The world's largest uranium miner, Canada's Cameco, reporteda 125% increase in first-quarter 2008 net earnings as President and CEO GeraldGrandey predicted that company will continue to generate strong returns underany future spot price scenario.
While a $30 per pound discrepancy currently exists betweenspot and long-term markets, Cameco executives insisted that the difference willbe substantially reduced in the long term.
During a conference call Tuesday to discuss Cameco'squarterly results, Grandey noted that long-term market prices have onlydeclined by $5 to $90 per pound. Meanwhile utility companies' uncovered uraniumrequirements are growing at the same time uranium suppliers are already heavilycommitted.
The result is the long-term market price reflects theuncertainty associated with tight supply and uncovered requirements severalyears out in time, he explained.
Grandey suggested that utilities are willing to pay apremium for long-term uranium supplies for several reasons:
1) Concernuranium prices will rise over the long term
2) Somecustomers prefer price predictability for a portion of their long-term needs
3) Somecustomers are willing to pay a premium for long-term security of supply
To meet demand Cameco is targeted an 86% production increaseover its 2007 level by 2016.
Nevertheless, Grandey cautioned analysts that utilitycompanies are well covered for the next few years by their contracts withuranium suppliers, and also currently possess a modest amount of inventory,leaving little demand by utilities in today's spot market. In fact, hesuggested that utilities are avoiding discretionary purchases of uranium in thehope that the spot price will decline even further.
Meanwhile, Grandey briefed analysts Tuesday on a number ofprojects including Port Hope, Rabbit Lake, Cigar Lake and Inkai.
Cameco is standing pat on its anticipated production startupat Cigar Lake at 2011 at the earlierst. We will be able to provide a firmerproduction date after the mine has been dewatered, the condition of theunderground development has been assessed, and the findings incorporated in thenew mine development and production plans. The underground project flooded inOctober 2006, delaying mine start-up.
The company continues to project the resumption of UF6(uranium hexafluoride) conversionat thePort Hope UF6 plant in the third quarter of 2008 at the earliest.Plant operations were suspended since the discovery of soil contamination underthe plant in July 2007. The Canadian Nuclear SafetyCommission (CNSC) has to approve the full restart of the facility.
A second new mining area at McArthur River isprogressing, but activities are behind schedule for 2009 production. Aproduction contingency plan is being developed which includes mining from areasthat are within the protection of the existing freeze and is intended to reducethe risk of production not achieving the license capacity in 2009.
Meanwhile, Inkai and other ISR operations in Kazakhstanare suffering from reduced acid allotments from Kazatomprom, Cameco's JVpartner in Inkai. Grandey said the ISL JV is only receiving about half of itsoriginally expected acid production.
Cameco reported first-quarter 2008 netearnings of $133 million (37-cents per share), a 125% increase over thefirst-quarter 2007 net earnings of $59 million (16-cents/sh).