the previous 5 years.
Uranium spot prices has gone up over the past few months in a bull market. They are now sitting at a 6-year high. A lot of new investor money has taken interest in this price action and a new trust in Canada attracted almost $200M from investors looking to get into the uranium markets. The same trust is planning on issuing $300M of additional units from their trust.
Also, COVID-19 impacted the supply of uranium, further constricting the availability of uranium in the markets. Entire mines have closed down for significant periods of time due to COVID concerns. This impact has spread similarly through enrichment facilities, and fuel packaging operations all the way to delays in construction of new nuclear reactors.
There is a global supply deficit in the uranium market. Currently, global consumption of uranium equals 190M pounds while global production equals 140M pounds. This deficit is currently covered by stockpiled inventory as well as the conversion of weapons-grade uranium to reactor-grade uranium. The stockpiled inventory of uranium is estimated to be significant but depleting and no good global estimates for when this stockpile will run out is available
While 2021 uranium demand is actually expected to decrease, demand by 2025 is forecasted to increase by 40%!
CCJ revenues has dropped over the years. They now sit at a 4-year low in terms of revenues. Their marketing budget has remained relatively stable as well. In general, their income statement reflects the financials of a well-established company operating in a constricting environment.
Unlike fast-growing companies, CCJ is not burning money in marketing in an effort to expand revenues. In fact, they have historically had an operating income, but have suffered in 2020 due to both demand restrictions within uranium as well as COVID-19 impacts.
CCJ has a very healthy balance sheet. Mining is a very asset-heavy operation so it makes sense that their total assets would outweigh their total liabilities. Its worth noting that their current assets far outstrip their current liabilities and they have nearly $1B in cash on-hand.
2020 was a bad year for CCJ. They were only able to generate 10% of the cash through operations that they normally generate.
However, even with a bad year, they did not need to issue additional shares in order to cover their losses which points to a stable business operation as well as increased discipline around stock issuances for the sake of their shareholders.
The bull case
CCJ operates some of the largest uranium mines in the world, accounting for 7% of the world's uranium supply and 24% of the world's primary uranium conversion in preparation for enrichment. As the world's uranium stockpile continues to deplete, demand for uranium will pick back up and with it, uranium prices. CCJ is currently operating at reduced capacity at all its tier-two mining locations as well as its Kazakhstan mine which is only operating at 80% capacity. It has even shut down one of its tier-one facilities. This means that if demand spikes, CCJ will be in a good position to capture that demand with the investments it has already made.
Japan, which was at the pinnacle of today's low uranium prices, has announced a 2050 carbon-neutral plan. Most experts agree that in order to reach this, it will have to restart all the nuclear generators which were shut down after the Fukushima disaster. This is not only a literal increase in demand, but also a very symbolic victory for nuclear energy as the entire industry still lives in the shadow of that disaster. In very optimistic forecasts, the IAEA forecasts a doubling of nuclear capacity by 2050.
The bear case
The current spike in uranium prices is not indicative of any long-term increased demand. The most telling statistic is that CCJ and other companies like it have refused to reopen additional uranium mines because they are uncertain about sustained demand. Additionally, the Fukushima disaster spearheaded efforts around the world to reduce reliance on nuclear energy which is coming to fruition soon. Germany, for example, will phase out nuclear energy completely by 2022. The US, nuclear energy will be reduced from 19% of the electricity generation to 11% by 2050.
Furthermore, uranium is very cyclical with long cycles (18 months) due to stockpiles of up to 1-2 years of nuclear fuel always being available for plants. This means there won't be any “shortages” for at least 2 years even with the current climate's spike in demand. Furthermore, new nuclear reactors will utilize more efficient processes which burns less nuclear fuel, cutting down on future demand. Without drastically increased demand, CCJ's revenue prospects will remain relatively flat.
CCJ does not resemble a rapid growth company. While its stock price may fluctuate in today's environment, its core business has remained relatively stable throughout the years without any indication that it will rapidly pick up. Its revenues remain flat and many of its investments (mining operations) still unused or operating at below capacity. While I believe demand for uranium will increase and in doing so, increase CCJ's business, the demand increase will be slow and steady. As new alternatives to nuclear become available and advanced, as nuclear reactors become more efficient and use less uranium, CCJ will have to battle technological headwinds in order to stay relevant as a uranium miner.
Positions: None, but after the recent pull-back may look into something this week.