Cameco earnings climb

The first nine months of 1997 saw Cameco (CCO-T) make modest gains in revenues and earnings from operations.

Net earnings actually declined, however, as a result of a $44-million deferred income tax expense.

Over the 9-month period, earnings from operations rose $4 million, to $113 million.

“Net earnings are generally consistent with Cameco’s expectations, after taking into account the substantial provision for deferred income tax expense,” says Cameco Chairman Bernard Michel.

Consolidated revenue for the 9-month period was $463 million, up from $457 million in the same period last year, despite lower uranium revenues.

Uranium revenues fell as a result of a drop in the average realized selling price for U3O8 and lower sales volumes.

Cameco reports, however, that the decline in uranium revenues was more than offset by higher gold sales.

Gold revenues amounted to $66 million on sales of more than 114,000 oz. — an increase of about 83,000 oz. over the same period last year. The increase is attributable to commercial production being achieved at the Kumtor mine, in Kyrgyzstan.

Average gold production at Kumtor, a third of which is owned by Cameco, was greater than 50,000 oz. per month during the third quarter, and Michel says total production is expected to be more than 450,000 oz. this year.

Cash provided by operations, after changes in working capital, was $44 million, compared with $87 million last year. The decline is a reflection of increased uranium purchases under long-term contracts.

Cash provided by financing activities increased by $274 million from last year, mostly because of Cameco’s share offering of 4 million shares in September, which yielded $195 million.

At the end of September 1997, long-term debt was $139 million, down $163 million from the last quarter as a result of the equity issue. Cameco’s one-third share of Kumtor Gold’s debt represents $132 million of the outstanding amount. In addition, Cameco has $138 million of short-term debt, which it may re-finance before maturity.

.SHigh volumes

The uranium spot price ended the third quarter with published prices. As for the uranium market, Michel notes that the total volume of bids exceeded, by a factor of six, the quantity offered. He says this is a sign that spot market demand is strengthening.

Long-term contract price indicators published in the industry have fallen by about 23% since the beginning of the year, compared with a 26% decline in the published spot price indicators for the same period. The long-term market remains moderately active, with about 60 million lbs. of U3O8 contracted in the first three quarters for delivery over multiple years.

“The long-term fundamentals for the uranium industry remain strong, with consumption still outpacing mine production,” says Michel. “Cameco sells only in the long-term market, where we have secured a solid base of contracts for the future.”

Cameco has more than 100 million lbs. of U3O8 under contract for delivery over the period 1998-2007. While the company has secured sales volumes under long-term contracts, some of the pricing under these agreements will be affected by the spot price prevailing at the time of delivery. For instance, Cameco estimates that a US$1 change in the U3O8 spot price for the last quarter of the year would change revenues by about $2 million, and net earnings by somewhat less than $1 million.