Camerco Corp. (CCJ): GLJ Research Highlights 3 'Suggesting we Could be Nearing an Inflection Point'

March 16, 2021 9:01 AM EDT
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Price: $16.70 -0.3%

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    5 Buy, 8 Hold, 1 Sell

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GLJ Research analyst Gordon Johnson reiterated a Buy rating and Cdn$27.00 price target on Camerco Corp. (NYSE: CCJ) and noted three new 'bull market' catalysts have emerged, suggesting "we could be nearing an inflection point."

The analyst highlighted the following catalysts:

Catalyst 1 - Yellow Cake Announces Additional Purchase of U3O8 Uranium. Earlier this week, Yellow Cake (YCA-LON; NC) announced the purchase of 440K lbs of U3O8 at a price of $27.34/lb in the spot market. This investment followed their recent acquisition of 3.5mn lbs U3O8 from Kazatomprom (KAP; NC). In short, we see this as (very) bullish owing to: (a) the fact that Yellow Cake's price paid was higher than last week's spot price, (b) Yellow Cake is stocking up on physical uranium - for investment purposes - suggesting the company sees the uranium price as near-bottom, (c) this
should work to remove concerns of spot market oversupply, and (d) with total inventory at Yellow Cake now at ~13.3mn lbs U3O8, at an average price of ~$24/lb, others may be encouraged to procure U3O8 uranium at current prices out of fear of being undercut buy more opportunistic competitors.

Catalyst 2 - Denison Mines Announces Financing to Fund the Purchase of ~2mn lbs of U3O8 Uranium. Yesterday we learned that Denison Mines (DML; NC) offered a brought deal of 68.2mn stock units for ~$75mn to buy roughly 2mn lbs of U3O8 Uranium for inventory purposes. Stated differently, when considering: $75mn รท 2.5mn lbs = $30.0/lb (i.e., a price materially above last week's spot), we see this as a material positive. In fact, on the announcement of this news, the spot market reacted within a few minutes, with buyers bidding up the price, pushing spot up 2.2% to $28.13/lb in evening trading (which rarely happens) - Ex. 1. In short, with Denison acquiring in this quantity, at this price, which, based on our checks, was unexpected, we feel the company's decision could serve as an upside catalyst for prices near-term. Stated differently, we see this as a fairly strong statement demonstrating a large bet for higher prices, while also taking more product off of the market.

Catalyst 3 - Denison Mines and NexGen Energy Slated to Enter S&P/TSX Index. Denison Mines (DML; NC) and NexGen Energy (NXE; NC) will be added to the S&P/TSX Composite Index effective Mar. 22, 2021 (Ex. 1). So what? Well, as many are familiar with due to TSLA's addition to the S&P 500 last year (and the subsequent share price rally that ensued), this change means that ETF's that track the TSX Composite Index will be buying shares of these uranium stocks in order to track the updated Index, potentially providing a catalyst for the space overall. That is, given Cameco (CCO; BUY) is currently the only uranium stock in the S&P/TSX, and our work suggests the direct index buying for NXE, alone, will come in around 16mn shares (i.e., 4% of the 377mn share float), we believe Monday Mar. 22, 2021 could be a great day to be long the global uranium space.

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