Cameco (TSX: CCO; NYSE: CCJ) shares fell 7% Tuesday after first quarter results showed net losses of $7 million.
The uranium major’s adjusted net earnings fell 51% to $56 million, a sharp contrast with the $115 million it took in during the same quarter last year.
The company recorded revenue of $634 million in the quarter, an 8% drop compared to last year’s three-month period, although gross profit grew 12% to $187 million.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose by 53% to $345 million.
However, that was 20% under the estimates of BMO Capital Markets, said uranium analyst Alexander Pearce in a note on Tuesday. Pearce cited weaker than expected results in Cameco’s uranium and fuel services segments, and in the Westinghouse EBITDA.
But in an amended note on Wednesday, Pearce somewhat changed his tune, saying Cameco’s lower-than-expected sales in the quarter will be expected to balance out in the rest of the year.
“Further, with the U.S. Senate approving the Russian uranium ban overnight, which could lead to renewed vigor in the contracting market, we think Cameco remains very well-placed to benefit,” he said. “Cameco remains best placed to benefit from expectations of growing positive nuclear sentiment, which should drive demand growth for all three divisions.”
The company’s mixed bag of quarterly results covers a period when uranium spot prices reached levels not seen in nearly 17 years, with prices rising above US$100 per lb. in January before settling down to the latest price of US$87.75 per pound. The rally comes as more countries look to nuclear as an alternative energy source to fossil fuels.
Uranium segment
In its nuclear metal segment, production increased by 29% to 5.8 million lb. of uranium oxide, while sales volumes fell by 25% to 7.3 million pounds. Adjusted EBITDA in the segment came to $303 million, which although was up by 16% over the first quarter last year, was still 10% under BMO estimates.
On the positive side, Pearce noted on Tuesday that production was 12% higher than BMO’s forecast, which he attributed to the 3.5 million lb. of output at the McArthur River mine in Saskatchewan. That was partially offset by lower production at Cigar Lake, which came to 2.3 million pounds.
The sales total was 14% under BMO estimates, while Cameco’s realized price of US$77.33 per lb. was in line, and cost of sales at $53.95 per lb. was 5% better.
Pearce said on Wednesday that it’s typical to see sales variability from quarter to quarter, and it’s reasonable to assume the sales miss can be caught up during the rest of 2024.
“Production results in the first quarter were strong and are on track with our 2024 plans, with production rates and total production costs in our uranium segment continuing to reflect the transition back to our tier-one cost structure,” Cameco CEO Tim Gitzel said in a news release. “In the market, we continued to be selective in committing our unencumbered, tier-one, in-ground uranium inventory and [uranium hexafluoride] conversion capacity.”
“(That builds) on a contract portfolio that spans more than a decade by successfully layering in additional long-term contracts, increasing our annual commitments to an average of about 28 million pounds per year from 2024 through 2028.”
In purchases, Cameco’s 2.6 million lb. was 29% higher than BMO forecasts, including purchases from its Inkai joint venture of 1.1 million pounds. The company holds a 40% stake in the Inkai in-situ recovery mine in Kazakhstan with Kazatomprom (LSE: KAP).
Cameco said the unit cost of sales was up by 15% due mainly to the impact of higher cost purchases on inventory value, including from Inkai. Cash impacts from those costs on average unit cost of sales is partially offset by the dividends Cameco receives from the Inkai JV, which was US$129 million based on its performance last year.
In cash flow, Cameco expects to see the benefit of this year’s performance from Inkai in 2025 once the 2024 dividend is declared and paid.
Fuel services
In Cameco’s fuel services segment, production was down by 10% to 3.7 million kgU (kilograms of elemental uranium) and sales volumes down by 40% to 1.5 million kgU.
Adjusted EBITDA was at $25 million, a 36% drop from last year’s first quarter, and 35% under BMO’s previous estimates.
Westinghouse
For the Westinghouse segment, adjusted EBITDA came to $77 million, after a $123 million loss due to normal variability in the timing of customer requirements and delivery and outage schedules. Cameco noted that already last year the nuclear plant construction unit was expected to generate a net loss of between $170 million and $230 million this year. That was due to the impact of revaluation of Westinghouse’s inventory and other assets when Cameco and Brookfield Renewable Partners bought it last October.
In his Wednesday note, Pearce said Cameco expects Westinghouse to have a stronger second half of the year, as the fourth quarter tends to be the strongest for cash flows.
“This is in line with typical uranium and fuel services divisions, assuming some sales lag from Q1 pushes into Q2 and beyond,” he said.
Still, the adjusted EBITDA for that segment was 35% under BMO estimates.
Cameco shares closed at $62.81 apiece on Tuesday, giving the company a market capitalization of $27.4 billion. Its shares have traded in a range of $35.65 and $72.37 over the past year.
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