Cameco’s earnings go nuclear

Increased uranium sales at a higher realized price saw Cameco (CCO-T, CCJ-N) more than quadruple its first quarter earnings to $117 million.

The profit translates to 32 per diluted share, and compares with year-earlier earnings of $26 million or 7 a share. Revenue between the two periods more than doubled to $542 million. Cash flow from operations more than tripled to $286 million.

Uranium sales during the first quarter amounted to an unusually high 12 million lbs. U₃O₈, up 179% from a year ago. The increase is attributed to the timing of deliveries to customers.

The quarter’s average realized uranium price under fixed-price contracts jumped 29% to $23.51 per lb., offset by a strengthening loonie relative to the greenback. By comparison, the uranium spot price increased 79% from a year earlier to US$38.96 per lb.

Cameco CEO Jerry Grandey also said the current uranium market has allowed his company to lock in long-term contracts at prices higher than at any time in the company’s history.

Looking ahead, the Saskatchewan-based uranium giant says second quarter earnings will drop off significantly as uranium sales are expected to be halved from first-quarter levels owing to timing issues.

The company also said that it was experiencing delays in construction and expansion at some of its operations, including the McArthur River mine and Key Lake mill, where regulatory approvals are still outstanding.

Cameco also continues to battle problems at the Cigar Lake mine, where construction of a ventilation shaft was halted after a flood in early April. The company now plans to freeze the shaft area to allow for its completion. The plan means an extra 6 to 7 months on the construction schedule. By quarter’s end, the company had sunk just more than half of the planned 424 freeze holes. Freezing has begun on the first planned production area.

A three-year ramp up to full production at Cigar Lake is scheduled to begin at the end of 2007. At full steam, the mine will annually churn out 18 million lbs. of U₃O₈pounds per year. Cameco’s share is 50%.

Capital cost at Cigar Lake have been boosted to $660 million from the previous estimate of $520 million. The increase includes $50 million for the ground-freezing program.

For the full year, Cameco expects revenue to grow by about 50% thanks to improved uranium markets and the proportionate consolidation of revenue from nuclear power generator Bruce Power Limited Partnership, in which it holds a 31.6% stake.

Revenue from the uranium business is expected climb by about 20% higher on a stronger realized price and increased sales volumes. Likewise, fuel services revenue is slated to jump by 50%.

Uraium sales for the full year are forecast at around 35 million lbs.

At the end of March, Cameco had $22.8 million in cash and equivalents; total debt was $708 million.