Cameco’s Q3 Earnings Down 46% From Last Year

Third-quarter net earnings for the world’s largest uranium producer and one of two Candu fuel manufacturers in Canada fell nearly 50% year-on-year due to lower prices and higher costs.

Cameco’s(CCO-T, CCJ-n)adjusted net earnings came in at $142 million (41 per share adjusted and diluted), 46% lower than in the third quarter of 2007.

Adjusted net earnings for the first nine months were 19% lower than the same period in 2007 due to lower earnings in the uranium and fuel services businesses. The losses were partially offset, however, by higher earnings in Cameco’s gold business.

“Recent uncertainty in world financial markets has affected companies around the globe, including Cameco,” the company’s management said in a statement announcing the financial results.

“The capital market for debt, for Cameco and most other companies, has effectively shut down. In response, the company is re-examining its expenditures during the current budget planning process.”

On the bright side, Jerry Grandey, Cameco’s president and chief executive, pointed out that “unlike most companies,” his has “exceptionally reliable revenue streams.”

But he conceded that growth “will take place but at a slower and more measured pace,” and said Cameco would look for ways to cut costs and “defer projects that cannot be funded internally.”

Third-quarter revenue of $729 million was up 18% over the second quarter due to an increase in volumes in the uranium, fuel services, electricity and gold businesses.

Revenue from Cameco’s uranium business fell by $13 million year-on-year to $396 million due to a 30% decrease in the average realized price (in Canadian dollars). The lower average realized price was partially offset by a 36% increase in reported sales volumes.

Total cost of products and services sold, (including depreciation, depletion and reclamation), rose to $275 million from $135 million in the same quarter last year due to a rise in reported sales volumes and an increase in the unit cost of product sold.

The unit cost increased by 49% as a result of higher unit costs for produced and purchased uranium, as well as higher tiered royalty charges in Saskatchewan.

Cameco forecasts that its unit cost of sales will go up this year by 15-20% over last year.

Unit costs for produced uranium went up compared with last year’s third quarter due to lower production, which declined by 36% to 2.7 million lbs. uranium oxide.

Revenue from Cameco’s fuel services business reached $69 million in the third quarter, a $15-million increase over the same period in 2007 due to a 44% increase in the average realized price.

The total cost of products and services sold increased by 29% year-on- year to $72 million. The shutdown of the company’s UF₆ conversion plant in Port Hope, Ont., affected the bottom line. All operating costs associated with the plant ($15 million) were expensed as incurred in the third quarter of 2008.

Among other things, the suspension at Port Hope reduced the requirement for UO₃ feed. As a result, Cameco’s Blind River refinery, near Elliot Lake, Ont., produced 1.1 million kg uranium in the third quarter of 2008 compared with 1.9 million kg uranium for the third quarter of last year.

The good news is that for the three months ended Sept. 30, revenue from Cameco’s gold business jumped $39 million year-on-year to $143 million. The increase was due to higher realized gold prices and increased sales.

The average realized price for gold rose to US$860 per oz. in the quarter compared with US$680 per oz. in the third quarter of 2007.

Cameco owns about 53% of Centerra Gold (CG-T, CAGDF-o),which owns and operates two gold mines.

The recent decline in the Canadian dollar relative to the U. S. dollar is expected to have a positive effect on revenues this year, Cameco says.

Consolidated revenue for its uranium, fuel services and nuclear electricity businesses will rise 10-15% in 2008 over 2007, compared with the company’s previous forecast of 3- 10%, according to the company.

At presstime, Cameco traded at about $16.10 per share in a 52-week range of $14.33-44.38. The company has roughly 366 million shares outstanding.