Gold sales strengthen Cameco’s bottom line

Despite low prices for both uranium and gold, Cameco (CCO-T) posted solid earnings for the first quarter.

Net earnings for the 3-month period ended March 31 increased to $18 million (or 31cents per share) from $14 million (27cents per share) in the first quarter of 1997. The company attributes the increase to larger gold sales and lower income tax payments, the latter a consequence of an increase in the proportion of income from lower-taxed, non-Canadian sources.

Cameco’s revenue increased to $132 million from $114 million a year ago.

Increased gold sales from its 33.3%-owned Kumtor mine in Kyrgyzstan more than tripled gold revenue, to $39 million. As a result of hedging, Cameco’s average selling price for the yellow metal was US$401 per oz., well above the quarter’s average gold price of US$294 per oz.

Production from Kumtor averaged more than 54,000 oz. gold per month during the quarter, and total output for 1998 is expected to exceed 600,000 oz. The higher production forecast is a reflection of higher-than-anticipated ore grades, recoveries and throughput so far this year.

The increase in first-quarter gold revenue offset an 8% decline in Cameco’s average selling price for uranium concentrates. The average uranium spot price was 18% lower than in the first three months of 1997.

Earnings from operations amounted to $26 million, which is marginally lower than in first-quarter 1997. This is mainly due to increased costs and the decline in the average selling price of uranium.

Cash provided by operations in the first quarter was $22 million, compared with $4 million a year earlier. The increase is attributed chiefly to a $20-million decrease in the amount of cash committed to working capital (a reduction that is related to lower uranium purchases in the quarter).

“Kumtor gold sales made a substantial contribution to Cameco’s revenue and net earnings, providing the benefits from diversification planned years ago,” says Cameco President Bernard Michel.

He adds that the long-term fundamentals of the uranium market remain positive, and that the company is well-positioned to capitalize on market opportunities.