UPDATE 2-Cameco eyes Japan reactor re-starts after profit plunge

Wed May 1, 2013 2:49pm EDT

By Rod Nickel

WINNIPEG, Manitoba May 1 (Reuters) - Profit at Cameco Corp , one of the world's biggest uranium producers, plunged 93 percent in the first quarter as uranium sales fell and prices were weaker, but the company said it expects Japan to restart some nuclear reactors this year, pointing to better times ahead.

The Saskatoon, Saskatchewan-based company, just trailing KazAtomProm and Areva SA in uranium production, said on Wednesday uncertainty in the short and medium term is hampering the uranium sector's recovery. However, it said it believes Japan will restart six to eight reactors this year, adding to demand for nuclear fuel to generate electricity.

A rebound in Japanese demand is expected to eventually lift depressed uranium prices, as are construction of new reactors in China and India and the scheduled end this year of a program to convert uranium from Russian warheads into low-enriched uranium for reactor fuel.

"I know we've been waiting for such movement longer than expected, but we are confident it will happen," Chief Executive Tim Gitzel said on a conference call. "The fundamentals of the industry, increasing demand and decreasing supply, require it. The question remains 'when.'"

Cameco shares were almost unchanged in Toronto, at C$19.68, recovering from a 5 percent drop earlier in the session. Cameco's Toronto-listed stock has lost more than half of its value since its 2011 peak.

The uranium market has been in a downward spiral since a massive earthquake and tsunami struck Japan in March 2011, crippling the Fukushima-Daiichi atomic power plant. Japan was the third-largest global producer of electricity from nuclear fuel in 2010, according to the World Nuclear Association.

Countries have reduced their dependence on nuclear power in the aftermath, sending the spot price for uranium sharply lower.

Last week, Japanese media said reactor restarts might begin in the autumn, giving Cameco shares a temporary lift.

Mining analyst Raymond Goldie of Salman Partners said he expects up to 20 Japanese reactors to restart during the next two years, representing an increase of about 4.5 percent in the world's uranium consumption.

Analysts expected a big decline in Cameco's first-quarter profit, although not quite so steep, as the company had signaled that first-quarter shipments would likely be light. The timing of Cameco's uranium sales can vary widely, as customers choose when in the year they will accept deliveries.

"It's a slight miss, but it's not that big a deal," said Cantor Fitzgerald analyst Rob Chang.

Cameco, which runs the world's largest-producing uranium mine at McArthur River, Saskatchewan, reaffirmed its 2013 outlook for uranium sales and production and raised its outlook for sales of fuel services, factoring in its acquisition of fuel broker NUKEM.

Cameco said it produced 5.9 million pounds of uranium during the quarter and sold 5.1 million pounds. A year earlier, it had output of 4.8 million pounds and sales of 8.2 million pounds.

The company's average realized price for uranium slipped 2 percent year over year to C$48.25 per pound.

Electricity revenue from Bruce Power, an Ontario company nearly one-third owned by Cameco, dropped 14 percent.

REVENUE FALLS

First-quarter net earnings fell to C$9 million ($8.9 million), or 2 Canadian cents per share, from C$129 million, or 33 Canadian cents per share, a year ago. On an adjusted basis, Cameco earned C$27 million, or 7 Canadian cents per share, down from C$121 million, or 31 Canadian cents per share, in the year-earlier quarter.

Revenue fell 5 percent to C$444 million.

Analysts expected the company to report earnings of 8 cents per share and revenue of C$474 million.

Gitzel said Cameco continues to watch a sales process unfold for Urenco, the world's second-largest vendor of nuclear fuel.

He declined to comment on Cameco's possible interest in a stake in Urenco, which is owned by the governments of Britain, the Netherlands and Germany - whose share is held by utilities E.ON and RWE. The British government said on April 22 it would sell some or all of its 33 percent stake .

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