* Q3 adj profit C$0.26/shr vs analysts' estimate C$0.31
* Annual production forecast cut by Canada's top producer
* Sales forecast maintained; long-term outlook seen strong
* Revenue jumps 26 pct at C$527 mln
* Shares drop 7.5 percent to C$20.14 in Toronto
By Julie Gordon
Nov 7 (Reuters) - Cameco Corp , Canada's top uranium producer, reported lower-than-expected quarterly earnings on Monday and cut its annual production forecast for nuclear fuel, sending its shares tumbling.
With hiccups at both its Smith Ranch-Highland mine in Wyoming and the Inkai mine in Kazahkstan, Cameco expects to produce 21.7 million pounds of uranium, compared with an earlier forecast of 21.9 million pounds.
The Saskatoon, Saskatchewan-based company also cut 6 percent from its full year forecast for UF6, a compound used to make enriched uranium, citing unfavorable market conditions.
"There seems to be an excess of conversion (UF6) available at the moment to the market, but how long that will last for is difficult to say," said BMO Capital Market analyst Edward Sterck. "It could be a very short-term situation."
He said the uranium industry as a whole is expected to remain uncertain in the near term, as countries weigh their options on nuclear project development.
Shares of Cameco dropped as much as 9 percent even though Cameco maintained its full-year sales target of 31 to 33 million pounds of uranium this year.
On a conference call with investors, chief executive Tim Gitzel said that he expects 2012 sales in the same range and added that the long-term outlook for the material used to fuel nuclear reactors is strong.
The construction of new reactors in China and other Asian countries is expected to outweigh the loss of markets in Japan, where reactors are being take offline in the wake of the Fukushima reactor accident in March, and in Germany, where the Japanese disaster led to a policy shift away from nuclear power.
"The strong, long-term fundamentals that we were seeing previously have not gone away," said Gitzel. "In fact, we continue to see a very strong and promising future growth profile."
In the third quarter uranium sales volumes rose 29 percent to 7.2 million pounds at an average realized price of $47.33 a pound. That compared with 5.6 million pounds at $40.63 in the year-earlier quarter.
Cameco said that it had deferred about 2.5 million pounds of sales to the fourth quarter, with its nine-month uranium sales at 19.1 million pounds.
To meet ts full-year sales target, Cameco would have to complete almost 40 percent of sales in the fourth quarter, said Sterck.
"I don't see any reason for this not to come through as Cameco expects," he said. "But obviously this is still a risk for the rest of the year."
ADJUSTED EARNINGS RISE
Cameco's third quarter operating profit rose on higher uranium sales volumes and better realized prices, but fell short of analysts expectations for the quarter.
Excluding one-time items, Cameco's earnings climbed ot C$104 million, or 26 Canadian cents a share, from C$80 million, or 20 Canadian cents, a year earlier.
Analysts, on average, had expected earnings of 31 Canadian cents a share, according to Thomson Reuters I/B/E/S.
Net profit dropped to C$39 million, or 10 Canadian cents a share, from C$98 million, or 25 Canadian cents, on losses on foreign exchange derivatives and a weaker Canadian dollar.
Revenue rose 26 percent to C$527 million.
Shares fell 7.49 percent to C$20.14 on Monday afternoon on the Toronto Stock Exchange.
Before the crippling nuclear disaster at the Fukushima power plant in Japan, uranium was on a bull run as investors eyed China's plans build dozens of reactors to meet the energy needs of its growing urban population.
With numerous reactors under construction and others in the planning stages, Cameco estimates that by 2020 China will have 60 to 70 gigawatts of nuclear capacity, compared with a current capacity of about 12 gigawatts, sparking rising demand for uranium over the next decade.
"The Chinese nuclear program is still going very strong," said Gitzel. "They have, I think, 14 nuclear units in operation and another 26 or 27 under construction that they plan to have in production by 2015, which is breathtaking for us on the growth side."
The company also sees rising demand from South Korea and India, and is moving forward with a plan to boost uranium production to 40 million pounds a year by 2018.
In the coming months Cameco said the uranium market will remain unsteady, as speculation mounts that Japan and Germany may sell stockpiled uranium back into spot market and on worries that customers may defer more sales.