Bargain-priced Cameco shares sell out quickly

Cameco’s public offering at $12.50 per share has met with widespread enthusiasm, said Jim Davey, a spokesman for RBC Dominion Securities, the lead underwriter.

“It is well oversubscribed, both internationally and in Canada,” he told The Northern Miner.

In the first of a proposed series of offerings, Cameco will put 9.6 million common shares, or about 18.5% of the company, up for sale. Brokers who act as underwriters of the initial offering will have the option to purchase an additional 800,000 shares.

Proceeds of the $120-million transaction, which is expected to close on July 11, will be used to reduce a long-term debt of over $300 million, the company says.

Although Saskatchewan residents will go to the front of the line when it comes to share allotment, insiders say Europeans are also vying for a piece of the Saskatoon-based uranium producer.

“There’s been a surprising amount of interest from European investors,” said one analyst who asked not to be named. “After a couple of hot summers, they’re buying it as a hedge against the greenhouse effect.”

Cameco, one of the world’s largest uranium producers, reported a net income of $7.2 million (17 cents per share) in the first quarter, up from $1.5 million (three cents per share) for the same period last year.

Based on a net asset value of about $21 and a price-earnings ratio of 1.4-to-1 (using 1990 income), Cameco shares look cheap. Comparatively, shares of Potash Corp. of Saskatchewan (TSE) are selling at about 27 times earnings.

But whether Cameco represents a good long-term buy depends largely on future demand from the nuclear energy industry. The International Atomic Energy Agency estimates that annual growth for nuclear energy to the year 2000 will be 2.8%. In 1990, uranium consumption exceeded production by about 45 million lb.

But although uranium continues to be lauded as a “green fuel” by its supporters, infrequent accidents like the Chernobyl disaster continue to stir strong anti-nuclear sentiments among the general public. The spot price for uranium is currently languishing around US$9.10-9.40, down from US$25 a decade ago.

Cameco is also vulnerable to changes in government regulation and policy. Although already heavily regulated, the uranium industry in Saskatchewan could face further adversity if the popular, anti-nuclear New Democratic Party takes provincial power during elections scheduled for later this year.

The Toronto and Montreal exchanges have conditionally approved the listing of Cameco’s common shares. When the offering is fully subscribed, the Saskatchewan and federal governments will hold a 49.2% and 30.8% share in Cameco respectively.

The uranium giant plans to be fully privatized by 1995.