Cameco enjoying higher revenues

Even as prices for its two major products, gold and uranium, declined, Cameco (CCO-T) posted higher revenue in the first nine months of 1998 than it did in the corresponding period of 1997.

Cameco showed earnings of $55 million on revenue of $492 million over the nine months ended Sept. 30, 1998. In the first nine months of 1997, the company earned $63 million on revenue of $463 million. Earnings per share for the period were 97 cents, down from $1.19 in the previous year.

Cameco’s uranium revenue declined as production and prices both fell. The increased revenue stemmed from increased gold production at the Kumtor mine in Kyrgyzstan, which is expected to produce 600,000 oz. gold this year. Cameco has a one-third share of the property, with Kyrgyzaltyn, a government enterprise, holding the rest.

Smaller margins, especially in the uranium business, carry the blame for the lower earnings. Total production costs, including costs of reclamation and charges for depreciation and depletion, were 15% higher than in the previous year. Bought uranium, more expensive than the metal the company produced, accounted for a larger proportion of Cameco’s sales this year, a factor reflected in the 1998 costs. A hedging program gave Cameco an average of US$396 per oz. for its gold.

A commission of inquiry set up by the Kyrgyzstani government to investigate a road accident last May at Barskaun, in which a Cameco truck spilled sodium cyanide into the Barskaun River, concluded that the Kumtor operation was liable for damages of US$4.6 million. The finding ran counter to the conclusions of a body of international experts originally requested by the government, which had reported that there was no evidence of harmful exposure to cyanide as a result of the spill. Cameco expects actual liability payments will be limited to the US$4.6 million set by the government.

The company’s $489-million buyout of Uranerz Exploration & Mining and Uranerz U.S.A., the North American operating subsidiaries of German metal producers Preussag Energie and Rheinbraun, has brought Cameco’s long-term debt to $586 million — an increase of $443 million over 1997. A US$125-million preferred share issue has been used to retire part of the short-term debt incurred in the deal.

Trading volumes in the spot uranium market in the third quarter fell to 6 million lbs. (2,700 tonnes) from 15.7 million lbs. (7,100 tonnes) during the corresponding period of 1997. The thinner trading is partly reflected in lower prices, which averaged US$9.79 per lb. at the end of the third quarter, a decline of US$2.34 from the beginning of the year.

Cameco’s McArthur River uranium project in northern Saskatchewan is on schedule to enter production in late 1999. The Uranerz buyout gave Cameco an 84% interest in the project, with the rest held by Cogema Resources. At Cigar Lake, also in northern Saskatchewan, the company expects to start production in early 2002.