Cameco net falls as spot-uranium buys boost costs

May 4, 2009

VANCOUVER (Bloomberg) -- Cameco Corp., the world’s largest uranium producer, said first-quarter profit slid 38 percent because of higher expenses as the company increased speculative purchases of uranium on the spot market.

The company intends to buy more uranium to take advantage of “trading opportunities” and said its 2009 sales of the raw material used in nuclear-reactor fuel will be higher than previously forecast. The stock climbed to its highest price since September.
Cameco said profit at both the uranium unit and the gold division fell, partly offset by improved results from the electricity business. The Saskatoon, Saskatchewan-based company is stepping up purchases of uranium for immediate delivery on speculation that prices are poised to extend gains.
“The market, obviously, has gone up and down and we try to take advantage of those movements,” Chief Executive Officer Jerry Grandey said on a conference call with investors and analysts. “By being a participant, we hopefully can influence what happens in the market.”
Uranium has risen 11 percent to $45 a pound since April 15, according to prices published by Metal Bulletin.
Cameco increased $1.75, or 6.4 percent, to C$29.15 at 4:15 p.m. in Toronto Stock Exchange trading. The shares have climbed 38 percent this year.
---------------Sales climb
First-quarter net income dropped to C$82 million ($69.1 million), or 22 cents a share, from C$133 million, or 37 cents, a year earlier, the company said on Friday in a statement. Excluding one-time items, profit was 24 cents a share, trailing the 32- cent average estimate of 10 analysts surveyed by Bloomberg.
Sales rose 3.7 percent to C$615 million. Analysts, on average, projected C$666.8 million in revenue.
“There’s a bullish tone in the market for uranium and uranium stocks that’s overshadowing Cameco’s disappointing results,” George Topping, an analyst at Blackmont Capital Inc. in Toronto, said on Friday in a phone interview. “Uranium prices are up and we think they will move higher.”
Cameco’s increased purchases “mean the spot market should rise sharply over the next few months,” Topping said. “We’re all getting very excited about it.”
China accounted for a “very significant” proportion of recent spot-market demand by power utilities, George Assie, Cameco’s senior vice-president of marketing and business development, said on Friday on the conference call.
“They are certainly looking to stockpile significant quantities of material,” Assie said.
Cameco said its first-quarter sales volume of the radioactive metal fell 4.1 percent to 7.1 million pounds from a year earlier. Uranium production rose 26 percent to 4.8 million pounds. Sales dropped less than 1 percent to C$336 million.
------------Uranium sales forecast
The company’s average uranium selling price rose 4.6 percent to C$46.72, helped by weakness in the Canadian dollar against the U.S. currency. The company’s U.S. dollar price fell 10 percent to $36.71.
Cameco said it expects to sell 32 million to 34 million pounds of uranium this year, up from a previous estimate of 31 million to 33 million pounds, because of new delivery commitments.
Cameco said revenue from uranium in 2009 will fall 2 percent to 5 percent from 2008, rather than the 5 percent to 10 percent decline it previously forecast. The overall cost of product sold is forecast to increase by as much as 20 percent because of spot-market purchases. Buying uranium on the spot market is more expensive than the costs of producing the raw material.
--------------Considering acquisitions
Sales of electricity from an investment in a nuclear power complex in Ontario will fall more than expected this year because of lower electricity prices and reduced demand, the company said.
Cameco’s Grandey reiterated that Cameco is well positioned to consider acquisitions of uranium companies valued at C$1 billion to C$2 billion.
“As we survey the universe of opportunities that are out there, there aren’t many that are outside that range,” he said on the call. “If there are any within that range, that we felt would add value to Cameco, we could certainly handle it.”