RE-ITERATING NUCLEAR POWER THEME: LONG CCJ: DANGEROUSLY CLEAN
+32.9% on the trade to date but we feel it’s just the beginning.
Uranium names can go 2-3X from here and we increase our PT to 40 USD, 200% upside.
The old narrative of Nuclear being dirty and dangerous (which in reality is incorrect) is changing as we see a nuclear renaissance as the world strives to be carbon neutral
There has been massive underinvestment in nuclear power plants as most where built 40 years ago. There have been massive breakthroughs in nuclear power technology which are cheaper, safer and cleaner than anything that previously existed. Debunking the old narrative further. Nuclear fits perfectly into the ESG theme. It is the only real viable solution vs fossil fuel.
The change can be seen in the increasing demand for Uranium across the world as new constructions are accelerating. 54 currently in constructions (mostly in EM & China) and an additional 100+ planned and over 300 proposed. Currently there are around 450 reactors operating worldwide – the vast majority of the new builds will come in addition to current operations. Added to this Biden has included nuclear in his clean-energy plan following a US Department of Energy report, ‘Restoring America’s Competitive Nuclear Energy Advantage: A strategy to assure US national security’.
Pre Fukushima there were over 400 companies mining for uranium now there is circa 60 which only cover about 80% of the demand this is without considering lower supply due to corona which could lower this to 2/3 – this gap is currently being filled by inventory but that is not sustainable and will lead to upward pricing pressures.
Current annual demand from the world’s 440 nuclear reactors is about 175 to 180 million pounds per year, but global production has been running at about 150 million pounds per year (Uranium Insider). Now it is even lower due to COVID curtailments. The uranium market faces a 100 million pound per year production shortfall by 2035.
Nuclear is the only current viable power source that fits the global emissions goals and creates constantly available energy. We have seen recently in Germany and to an extent Texas what happens when we rely solely on renewable from wind and solar.
Nuclear power is green tech and for now nothing else comes close.
Uranium and the mining companies have been in a bear market for circa a decade. The next decade we believe will see the inverse as the sector gets swept up in the ESG euphoria.
Global uranium demand exceeds supply.
The best way to invest in the theme continues to be through the uranium miners.
How high uranium miners will go if just a small allocation of the capital from renewables/ESG moves into the sector? Have a look at the following chart to get an idea; we believe they can go 2-3X from here.
Along with our current Long in CCJ US we would also buy KAP LI, YCA LN on any pullbacks.
The following Australian small cap names are also BUYS on pullbacks if they fit into your Investment criteria : DYL AU/PDN AU/BMU AU/VMY AU.
BUY CCJ US +40% upside – Dangerously Clean
Tuesday • 26 January 2021 • 17:41
Description
*CCJ is a Canadian based company and is one of the largest Uranium producers – a pure-play nuclear fuel company, focused on providing a clean source of energy -CCJ is net debt neutral with a market cap of EUR 6.6bn
*CCJ has a strong board of oversight of global ESG standards and 100% of the product goes to producing carbon-free, base-load electricity which should be great for ESG investors
*The company has 36% of its customer volume in the Americas, 18% in Asia, 46% in Europe
Uranium demand
*There is an increasing demand for Uranium across the world as we are seeing spike in new constructions with 54 currently in constructions (mostly in Asia/China) and an additional 100+ planned and over 300 proposed
*Currently there are around 450 reactors operating worldwide – the vast majority of the new builds will come in addition to current operations
*Before Fukushima there were over 400 companies mining for uranium while now the number is just over 60 – these only cover about 80% of the demand, not even considering lower supply due to corona which could lower this to 2/3 – this gap is currently being filled by inventory but that is of course not sustainable and expectations the price to increase
*This has put Uranium in high demand – we also believe there is also an extra edge to holding a Canada based company even though the operations are global – the US generates 20% of its electricity from Nuclear power while only a small amount of this comes from US mines
*Market already in supply deficit and CCJ estimates that by 2040 the global demand is expected to increase by 49% – the supply shortage is partly due to suppliers cutting production as the price is currently too low to enter long-term agreements as it is currently USD 30 while producers need it around USD 50-60 to start new projects
*The company holds 69.8% of the world’s largest uranium mine McArthur River and half of the second largest mine Ciger Lake – production at both mines is suspended, Ciger due to corona and McArthur waiting for higher prices for long term contracts
Politics
*Trump was working on establishing a strategic uranium reserve which could further limit supply
*Forbes highlights that Biden is likely to continue to the focus on Nuclear energy rather focusing on getting the US more independent from China and Russia Biden is likely to use cliemate change as the rationale
*The US annual defense bill classified Uranium as critical to the defense industrial base of the United States which should provide the company with some support
Valuation
*ANR shows 6 Buys, 4 Holds and 1 Sell with an average price target of USD 14.18 implying a +11% upside
*4Q earnings set for 10 February
*Our DCF valuation comes in at USD 18 implying a +40% upside from here