Fuel And Electricity Drive Cameco Profits Higher In Q2

Higher cost of sales in its uranium business and lower production and higher operating costs in its gold business were offset by strong revenues in fuel services and electricity, Cameco (CCO-T, CCJ-N) says.

The company posted earnings of $247 million or 63¢ a share in the second quarter, up from $150 million or 42¢ a share in the same period last year. Adjusted net earnings came in at $140 million or 36¢ per share diluted, 1% higher than in the year-ago quarter.

Uranium revenues rose by $114 million to $443 million due to a 35% increase in reported sales volumes and a marginal increase in the realized selling price in Canadian dollars. The increase in the average realized price was related to higher prices under fixed-price contracts and a more favourable foreign exchange rate being offset by lower realized prices under market-related contracts.

Cameco is forecasting that its overall cost of sales will rise by 20% to 25% this year because it anticipates buying additional uranium at prices that are higher than the cost of production necessary to support sales activities, including higher trading volumes.

Revenues from its gold business fell by $14 million year-on-year to $129 million. The company owns 49% of Centerra Gold (CG-T, CAGDF-O), which owns and operates two mines, and has voting control over a majority of its shares. The drop was due in part to an illegal work stoppage that began in May at Centerra’s Boroo mine in Mongolia. The dispute was later settled but on June 12, the Mongolian government suspended its main operating licences for the mine until July 27.

Looking ahead on a consolidated basis, Cameco predicts total revenue to grow 5% to 10% year-on- year in 2009.

Uranium revenue is expected to rise by the same percentage range to 34 million to 36 million lbs. U₃0₈.

Cameco expects to complete re-mediation work at its Cigar Lake mine in Saskatchewan by the end of the year and then to start dewatering shaft No. 1. (An inflow occurred in August last year from a fissure in the top of a tunnel at the 420-metre level.)

On a conference call announcing the results, Cameco chief executive Jerry Grandey said the company was taking further steps to solidify its financial stability with a shelf prospectus, allowing the company to take on more substantial debt if it desires.

“Cameco intends to maintain flexibility to take advantage of opportunities when they emerge,” he told analysts and investors during the conference call, but conceded that “the number of targets for acquisitions remain few.”

Overall, Grandey said the outlook for Cameco’s business remains strong as demand for energy will only grow as countries in Asia gear up to meet surging electrical demand for their growing economies. He pointed out that the unofficial count of reactors under construction in China is now at 13 and noted that there was no reason to doubt that the country can do what the West did in its first nuclear building program.

“In addition, we expect India, Korea and Japan to build more reactors while doing business with companies to seek uranium supplies,” he said, adding that the United Arab Emirates, Jordan, Egypt and Turkey are emerging as first-time operators of nuclear energy reactors.

At presstime in Toronto, Cameco was trading at $29.15 per share. The Saskatoon, Sask.-based company has a 52-week trading range of $14.33-34.46 and 392.6 million shares outstanding.