Cameco earnings slide on Bruce woes

Cameco‘s (CCO-T) net earnings slipped 33% to $26 million during the first quarter owing mostly to increased amortization and higher costs related to planned outages at the Bruce Power nuclear facility, 250 km northwest of Toronto.

The earnings translate to 15 per share (fully diluted), and compare with year-ago earnings of $39 million (or 22 per share). Meanwhile, consolidated revenue between the two periods jumped by 64% to $216 million thanks to the consolidation of results from the Kumtor gold mine in Kyrgyzstan and a full quarter’s worth of production from the Boroo gold mine in Mongolia. Both mines are owned by Cameco’s 53%-owned subsidiary Centerra Gold (CG-T).

The recent quarter’s earnings were also hurt by increased administration, exploration, and interest costs, which climbed by $13 million to $34 million. Cash flow from operations nearly doubled to $84 million.

At the Bruce facility, operating costs climbed by $63 million to $313 million. The increase is attributed costs related to planned maintenance shutdowns and higher amortization costs following the restart of two A reactors. Cameco’s quarterly share of pre-tax earnings from Bruce came to $29 million, down from $46 million a year earlier.

Cameco expects the facility’s full-year results to slip slightly from 2004 due to increased costs on higher depreciation and amortization on the recently restarted A units, higher outage costs and higher fuel costs.

During the first quarter, the Bruce reactors were offline for a total of 96 days (79 planned, 17 unplanned). During the year-ago period the reactors experienced 49 reactor days of unplanned outages and unit 3 was unavailable for 60 days owing to initial restart activities.

Bruce Power recently inked a tentative agreement with the Ontario government for the restart of the complex’s remaining two reactors. The re-start would boost capacity by more than 30%; the government is currently considering the plan.

Cameco, TransCanada (TRP-T), and the Ontario Municipal Employees Retirement System each own about 31% of Bruce Power; The Power Workers’ Union and The Society of Energy Professionals own the rest.

On the mining side, Cameco’s quarterly attributable uranium production slipped by 400,000 lbs. to 4.8 million lbs. Still, uranium revenue rose by 7% to $78 million; improved prices were partially offset by a 7% decline in deliveries. Cameco realized an average of US$13.53 per lb. of uranium during the quarter, 15% better than a year earlier, but well off the 22-year high of US$22.50 per lb. at quarter’s end.

First-quarter revenue from the uranium conversion business was little changed at $26 million; pre-tax earnings climbed by $2 million to $9 million. Still, the company admits it has not fully benefited from the recent rise in UF6 spot prices as most of its conversions sales are made under existing, lower-priced contracts. A recently inked deal with British Nuclear Fuels boosts the company’s UF6 conversion capacity by 40%.

Cameco expects its uranium business to deliver significantly higher revenue over the balance of the year owing to higher realized prices and increased volumes; about 45% of the company’s uranium deliveries are expected in the fourth quarter. Conversion revenues are expected to be only slightly better, with a projected 5% increase in the average realized selling price mostly offset by lower deliveries.

While revenue from the gold business is expected to climb, lower grades at Kumtor will offset gross profits.

Overall, consolidated revenue in the second quarter is expected to be about 50% higher than in the first quarter thanks to improved uranium deliveries. Consolidated second-quarter earnings are projected to come in only moderately higher, with outages and an expected lower realized price taking a bite out of Bruce’s earnings.

Consolidate revenue for all of 2005 is expected to climb by about 15% over 2004 levels thanks to improved performances by the uranium and gold businesses; consolidated profit margins are also expected to improve from the 23% tabled in 2004.