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Cameco and the Tale of Cigar Lake Mine: Is the Company's Perseverance About to Pay Off?


The uranium company hasn't given up on this mine despite years of setbacks.

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The story of the Cigar Lake mine is full of twists and turns. It is the second largest deposit of high-grade uranium in the world. It is speculated that there is enough uranium in this mine to supply all of North America's nuclear power needs for the next 100 years. It was originally discovered in 1981, but attempted production didn't start until 2005. However, as fate would have it, in 2006 the mine flooded, causing significant delays to production. It flooded again in 2008, and then the Fukushima disaster happened and everyone began to question the viability of "safe" nuclear energy. All the while Cameco Corporation (NYSE:CCJ) wasn't giving up on this huge deposit. Through setback after setback, it persevered and pursued its  goal. This pursuit has been costly, draining down cash reserves of the company; the company has had to take on additional debt and even bring in partners to assist in the mine recovery. Now is the time Cameco will find out if it is all going to pay off. The mine became fully operational in March of 2014.
The Fundamentals: Current assets have been drained to bare bones, so Cameco is certainly in a vulnerable position. Free cash flow has been significantly negative for a while, but the bulk of that has been due to increases in CAPEX to finish out the mine. There should be a drop in CAPEX, which would bring cash flows to the turning point and profitability significantly higher. Cameco is pretty much in do-or-die land here with about a three-quarter runway.
The Technicals: From a long-term perspective there is a two-plus-year base forming in the stock from 2011. The charts show a good base around $16 and a double top just over $25. A stair-stepping of higher lows has been forming since late 2012 and a rising trendline is in place. In the more near term, Cameco already hit a good oversold reading on a pivot low that had very high volume and positive RSI divergence since the pivot low. I am a bit concerned about the 50- and 200-day moving average cross here, but in looking over the past several years, it hasn't seemed to matter much.

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I usually wait for the fundamentals to turn before buying a stock, but in this case, I believe the story and the work Cameco has done will turn the tide soon. All things considered, it looks to me as though this could be worth a shot. Stops around the 18.50 pivot low, and targets upwards of 25, then huge breakout opportunities beyond that.
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