Cameco president presents positive long-term view

Producer Cameco (TSE) of Saskatoon remained profitable in 1991 despite low uranium prices. Earnings were $1.03 per share compared with $2.21 in 1990.

Despite a lacklustre year, President Bernard Michel painted an upbeat picture for the long term. “There will be no miracles in 1992,” he said, however, at an analysts’ meeting in Toronto. “It will be a flat year with earnings of about $1 per share.”

As of Dec. 31, 1991, the company was owned by the federal government with 31%, the Saskatchewan government with 39% and the public with 30%. On completion of the present sale of an issue of special warrants, this will change to 19.3%, 38.9% and 41.8% respectively.

The company is one of the world’s largest, low-cost uranium producers, supplying about 10% of the western world’s market. It owes its position to a two-thirds ownership of two of the world’s largest, high-grade uranium mines at Key Lake and Rabbit Lake in northern Saskatchewan.

It also has a share of production from a third mine in the province at Cluff Lake. These operations have a minimum of 25 years of ore reserves. The company not only produces concentrates (11.1 million lb. in 1991) but has refining facilities in Blind River and Port Hope, both in Ontario. The refineries produce uranium dioxide and uranium hexafluoride for CANDU and light-water nuclear reactors, respectively.

Cameco’s strength lies not only in its reserves of about 500 million lb. uranium oxide. The grade of the reserves at 2% uranium oxide is 10 times the world’s average. And, importantly, the greater part of sales is made through long-term contracts.

The price picture for uranium oxide is depressing. The spot price was US$20 per lb. in 1981 and it has skidded steadily every year since to US$8.70, the average price in 1991.

While Cameco sells little of its product on the spot market, the spot price does bear on the escalator (and de-escalator) clauses of its long-term contracts.

Michel says there will not be a major improvement in price in the short term. Despite consumption currently exceeding supply by a significant margin (and is expected to continue to do so), there is little likelihood this will translate into higher prices.

The reason is the large inventory of the Commonwealth of Independent States (CIS), the former Soviet Union. The oxide is being sold on to an already slack market (comparable situations have been created by the CIS in the aluminum and nickel markets).

According to Michel, “the CIS marketing arm, FINEX, is the single largest player, dealing in 15% and capable of rising to 20% of the world’s uranium market.”

The sales have been the subject of a U.S. government investigation, and dumping proceedings have been initiated.

On the positive side, the inventory will work down rapidly and the salvaging of uranium from the CIS’s stockpile of nuclear warheads will “put no more uranium on the market than a single, average mine,” Michel said.