Cameco net income rises in third quarter, revenue falls five per cent
Published Monday November 2nd, 2009
Cameco Corp. (TSX:CCO) says its revenue slipped to $694 million in the third quarter, well short of analyst estimates, as the world's biggest uranium producer felt the impact of lower prices and sales volumes compared with a year ago.
However, president and CEO Jerry Grandey said the long-term fundamentals in the uranium market are extremely positive and he remains optimistic that Cameco will profit from steadily increasing demand for the mineral used to make nuclear power.
"Notwithstanding the short-term events, the long-term fundamentals of the uranium market remain robust," Grandey said Monday in a conference call with analysts.
"We are building our business on the expectation that the long-term price for uranium will continue to move toward a realistic equilibrium price as the nuclear renaissance accelerates. This acceleration is particularly noticeable in rapidly emerging economies that require clean, base-load electricity on a scale to supply huge populations that are modernizing quickly."
Analysts had been expecting a smaller year-to-year drop in Cameco's revenue, estimating the company would generate $726 million in the quarter, according to Thomson Reuters.
Instead, the Saskatoon-based company's revenue fell about five per cent from $729 million in the same period last year.
However, Cameco's net income rose to $172 million or 44 cents per share in the three-month period, up from $135 million or 39 cents per share a year earlier. This included a $101-million gain on financial instruments, partially offset by a $33-million charge related to a restructuring of the company's gold business.
Cameco said revenue from its uranium mining business was $329 million, down $67 million from a year ago, due to a 15 per cent decrease in sales volumes and a two per cent decline in the realized selling price to US$34.24 per pound.
However, Grandey said sales volumes for the second half of 2009 are more heavily weighted towards the fourth quarter. In addition, the realized price in the third quarter was dragged down by long-term, older contracts with low fixed prices or price ceilings. These are not expected to impact the fourth quarter.
Grandey said he sees the long-term equilibrium price for uranium at between $50 and $70 per pound, although he expects the spot market price to remain volatile in the short-term.
Grandey said Cameco is well positioned to take advantage of growing demand, particularly in India, which uses reactors similar to Canada's CANDU reactors.
"The spectrum of opportunities for us in India is broad," he said.
"It's both uranium supply as well as co-operation in other aspects of the CANDU fuel cycle, we hope, and could span exploration activities there and perhaps jointly abroad."
Grandey said Cameco is aiming to double its uranium production - expected to total 20 million pounds in 2009 - by 2018 to meet this burgeoning demand. The company is working on several exploration and development projects, including the Kintyre project in Australia and Inkai in Kazakhstan.
In addition, Grandey said progress is being made at the Cigar Lake mine in Saskatchewan, which is expected to produce nine million pounds of uranium annually once it's up and running. Last month, Cameco said it had resumed efforts to drain water from the troubled mine which has been flooded for three years. Cameco operates and owns 50 per cent of the project.
"Today the water level is about 250 metres below the surface and the response is in accordance with predictions," Grandey said.
"We expect to take six to 12 months to de-water and secure the mine, depending on the conditions found in the shaft and underground workings."
Cameco has uranium mines, mills, conversion plants and exploration projects in Saskatchewan, Ontario, the United States and Australia. It also has a controlling stake in Centerra Gold (TSX:CG), a Toronto-based miner with operations in central Asia.
Revenue from the company's fuel services division was $50 million, down 19 million from the same time in 2008 due to a 24 per cent decrease in reported sales volumes and a three per cent decline in the average realized price for fuel services products.
Those declines were partially offset by higher revenue at Cameco's gold business, which rose by $33 million from a year earlier to $176 million, due to a 12 per cent increase in the selling price and three per cent higher sales volume.
On the electricity side, Cameco is a key partner in the Bruce Power nuclear power plant on the shores of Lake Huron in southwestern Ontario.
Its pre-tax earnings from Bruce Power were $78 million for the quarter, up from $61 million a year earlier, on a higher realized price.
Shares in Cameco lost 51 cents to $29.65 in early afternoon trading on the Toronto Stock Exchange.
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