Thursday, February 02, 2006

Cameco Earnings Report (Update 2)

Check out Report on Business (ROB) TV for a short five minute segment on Cameco's earnings with the Jerry Grandey, president and CEO. Notice how he places the blame for Cameco not realizing the gain from uranium's spot price on the strong Canadian dollar and declines to mention Cameco's hedged fixed contracts!

The interview is @ 11:13am February 2nd in the segment "Business Morning with Jim O'Connell"

Another tidbit from Cameco's Earning Report:

"For deliveries in 2006, a $1.00 (US) per pound change in the uranium spot price from $33.00 (US) per pound would change revenue by about $4 million (Cdn) and net earnings by $2 million (Cdn). This sensitivity is based on an expected effective exchange rate of $1.00 (US) being equivalent to about $1.22 (Cdn), which accounts for our currency hedge program."

Note: uranium is @ $37.50/lb now and should hit $45/lb by the end of the year. With that projection, this translates to an upward change of $48 million Cdn in revenue and $24 million net earnings.

"Earnings before taxes from the uranium business improved to $131 million from $91 million last year, while the profit margin rose to 23% from 18% in 2004 due to the higher realized selling price."

Note: so the net effect of uranium spot price increase is not insignificant, but hardly overwhelming. Add to the fact that Cameco doe not only derive revenue from uranium, but also from gold, electricity, and conversion, and I believe that uranium's beneficial effects is diluted for Cameco at the moment.

The next major step for Cameco in its uranium business is clearly Cigar Lake, and with production set to begin first half of 2007 and ramp up over three years to 18 million lbs/year(!), I personally would not buy Cameco in the short-term, but carefully monitor their news and reevaluate this company in the latter months of this year.

Update: definitely watch today's ROBTv "Stars and Dogs" segment @ 6pm EST. There is quite a long segment where two commentators, one bull, one bear go at each other discussing Cameco. They rehash alot of what we uranium enthusiasts know, what I've posted in the last couple of days about hedging, and their views on the uranium story in general. It's quite an engaging discussion and really makes you think about whether or not to invest in Cameco right now.

A distinct feeling I got was that even ROB's own commentator was not really that knowledgeable about uranium in general (the one of the left explaining the bull side). It just goes to show you that many, many people in the investing universe have absolutely no idea what is happening in this little part of the resource sector!


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