Bruce woes hit Cameco earnings

Cameco‘s (CCO-T) net earnings slipped 33% in the first quarter, compared with year-earlier levels, reflecting increased amortization and higher costs related to planned outages at the Bruce Power nuclear facility, 250 km northwest of Toronto.

The company earned $26 million (or 15 per share), compared with $39 million (22 per share) in the first quarter of 2004.

Consolidated revenue between the two periods jumped 64% to $216 million, thanks to the consolidation of results from the Kumtor gold mine in Kyrgyzstan and a full quarter’s worth of production from the Boroo gold mine in Mongolia. Both mines are owned by Cameco’s 53%-owned subsidiary, Centerra Gold (CG-T).

Earnings in the recent quarter were affected by administration, exploration, and interest costs, which, combined, climbed by $13 million, to $34 million. Cash flow from operations nearly doubled to $84 million.

At the Bruce facility, operating costs rose by $63 million, or 25%, to $313 million. The increase reflects planned maintenance shutdowns and higher amortization costs following the restart of two A reactors. Cameco’s quarterly share of pretax earnings from Bruce amounted to $29 million, down from $46 million a year earlier.

Cameco expects the facility’s full-year results to slip slightly from 2004, owing to three factors: increased costs on higher depreciation and amortization on the recently restarted A units, higher outage costs, and higher fuel costs.

During the first quarter, the Bruce reactors were offline for a total of 96 days (79 planned, 17 unplanned), whereas in the first three months of 2004 saw 49 days of unplanned outages and unit 3 was unavailable for 60 days, owing to initial restart activities.

Bruce Power recently inked a tentative deal with the government of Ontario to restart the complex’s remaining two reactors. The re-start would boost capacity by more than 30%; the government is currently considering the plan.

Cameco, TransCanada Pipelines (TRP-T), and the Ontario Municipal Employees Retirement System each own 31% of Bruce Power; The Power Workers’ Union and the Society of Energy Professionals own the rest.

On the mining side, Cameco’s quarterly attributable uranium production slipped by 400,000 lbs., to 4.8 million lbs. Still, uranium revenue rose by 7% to $78 million; improved prices were partially offset by a 7% decline in deliveries. Cameco realized an average of US$13.53 per lb. of uranium during the quarter; that’s 15% better than a year earlier but well off the 22-year high of US$22.50 per lb. at quarter’s end.

First-quarter revenue from Cameco’s uranium conversion business was little-changed at $26 million; pretax earnings climbed by $2 million to $9 million. Still, the company admits it has not fully benefited from the recent rise in UF6 spot prices as most of its conversions sales are made under existing, lower-priced contracts. A recently inked deal with British Nuclear Fuels boosts the company’s UF6 conversion capacity by 40%.

Looking ahead to the second quarter, Cameco expects consolidated revenue to improve by about 50% over the first quarter, as a result of improved uranium deliveries. Consolidated second-quarter earnings are expected to rise moderately, with outages and an expected lower realized price taking a bite out of Bruce’s earnings.

For the full year, the uranium business is slated to deliver significantly higher revenue in light of higher realized prices and increased volumes; about 45% of the company’s uranium deliveries are expected in the fourth quarter. Conversion revenues are expected to improve slightly, with a projected 5% increase in the average realized selling price mostly offset by lower deliveries. Although revenue from the gold business is expected to climb, lower grades at Kumtor will temper gross profits.

Overall, consolidated revenue for all of 2005 is expected to climb by 15% over 2004 levels because of improved performances by the uranium and gold businesses; consolidated profit margins are expected to improve from the 23% tabled in 2004.