re: cameco accident could have major ramifications
Cigar Lake deferred: Cameco shares tumble following announcement Murray Lyons, The StarPhoenix
Published: Thursday, February 08, 2007 Cameco's share price took a hit on Wednesday, as investors and financial analysts put their own interpretation on news from the company that it has asked its nuclear utility customers to defer delivery from Cigar Lake uranium mine production five to seven years.
When TD Newcrest analyst Greg Barnes asked whether he could then infer the five to seven-year deferral on Cigar Lake deliveries is an indication of how long it will take to get the flooded mine into production, Cameco president and CEO Jerry Grandey immediately cautioned analysts from making that assumption.
However, by the end of an hour-long corporate conference call with analysts, Cameco's share price was down about 2.5 per cent. It closed the day at $43.78, down $1.07 or 2.39 per cent on the day on volume of 3.7 million shares.
The hit on the company's share price occurred despite the release of the company's 2006 full-year results, in which Cameco reported record revenue of $1.8 billion, record earnings of $376 million and record cash flow of $418 million for the year, despite lower fourth-quarter uranium revenue.
Fourth-quarter uranium revenue was down $76 million compared to 2005. Cameco says it's based on when customers chose to accept uranium deliveries.
The average price the company realized from uranium sales in the fourth quarter rose to $22.35 US versus $16.40 a year earlier. Despite the average uranium spot price being $65.21 US during the last quarter, deliveries of uranium are usually based on older contracts, which are a mix of fixed prices with some escalator clauses.
Company officials reported Wednesday that contracts being signed today for future delivery usually only have 25 per cent set in a fixed-base price, with the balance being market price at the time of delivery.
Cigar Lake mine flooded on Oct. 23. It was to have delivered about four million pounds of uranium to customers in the latter part of 2007. Cameco officials made it clear that for now it's just the 2007 production from Cigar Lake that is being deferred.
"Given that nobody knows with absolute certainty as to when Cigar Lake will start, we wanted to put it out into a time frame when we were very comfortable. . . . We had the right to terminate those deliveries," George Assie, senior vice-president of marketing and business development, told analysts.
"Instead, we chose to say, 'Look, we will defer them out that five- to seven-year period and deliver it then.'
"We thought that was a reasonable compromise for us and, frankly, our customers have seen it that way as well."
Following the Cigar Lake flood, Cameco also made "standby loan arrangements" to arrange for uranium for its customers from other sources, but at the end of the year it did not have to use those borrowing arrangements. However, the company deferred $22 million in revenue from the sale of 1.2 million pounds of uranium yellowcake in the fourth quarter in case those loan arrangements still have to be put in place in the future.
Grandey told analysts that preliminary capital cost estimates for the capital cost of plugging the Cigar Lake water inflow, pumping out the water and repairing and replacing equipment lost in the floor will be given in an update this spring. By late March, the company has stated it will file a detailed plan of remediation to market regulatory authorities. 1 2 next page
Comment: Please note: "Company officials reported Wednesday that contracts being signed today for future delivery usually only have 25 per cent set in a fixed-base price, with the balance being market price at the time of delivery".
That is accepted in these times of fast increasing prices. No supplier wants to get caught with too low prices as older producers are getting when longer term contracts were fixed at a time when the U price was very low.
SMM Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)