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Jim Letourneau's Blog

Investing, Technology, Travel, Geology, Music, Golf. I think that covers it.

Filtering by Category: Uranium

Grandey's Dandy - Cameco CEO to Retire

I had a chance encounter with Cameco (CCO.TO, CCJ) CEO Jerry Grandey about a year ago at a big boozy dinner coincident with the Saskatchewan Investment Conference. As the mingling ended and time to be seated came  I gradually got to know the stranger sitting on my left. Like so many in the resource business, he has 2 degrees, one in geophysical engineering and one in law. We talked about commodity cycles and how there isn't always strong demand for technical people and then you can't find any when you really need them. He's scheduled to retire on June 30th making room for new blood. Grandey is currently a Director of Sandspring Resources (SSP.V) and the privately held KGL Associates INC so he's unlikely to be bored.

Naturally I asked him a few questions about the uranium business and enjoyed his patient and thoughtful answers. He also had firsthand knowledge of CEO-worthy real estate in Saskatoon. He had a great comment about the uranium speculators that took physical supply and stored it, "uranium is easy to buy but very difficult to sell."

In a recent Globe and Mail "exit" interview he was asked about why he chose to live in Saskatoon. His response was" You’ve got to be at the headquarters. If you expect to be seen as an executive team, you’d damned well better be visible as that team." This is in contrast to the Potash Corp. CEO, Bill Doyle, who was guilted into purchasing a Saskatoon address after Saskatchewan voters found out that he ran the company out of  Chicago. I suspect he didn't get the nicest house in Saskatoon.

Whenever anyone asks me about using social media to promote a company, I direct them to Cameco's website and their CEO's Corner, which consists of short videos of Grandey answering 5-7 different questions per month. I'm surprised at how few companies have emulated this approach to shareholder communication.

I started my Big Picture Speculator Newsletter almost 9 years ago and the first issue featured uranium stocks (which all did extremely well) so it was treat to have things come full circle. Grandey is an bright and engaging CEO, and this year I'll recognize him if I see him in Saskatoon!

Leverage

Our last post showed some obscure commodity price moves. You’ll have a tough time trading physical tungsten, molybdenum and uranium. However you can participate in these rising markets by buying the shares of companies that mine these commodities. The number one reason to own mining company shares is that they provide excellent leverage to rising commodity prices.





During the run-up in the uranium spot price (see my previous post) from under US$8 to over $33.00 the price of Cameco shares went from under US$4 to over $50. Cameco owns the richest uranium mines in the world and some of their operations remained profitable at very low prices. Those of you who are good at math will realize that a 4 fold increase in uranium price lead to a 12 times increase in the value of Cameco shares.





Even more leverage to rising commodity prices can be found in companies that have defined resources in the ground. The value of the metal in the ground increases at a rate even faster than the price of the commodity. The share prices of mining companies with defined resources in the ground behave like call options (that never expire) on the rising commodity price. Companies are often able to pick up past producing mines or discovered resources (not yet mined) very cheaply at the trough of the commodity cycle. In the uranium sector, Strathmore Minerals (STM.V) was making strategic acquisitions during the “dark ages” of the commodity cycle. Their trough to peak share price gain was almost 40 fold.   





Remember that leverage cuts both ways and the further down the resource stock pyramid you go, the greater your risk. The best gains in resource stock investing are in that fuzzy area between the industry leader and a heavily promoted chunk of “moose pasture”. If you do your homework you’ll be able to tell the difference.