Shares of Cameco CCJ, North America's largest uranium producer, have popped 5.24% to $12.34 in Tuesday afternoon trading.
Both BMO and Cantor Fitzgerald have upgraded the stock to "buy/outperform" this week, citing what they say is an improved outlook for uranium market. Kazatomprom, the Kazakhstan-backed uranium miner, announced in January that it would cut its production by 10%, welcome news for a commodity market wracked with oversupply issues so entrenched it would make OPEC blush.
"Our view is that this improving macro outlook is likely to be the main driving factor for Cameco's share price and that macro downside risks should be limited," BMO analyst Edward Sterck wrote in a research note.
Despite the rosier future for uranium (which is currently trading in the $26 range), the aftereffects of the Fukushima Daiichi nuclear disaster in Japan continue to weigh on Cameco. Japan has been hesitant to re-embrace nuclear power as a public utility since the 2011 meltdown.
On Jan. 31, Tokyo Electric Power Company Holdings (TEPCO), which owns the Fukushima reactors, told Cameco that it intends to cancel its uranium supply contract, which has an implied uranium price of $107 per pound. None of TEPCO's seven reactors are currently operating. Though Cameco and TEPCO are likely to undergo arbitration to resolve the dispute, losing the TEPCO contract could cost Cameco C$1.3 billion (U.S. $1 billion) in revenue through 2028, Cantor Fitzgerald analyst Rob Chang wrote in a research note.
"It's notable because the company makes C$2 billion in annual revenue," Chang added in an interview. "It's losing C$126 million on an annual basis [if the TEPCO contract is nullified]."
That C$126 million in annual revenue loss could potentially be mitigated by the violent price hike in uranium that some analysts like Chang have predicted. He says that the spot price for uranium should increase to $80 per pound by 2020.
"We expect Cameco to realize much higher prices for uranium on a go-forward basis," Chang said. "We'll be expecting increased demand for uranium, and likely at some point they'll need to expand production."