‘Quiet’ quarter prompts more cautious outlook for Cameco

TORONTO (miningweekly.com) – Canadian uranium producer Cameco has reported a “very quiet” first quarter during which it swung to an adjusted loss of C$7-million, or C$0.02 a share, compared with earnings of C$69-million, or C$0.18 a share a year earlier.

For the three months ended March 31, revenues fell 28% year-over-year to C$408-million, as sales fell in all three of the company’s business segments.

Just last week, Cameco announced that it was curtailing production at its higher-cost Rabbit Lake in northern Saskatchewan and production was being curtailed at its US operations by deferring wellfield development.

Cameco would layoff about 500 positions at Rabbit Lake and about 85 at the US operations, including employees and long-term contractors. It had also announced the restructuring of its Germany-based NUKEM segment, downsizing the team and transferring essential support functions tot he US.

“We had anticipated that things were to improve sooner after the Fukushima incident, but now have to prepare for lower prices for longer,” president and CEO Tim Gitzel told an analyst teleconference on Friday, noting increased uncertainty regarding recovery of the uranium market.

Gitzel lamented the lack of opportunities in the market, saying the market could remain low for longer, and prompting the company to adopt a conservative strategy to continue to control costs and remain competitive.

According to Cameco, the average uranium spot price in the quarter was $28.70/lb, a 27% decline when compared with the same quarter a year earlier, while the average long-term contract price had fallen 12% in the same period to $43.50/lb.

Cameco revised lower its full-year output to 25.7-million pounds of uranium oxide, down from previous guidance of 30-million pounds, as the company also decided to reduce its 2016 production target for the McArthur River/Key Lake operations.

However, he reiterated the company’s belief in the long-term fundamentals, pointing to new construction projects and growing demand that was expected to stimulate uranium prices.

According to Gitzel, Cameco would require a “significantly higher uranium price, “probably starting with a seven” before it would reconsider opening the Rabbit Lake operation. Meanwhile, the company expected to spend about C$40-million and C$45-million a year on care-and-maintenance costs at Rabbit Lake.

Gitzel characterised the first quarter being ‘very quiet’, despite rising volumes as the Cigar Lake ramp-up continued. Cameco expected to hit full production at the mine at 18-million pounds a year by next year. In the quarter, uranium output grew 37% year-over-year to seven-million pounds.

Cameco reported that the trial of its dispute with the Canada Revenue Agency was postponed by a month, with closing arguments only expected in March next year.