Canada’s Cameco (Toronto: CCO; NYSE: CCJ) is the largest pure-play producer of uranium in the world, accounting for around 16 percent of global production of the metal. Last year, Cameco produced 22.4 million pounds of uranium from five operating mines.

McArthur River, based in Canada, is the company’s single largest mine with Cameco’s share of 2011 output totaling 13.9 million pounds. The ore mined from the McArthur River site is extremely rich in uranium with an average ore grade of 16.89 percent. To put that into perspective, the ore grade at the mine is 100 times higher than the global average for producing uranium mines.

Consequently, Cameco has to move far less pay dirt and ore to produce the same amount of uranium as most other producers. McArthur River is not only one of the world’s largest mines but it’s one of the world’s cheapest to produce, allowing Cameco to earn profits even when uranium prices are weak. That’s one reason Cameco was able to survive the long downturn in uranium prices through much of the 1980s and 1990s.

Powering Ahead

Cameco’s second-largest mine is Rabbit Lake, also located in Canada. With an ore grade of less than 1 percent, Rabbit Lake is not as rich a deposit as McArthur River but the mine has been in production since 1975 and continues to produce around 3.7 million to 3.8 million pounds of uranium per year.

Cameco is spending capital on the exploration of areas just outside the current mine site and is also working to upgrade the mine to boost output. Rabbit Lake is an old mine but should continue to produce as the firm’s exploration and upgrade work extend the life of the mine.

The company plans to mine around 1.7 million pounds of uranium from its Smith Ranch-Highland mine site in Wyoming this year. Unlike the firm’s larger McArthur River and Rabbit Lake mines, Smith is an in-situ project, which means water is pumped underground where it dissolves the ore and is pumped to the surface. On the surface, Cameco separates the uranium oxide from the water pumped through the mine.

The company’s production from this mine has been somewhat disappointing in recent years, stemming from continual delays in obtaining license renewals from regulators. Ultimately, those licenses are likely to be approved but Smith Ranch is a relatively small project for Cameco in any event.

Cameco’s Crow Butte project in Nebraska produces around 0.7 million to 1 million pounds of uranium per year, using an in-situ recovery technique similar to that employed at Smith Ranch. As with Smith Ranch, Cameco has experienced regulatory delays related to expanding the scope of this project.

In 2011, Cameco’s share of production was around 2.5 million pounds. The joint venture is planning to continue exploring some promising blocks near the current mine operation and has received government approval to boost production capacity. Cameco’s share of production from Inkai should grow to around 3 million pounds per annum over the next few years.

The company has a long-term goal called “Double U,” a plan to boost production to around 40 million pounds per year by 2018. It’s unclear if Cameco will actually meet that goal or be forced to push back the timetable but it is one of the only uranium companies in the world with the capacity to grow mined output in the near-term. Central to that task is the development of 50.025 percent owned Cigar Lake, a mine project in Canada with an average ore grade of 18.3 percent, even higher than McArthur River.

The firm began developing Cigar Lake in 2005 but the project was delayed because of water inflows in 2006 and again in 2008. The company has taken several steps to alleviate the water inflow problems at Cigar Lake including freezing the ground around the ore site to stabilize the mine. Currently, management expects to begin  production and sale of uranium by the end of next year with output ultimately ramping up to 9 million pounds per year for Cameco alone.

Cameco employs a conservative marketing strategy, selling around 40 percent of its production under long-term contracts at fixed prices that provide a cushion when uranium prices are low. Buy Cameco under 27.