Cameco (CCJ) and U: A smart call from Toby Shute

Toby Shute is an energy sector analyst (who crosses over into the world of mining from time to time) working over at the financial supermarket website Motley Fool.

Now I'm no fan of MotleyFool, but there are exceptions to every rule so I've also come to the conclusion that Toby Shute is well worth following (and I have a Google alert with his name as keywords because of that). So today he's written a short but incisive note on Cameco (CCJ) and uranium in general. Here's the link and imho it's well worth your time. Here's a short extract, and while you're reading the full text it's worth considering the wider implications of Cameco's recent buying spree on the whole sector.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

A big reason for the cost jump is that Cameco was very busy purchasing uranium at near-spot prices during the quarter. These costs are dramatically higher than Cameco's cost of production, so margins took a real hit. What could justify such behavior?

Well, think about what happens in the oil industry when near-term prices are far below those attainable via futures contracts. In such a situation, called "contango," oil majors like ConocoPhillips (NYSE: COP) and Royal Dutch Shell (NYSE: RDS-A) (NYSE: RDS-B) make easy money by selling oil at higher forward prices and sitting on tankerloads of it in the meantime.

CONTINUES HERE

Vena Resources (VEM.to) springs to mind

Name me the junior miner that has Cameco as its JV partner and is exploring for uranium in the Puno region? Yeah, that's VEM.to. Check this out:

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

13-03-2009 16:03

Peru likely to export uranium by 2011

Lima (ANDINA).- In the next two years, Peru may export uranium and be one of the four Latin American countries to have a nuclear reactor generating electricity in several remote areas of the country, the president of the Peruvian Institute of Nuclear Energy (IPEN) Conrado Seminario said Thursday.

He noted that IPEN currently promotes a bill encouraging private investment in the electric core field with the purpose of having an alternative electricity generation source to fossil fuel, hydro-electric and wind power.

In the future, given the oil, gas and water shortage caused by global warming, the atomic reactors would be the substitutes to generate electricity and avoid stagnation of industrial and human activities.

Seminario said that in the world there is a resurgence of nuclear power, driven by the high cost and scarcity of traditional fuels and in the Peru the nuclear activity has also resumed in the context of technical cooperation in Latin America which had remained stagnant.

"In 2008, a provision enabling the IPEN be part of the Energy Guide Plan Commission was issued. This committee will seek to modify the energy matrix which has remained unchanged for years. Its amendment will provide access to other energy sources including nuclear," he said.

The scientist said that the work is going well and state that there are projects to export uranium by 2011 after checking the prospecting works which mining companies are currently conducting in the region of Puno.