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Will Cameco move up the nuclear fuel chain?

Cameco has $2-billion burning a hole in its pocket, and BMO Nesbitt Burns has an interesting take on where one of the world's largest uranium producers will spend its cash.

Cameco is flush after selling its stake in Centerra Gold, and is expected to do something with this capital, as earnings will drop by 20 per cent without Centerra's contribution. Most analysts have rolled out a list of junior uranium plays as potential acquisitions, with Paladin Energy considered the most attractive target, and junior miner Berkeley Resources another possible purchase.

However, BMO Nesbitt Burns mining analyst Edward Sterck surveyed the landscape, and highlighted a potential deal with the cash-strapped British goverment.

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Cameco could move up the nuclear fuel chain by acquiring the U.K. government's one-third stake in URENCO group, which has four plants that enrich uranium for use in reactors. The British-based company's web site explains that this is the highest value-added stage of the fuel supply chain.

After crunching the numbers. Mr. Sterck said: "acquiring a one-third stake in URENCO for $3-billion would dilute Cameco's net present value per share by 10 per cent but increase earnings by over 40 per cent by 2014. A stake in URENCO looks like the most accretive transaction, but Paladin is also a strong candidate from an earnings perspective."



When it comes to Paladin, BMO Nesbitt Burns said a takeover would need to be pitched at a 40 per cent premium to where the stock is now changing hands, "resulting in a 27 per cent dilution to Cameco's net present value per share, but increasing earnings per share by as much as 30 per cent by 2014."

Paladin currently boasts a $2.9-billion market capitalization.

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