No commodity has more questions marks around it right now than uranium, with its very tight supply and continued projections of steep demand increases in the coming decades as the world returns in a big way to nuclear power and weaponry.
The result over the past couple of years has been a soaring uranium price, which resumed its upward march two weeks ago to hit a whopping US$75 per lb. U3O8.
Cameco personnel on the call sounded pretty confident that the remediation work was progressing well. The company is roughly halfway through a program that involves drilling holes into the afflicted parts of the underground workings and injecting cement to stop the water inflow. It’s tough, slow work, but the uranium ore is so substantial and rich at Cigar Lake, the effort’s well worth it.
Cameco says it will complete the work to seal off the inflow in the second quarter of 2007, and plans to update the market on Cigar Lake’s status on March 1 and again in late March. The mine had been slated to produce 10 percent of the global supply by 2010.
Because it’s the world’s largest supplier of such a politically sensitive product, Cameco is exceedingly cautious in its statements and projections, and, as a result of the Cigar Lake flooding, has pushed out its sales contracts from the mine up to seven years, so it never has to be deferred again.
Because of the accident, Cameco’s fourth-quarter earnings took a haircut, falling to $40 million (11 cents per share) from $83 million (24 cents) a year earlier, even though revenues were off slightly at $512 million. For the year, Cameco pocketed $376 million on revenues of $1.8 billion, compared with profits of $215 million on $1.3 billion in 2005.
Cameco president and CEO Jerry Grandey predicted an increase in global uranium production in 2007 compared with last year, when global production actually declined over 2005. However, he said “everyone’s operating at pretty close to full capacity.”
After many stellar years earlier this decade, there was more than a little anxiety about the weakness of the rough diamond market during De Beers’ year-end conference call.
Net sales from De Beers’ selling arm, the Diamond Trading Company, fell 6% to US$6.2 billion in 2006, as net earnings shot up 32% to US$730 million, its second-highest profit ever. However, these impressive earnings included two major one-time events: the sale of 26% of De Beers’ South African assets to a Black Economic Empowerment group, and the sale of De Beers’ 42% interest in the Fort a la Corne diamond project in Saskatchewan.
De Beers’ “underlying earnings” actually dropped exactly 50% to US$425 million as a result of substantially reduced diamond supply from Russia’s Alrosa and the “continued challenging environment in the wholesale market for rough diamonds, where a lack of liquidity, margin pressure, and increased financing costs impacted pipeline demand.”
Thus, the total dividend payout was exactly halved over the year to US$200 million.
Interestingly, De Beers says it was hurt in part by higher prices for platinum and gold, which has pressured jewelers into reducing the diamond content of their wares.
And yet, De Beers is by no means pulling back: it’s now building four new mines — one of the busiest periods in the company’s history — including the Snap Lake and Victor mines in Canada.
As part of a wider trend in Russia’s increasingly Kremlin-dominated natural resources sector, look for Alrosa’s new leadership to more readily shun joint-ventures with De Beers and Israel’s Lev Leviev and instead mine and sell its diamond production on its own.
The new company would include the YGC board, plus Queenstake’s Dusty Nicol Peter Bojtos.
With perennial underdog Queenstake limping along at its Jerritt Canyon mine in Nevada and YGC holding some cash and its small, undeveloped Ketza River gold project in the Yukon, it’s difficult to see the rationale for this deal.
It might get a little clearer when we tune into YGC’s conference call this coming Thursday at 11:30 am ET.
Media reports described how about 200 soldiers moved into the Vinto smelter just before Morales showed up to sign a nationalization decree that gives his government complete control of the operation.
Glencore bought the plant in 2004 from Comsur, a private mining company whose largest stockholder at the time was former Bolivian President Gonzalo Sanchez de Lozada.
“Companies that respect Bolivian laws, that do not steal money from the Bolivian people, will be respected,” Morales said in Oruro the day before the Vinto seizure. “But if the companies do not respect the laws, I have no other alternative than to recover those companies.”
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