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Analysts reiterate buy rating as Cameco and India seal a $350 million uranium contract

Published: 06:07 16 Apr 2015 AEST

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Cantor Fitzgerald has reiterated a Buy rating for Cameco Corporation (TSE:CCO) (NYSE:CCJ) with a target price of C$26.15 after the Canadian uranium miner signed a landmark agreement to supply 7.1 million pounds or 200 tonnes of U3O8 to India for its nuclear powerplants through 2020.

"This is a landmark deal for Cameco as it gives the company access to the second fastest growing uranium consumer in the world.  The long-term supply agreement will provide revenue security at profitable prices for the company that could underpin its financial position, possible acquisitions, or even a dividend increase" said analyst Rob Chang.

The five year deal, announced on Wednesday by the leaders of both countries in Ottawa, is worth C$350 million.

"This five years nuclear agreement India’s efforts of India to fuel its growth with clean energy", said India’s Prime Minister Narendra Modi at a press conference.

The uranium concentrate will come from Cameco’s mines in northern Saskatchewan. This is the first contract signed between Cameco, the world’s third largest uranium company, and India, which operates 21 nuclear power plants.

Canadian uranium exports to India became possible in 2013 following the conclusion of a nuclear agreement (signed in 2012) between the two Commonwealth countries. This was a significant development given that New Delhi and Ottawa had broken off relations after India used plutonium from a Canadian nuclear reactor installed on its territory to develop nuclear weapon technology in the 1970s.

The recovery of uranium exports allows "to turn the page after a bilateral relationship that has been frozen for too long," said Canadian Prime Minister Stephen Harper. This opens "a new era of bilateral relations and (...) confidence," replied Narendra Modi.

Cameco was trading at C$20.06 per share, or 5.63 percent higher, in Toronto this afternoon. The company has lost 28 percent since a five year high of C$41.55.

Cameco is in a good position to benefit from the inevitable ‘revival’ of nuclear energy demand, which is growing despite the Fukushima meltdown of 2011.

India says it will increase its nuclear generation capacity from 5,000 MW to 63,000 MW by 2030 and in the EU, the British and French governments have announced a nuclear power cooperation agreement, while France continues to get some 75% of its electricity from nuclear power.

The discrepancy is in favor of the uranium producers and demand is growing; indeed, demand will grow tremendously as China plans to build 100 nuclear reactors by 2030.

China has discovered that solar and wind power generation is completely insufficient in meeting its future energy needs and there are already 14 operational reactors. Worldwide, the total number of nuclear reactors is expected to double from the current 434 to 820.

 

 

 

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