Let’s kick things off with a quick update on CCJ’s recent performance. CCJ recent shares have been on a tear, gaining a whopping 17%. That’s right, the total return on this uranium heavyweight now stands at a staggering 65% on a year-to-date basis!

But what’s driving this remarkable surge in CCJ shares? Well, folks, it’s all about geopolitics and the growing global demand for uranium.

I may not be a geopolitical expert, but I do keep a close eye on key developments that impact investment decisions. And when it comes to uranium, the big picture is crystal clear. Western nations are eyeing an increase in nuclear energy output as they seek cleaner energy sources and reduce their reliance on Russian oil and gas. However, there’s a significant hitch – they lack the necessary nuclear fuel resources and production capacity.

According to the Wall Street Journal, new nuclear reactors are cropping up in the United States and Europe, fueled by this energy transition. Yet, a substantial portion of vital nuclear fuel ingredients comes from Russia’s Rosatom, a state monopoly. Given Russia’s involvement in the Ukraine conflict, this dependence is raising eyebrows.

You see, it all traces back to a 1993 deal called “Megatons to Megawatts,” aimed at converting highly enriched uranium from Russian warheads into reactor fuel. While it achieved its goal of reducing nuclear weapon stockpiles, it also made Russia the dominant supplier of enriched uranium globally. As a result, the U.S. now finds itself entirely dependent on imports.

And Russia’s influence doesn’t stop at its own borders. It extends to various African nations, as it seeks to gain a foothold on the continent. Take Niger, for instance, where France sources most of its uranium. If Russia gains more influence in Niger, it could further tighten its grip on the global uranium supply.

Now, here’s the kicker: Russia already controls nearly 45% of the global market for uranium conversion and enrichment. This poses a strategic vulnerability for Western countries, including the U.S. and France, as they look to nuclear energy to escape rising fossil fuel prices.

But hold on to your hats, because CCJ is right in the middle of this uranium saga!

Cameco Corporation, with a market cap of $16 billion in New York, is the largest publicly traded uranium producer worldwide. They’ve got major mining operations in North America, Australia, and Kazakhstan, including the world’s largest uranium mine up in northern Saskatchewan, Canada.

This company knows it’s sitting on a goldmine, or should I say uranium mine, given the tailwinds propelling its growth. We’re talking about the electrification wave, decarbonization efforts, and, of course, those tricky geopolitical waters. The challenge? Replacing 85% of the current energy supply with clean alternatives while lifting a third of the global population out of poverty. No small feat, right?

Between 2021 and 2050, global electricity demand could shoot up by a whopping 80%. Even without any additional disruptions, the world is staring down the barrel of a widening supply gap for years to come. And that’s music to the ears of uranium producers like CCJ.

During their recent earnings call, CCJ highlighted the growing global support for nuclear power, driven by government policies and corporate decisions. And here’s the kicker – by 2030, both primary and secondary uranium supplies might not cut it anymore. The industry needs to invest in more capacity, but that’s no overnight job.

Plus, let’s not forget the geopolitical uncertainties. Some utilities are already looking to exclude Russia from their future contracting decisions, and the risk of formal sanctions looms large. The movement of nuclear material around the globe isn’t as straightforward as it used to be, either.

So, what’s happening right now? Utilities are locking in contracts to cover their needs for 2030 and beyond, signaling that we’re in a long-term contracting cycle today.

Thanks to these tailwinds, CCJ is projected to increase its average delivery volume over the next five years, from 26 million pounds per year to 28 million pounds per year. And they’ve got delivery commitments that stretch out beyond a decade, with some contracts reaching all the way to 2040.

But here’s the icing on the cake – CCJ isn’t locking in future prices. Nope, they’re pursuing market-related pricing mechanisms for their contracts. This means that prices will be based on the future price of uranium, with potential floor price protection and ceilings. They want to stay nimble, benefiting from potential price hikes while guarding against macroeconomic or industry headwinds.

With these long-term industry tailwinds, it’s a brilliant strategy, if you ask me.

Cameco is also cranking up its production to meet the surging global demand. They’ve got the flexibility to expand and extend production at their Tier 1 assets, which could boost their annual share of Tier 1 uranium supply to around 32 million pounds.

But when it comes to Tier 2 assets, they’re keeping them on the back burner unless they can snag those sweet, long-term contracts with returns akin to what they get from Tier 1 assets.

This smart approach to contracting and production is expected to beef up their earnings and cash flow, bringing them back to Tier 1 performance levels.

Oh, and did I mention their financial health? In the second quarter, they reported a cool $2.5 billion in cash, with just $1 billion in total debt and another $1 billion in undrawn credit facilities. In simpler terms, they’re net cash positive.

Now, here’s where it gets interesting – valuing CCJ isn’t a walk in the park. We’re dealing with a bull case that’s poised to witness supply shortages for years to come. This calls for an elevated valuation, but where do we draw the line?

By the estimates until 2025, CCJ is trading at 17.3x 2025E EBITDA. It’s also spitting out positive free cash flow, with robust EBITDA growth on the horizon for 2024 and 2025. I wouldn’t be surprised if that growth turns out to be even higher in the years ahead, given the geopolitical shifts favoring CCJ and its allies.

The current consensus price target for NY-listed shares is $38, just a smidge above the current price. While I won’t tell you to go all in at these levels, I strongly believe that CCJ is on a path to a long-term upswing, especially if we continue the shift away from fossil fuels.

If a correction comes our way, consider it an entry point. But don’t be shocked if we see CCJ hitting $50 to $60 within the next 12–24 months.

So, there you have it, folks. In a world marked by geopolitical complexities and an urgent need for clean energy, Cameco Corporation shines as a star player in the uranium market. Western nations are waking up to the risks of an unstable supply chain and are increasingly looking to CCJ to secure their nuclear future.

While valuing CCJ might keep us scratching our heads, its potential