Undeterred by today’s low uranium prices, Cameco takes a longer perspective
by Greg Klein
While releasing its Q2 financials on August 1, Cameco Corp TSX:CCO took the opportunity to offer its near- and longer-term prognosis for uranium. The company’s remarks come at a time when optimistic forecasts contrast with the lowest prices seen in several years, currently $34.50 a pound.
Cameco reported $421 million in revenue over the three months ending June 30, a 49% increase over the same period last year. Gross profit hit $99 million, up 98%. Net earnings attributable to equity holders came to $34 million or $0.09 a share, while adjusted net earnings were $61 million or $0.15 a share.
Q2 production, on the other hand, dropped due to planned maintenance shutdowns at the McArthur River and Rabbit Lake mines as well as the Key Lake mill, all in Saskatchewan’s Athabasca Basin. Both mines are expected to meet this year’s guidance.
As for Cigar Lake, capital costs have jumped about 20% to $260 million. That’s “mainly because of some scope changes at the mine and at the AREVA mill, as well as the same upward pressure being felt on costs across the mining industry,” company president/CEO Tim Gitzel told an August 1 teleconference. The goal remains “first packaged pounds in the fourth quarter.”
With a 2018 target of 36 million pounds of uranium oxide (U3O8) annually, Cameco expects its 50% share of Cigar Lake production to supply about three-quarters of the company’s planned 12-million-pound increase.
Despite the new mine’s growing capex, the company’s cutting costs. “We’ve made changes that target increased capital efficiency and a sustainable 10% reduction in future expenditures,” Gitzel said. Included will be this year’s cut in exploration expenditures, which will drop 15% or 20% from 2012.
“Today the importance of increased efficiency cannot be overstated. The uncertainty resulting from the continued shutdown of Japan’s reactors and the resulting inventories remains the biggest issue, the primary reason we continue to see downward pressure on uranium prices along with discretionary buying from utilities who remain well-covered for the time being.”
Citing “other unforseen developments” like reactor shutdowns in the U.S. and, for safety reviews, in South Korea, he said, “There’s no doubt that the market conditions continue to be challenging. But today I would also say we are starting to see some tangible movement,” especially with four Japanese utilities that have applied to restart 12 reactors.
Other price catalysts would be Chinese consumption and this year’s end of the highly enriched uranium agreement with Russia, Gitzel added. But he emphasized, “Our focus certainly isn’t limited to the near term. Ours is a long-term business and those long-term fundamentals remain very strong.”
The company sticks to the World Nuclear Association forecast of 3% average annual growth in consumption up to 2022. “That’s being driven by the growth in reactors around the world from 430 today to more than 520 by 2022, 67 of which are under construction today,” Gitzel explained. “China alone has six reactors planned to come online this year. One of those has been connected to the grid and the others are getting close.
“So this growth is not just something we think will happen. It’s happening as we speak… it’s just a question of how long it will take for that growth to become the more dominant force in the market than the challenges currently being faced.”