Cameco banking on stable uranium market

Gold revenue and management fees underpinned a rise in earnings for Cameco (TSE), but future earnings are expected to be sensitive to the spot price for uranium oxide.

Cameco reported net earnings of $71.4 million on revenue of $268.4 million for the nine months ended Sept. 30, compared with $63.7 million on $252 million for the same period in 1994.

A large part of the increase in earnings is due to gold sales from the Contact Lake mine in northern Saskatchewan, which entered production this year, and to management fees from the Kumtor gold project in the former Soviet republic of Kyrgyzstan.

Contact Lake has produced 23,587 oz. gold this year and the Kumtor joint venture, in which Cameco holds a one-third interest, is expected to come on-stream in 1997.

Steady improvements in the uranium oxide concentrate price have also helped Cameco’s earnings. The company estimates a change of US$1 in the price means a $2-million difference in the company’s earnings for the final quarter of 1995.

The restricted spot price (for which Cameco is eligible) has stayed above US$10 per lb. for the past eight months, the first time it has been consistently above that level since 1989. The spread between it and the unrestricted spot price — for dealings with the former Soviet republics — has also been narrowing, indicating tighter supply in all markets. Spot U3O8 averaged US$11.79 per lb. in September, slightly higher than in previous months.

Legislation to privatize the U.S. Enrichment Corporation, the government nuclear fuel dealer, passed at the committee level in the U.S. Senate this past quarter. The legislation freezes Russian uranium out of the U.S. market until 1997, when it will be subject to slowly increasing quotas. Bernard Michel, chairman and president of Cameco, expects the legislation will make its way through the U.S. Congress by the end of the year. “We continue to believe that the uranium from the dismantling of military weapons can be integrated into the market without major disruptions,” Michel says.

Cameco’s net debt (defined as long-term debt less cash and securities) increased to $149.4 million from $34 million a year before, largely through investment in the Kumtor project.