November 2, 2009 / 1:37 PM / 10 years ago

UPDATE 2-Cameco operating profit down despite higher output

* Excluding items, Q3 EPS C$0.26 vs C$0.37

* Analysts forecast profit C$0.33/shr

* Q3 revenue down 4.8 pct at C$694 mln

* Shares down 1.5 percent

By Cameron French

TORONTO, Nov 2 (Reuters) - Cameco Corp (CCO.TO) said on Monday its third-quarter operating profit fell 18.1 percent, due to lower uranium sales and higher production costs, and despite stronger production of the nuclear fuel.

Excluding one-time items, the company posted earnings of C$104 million, or 26 Canadian cents a share, down from C$127 million, or 37 Canadian cents a share, a year earlier.

The result fell short of analysts’ expectations of a profit of 33 Canadian cents per share, as polled by Thomson Reuters I/B/E/S.

The result put mild pressure on the company’s shares, which were down 1.5 percent at C$29.59 on the Toronto Stock Exchange, versus a slight rise in the TSX materials sector.

On a net basis, profit rose to C$172 million, from C$135 million, helped by a C$101 million gain on financial instruments, partially offset by a C$33 million restructuring charge.

Quarterly revenue fell 4.8 percent to C$694 million, as the cost of selling uranium climbed 26 percent from a year earlier, while sales volumes fell by 15 percent.

The weaker sales were due to deliveries timed at the discretion of customers, and contrasted with production that doubled to 5.6 million pounds, which Blackmont Capital analyst George Topping said was higher than the 5.1 million pounds he had expected.

“This appears to be a strong operational quarter,” he said in a note.

The higher cost of sales stemmed from purchases of uranium at higher-than-production prices for resale.

Cameco mines uranium primarily in its home province of Saskatchewan in Western Canada, as well as in Kazakhstan and the United States.


Realized uranium prices were $34.24 a pound in the quarter, down from $37.88 a year earlier, and below spot prices that hovered just shy of $50 a pound for much of the quarter.

This was due to sales of uranium into long-term contracts agreed to years ago when prices were lower, officials said on a conference call.

Cameco expects prices to rise in the fourth quarter, with the recent period likely to be the low-water mark for the foreseeable future, they said.

Chief Executive Jerry Grandey said he expects longer-term prices — at which new contracts would be entered — to be higher than current spot prices, which were at $49.50.

“Given some of the cost inflation that the mining industry and the uranium mining industry has experienced over time, and the declining U.S. dollar, a lot of analysts put that in the $50-$70 dollar range, and I guess our feeling is it wouldn’t be outside of that range,” he said.

The company expects global uranium demand to continue to rise as countries — particularly the United States, China and India — build new nuclear reactors to satisfy demand for electricity generated with few greenhouse gas emissions.

Global mined production, meanwhile — Cameco expects 120-130 million pounds this year — has been short of demand in recent years, and has been augmented by third-party sources, such as uranium from decommissioned nuclear weapons.

Such sources have finite limits, and Cameco plans to double its mined output to about 40 million pounds by 2018.

Besides uranium mining, Cameco manufactures nuclear fuel, and holds minority stakes in Canada’s Bruce Power nuclear station and Asia-focused Centerra Gold (CG.TO). Cameco plans to eventually sell its Centerra stake.

$1=$1.08 Canadian Additional reporting by Euan Rocha; editing by Rob Wilson

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