Thursday, February 08, 2007

Cameco Q4 Earnings (Part I)

As the uranium world holds its collective breath for Cameco's impending Cigar Lake remediation plans, the company came out with some fairly disappointing Q4 earnings. Cameco earned $40 million or 11 cents per share for the three months ended Dec. 31, 2006, compared with a profit of $83 million or 23 cents a share the year before; a more in-depth rundown of the numbers can be found here.

Since Cameco and Cigar Lake are vital to understanding the nuances of uranium stock investing today, I would like to spend a few days focusing on the company, and especially the types of questions asked during its conference call. Here first is one analyst's reaction on RoBTV:

Victor Lazarovici, analyst, BMO Nesbitt Burns

Earnings

results are weaker than expected, somewhat disappointing, main reason being costs much higher than expected..headline earnings per share 11 cents/share, which included Cigar Lake costs that were expensed and equipment write-offs..we have adjusted the numbers and taken out the one-time charge, we have left in the expensed items and calculated operating earnings of 14 cents/share, somewhat better than 11 cents/share..the amount of Cigar Lake cost we left in at 1 cent/share..we were looking for 19 cents, conscensus number was 20 cents

Cigar Lake
we know it is very serious situation, will take months of drilling which began several months ago to assess what remediation work will be required and the cost..it will take them hundreds of millions of dollars I suspect and years to recover from the incident..I think it is really just too early to tell, this mine is several hundred meters underground, flooded, they have no way of accessing it, do not know how severe the damage to the roof where the water inflow from and whether or not proposed fix will work..

Uranium Price
keep in mind that Cigar Lake was not scheduled to produce for several more years and all utilities that consume uranium fuel have supplies locked in several years ahead so there was never any risk of shortages..what we have seen is producers of uranium working to meet utilities need several years forward where Cigar Lake material would be shipped to market..spot market is extremely thin segment of market, I do not think underlying fundamentals will change..utilities will work around Cigar Lake issue..there are certainly many similarities to market bubbles and there are currently no supply-demand issues but market reacts to all sorts of signals
 

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