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Challenges help Cameco 'sharpen focus'

CEO Jerry Grandey predicts the uranium producer will be more resilient and stronger in the long run

Uranium powerhouse Cameco Corp. has turned in a strong enough first-quarter performance for its chief executive officer to declare that it now has a handle on operational problems that have hurt its results and its reputation over the past couple of years.

"Those challenges have sharpened our focus on the operations in the short term and have assisted us in building a foundation that will make us more resilient and stronger in the long term," Jerry Grandey said yesterday . "2008 will be Cameco's year of renewal."

Mr. Grandey made the remarks during a conference call with analysts to discuss the Saskatoon company's results for the first three months of 2008, which, despite his positive spin, came in below Bay Street's expectations.

Among the challenges to which he was referring are the shutdown last year of the company's Port Hope, Ont., uranium conversion plant after the discovery of contaminated soil, as well as delays in the development of a massive planned new mine at Cigar Lake in northern Saskatchewan caused by flooding two years ago.

The Port Hope situation, in particular, has damaged Cameco's relationship with the Canadian Nuclear Safety Commission, but Mr. Grandey said this is now on the mend. "We are making progress with restoring our relationship and reputation with the CNSC following the events of 2007," he said.

As well, remediation efforts at Cigar Lake have moved ahead sufficiently for the company to have formally applied to its federal and provincial regulators to begin "dewatering" the proposed mine.

Cigar Lake, which is now expected to start production in 2011, is a key element in Cameco's plans to increase production sharply. Mr. Grandey said that by 2016, the company, long the world's largest uranium producer, expects to boost volumes by 80 per cent from last year's levels.

Cameco's first-quarter profit came in at $133-million, well up from $59-million a year earlier, as revenue jumped on the strength of higher realized selling prices for both gold and uranium.

However, at 39 cents a share - up from 17 cents in the first three months of 2007 - the showing was below Bay Street forecasts, which averaged 43 cents, according to a Bloomberg survey.

"I thought it was a pretty mediocre quarter," said analyst George Topping at Blackmont Capital in Toronto, who has a "buy" recommendation and 52-month target price of $55.85 on the stock.

Revenue rose to $593-million from $409-million, while cash from operations came in at $146-million, compared with $139-million, Cameco, the world's largest producer of uranium - the key component of nuclear fuel - said in a news release before the stock market opened.

Cameco, released its results at a time when uranium prices are continuing to fall, as the global credit squeeze has cooled expectations for a massive expansion of nuclear power around the globe in response to soaring oil prices and environmental concerns.

Ux Consulting LLC of Roswell, Ga., pegged the spot price at $60 (U.S.) a pound as of May 12, down $3 from a week earlier and less than half the record $136 it hit last June.

However, Cameco noted in its news release yesterday that its realized prices for the fissile metal lag the market and in fact continued to rise during the quarter, jumping to $40.85 a pound from $24 a year earlier.

Indeed, Mr. Grandey said the company expects to "generate strong returns under any future spot price scenarios."

Long-term prices, meanwhile, have been more stable, although they recently fell to $90 (U.S.) a pound from $95.

Cameco figures the discrepancy between the long term and spot prices is bound to narrow.

"The discrepancy we have at present. . .which is $30, in my view cannot be sustained in the long term," George Assie, the company's senior vice-president of marketing said during the conference call. "Any further softening in the spot price will be reflected in the longer-term price and, I guess, vice-versa."

CAMECO CORP (CCO)

Close: $40.34, up 6¢

© The Globe and Mail

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