Cameco (Photo credit: Wikipedia)
Cameco
CCO : TSX : $21.06
Note today’s Uranium Update in this blog as well North America’s largest publicly-traded uranium producer reported quarterly results after the close on Friday.
Canaccord highlighted that Cameco reported markedly better-than-expected Q4/12 results (adjusted EPS of $0.60 vs. his estimate of $0.43 and the First Call consensus of $0.41) driven by stronger results in the core uranium segment.
The company also issued 2013 guidance that on an overall basis was slightly above forecast. The start-up of Cigar Lake remains on schedule for mid-2013. However, Cameco disclosed that the Canadian Revenue Agency (CRA) is challenging the company’s uranium transfer pricing structure which could have a material financial impact; this is likely to be an overhang on the shares in the near-term.
Looking ahead, Canaccord reiterated a bullish rating on Cameco’s stock, citing the company’s very high quality asset base, impressive medium term production growth profile driven by Cigar Lake, and what appear to be improving fundamentals in the uranium market.
A recovery in Japanese buying may help the uranium-mining industry, which has canceled or deferred billions of dollars of investments as the price of the commodity fell as much as 40 percent. The tsunami and earthquake that struck the country in 2011 damaged Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant and led to the meltdown of three reactors, the release of radiation and the evacuation of 160,000 people.
Japan subsequently suspended operations of its remaining reactors. Having accounted for about 20 million pounds of annual global uranium demand before the disaster, Japan now operates just two of its 50 functioning reactors. Current global demand is 177 million pounds, according to Rob Chang, an analyst at Cantor Fitzgerald LP in Toronto.
Average Prices
The price of U308, the tradable form of uranium, is currently at $43.75 a pound, according to Metal Bulletin data. The price, which reached $138 in 2007, will average $58.20 this year, $63.75 next year and $69.17 in 2015, according to the average of analysts’ estimates compiled by Bloomberg.
ower prices have slowed development of some mining projects. In October, BHP Billiton Ltd. deferred a decision to spend an estimated $33 billion to expand the Olympic Dam uranium mine in Australia, and Perth-based Paladin Energy Ltd. last year slowed expansion of a Namibian project.
Cameco has plunged 42 percent in Toronto trading since March 10, 2011, the day before the tsunami, as the 26-member ISE-CCM Global Uranium index has dropped about 47 percent. The company responded to falling uranium prices last year by abandoning its goal of doubling its annual output to 40 million pounds by 2018, dropping the target to 36 million.
Lower Profit
Last week Cameco reported a C$168 million ($167.6 million) writedown on its Kintyre project in Australia, reiterating that it wouldn’t be viable without a uranium price of about $67 a pound. The writedown helped push fourth-quarter net income down 83 percent to C$45 million, or 11 cents a share, from a year earlier.
Even amid public opposition in Japan to reactor restarts that included weekly protests last year, the victory in December of the pro-nuclear Liberal Democratic Party in parliamentary elections has raised expectations that more nuclear plants may come back online.
While countries such as Germany back away from nuclear power, restarts in Japan are important for the uranium and nuclear-power industries because the Asian nation has the most operational reactors after the U.S. and France, according to data from the World Nuclear Association. The nation of about 128 million people also is wholly reliant on imported uranium.
Thinking Ahead’
Cameco, the biggest uranium producer after Kazakhstan’s Kazatomprom and Paris-based Areva SA, forecasts the number of operable reactors to increase globally by 80 in the next 10 years to 511, according to a Jan. 23 investor presentation on its website. Before Fukushima, the company forecast 110 new units over the following 10 years, Chief Financial Officer Grant Isaacsaid.
With 64 reactors now under construction around the world, Cameco expects demand for uranium to increase by an average of 3 percent a year to 2022, Gitzel said on a Feb. 11 conference call.
“These utilities, when they’re building reactors today, they don’t need uranium today, they probably don’t need it for five years — but then they’ll need it for 60 years,” Gitzel said in the interview. “So they’re thinking ahead.”
