Cameco on the front foot as earnings soar

Shares in Canada’s uranium major, Cameco (TSX: CCO; NYSE: CCJ), gained nearly 10% on Wednesday after the company reported higher core profit than expected amid an uptick in uranium prices.

The Saskatoon, Sask.-based company said headline profit per share more than doubled to 18¢, compared with analyst forecasts calling for a loss of 1¢.

Revenue for the three months ended June increased 55% year-on-year to $558 million. Cameco said uranium revenues this quarter were up 75% compared to 2021 due to an increase of 41% in the Canadian dollar average realized price and a 25% increase in sales volume due to the timing of sales. While the average US dollar spot price for uranium increased by 63% compared to the same period in 2021, the US dollar average realized price only increased by 38% due to the impact of fixed price contracts.

“We are benefiting from higher average realized prices in both our uranium sales and our fuel services sales as the market continues to transition and geopolitics continue to highlight concentration of supply concerns,” Tim Gitzel, Cameco’s president and CEO said on an analyst call on Wednesday.

The uranium executive said Cameco had seen a return to long-term contracting activity by power utilities as they pivot toward procurement strategies that more carefully weigh the origin risk. “This year has already been a contracting success with over 45 million pounds added to our portfolio of long-term uranium contracts, and we continue to have a significant and growing pipeline of contract discussions,” Gitzel said.

“And, we are being strategically patient as our primary driver is value, and we have significant leverage to market improvements with unencumbered pounds in the ground. Additionally, we are focusing our efforts on capturing conversion business as conversion prices are at record-highs,” he said.

He underlined that Cameco remained committed to supply discipline. This entails balancing the delivery of low-cost pounds into committed sales contracts and maintaining unencumbered supply for future years by preserving its tier-one assets.

In May, Cameco, along with Orano, acquired Idemitsu Canada Resources Ltd.’s 7.875% participating interest in the Cigar Lake Joint Venture, lifting Cameco’s ownership stake in Cigar Lake to 54.547%, a rise of 4.52%. It has also been able to catch up on development work at Cigar Lake and is now anticipating production of 18 million lb. on a 100% basis in 2022.

“However, our overall production forecast remains unchanged at up to 11 million lb., a benefit of being a multi-asset producer, as the increase at Cigar Lake largely offsets a slower ramp-up at the Key Lake mill due to some delays in our work schedule,” Gitzel said.

Meanwhile, the company continued to advance the recruitment, training and operational readiness activities at the McArthur River mine and Key Lake mill after four years of care and maintenance.

Cameco also reports that it continues to work with Inkai and its joint venture partner, Kazatomprom (LSE: KAP), to secure an alternate shipping route that doesn’t rely on Russian rail lines or ports. In the meantime, the company continues to delay the shipment of its share of Inkai output destined for the Blind River refinery in Ontario. Year-to-date, it has not received any deliveries from its share of Inkai’s 2022 production.

As of June 30, Cameco had $1.4 billion in cash, cash equivalents, short-term investments, and $997 million in long-term debt. In addition, it has a $1 billion undrawn credit facility.

The company expects the split between Cigar Lake and McArthur River/Key Lake production to have changed; overall, its share of output from its tier-one assets remains unchanged at up to 11 million lb. for 2022.

At $32.40 per share, Cameco’s Toronto-quoted equity is up 48% over the past 12 months, giving it a market capitalization of $12.83 billion.