Cameco takes a hit in Q3, cuts 2014 revenue outlook

Cameco (TSX: CCO; NYSE: CCJ) swung to a loss during the third quarter, as it took impairment charges on two investments, and trimmed its full-year uranium production forecast and revenue guidance.

“The market is challenging, and our focus is to stay competitive and prepare for the time when more uranium production is needed,” Tim Gitzel, the company’s CEO, said on a conference call.

The Saskatoon-based producer reported a $146-million net loss, or 37¢ a share, compared to last year’s $211-million profit at 53¢ a share.

The biggest impact on earnings was a $184-million impairment charge on Cameco’s investment in GE-Hitachi Global Laser Enrichment (GLE) in North Carolina.

In July the company said that it might write down its GLE investment after majority partner GE-Hitachi reduced funding for the operation, which uses laser technology to enrich uranium for nuclear power plants.

“The market is not brilliant for uranium nor enrichment … they toned down their funding, and we obviously had to do the same,” Gitzel said.

Cameco took a $12-million writedown on its investment in Govind Friedland’s GoviEx Uranium after it became a public company.

Excluding these charges and losses on foreign-exchange derivatives, adjusted earnings were $93 million, or 23¢ a share, beating the average analyst estimate of 21¢ per share, but trailing the 53¢ per share earned the year before.  

The lower adjusted earnings came from lower earnings from Cameco’s uranium division.

Gross profit was $132 million, down from $226 million in the same period last year, despite a 6% increase in sales.

Cameco sold 9 million lb. uranium oxide, up from 8.5 million lb. a year ago. But this was largely offset by a 5% drop in the average realized price to C$49.83 per lb., and higher unit costs of C$35.09 per lb.

Production volume fell 7% to 5.4 million lb. due to a two-week strike at the McArthur River mine and Key Lake mill in Saskatchewan’s Athabasca basin that began in August. (In October, the unionized workers agreed to a four-year work contract.)

The loss of earnings from Cameco’s divested interest in Bruce Power Ltd. Partnership also affected adjusted third-quarter profit.

Consolidated revenue declined $10 million to $587 million, while analysts had expected $628 million.

Cameco says this year’s consolidated revenue could drop 5% from 2013’s $2.4 billion. The company expects lower sales and revenue from its Nukem and fuel service segments.

While uranium revenue should increase, so should the cost of sales — by at least 5%.

The miner forecasts 22.8 million lb. uranium oxide production this year, down from 23.3 million lb. previously to reflect the strike and the slow start-up at the Cigar Lake mine in northern Saskatchewan.

In October, Cameco said Areva’s McClean Lake mill started producing uranium concentrate from ore mined at Cigar Lake.

“It was an important milestone and one we are all happy to see,” Gitzel noted.

“There is still work to be done at both the mine and mill to increase annual production capacity to 18 million lb. by 2018, and that ramp-up will continue over the next few years,” he added.

Mining started at Cigar Lake in March, but was halted in July so that the orebody could freeze more thoroughly. Mining resumed in September.

The company also lowered its 2014 capital budget to $490 million, down from $550 million.

On the lower 2014 outlook, Rob Chang, an analyst at Cantor Fitzgerald, reduced his target price to $24.65 from $26.25. He has a “buy” rating on the stock.

Cowen and Co. analyst Daniel Scott has also trimmed his target to $19 from $20, saying that “we continue to view Cameco’s operations favourably but maintain out ‘market perform’ rating until a uranium price recovery becomes more apparent.”

Cameco closed Oct. 30 flat at $18.92. It lost 3%, or 65¢, on the financial results.