Cameco ups production, cuts costs

A stronger Canadian dollar along with lower profits from Cameco Corp.‘s (CCO-T, CCJ-N) electricity businesses contributed to lower third-quarter profits for the company, but in the first nine months of the year the uranium producer posted a 17% rise in production and a 13% decrease in the average unit cost of production.

Revenues were lower in the third quarter because of the timing of uranium deliveries and about one third of Cameco’s 2010 uranium sales will be delivered in the fourth quarter.

Net earnings in the three months to Sept. 30 reached $98 million ($0.25 per share diluted), compared to $172 million ($0.44 per share diluted) in the third quarter of 2009.

“Overall, earnings were in line with our estimates as lower revenues were almost offset by lower than expected costs,” Brian MacArthur, an analyst at UBS Investment Research wrote in a note to clients.

MacArthur has a buy on the stock and has revised his 12-month target price upward from his previous US$31.99 per share to US$36.98 per share.

“Cameco has a strong financial position and is now a pure play nuclear energy investment,” McArthur noted. At the end of the third quarter, the company had cash and equivalents of $353.6 million, short-term investments of $916.8 million and long-term debt of $943.5 million.

Looking ahead, Cameco lowered its 2010 capex guidance from $510 million to $475 million and forecasts uranium production will total 22 million pounds, up from an earlier estimate of 21.5 million pounds, with increased production at Rabbit Lake and Inkai.

Management also believes the company will double its annual uranium production from existing assets by 2018.

Spot uranium prices, currently at about US$57.50 per lb., have gone up by about 38% over the last three months, UBS notes.