Canada announced on Thursday, Feb 9th 2012 that it has signed a deal with China that will allow Canadian Uranium to be sold to China, the fastest growing nuclear energy market in the world. We believe this is a good news story for Cameco (TSX: CCO) (NYSE: CCJ) the world’s largest publicly listed uranium producer based in Canada. By some estimates this could result eventually result in $3 billion of Uranium sales to China from Canada. Cameco is working to boost its production to 40 million pounds and it needs a market to sell its product. Today, Cameco sells to China but with uranium produced in countries other than Canada even though most of its production is in Canada.
Most investors may not be aware that Canada had banned exports of Uranium to China. In 1976, Canada barred exports of uranium and nuclear reactors to some countries after India used a Canadian-made nuclear reactor to construct its first nuclear bomb. Today, Canada is the second largest exporter of Uranium globally after Kazhakstan and yet was shut out of China. China currently operates 13 nuclear reactors, with a total nuclear power output of about 11 gigawatts. China has 27 reactors under construction, and when completed will deliver 80 gigawatts of nuclear power by 2020. In comparison, US has 104 reactors. Hence, for a major producer like Cameco, selling to China is necessary particularly as it is ramping up its production.
After the nuclear accident in Fukushima, Japan there was a serious rethink in some of the Western countries of the viability of nuclear energy. The most high profile move away from nuclear energy was in Germany. However, the fast growing emerging economies like India and China reiterated their commitment to nuclear sector, simply because there is no other viable clean option for power. Uranium stocks did recover from its lows after the Japanese accident but are still far away from the higher levels they had seen during good times.
Cameco shares had plunged from around $40 and after touching a low of just under $18 have started to climb back and closed yesterday (Feb 9th 2012) at 23.36, still a long way from its 52 week high of $44.28. While it may take a while for this agreement to be fully implemented and the first sale from Canada to China to happen this deal adds to the positive sentiment for uranium producers like Cameco ((TSX:CCO) (NYSE: CCJ).