Uranium prices hurt Cameco

Lower uranium prices took a big bite out of Cameco‘s (CCO-T) net earnings in the first three months of 2001.

During the quarter ended March 31, the company earned $1 million (or 1 per share), compared with year-ago earnings of $9 million (17 per share). Revenue during the quarter, at $70 million, was less than half of the previous year’s $142 million. The company’s nuclear business generated $46 million in revenue, 63% lower than in 2000.

Operations provided cash flow of $28 million (50 per share), down from $52 million (92 per share) in 2000.

“Nuclear deliveries, representing only about 10% of the year’s contracts, and weak uranium prices caused Cameco’s uncharacteristically low revenue and earnings in the first quarter,” said Bernard Michel, Cameco’s CEO, in a prepared statement. “However, we still expect our annual sales volume to be similar to last year.”

Attributable uranium production for the quarter jumped to 5.9 million lbs. U3O8 in concentrate (3.1 million lbs. a year earlier) and 3,680 tonnes of uranium conversion (3,521 tonnes). The quarter’s average uranium spot price was $7.72 per lb., down 18% from a year earlier. Cameco notes that the spot price has increased 15% from the beginning of the year. The spot market price for conversion services increased 31% during the quarter to US$4.25 per kg, up from US$2.45 at the end of the first quarter of 2000.

With a better-than-expected performance at the McArthur River mine in Saskatchewan, Cameco expects its share of U3O8 production to improve by about 15% to 12 million lbs. in 2001. Production during the first quarter hit the annual design capacity of 18 million lbs. nine months ahead of schedule. The company expects higher long-term uranium demand because of a renewed interest in nuclear energy, particularly in the U.S. Revenues in the second quarter are expected to nearly double, with higher volumes (about 20% of the year’s deliveries) and increased prices.

However, the energy crisis in California has forced one of Cameco ‘s utility customers into bankruptcy. Another is experiencing financial difficulties. At the end of the quarter, neither had outstanding accounts with Cameco, but the loss of planned deliveries could affect gross revenue by as much as $23 million.

The company is awaiting a decision by the Canadian Nuclear Safety Commission (CNSC) regarding Bruce Power’s licence application to operate the Bruce nuclear power stations.

By spending up to $100 million over two years, Cameco can earn a 15% in the Bruce PowerPartnership, which has signed an agreement to lease (from Ontario Power Generation) and operate the Bruce A and B nuclear power plants and related facilities. The restart program envisages that the two Bruce A reactors will be back in operation by the summer of 2003.

Bruce Power will be 80%-owned by British Energy and 5% will be held by the plant’s two largest unions — the Power Workers Union and the Society of Energy Professionals.

The commission’s decision is expected during May.

The company notes that, in 2001, a US$1 change in the uranium spot price would increase revenue by about $14 million, net earnings by $6 million and cash flow by $10 million.

Cameco’s gold business contributed $24.6 million to the recent quarter’s revenue, up 28% from a year earlier. Gross profits from gold rose to $5.3 million from the year-ago $1.5 million.

In Kyrgyzstan, attributable gold production from Cameco’s 33%-owned Kumtor mine reached 62,904 oz. during the quarter, up from 39,944 a year earlier. The company’s realized gold price fell to US$288 per oz. from US$329. Operating costs fell to US$127 per oz. from US$205, mainly because of a higher ore grade of 5.09 grams gold per tonne and increased recovery rates.

At the end of March, Kumtor had 941,000 oz. gold hedged (Cameco’s share was 313,353 oz.). These hedges are expected to yield average prices in the range of US$300-307 per oz.

Due to higher cash costs, second-quarter gold earnings are expected to fall slightly. Unit cash costs are expected to remain below US$153 per oz.

At the end of March, Cameco had $51 million in cash and a net-debt-to-capitalization ratio of 12%.