Cameco posts ‘surprising’ lower output estimate

Cameco (TSX: CCO; NYSE: CCJ) has cut this year’s production forecast for its main McArthur River uranium mine by significantly more than BMO Capital Markets envisioned, which it said could buoy prices for the heavy metal.

Canada’s largest producer of the nuclear fuel said Thursday McArthur River’s output could be 14 million to 15 million lb. uranium oxide (U₃0₈) versus 18 million lb. previously, reflecting development delays as the mine transitions to new areas.

McArthur River’s challenges remove about 2 million lb. net from BMO’s supply forecast this year, increasing its global uranium deficit forecast to about 14 million lb. or about 8% of worldwide demand and 8.5 million lb. in 2026, BMO mining analyst Alexander Pearce said in a note on Friday.

“While the changes are slightly negative for Cameco, the increased supply deficit could more than offset this via stronger uranium prices/sentiment, building on already improving sentiment for new nuclear [plants via its Westinghouse division],” Pearce said. “Perhaps more importantly, production guidance downgrades from two of the largest producers in as many weeks (Kazatomprom (LSE: KAP) note here) could be the catalysts needed to kick-start contracting into year-end.”

The spot price of uranium upticked to $75.05 a lb. on Friday, its highest since early July according to Trading Economics. It noted top miner Kazatomprom (LSE: KAP) said it would achieve a mid-point production of 14 million lb., nearly 20% below its forecast from late 2023, while French state firm Orano has said it may close its Somair mine in Niger due to export restrictions. Cameco CEO Tim Gitzel has said the price is still far short of supporting new projects, whether expansion or greenfield.

Earnings

While projected earnings before interest, tax, depreciation and amortization changes are limited to about 3% less at $2 billion for fiscal 2025, Cameco is now likely to purchase more U₃O₈ from third parties, lowering free cash flow by about 5%, Pearce said.

“Cameco had flagged risks to McArthur’s production this year, but the magnitude of the drop in guidance (about 19%) is surprising,” Pearce said. “However, perhaps more significantly [than the earnings and free cash flow impact], the supply deficit increases, which is likely to have a positive impact to uranium pricing particularly heading into the World Nuclear Symposium next week, and could be the positive catalyst needed for increased contracting and another leg-up in sentiment.”

The upshot is the bank increased its Cameco stock target price by 9% to C$120. Investors didn’t immediately agree. Shares in Cameco fell 1.9% to C$106.13 apiece in Toronto by mid-Friday. The Saskatoon, Saskatchewan-based company is valued at $44.1 billion.

BMO lowered the McArthur River and Cigar Lake attributable production by 9% to 20.5 million lb. U₃O₈, with McArthur River’s contribution at 10.2 million lb. and Cigar Lake at 10.2 million lb. The bank increased its estimate of Cameco’s purchases by 1 million lb. to about 7 million lb. taking total purchases (including deliveries from its Inkai partnership in Kazakhstan) to 11.2 million pounds.