I’m Quietly Watching Cameco Corner The Uranium Market

Cameco announced yesterday that they are going through with plans to acquire Nukem Energy for $136 million, plus taking on Nukem’s outstanding debt of another $164 million – which is expected to be reduced by current cash flow before the deal closes towards the end of this year.

I’m still not sure what I make of this. But here are the basics.

Right now, there are two primary sources of uranium, if you are running a reactor. You can get it through the miners, or you can get it through old, decaying empires like Russia, which are decommissioning some of their nuclear warheads.

Places like Russia take the Highly Enriched Uranium (HEU), and mark it for use in reactors; I’m not sure if they physically do anything to the uranium to “de-weaponize” it, or if they just keep very close watch on where it goes. Nukem Energy brings together these parties and brokers sales.

Now, the uranium space has already been getting pretty excited, because Russia (which for obvious reasons has been the largest supplier of the ex-military grade fuel) is set to stop decommissioning warheads sometime soon. There was already a good expectation that companies like Cameco would see the fruits of that development as a key source of fuel goes offline, leaving more reactors than fuel to run them.

So I’m confused why Cameco is busy dishing out a few hundred million to acquire the brokerage that has been making revenue from deals that are about to decrease in volume substantially. This confuses me.

But on the flip side of that, Cameco is now increasingly in charge of uranium globally. If you’re looking for fuel, you’re probably doing business with them. They just recently broke into US markets. They are busy expanding their production targets by 70% by 2020. And now, they control one of the primary sources for acquiring uranium at market that doesn’t involve working with a miner.

What will happen from here? Will Cameco keep Nukem Energy up and running as the business is? Will they jack up spreads for brokering deals, helping push uranium prices higher? Or will they just scuttle the brokerage and force the system to deal with the inevitability of HEU becoming unavailable – but right now, months or years before anyone was planning?