Cameco heats up with uranium

With uranium spot prices rising from $10/lb at the start of 2003 to $75/t today, Cameco is a hot company. It is the world’s largest uranium producer. No wonder then that the company “recorded record revenue, earnings and cash flow for 2006, despite lower earnings in the fourth quarter compared to the previous year," according to Jerry Grandey, President and CEO. "As we have indicated, quarterly results are not a good indicator of Cameco’s annual results and the fourth quarter certainly demonstrates this."

For the three months ended December 31, 2006, net earnings were $40 million, $43 million lower than the net earnings of $83 million recorded in 2005. The decrease is due to lower earnings in the electricity and gold businesses, and a $20 million (pre-tax) charge at Cigar Lake. The write down results in a $15 million (pre-tax) charge in the fourth quarter of 2006. In addition, we expensed $5 million (pre-tax) in costs related to remediation activities at the project.

In the fourth quarter, the average realized price in Canadian dollars increased by 30%, with the stronger Canadian dollar relative to the US dollar having a dampening effect given that most Cameco sales are denominated in US dollars. The increase in the average realized price was the result of higher prices under fixed-price contracts and a higher uranium spot price, which averaged $65.21/lb in the fourth quarter of 2006 compared to $34.79/lb in the same quarter of 2005.

On October 23, 2006 Cameco reported that a water inflow at Cigar Lake had flooded the underground development. Cameco engineers and consultants have developed a phased plan to restore the underground workings at Cigar Lake. The first phase of the remediation plan involves drilling holes down to the source of the inflow and to a nearby tunnel where reinforcement may be needed, pumping concrete through the drill holes, sealing off the inflow with grout and drilling dewatering holes. Subsequent phases include dewatering the mine, ground freezing in the area of the inflow, restoring underground areas and resuming mine development. Regulatory approval is required for each phase of the remediation plan. The company plans to issue its next update on the status of Cigar Lake on March 1, 2007.

For 2006, net earnings were $376 million and adjusted net earnings were $274 million, $66 million higher than the adjusted net earnings of $208 million recorded in 2005 due to improved results in the uranium and gold businesses.

Cameco expects consolidated revenue for the first quarter of 2007 to be about 20% lower than that of the fourth quarter of 2006. This is due to anticipated lower sales volumes for uranium and conversion as well as lower projected gold production. The decrease is partially offset by an expected 5% increase in revenue in the electricity business as a result of higher anticipated realized prices.

In 2007, Cameco expects consolidated revenue to grow by about 25% over 2006 due to higher revenue from uranium and fuel services. In the uranium business, Cameco expects revenue to increase by some 45% due to stronger average realized prices under its contracts relative to 2006. This projection for the uranium business does not include all the expected adjustments for the Cigar Lake water inflow incident as they are being finalized and assumes that the product loan arrangements in place remain unchanged. The company says it may consider terminating a portion or all of the product loans. Excluding the impact of any deferrals related to the product loans, it anticipates uranium revenue to increase by about 50% in 2007 primarily due to higher realized prices.

In 2007, Cameco expects gold production (100% basis) to be in the range of 700,000 to 720,000 oz, up from 587,000 oz in 2006. Gold revenue is expected to increase by about 20% in 2007 over 2006.

In its March issue, International Mining’s World Prospects focus will turn to uranium.