Cameco (CCO-T) warned on Jan. 9 that its pre-existing, lower-priced uranium sales contracts will temper benefits arising from improving uranium prices.
Currently, the company has some 100 million lbs. of uranium committed over the next five years, with about three-quarters deliverable between 2004 and 2006. The world’s largest uranium producer said that its exposure to spot prices will improve as those deliveries are made.
Cameco says the contracts were signed years ago when the uranium spot price was much lower. In 2000, the spot price for U3O8 dropped to a near-record low of US$7.10 per lb.; the year’s average spot price was US$8.21 per lb.
During 2003, the spot increased by more than 45% to end the year at US$14.50 per lb thanks to supply pressures. The company enjoyed most of that increase with some of its spot market-related contracts not reaching their ceilings until prices hit about US$14 per lb.
Cameco’s chief executive Jerry Grandey said in a prepared statement, “While we have upside limits to the benefits of a rising spot price in the near term, the good news is that the increased uranium prices appear to be supported by improving supply/demand fundamentals as we had always expected.”
The company says some of the recent and unexpected market developments led to prices rising more quickly than anticipated.
During 2004, Cameco is slated to sell about 60% of its uranium under long-term contracts that reference the spot market price near the time of delivery; the balance will be sold at fixed prices, limiting the benefit if prices remain strong. In all, Cameco expects to sell some 32 million lbs. of uranium.
On a brighter note, Bruce Power, in which Cameco has a 31.6% stake, said that Unit 3 at the Bruce Power station on the shores of Lake Huron started sending power to Ontario’s electricity grid on Jan. 8. Unit 4 restarted on Oct. 7, 2003. Both reactors were originally slated to begin producing power in June after a two-year restoration program.
Combined, the two 750 MW units can power about 500,000 homes. The units were commissioned in the late 1970s, but were removed from service in 1998 amid safety concerns.
With units 4 through 7 now running at full steam, the company is awaiting approval from the Canadian Nuclear Safety Commission to return the recently repaired Unit 8 to service. That unit had some erosion on its steam generators repaired.
The balance of Bruce Power is owned by TransCanada and BPC Generation Infrastructure Trust, both with 31.6% interests, the Power Workers’ Union with 4% and The Society of Energy Professionals holding 1.2%.
Shares in the Saskatoon-based company plummeted $5.90, or more than 8%, to $67.10 in early trading in Toronto following the news on Jan. 9. By late afternoon the shares had recovered trading off $2.51 at $70.49.
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