Cameco Corp.’s sale of its 48.5% interest in Centerra Gold Inc. means it will likely look to buy a uranium producer as it seeks to strengthen its production profile, according to Rob Chang at Octagon Capital.

At $2.4-billion in market market capitalization, Paladin Energy Inc. is a rumoured candidate. The analyst told clients that Paladin is one of the better-run producers, offers arguably the best production growth profile and has no major strategic shareholders.

He also highlighted Extract Resources Ltd. in Namibia, which has a large, high-grade deposit located near Rio Tinto plc’s Rossing mine. Mr. Chang suggested that Rio Tinto (who owns 14.7% of Extract directly and another 5.6% indirectly through its partial ownership of Kalahari Minerals plc) may want to share the development of Extract’s Rossing South deposit with an experienced, world-class producer.

Cameco is expected to receive about $872-million on a net basis from the sale of the Centerra shares, after accounting for transaction fees. Combined with the $670-million on its balance sheet, Cameco will have more than $1.5-billion in cash. It will have a debt-to-capital ratio of 19%, which leaves it with the capacity to look for potential acquisition targets, the analyst noted.

“We view the sale of the company’s entire interest in Centerra as a positive as Cameco could apply proceeds to growing its core uranium business,” UBS analyst Brain MacArthur said in a research note.

He pointed to potential investments in uranium mining, conversion and enrichment given Cameco’s history of acquisitions, but also its internal operations.

The net proceeds and lower political risk resulting from the sale of Centerra prompted the analyst to raise his price target on Cameco shares from $35 to $37. Centerra has two producing gold mines – Kumtor in the Kyrgyz Republic and Boroo in Mongolia.

Jonathan Ratner

Photo: The Rossing Uranium Mine in Swakopmund, Namibia