Cameco may turn $2.1B into $24B with Westinghouse listing this fall

Cameco’s (TSX: CCO; NYSE: CCJ) $2.1-billion (C$2.94-billion) investment in Westinghouse Electric three years ago could soon be valued a dozen times that as the nuclear reactor maker prepares for a U.S. stock market listing.

Westinghouse is seeking a valuation above $50 billion and could publicly file for an initial public offering as soon as October, Bloomberg News reported Friday. Cameco owns 49% of the company, implying a value above $24.5 billion for its holding before accounting for shares sold in the offering or potential dilution.

“A potential IPO comes a lot sooner than we previously envisioned,” Scotiabank analyst Orest Wowkodaw said after Cameco’s second-quarter results last month. “We have increased our medium- to long-term Westinghouse estimates.”

The proposed valuation would mark a dramatic re-rating even from analysts’ estimates last month. Desjardins valued Cameco’s share of Westinghouse at C$15.1 billion, while Scotiabank valued the entire reactor company at C$24.6 billion, putting Cameco’s 49% interest at about C$12 billion.

Cameco and Brookfield Renewable Partners (TSX: BEP.UN; NYSE: BEP), along with institutional investors, completed the acquisition in November 2023. The deal valued Westinghouse at $8.2 billion including debt after closing adjustments. Cameco paid $2.1 billion for its 49% interest, using $1.5 billion in cash and $600 million in term loans.

Reactor pipeline

The potential jump in value comes as Westinghouse builds a much larger pipeline for new reactor work than when Cameco bought into the company.

Westinghouse has identified opportunities for as many as 91 AP1000 reactors over more than 20 years, Cameco said in July. The pipeline includes as many as 20 U.S. reactors under government programs, two units at the stalled V.C. Summer project in South Carolina, three in Poland, two each in Bulgaria and Ukraine and dozens of earlier-stage prospects.

Cameco also raised its estimate of the share of construction spending that could flow to Westinghouse on new AP1000 projects to 40% to 45%. Scotiabank estimated that could translate into $8 billion to $11 billion of Westinghouse revenue over roughly a decade for a two-reactor project and $1.6 billion to $2.2 billion of earnings before interest, taxes, depreciation and amortization.

The higher revenue share was a positive for Westinghouse over the medium term, BMO analyst Alexander Pearce said in August. Firm commitments for new AP1000 reactors remained more important in the near term than the timing of an IPO, he added.

The distinction matters because the 91 reactors represent a pipeline of opportunities rather than firm orders. A $50-billion-plus valuation would partly depend on investors assigning value today to projects that could stretch well into the 2030s.

Washington is trying to shorten that timeline. The U.S. Department of Energy in June made a conditional commitment for as much as $17.5 billion in financing for long-lead equipment for up to 10 AP1000 reactors. Westinghouse would work with utilities and energy companies on as many as five two-reactor projects, with the program intended to bring construction and commercial operation forward by as much as three years.

Government interest

The $24.5-billion figure doesn’t mean Cameco could simply pocket that amount in an IPO.

Westinghouse hasn’t disclosed how many shares would be offered, whether Cameco or Brookfield would sell existing holdings or how much new stock might be issued. It submitted a confidential draft filing to U.S. securities regulators July 31.

A separate agreement with Washington could also dilute the existing owners under certain conditions.

Cameco and Brookfield agreed last year on a strategic partnership under which the U.S. government would receive a participation interest if it makes a final investment decision and enters definitive agreements for at least $80 billion of new Westinghouse reactor construction in the U.S. before January 2029. Once vested, the interest would entitle Washington to 20% of Westinghouse cash distributions above $17.5 billion.

If the interest has vested and an IPO values Westinghouse at $30 billion or more, the government could require a listing. The interest would then be converted into a five-year warrant to buy shares equivalent to 20% of the public value above $17.5 billion.

Desjardins was more cautious than Scotiabank on timing, saying in July that the IPO window remained broad and could extend as far as 2029.

Cash returns

A listing could also sharpen questions over how Cameco uses rising cash flow.

Scotiabank forecasts Cameco’s free cash flow rising to C$1.3 billion in 2028 from about C$200 million this year. With the miner already holding a small net cash position, Wowkodaw said the bank anticipates “further improvements to dividends ahead.”

Cameco raised its annual dividend to 24¢ a share from 16¢ last year. The company’s strong balance sheet, improving free cash flow and limited internal need for capital should make shareholder returns an increasingly frequent discussion, Scotiabank said.

The uranium side of Cameco’s business could add another tailwind. Nuclear demand is beginning to outrun new mine supply, with Benchmark Mineral Intelligence forecasting a uranium shortfall equal to 18% of demand by 2027. Global reactor requirements could rise from about 64,500 tonnes uranium annually to as much as 143,900 tonnes by 2050, according to the OECD Nuclear Energy Agency and the International Atomic Energy Agency.

Much of the recent supply increase has come from restarting or expanding existing operations rather than developing new mines, which typically take 15 to 20 years from exploration through production.

Cameco shares rose 1.5% to C$130.02 in Toronto on Monday morning, valuing the Saskatoon-based company at about C$56.6 billion.