When stocks of uranium miners plummeted after last March's traumatizing Japanese earthquake, some people expected a rebound once the market's initial shocks and fears subsided.
They're still waiting.
Close to a year after the earthquake, shares of Cameco Corp. are still down 40 per cent and smaller rivals are faring just as badly, with Denison Mines down about 50 per cent. The death knell apparently came when Germany declared a retreat from nuclear energy.
Are these miners doomed for good? Depends on who you ask. Investors are clearly too scared to go near the industry, considering the stocks have moved very little since their initial free fall. (Check out a stock chart for the past year. Quite scary.) But the companies themselves keep saying that everyone has it wrong.
Cameco chief financial officer Grant Isaac repeated this view when he sat down at CIBC World Market's Whistler conference last week. The way he sees it, the outlook for uranium needs to be split between the near-and-long-terms.
"Where we spend a lot of time chatting with folks these days is on disentangling two very different stories in the uranium market ..." he said. There's the short-term, during which uranium users like utilities are well-stocked. That sent stocks plummeting after the earthquake because demand for new uranium fell off. And then there's long-term, during which Cameco says there will be a growing gap between demand and supply.
This gap already exists – in 2011, 145 pounds of uranium was produced globally while worldwide demand hit 175 million pounds – but it has been historically filled by 'down-blending' weapons-grade uranium, particularly in Russia. Cameco says the major project to do so is about to end in 2013, cutting off a big source of secondary supply to the market.
Yet there's still a major problem. Even if Cameco is bullish over the next decade, its consumers, particularly utilities, like to secure long-term supply contracts, and Cameco can't talk long-term contracts when they would have to lock-in at today's prices.
So for now, Cameco is touting plans to increase production. Mr. Isaac said Cameco is sitting on 1 billion pounds of reserves and resources, and the firm wants to bump production from 2 per cent of this a year to 4 per cent.
On this front, investors are cautious. Much of this growth centres on developing the second shaft of Cameco's Cigar Lake project in northern Saskatchewan, and it's been plagued with problems. Mr. Isaac promised a new technical report on the project soon, which he hopes will soothe investors.
Tim Kiladze