Cameco sees strong Q3 despite new contract price lows

VANCOUVER (miningweekly.com) – Uranium miner Cameco has reported a strong third-quarter profit despite spot market and contract prices falling to new lows.

As at the end of the September quarter, the average reported spot price was $23/lb, down $3.70/lb from the previous quarter.

Cameco labelled the market weak during the third quarter, with low demand and persistent oversupply driving both spot and term prices down to new ten-year lows. As a result, it expects to make between 10% and 15% less revenue in 2016 from its uranium and fuel services business segments, and 20% to 25% less from Nukem.

MARKET STRESS
New reactor startups continued to be a bright spot, with four more reactors – two in China, one in India, one in Russia – added to the grid, bringing the 2016 total to nine. However, the generally anaemic sentiment in the nuclear space was unchanged amid continued uncertainty around the path for restarting reactors in Japan, and economic pressure on nuclear operators in the US.

Cameco noted that, despite the prolonged stress on near-term demand, there have been very few adjustments to primary supply, softening market conditions to where they are today.

“We expect the market environment to remain depressed until catalysts, such as reactor restarts in Japan, take place; until primary suppliers react to the low uranium price; until excess supply clears the market; and until there is a significant return to long-term contracting,” Cameco stated.

Over the long term, Cameco believes that uranium demand is backed by steady reactor growth that supports a positive story for the industry. Over the next decade, as the 57 reactors under construction today come on line, and as planned units move into the construction phase, the increasing demand will have to be met with new primary supply.

However, today’s low uranium prices and lack of long-term contracting are delaying the development of those new supply sources, adding uncertainty to security of supply and favouring established producers who will be able to draw on low-cost long-lived assets for stable future production.

Q3 RESULTS
Net earnings attributable to equity holders in the third quarter were $142-million, or $0.36 a share, compared with net losses of $4-million, or $0.01 a share, in the third quarter of 2015.

Excluding special items, Cameco’s earnings in the quarter were $118-million, or $0.30 a share, compared with earnings of $78-million, or $0.20 a share diluted, in the third quarter of 2015.

Production in the quarter was 28% lower at 5.9-million pounds, mainly owing to planned lower production from McArthur River/Key Lake and Rabbit Lake, and lower production from Inkai.

The 36% increase in uranium revenue, to $526-million, was a result of a 35% increase in sales volumes at 9.3-million pounds, which was due to the timing of deliveries, which are driven by customer requests and can vary significantly, Cameco stated.

Uranium output is expected to hit 25.8-million pounds this year.

Cameco’s TSX-listed stock on Wednesday rose more than 12% to C$11.15 apiece.