| Cameco reversing the trend World's biggest listed uranium miner reverses stock price underperformance, leaving rivals far behind. Author: Barry Sergeant Posted: Thursday , 13 Sep 2007 JOHANNESBURG - Cameco (CCO.T, C$45.08 a share), by far the most heavily capitalized of listed uranium stocks, has reversed months of underperformance amid a hemorrhaging mining sub sector, currently off by an average of nearly 50% from highs. Cameco's stock price is now only a quarter off its highs, not least on the news of a share repurchase of up to 5% of its outstanding common shares. This would cost around C$750m at prevailing stock prices. Cameco has long taken a sanguine, if not cynical, view on the dot.com-type rush that investors make into the "uranium" name in the last while. By the same token, Cameco has fully resisted the merger and takeover mania that enveloped the sector over the past six months in particular, with some deals now looking to have been made at sickly rich levels. Cameco CEO Gerald Grandey told Bloomberg in January that "it made absolutely no sense for Cameco to pay inflated market caps for junior mining companies that are out there with uranium in their title". Instead, Cameco expects to increase production using joint ventures with smaller explorers rather than by acquiring competitors. Cameco has spent ``a few million dollars", in the words of Grandey, buying stakes of 10% to 20% of ``five or six" uranium explorers in the past year. Cameco also recently announced an update on countering flooding conditions at its key prospect, Cigar Lake, the world's largest untapped uranium deposit. Pouring cement and injecting grout to block water entry has commenced and is expected to take another six to ten weeks to complete. The effectiveness of the plug will only be known when actual dewatering is underway. The next steps of the remediation will include verification that the inflow is sufficiently sealed. Meanwhile, Port Hope production, affected by a leak, remains suspended but Cameco has indicated sufficient stocks to meet deliveries until the end of the first quarter of calendar 2008. Cameco's stock is back in favour among analysts. RBC Capital Markets sees "excellent upside potential from current price levels", with a price target of C$63 a share. The series of negative events and announcements beginning in July 2007, combined with the correction in spot uranium prices, have resulted in Cameco's stock surrendering all of its price gains of the past 20 months. On the bright side, RBCCM analysts see Cameco's realized prices and earnings increasing strongly over the next five years. Other analysts, such as those at UBS, are also bullish on Cameco, with a stock price target of C$60 a share. 7 September Shares of Cameco Corp. (CCJ) offer "excellent upside potential from current price levels," according to RBC Capital Markets analyst Fraser Phillips. But, he still cut his price target on the stock. Mr. Phillips reduced his target to C$63 a share from C$70 a share as RBC lowered its uranium price outlook. Its forecasted prices for 2007 and 2008 are now US$100 and US$110 a pound, down from US$120 and US$145 a pound, respectively. But he still rates Cameco a "top pick." As uranium prices corrected over the summer and Cameco came out with a number of negative announcements, the stock gave up all its gains of the last 20 months. "While it will take some time for management to regain investor confidence following these problems, we believe this represents a buying opportunity," he wrote in a note to clients. He lists four reasons for the positive outlook on Cameco:
"Longer term, there is the potential for a significant expansion at Bruce," he added. Cameco: On top of the world? |
| By Jane Louis 16 Aug 2007 at 02:11 PM |
| A CNN Money report on Cameco [NYSE:CCJ; TSX:CCO] shows the uranium producer is on the brink of becoming an energy giant. Despite recent setbacks, Cameco’s persistent attitude gives the company the potential for a very successful future, the article says. "Most of the world's 434 nuclear power plants already get their fuel from companies like Cameco, but the demand curve is due for a radical shift. Worldwide, more than 30 new nuclear plants are already under construction. And 200 others are in various stages of planning, including 49 in the United States, where the last new plant was approved in 1979. "As energy demand rises and costs escalate, and as pressure mounts for developed countries to rein in CO2 emissions, many see nukes as the only scalable means of churning out cheap electricity and putting a dent in global warming at the same time. "That's one reason hedge funds and other investment firms, which wouldn't touch uranium as recently as two years ago, have snapped up more than $1 billion worth of the radioactive stuff during the past year. "Cameco already accounts for 20% of worldwide production, owns the world's biggest uranium refinery, operates a handful of conversion factories, and sells the finished fuel rods. Its customers include more than 20 utilities around the globe." |
Crown prince of nuclear power
The revival of a once-reviled technology is turning Canada
By Michael V. Copeland, Business 2.0 Magazine senior writer
August 16 2007: 6:48 AM EDT
(Business 2.0 Magazine) -- Joel Rheault ducks beneath the steel door of the elevator cage and steps into a freezing rainstorm -- 1,600 feet below ground, at the mouth of a cavernous concrete tunnel. Wind whips the water dripping from his hard hat as Rheault switches on his headlamp, climbs into a Toyota Land Cruiser that's been parked underground, and drives off into the darkness.
Aboveground, where Rheault was munching a doughnut a few minutes earlier, it's another blue-sky summer day at
Rheault turns down a steep ramp, then right into a side tunnel, finally stopping in front of a 20-foot-tall wall of dark, jagged sandstone where the underground rain has let up.
A series of round pipes jut out from the wall in equidistant spots, each encased by wavy bulbs of ice. The pipes, which extend some 300 feet into the rock, are filled with supercooled brine that acts as a giant ice pack. Kept at a constant-40 degrees, the brine freezes the water that saturates the bedrock, effectively floodproofing the area so miners can start drilling for the prize inside: high-quality, mildly radioactive uranium.
"We call it a freeze wall," explains Rheault,
The more sandstone Rheault and his engineers can deep-freeze, the more the $1.7 billion company he works for -- Saskatoon-based Cameco, the world's leading producer of uranium -- can sell in a white-hot market.
Six years ago the spot price of a pound of processed uranium ore, or yellowcake, was less than $10 a pound. Today it has soared to more than $130, and some analysts see it going even higher.
Which puts little-known Cameco and its CEO, Jerry Grandey, in position not just to scoop up easy profit but to grow into a blue-chip energy company on par with giants like Entergy
Uranium's sudden status as the world's hottest commodity -- surpassing the spectacular runs on steel, gold, and silver -- is fueling even more speculation about the global market it serves: nuclear power.
Most of the world's 434 nuclear power plants already get their fuel from companies like Cameco, but the demand curve is due for a radical shift. Worldwide, more than 30 new nuclear plants are already under construction. And 200 others are in various stages of planning, including 49 in the
As energy demand rises and costs escalate, and as pressure mounts for developed countries to rein in CO2 emissions, many see nukes as the only scalable means of churning out cheap electricity and putting a dent in global warming at the same time.
That's one reason hedge funds and other investment firms, which wouldn't touch uranium as recently as two years ago, have snapped up more than $1 billion worth of the radioactive stuff during the past year.
Cameco already accounts for 20 percent of worldwide production, owns the world's biggest uranium refinery, operates a handful of conversion factories, and sells the finished fuel rods. Its customers include more than 20 utilities around the globe.
Beyond those assets is a veritable gold mine of untapped reserves. Sixty miles north of
Silver-haired Grandey is the unlikely wizard behind this next-gen energy company. He got his start in the 1970s as a long-haired public interest attorney working to shut down some of the nuclear power plants that now make up his biggest customers.
His conversion into a nuclear power player, he says, evolved out of a long-held belief that the promise of the technology is sound and that the safety issues he took on as a young lawyer have been addressed.
Grandey has backed up his convictions at considerable risk: He quietly built up Cameco during a long and painful down market, when few others believed that nukes would ever be part of energy's future. "When the world wakes up and rediscovers nuclear," says Grandey, prepping for a meeting in his
A black bear trundles across
Each plane carries as many as 44 people, who live in dorms during weeklong shifts before returning to their homes in small aboriginal villages and medium-size towns with names like
Geologic happenstance filled this part of
The region in which the majority of Cameco's reserves lie has been called the
Grandey, naturally, occupies the big corner office at Cameco's brick-faced headquarters in
Raised in
"I didn't want to sit around looking at seismic records the rest of my life," he says. After a two-year stint in the Army, he grew out his hair, sported a beard, and started law school at
During his first year, Grandey worked part-time for a public interest law firm, helping one set of plaintiffs with a lawsuit against U.S. Steel over pollution from coke ovens and working with another set who opposed the licensing of nuclear plants around the
Grandey says he has no regrets about working for people who were trying to stop nukes. "We weren't sitting in cranes or climbing cooling towers," he says. "We were taking on important issues, like what happens in the case of large pipe breaks and accidents, and thermal pollution in the lakes. It wasn't like I was religiously opposed to nuclear. But I'm proud that we forced utilities to rethink some of the assumptions that were being made about the layout and the engineering of nuclear plants."
Grandey returned to
As Energy Fuels's top attorney, Grandey was fast learning the art of the deal, since uranium was a handshake business, as it still is now. Grandey wound up brokering deals with Swiss, German, and
Disaster struck in 1979, with the partial meltdown of a reactor at
Undaunted, Grandey began moving assets around and squeezing money from joint ventures with utilities in Europe and
Grandey swore he wouldn't go home until he had the cash; by midnight he had a deal. "I felt like I had died and gone to heaven," he says. Energy Fuels survived the next year -- and by 1985 had become the top
Despite the accidents at Three Mile Island and, in 1986,
The supply that everyone thought would come from mining was coming instead from dismantled weapons. Grandey chose this moment to bail out of the mining business, selling Energy Fuels in 1990 for some $75 million.
But three years later he was back in, this time hired to help steer Cameco out of crisis. Created in 1988 by the merger of two government-owned uranium producers, Cameco had gone public in 1991. It sat on some valuable reserves but was top-heavy with bureaucrats and ill-equipped to react quickly to either big opportunities or problems.
Reeling from the onslaught of Cold War-era uranium, CEO Bernard Michel asked Grandey to help put the company back on a growth track.
Once again the dealmaker went to work: Before he had unpacked, Grandey was in
During this period, Michel and Grandey saw a chance to channel their inner Warren Buffett. With prices tanking, and politics dampening the market even further, the pair convinced board members and shareholders that it was the perfect time to buy low.
If they started buying mines and refineries now, they would be sitting pretty when the long-awaited nuclear "renaissance" began in earnest.
So, while other top uranium producers like Power Resources and Uranerz sold or folded altogether during the 1990s, and with prices stalled out around $10 a pound, Michel and Grandey poured every dollar they could raise or borrow into an $800 million buying spree.
"When nobody wanted uranium assets, we acquired every decent property in
During a five-year stretch, Cameco worked to lock down assets at
"When the industry was in the doldrums, Jerry was a go-getter and pushed things forward," says Julian Steyn, president of Energy Resources International, a consulting company in Washington, D.C. "Nuclear didn't look like it was going to have a great future unless you were an optimist. Jerry was one of them."
Since then, Grandey's down-market bets have paid off in every way: Cameco's stock has jumped from $4 a share to $54. Profit has gone from $196 million to $353 million on revenue growing from $778 million to $1.7 billion. By late 2006, the moment for nuclear that Grandey had awaited throughout his entire career seemed to have arrived.
Then, again, disaster struck.
One day last October, workers blasting away at the
But when they failed to seal properly, miners were left to try to fend off the flood with burlap sacks and grout. As 43-degree water rose to chest level, several miners formed a human chain to pull themselves to a ladder where a hoist cage was dangling to take them and 21 others to safety. Grandey had no choice but to seal the mine and let it flood. All the tunnels, the equipment, the plumbing and electrical work are still underwater.
So great is the future potential of
Grandey was forced to spend more than $200 million to drain the mine and make it safe for future operations. Shareholders demanded answers, and some analysts questioned whether a "lax" corporate culture was to blame.
For Grandey, a potentially fatal accident on his watch was both heartbreaking and humbling, given his roots as a public interest defender and his longstanding reputation as a stickler for safety.
Updates on the progress at
Cameco today has a full-time crew of 285 at
His Cigar Lake briefing over, Grandey now is prepping for a meeting with his mergers and acquisitions team to get an overview of what his rivals are up to and to talk about whether Cameco should be raising its stakes in any of the small mining companies in which it has investments.
Despite the recent setbacks -- and mounting pressure to bring
He also has a full-time team of 80 geologic rock hounds constantly on the lookout for new sites. His plan is to expand Cameco's presence in every part of the nuclear-power supply chain so that when the commodity boom ends, the company will be sufficiently diversified to ride it out.
And it will end. As Grandey points out, $135 per pound is not sustainable. "At that price more uranium will be discovered," he says. "Just like any other commodity, we will produce more than there is demand, and the price will fall."
When that happens, Grandey wants Cameco to be ready with its long-term contracts, superrich mines, mills, and power-generating capacity to provide the cash flow to do what he did in the 1990s -- gobble up more assets to exploit later on.
"When the cycle turns, we will be in position to buy," Grandey says. "And this time, I won't need to ask a bank for permission."
Michael V. Copeland is a senior writer at Business 2.0. 
Uranium market
The uranium equities sector also reacted poorly to news this week that the uranium spot price has now declined $31/pound in just seven weeks. The spot price fell $5/pound in the past week, to $105/pound, according to Ux Consultants, and by $15/pound according to TradeTech, also to $105/pound.
The uranium spot price, which is notoriously illiquid, given the dominance of contracts in the market, has also suffered news of potential near-term oversupply. While the spot price decline was smaller this week compared to prior weeks, Ux has cautioned that this does not indicate that the market is near bottom. Looking forward, Ux forecasts that the price is very vulnerable to continued weakness, with "small" demand being met by motivated sellers.
Ux and TradeTech have both maintained long-term price forecasts at $95/pound. RBC Capital Markets believes that the uranium market "will be weak until late-September to early-October, trading sideways to down with support at the $95-100/pound level". Analysts believe that the spot market could return to a deficit in the first half of 2008, "which should result in a strengthening spot market".
Cameco predicts uranium spot market downwards correctionCanada’s Cameco predicted a correction in the uranium spot price and lower sales this year, the latest bad news issued by the world’s largest uranium miner during the past month.
Author: Dorothy Kosich
Posted: Tuesday , 31 Jul 2007
RENO, NV -
A forecast of lower sales and spot prices by Canadian uranium über-miner Cameco Monday during a conference call generated concern among analysts and reporters, resulting in a written clarification by the world's largest uranium miner.
The announcement followed two weeks of bad news involving Cameco and its gold subsidiary Centerra concerning lower gold production and pollution concerns at the Port Hope operations.
Cameco reduced its 2007 uranium sales assumption from the 35 million pounds predicted as of the first quarter to 30 million pounds as of the second quarter. Meanwhile, Cameco said sales volumes are expected to average 32 million pounds annually from 2008 to 2011.
Uranium prices recently had their first major decline in four years after tripling in 2006 and reporting a 40% increase during the second quarter to $135.50 at quarter's end. However, the spot price was reported at $120/lb as of early this morning. George Assie, Cameco Senior Vice President, Marketing and Business Development told analysts and reporters that "near-term spot demand has dried up significantly," adding that currently there is "more supply than demand in the spot market."
Assie also forecast a correction in the uranium spot price, adding that he expected spot market activity during the third quarter to remain low as is traditional for the summer months.
He noted that "few utilities have uncovered needs for the remainder of this year and demand from other spot market players-the traders, producers, investor funds-is uncertain as the large increase in the spot prices has caused some to move to the sidelines." Due to very limited volumes of supply and demand, Assie said, "We could very well see further decreases in the spot outlook in the near term."
During the past month, Centerra Gold reduced its gold production outlook because of pitwall changes at the Kumtor Mine in Kyrgyzstan, while Cameco announced further delays in remedying flooding problems at its Cigar Lake uranium projects in Saskatchewan. Centerra Gold is expected to produce between 500,000 and 560,000 ounces of gold this year, down from its prior forecast of between 700,000 and 720,000 ounces.
The company also suspended UF6 production at its Port Hope, Ontario, nuclear fuel conversion plant after discovering contaminated soil underneath the facility. Production at Port Hope is expected to be delayed for a minimum of two months as the company determines the scope of the leak of uranium and other chemicals at the site, collect test data, confirm the sources of the leak, and review options to remediate the problem. Senior Vice President and COO Tim Gitzel estimated remediation at Port Hope will cost $3 million.
OUTLOOK
Despite its current woes, Cameco anticipated third quarter revenue will increase 10% from the second quarter, and forecast that 2007 revenue will be up 40% from last year. The company said it expects deliveries of about 30 million pounds of uranium for the year, down from 33 million pounds, partly because of the lower expected spot markets.
The financial outlook for the company is based on the assumption of no significant changes in sales, purchases, and prices; an average spot gold price of US$650/oz; no further supply disruptions in facilities; and a U.S./Canadian spot exchange rate of $105.
Cameco anticipates that uranium revenue will increase by 75% this year "due to stronger averaged realized prices under our contracts relative to 2006. This represents a decrease from our projection at the end of the first quarter of a 90% uranium revenue increase in 2007 as we now projected reported sales volume to be lower than previously anticipated."
Cameco uranium deliveries are expected to total 30 million pounds U3O8 including three 3 million pounds at spot market prices. The outlook for the third quarter and 2007 business results assume a uranium spot price of US$120/lb.
FINANCIALS
For the six months ended June 30, 2007, Cameco reported net earnings of Cdn$263 million (71-cents per share), a $73 million increase than the adjusted net earnings of $190 million (52-cents per share) reported for the same period of 2006. The increase was attributed to higher earnings in the uranium businesses resulting from a significant increase in the realized selling price driven by the increase in spot uranium prices. Profits from the electricity and gold businesses declined due to lower power generation and decreased gold production, respectively.
For the second quarter ended June 30, 2007, Cameco reported a record net income of Cdn$205 million (55-cents/sh) compared to Cdn$150 million (40-cents/sh) reported during the same period of 2006.
As of June 30, 2007, long-term debt was reported at Cdn$695 million, a decrease of $10 million compared to December 31, 2006. As of June 30, 2007, consolidated cash balance was reported at $369 million.
Uranium stocks a long-term plan, Cameco CEO says
Joyce Cassin
Tuesday, August 07, 2007 - 09:00
Local News - Despite facing flooding in its Cigar Lake Mine in October 2006 and the recent two-month shutdown of the Port Hope conversion facility due to two uranium leaks, Cameco president and CEO Jerry Grandey says that Cameco is still strong.
"The strength of these (quarterly financial report) results is a much better indication of the company's potential than recent news," Mr. Grandey said during a conference call on July 30, adding that Cameco is the wrong uranium investment for those only interested in short-term results, as the company's results show Cameco's long-term strategy is where gains can be made.
"There are many uranium investments suited to that short-term focus," he said. "As our long-term investors are aware, Cameco operates in an industry that requires a long-term perspective."
Cameco currently boasts a 500-million-pound reserve estimate, its current operating mines including MacArthur River, which produces 18 million pounds of uranium annually, and a large portfolio of development projects acquired much earlier in the uranium price cycle, Mr. Grandey said.
"I don't know of anyone who is confidently predicting the uranium price a decade out, but I do know we have a powerful portfolio of uranium contracts that will consistently make strong contributions to our financial returns for a decade or longer, even if the uranium price is volatile," Mr. Grandey said.
Cigar Lake is believed to be the biggest undeveloped high-grade uranium deposit in the world, with proven and probable reserves of 232 million pounds of uranium oxide, and is slated to reopen in 2011. Its estimate of Cigar Lake's uranium reserves is not expected to be affected.
Cameco is the operator and majority owner of the Cigar Lake project, 660 kilometres north of Saskatoon.
Stock prices had recuperated and increased significantly ($59.90 in mid-June) from their pre-Cigar lake flooding level when the Port Hope issue occurred. Stocks on July 12, the day prior to the uranium leaks being found, were at $52.15, which dropped to $49.75 the day prior to Cameco releasing the information on the UF 6 plant leak a week later.
Posted on Aug 1st, 2007
FP Trading Desk submits: Desjardins Securities analyst John Redstone is maintaining his “hold” rating on the world’s biggest uranium producer Cameco Corp. (CCJ), despite stronger than expected second quarter earnings, because of concerns that the spot market for nuclear fuel is over heated.
“We expect the uranium price to return to the US$45/lb level over the next two years as the market returns to balance,” Mr. Redstone said in a note.
The price of partly refined uranium ore known as yellowcake soared to a record US$138 a pound last month, about triple what it was trading at a year ago. The rise is being driven by expectations of a surge in demand for uranium as the nuclear power generation industry undergoes an expansion.
Mr. Redstone maintained his 2008 earnings estimate for Cameco of C$1.71 a share and his 12-month price target of C$34 a share.Cameco: Playing Pinocchio or Pangloss (CCJ)
Cameco Corp. (NYSE:CCJ) did something interesting, and it's a move that most companies do when they aren't happy about a reaction to a news release. This morning the company issued earnings at $0.55 EPS, well above consensus estimates. But the Uranium producer's guidance was deemed under plan for 2007. The problem with this is that the company apparently did not believe that its guidance was going to be received in this manner. Then tonight came the 'clarification press release.'
If the company thought it was going to have a positive reception to the news, then it wouldn't have made a clarification press release tonight.
.....While future sales levels were reduced in our assumptions about forecast realized prices, this is not expected to significantly impact our profitability..... During the call, the company provided some background information regarding the updated sales volume assumption for the 2007 to 2017 period. The sales volume assumption in the 2007 first quarter report was 35 million pounds per year for 2008 to 2017. In our 2007 second quarter report, the sales volume assumption was reduced to 30 million pounds per year to eliminate the influence of near-term spot market purchases and subsequent resale.......
You can read the press release here on the next page break for the full data. The problem with 'clarifications' such as this is that it is often symptomatic of 'corporate communications.' I fear that this may be taking hold as a culture in Cameco and this is the major Uranium stock play. I have listended in on the conference calls regarding the Cigar Lake flooding SNAFU, and it just seems from an outsider's point of view that the company either isn't doing enough of the right things or that the company has lost control of being able to communicate its message. The call-in questions and 'criticisms' seem to be escalating in tone from the sound of it, and a falling stock price won't curb that.
Selling product into the future at fixed and locked-in prices is quite normal. Making production guestimates is quite normal. Even making commodity market price assumptions is somewhat normal. But sometimes it goes wrong. This stock is closer to its yearly low, but the truth is that this would still easily be considered in the middle part of its 52-week trading range. The problem regardless of the last year is that the company has seen shares slide from $55 (U.S.) down to the $40 area most recently over the last 45 days.
Clarification press releases are needed sometimes, but it makes you feel sometimes like the company is trying to do what kids do in games. "DO OVER!" This company is the largest play on the Uranium market, and with thousands of shareholders and a hot market for its key commodity it would be in the company's (and its shareholders') best interest to communicate better or be in a bit better control than it has been.
The excitement has left this one too because of delays from its flooding of its Uranium project at Cigar Lake: In early July, Cameco announced that the startup of Cigar Lake production could be delayed from 2010 to 2011. Shares were indicated higher and the 'clarification' may help shares on Tuesday. It is just not that frequent that a company worth more than $10 Billion has to make clarifications.
Please see the NOTES REFERENCED ON PAGE 2 at the bottom here showing the descriptions of all of its giuidance remarks from the press release.
Jon C. OggLying low at ‘Sleepy Hollow'
ANDY HOFFMAN
McARTHUR RIVER, SASK. — — Underground at the world's richest uranium mine, it all seems so easy.
The walls and ceilings lining seven kilometres of tunnels and passageways are encased in concrete, protecting workers from radiation and creating an almost sterile environment that seems more like an operating theatre than the typical hectic, dusty mining venture.
Beneath a covering of sandstone in northern Saskatchewan, a geological anomaly known as the Athabasca Basin has formed rocks containing an astronomical amount of the metal used to make fuel for nuclear reactors. The McArthur River mine boasts an average uranium grade of 21 per cent — a level 100 times higher than most other mines.
The abnormally potent ore allows Cameco Corp. [CCO-T], the mine's operator and 70-per-cent owner, to methodically extract a relatively minuscule amount of material while still producing a massive amount of the commodity.
Under CEO Jerry Grandey, Cameco has been absent from a wave of consolodation in the industry. (Dave Strobbe/Reuters)
The company removes just 50,000 tonnes of ore a year here, the same amount an open pit copper mine might dig up in a single day, before the morning coffee break.
"It is unlike any other underground mine. It's more like an underground uranium factory," Joel Rheault, the mine's manager said as he marched through a tunnel more than half a kilometre below the surface.
But in the wake of a mounting series of setbacks and missteps, some are asking whether Cameco, blessed with its embarrassment of riches at McArthur River, has been lulled into a false sense of security.
There have been suggestions that a staid and entrenched management team have been caught flat-footed by the sudden resurgence of the nuclear industry. Floods, production delays and a recent uranium leak have raised serious questions about Cameco's technical expertise in a business where it is essential, not only for profit, but for the safety of workers and the public at large.
Some shareholders have clearly seen enough. Cameco's stock has lost nearly a fifth of its value over the past month.
As the industry enjoys an unparalleled spike in uranium spot prices, Cameco is still the world's largest producer and McArthur River is its biggest and most valuable mine, offering nearly 19 million pounds of the radioactive metal a year. With reserves of some 367 million pounds of uranium concentrate, or U{-3}O{-8}, it is poised to remain Cameco's flagship operation for another two decades.
Yet the bulk of the uranium concentrate, or "yellowcake," Cameco is producing from McArthur River is being sold at less than half the current spot price of $120 (U.S.) a pound, because of long-term contracts Cameco signed when prices were depressed.
To be sure, Cameco has not been an aggressive corporation lately. And why should it be? Unlike most of Canada's mining companies it is takeover-proof.
As a slew of storied names in the sector have disappeared in a wave of foreign buyouts, Cameco has not had to take measures to defend itself from potential unwanted advances.
Federal legislation prohibits a foreign shareholder from owning more than 15 per cent of Cameco's shares and no single shareholder, foreign or otherwise, may own more than 25 per cent of the former Crown corporation's stock.
Such a poison pill might have helped some of the more storied names in Canada's mining sector create so-called "global champions" of the industry.
Instead, names such as Inco and Alcan have been rapidly disappearing from the nation's corporate landscape, snapped up by cash-rich foreign giants ravenously consolidating the industry as commodity prices soar.
Besides bullion giant Barrick Gold Corp. [ABX-T], Cameco is perhaps the Canadian miner best positioned to become a global champion and reverse the hollowing out trend of lost head offices that has caused so many sleepless nights for economic nationalists.
Yet company management, ensconced at a Saskatoon head office nicknamed "Sleepy Hollow" by some investment bankers for the lack of action, has sat on the sidelines amid a frenzy of mergers and acquisitions in the sector.
Despite the record rise in uranium spot prices over the past few years that has been fuelled by expectations of a boom in new nuclear reactor builds, Cameco's corporate activity has often mirrored the careful and plodding mining process at McArthur River.
An industry wallflower falls on tough times
Under the leadership of chief executive officer Jerry Grandey since 2003, the company has been conspicuously absent from the consolidation that has gripped the industry and transformed a handful of previously unknown entities into multibillion-dollar uranium plays, hoping to challenge Cameco's position as the top dog in the uranium game.
During an interview with a handful of reporters that was conducted in a meagerly adorned corporate boardroom in Saskatoon, Mr. Grandey conceded his company didn't anticipate the rapid run-up in spot prices, which recently peaked at $136 (U.S.) a pound. Cameco executives would have been more aggressive had they seen it coming, he said, however, the company now believes valuations for prospective takeover targets are too costly.
"As we saw the price rapidly rising, the cost of acquisition became, in our view, too expensive. So we began to focus much more on internal growth," he said.
Yet this has also proved elusive for Cameco. In October of last year, the company's much-heralded Cigar Lake mine, which sits 40 kilometres northwest of McArthur River, also in the Athabasca Basin, was hit by a devastating flood. Production from the project, which was expected to total 18 million pounds of uranium a year at full capacity, has now been delayed until at least 2011.
This month, Cameco said efforts to seal off the water inflow and pump the liquid out of the flooded mine are taking longer than expected and warned it may have to sink millions more dollars into the project to build another mine shaft to satisfy safety concerns from industry regulator Canadian Nuclear Safety Commission (CNSC).
If that wasn't bad enough, Cameco also revealed late last week that it had discovered uranium in the soil at a conversion plant that sits on the banks of Lake Ontario in Port Hope.
Production at the facility will be halted for at least two months as it scrambles to find the source of the leak.
These should be the best of times for the world's largest uranium producer. But the so-called "nuclear renaissance" is threatening to become a dark age for Cameco. According to several Bay Street sources, some investors have begun musing about a need for management changes at the former Crown corporation.
While the contamination at Port Hope and a recent shocking production cut at Cameco's 53-per-cent owned gold subsidiary Centerra Gold Inc. (which said last week that output from its Kumtor Gold mine in Kyrgyzstan will drop by a third this year), cannot be linked directly to the CEO, the ignominies are happening on his watch.
In an interview this week, Mr. Grandey said that ultimate responsibility for what he called "a series of unfortunate events" lies with him.
"Everything comes from tone at the top. I'm the one where the buck stops, if that's the way you want to put it. … There is nobody else, it's me," said Mr. Grandey, 61, an American-born executive and former competitive swimmer.
He also said Cameco's management team has already undergone major changes following the latest flood at Cigar Lake. Cameco recognized that "we needed to step the game up," he said, and has now increased accountability at all levels.
Nonetheless, Mr. Grandey and his team were publicly lambasted at an open meeting in June, when CNSC president Linda Keen said the regulator has lost confidence in Cameco's management because of the two floods at Cigar Lake.
How to mine 'a big tub of water'
Were it not for the incredibly rich grades, it is unlikely that Cameco would even bother trying to mine in the Athabasca Basin, where the threat of flooding constantly looms.
One analyst, who spoke on condition of anonymity because he is prohibited from talking to the media by his firm, said some Cameco investors have played down the mining risks the company faces.
"It's my biggest concern. The bulk of the net asset value is in what are perhaps the most challenging mining conditions in the world," the analyst said.
The man in charge of the mining operations at McArthur River is well acquainted with those challenges. The Athabasca Basin "is just a big tub of water," Mr. Rheault said.
A typical underground uranium mine uses drills and explosives to blast away at the ore, which is then hauled up to the surface for processing. But miners at McArthur River cannot afford to be so reckless. Not only are they forced to use robotic loaders to scoop up the ore to minimize exposure to radioactive material, they are in constant danger of unleashing the millions of gallons of water perched precariously on top of the mine.
The sandstone that surrounds the ore is saturated, creating immense water pressure. Chipping away at the ore is not unlike mining near the wall of a submarine. Penetrating the sandstone can have disastrous results.
"It's like tickling the bear's ass," the mine manager said.
While it is not dusty, the McArthur River mine is wet. Water trickles in a slow but steady stream in spots from the ceiling, gathering in pools and small rivulets on the paved floor — a constant reminder of the dangers that lurk above.
Conducting a major mining operation near the sponge-like sandstone is such a high-risk proposition that Cameco has had to develop innovative engineering and mining techniques to extract the valuable metal.
In order to stabilize the sandstone and block water flow, it must freeze the ground surrounding the ore body. It drills into the rock and inserts massive steel pipes that are injected with a brine solution that circulates at -30 C. It takes about four months before the ground completely freezes and is ready to mine.
Workers then drill a 30-centimetre-wide pilot hole through the ore body from above. Once the pilot hole breaks through the bottom of the ore body, the drill bit is removed and a "reaming head" three metres wide is installed on the drill steel.
The reamer is then raised back through the ore body in reverse. Powerful hydraulics slowly lift the reaming head back through the pilot hole. The reamer rotates between six and eight times per minute and the loose ore that falls to the tunnel below is scooped up with a remote control loader.
Once it has made its way through the length of the ore body, the reamer is removed. The hole is then filled with concrete which helps stabilize the rock in the deposit. Cameco completes between three and four raises each month, removing about 200 tonnes of ore from each hole. So much concrete is used to backfill the holes that the McArthur River operation is believed to be the largest concrete producer in the province.
Despite all the precautions, McArthur River was hit with a water inflow in 2003. The affected area was sealed off before the entire mine was flooded and Cameco said it has greatly enhanced emergency procedures following the incident and again in the wake of the Cigar Lake flood.
The upgraded emergency plans include the ability to pump out 2,000 cubic metres of water per hour from McArthur River. The 2003 inflow peaked at 1,000 cubic metres per hour.
"No matter what you do, you have to be prepared for an inflow," Mr. Rheault said.
The industry analyst thinks an acquisition would help Cameco spread out its mining risks, currently heavily weighted towards the Saskatchewan mines.
He suggested that even with the high valuations that uranium projects and companies are fetching these days, such a deal would make sense.
"As a uranium producer, and Cameco in particular, you have to balance the accretion dilution of a transaction with doing something that would diversify them away from the technical risk they face in Athabasca," he said.
Navigating a way forward
The Cigar Lake debacle has already led to a shakeup in the executive ranks at Cameco. The most significant move was the hiring of Tim Gitzel, a former executive at French integrated nuclear giant Areva Group, as chief operating officer in January.
Mr. Gitzel's top priorities are daunting. He has been charged with overseeing the remediation efforts at Cigar Lake as well as restoring the CNSC's faith in the credibility of Cameco's management team. If Cameco can't get the regulator on side, it could find itself hamstrung in nearly all of its endeavours, as the CNSC gives the go-ahead for almost everything the company does.
Uranium industry veteran Peter Farmer, the chief executive officer of Cameco's smaller rival Denison Mines Corp., which also has operations in Saskatchewan, said he is confident that Cameco will eventually solve its problems at Cigar Lake. He also believes the company is making the right moves at the management level.
"They'll overcome it. [Tim] Gitzel is new there but he and the CNSC have a tremendous rapport. He is a very honest and straightforward guy. He's conscientious and he knows the business and he will manage that. But they're going to have to prove their case and that is going to take some time," Mr. Farmer said.
Back at "Sleepy Hollow," Mr. Grandey pointed out that Cameco has not always been focused inward. It was, he said, one of the only companies active during the lull in prices during the 1990s, buying assets in the United States and acquiring the Inkai property in uranium-rich Kazakhstan.
"You look at those moves, any one of those would have been a company-maker for the hundreds of small companies that are out there today. Indeed, there are properties that we have given up that people have acquired and built companies around," he said.
The divestiture of such properties gives credence to the suggestion made by some industry sources said that Mr. Grandey, despite his public statements to the contrary, is not a firm believer in the long-term strength of the uranium price.
One executive at a money management firm said during meetings with Mr. Grandey a few years ago, the CEO predicted that uranium prices "would never go above $60 (U.S.) a pound."
Indeed, because of so-called legacy contracts that Cameco has signed with nuclear utilities, most of the company's uranium sales are conducted at prices well below the current spot price of $120 a pound. Roughly 60 per cent of Cameco's sales are bound by these long-term arrangements, many of which were negotiated years ago.
In the first quarter of 2007, Cameco realized an average price of just $24 (U.S.) per pound. If uranium spot prices average $100 (U.S.) a pound this year, Cameco expects to realize an average price of $39.75 per pound for the rest of the year. At the same average spot price, Cameco expects to realize a selling price of $58.25 in 2008 but only $48 per pound in 2009.
Now, after more than four years of uninterrupted gains, the uranium spot price is finally showing signs of weakness. It fell $10 this week — the largest weekly decline ever — which begs the question, has Cameco already missed out on the greatest run the industry has ever seen?
As far as Mr. Grandey is concerned, it's all about timing — and time, he said, is on Cameco's side.
"We tend to take a longer-term view, we were quite active in acquisitions and we will be quite active again. I think part of the strength of Cameco is trying to judge what behaviour is appropriate at what cycle in the market," he said. "Patience, at times, is a virtue."
Future of Cameco Shares Divides Analysts
By Laura Bobak
23 Jul 2007 at 05:49 PM GMT-04:00
TORONTO (CP) -- Equities researchers were divided on how a recent string of bad news will impact the long-term health of shares in the world's largest publicly traded uranium producer.
Two analysts have set very different price targets for the stock - one predicts the stock will soar within 12 months, while another thinks a much more modest hike is in the works.
Shares in beleaguered uranium producer Cameco Corp. [TSX:CCO] closed down about 6.5% Monday afternoon after a trading halt was lifted in the wake of a contaminated soil report.
On the Toronto stock market, the shares closed down C$3.19 to C$46.13, on a volume of 4.4 million shares traded.
Late Friday, the Saskatchewan-based company reported that uranium, the element used to fuel nuclear power plants, and possibly other production-associated chemicals, had been found in soil under its Port Hope, Ont., uranium hexafluoride conversion plant.
Operations will be suspended there for at least two months.
Cameco said no layoffs are planned and it will try to find new assignments for its 420 employees. It plans to fulfil contracts from its current inventory of uranium hexafluoride, used to fuel light-water nuclear reactors.
The news follows a series of setbacks for the uranium mining giant.
On July 11, Cameco announced it will take more time than expected to pump out the water from its Cigar Lake project after the mine flooded last year due to a series of mishaps, mistakes and bureaucratic bungling. It changed the estimated startup date from 2010 to 2011.
Last week, Cameco reported that Toronto-based subsidiary Centerra Gold [TSX:CG] had lowered its 2007 production estimates for the Kumtor mine in Kyrgyzstan by one-third.
But the string of bad news didn't faze analyst Fraser Phillips of RBC Dominion Securities, who released a note to investors Monday keeping his price target unchanged at C$80.
Phillips, who rates Cameco a ''top pick,'' said the uranium conversion business represents only 5.5% of his forecast operating earnings for the company this year, and only 2.9% of his estimate of net asset value of C$57.53 per share.
''We continue to believe that Cameco shares offer upside potential,'' Phillips wrote. ''We forecast Cameco's realized uranium price, earnings and cash flow to increase significantly over the next five years. The negative effects at Cigar should be more than offset by rising uranium prices,'' Phillips wrote.
Buyers and sellers of uranium negotiate contracts in private, so the mineral's price is not reported routinely like other commodities such as nickel or copper, which trade on the London Metal Exchange.
According to TradeTech, an independent market consultant, on July 13 the spot price was US$129 per pound, while Ux Consulting Co. said the July 16 spot price for uranium was US$130.
Phillips said Cameco's 53% ownership of Centerra should continue to provide ''upside and liquidity'' for the company.
Cameco also owns a 31.6% interest in the Bruce Power Partnership, a venture that operates and leases Ontario's Bruce B power plant.
''In addition, we expect the contribution from Bruce Power to increase over the next three years, and longer term there is the potential for a significant expansion at Bruce,'' Phillips wrote.
CIBC World Markets [TSX:CM], in contrast, has a much more conservative outlook on Cameco's long-term performance.
Analyst Cliff Hale-Sanders, who has a 12- to 18-month price target on Cameco's shares of C$55, wrote in a July 12 note to investors that he expects further delays at Cigar Lake, which flooded on Oct. 23, 2006.
The analyst said it is ''somewhat doubtful'' that Cameco will be able to reopen the mine by its stated target of 2011.
''We believe risk remains in that the mine could see further development delays as new regulatory conditions are added to the construction licence, which must be renewed/amended by year-end,'' Hale-Sanders wrote.
''Without a clear timeline and cost structure for the Cigar Lake project, the long-term value of Cameco's shares remains somewhat uncertain,'' Hale-Sanders stated.
Meanwhile, as the world supply of uranium remains tight, Hale-Sanders predicted governments will pause before building more nuclear plants.
''Investment in new nuclear power plants is only likely to occur on a large scale based upon security of supply, and the ongoing difficulties in bring new supply to market could push utilities and policy-makers to review other potential power sources for future development given the more certain supply outlook,'' Hale-Sanders stated.
The Cigar Lake project, which was to have produced slightly less than one-fifth of the global uranium supply, was flooded last year after two massive bulkheads failed to hold back water from a flood following a rock slide in a shaft about a half-kilometre underground.
The project is a joint venture owned by Cameco, which owns 50%; Areva Resources Canada Inc. with 37%; Idemitsu Canada Resources Ltd. with 8%; and Tepco Resources Inc. with 5%.
Cameco says its share of the estimated proven mineral reserves is 113 million pounds.
Cameco said it would next update progress at Cigar Lake in the company's second-quarter report on July 30.
© The Canadian Press
23 July
Cameco Production Falls On Mine Delay, But Remains RBC 'Top Pick'
FP Trading Desk submits: Problems stabilizing walls at the Kumtor pit mine in the Kyrgyz Republic have forced Cameco Corp. (CCJ) to slash expected gold production in 2007 there by a third. Project owner and operator Centerra Gold Inc. [CG/TSX], of which Cameco owns a 53% stake, is now forecasting approximately 300,000 ounces of gold, compared to previous estimates of 450,000 ounces.Centerra is trying to extend the pit so it can access areas of high-grade ore, but experts are recommending that the wall angles be more gradual than originally planned. Since more waste must be removed, there will be a delay in accessing the ore until the second quarter of 2008.
A pit wall at Kumtor failed back in June 2006, RBC Dominion Securities analyst H. Fraser Phillips said in a research note.
As a result of the delay, total cash costs at the mine are expected to be US$580 per ounce for 2007, compared to previous guidance of US$440 to US$450, he added. Meanwhile, Cameco’s total gold production this year is expected to be in the 550,000 to 560,000 ounce range, down from as high as 720,000 previously.
Mr. Phillips’ net asset value for Cameco falls to $57.53 from $58.34, but his price target remains at $80 per share with a “top pick” rating.|
“The move towards a green economy makes alternative fuel supplies very attractive and nuclear power is driving the uranium stocks in very profitable trends. At the head of this list is Cameco, which is the world ’s largest uranium producer. Cameco’s competitive position is based upon its large, high- grade reserves and low-cost operations, significant market position and access to other supplies of uranium and uranium conversion services. Its subsidiaries have a 31.6% limited partnership interest in Bruce Power that leases and operates four reactors “The company also continues to explore for uranium in a number of countries. And while Cameco continues its principal focus on the nuclear business, it also owns 52.7% of Centerra , the largest western-based gold producer in Central Asia and the former Soviet Union. “In March 2007, Cameco provided an update on the Cigar Lake project – which was damaged due to flooding. The firm notes that production start up is targeted for 2010, subject to regulatory approval and timely remediation. ; (ii) Cameco’s share of capital costs, including mill modifications, to bring Cigar Lake into production “Overall, this company is uniquely positioned to reward investors well in this environment. Total revenues have doubled over the last two years. Net income has grown 35% in the last year. Technically the stock looks very strong. “According to my numbers , this is a stock that should be selling in the $100 range over the next three to five years. It is currently trading in the $50 range, so CJJ has a large upside potential. Place a sell stop at 25% below your entry price and raise your stop as the stock rises.” July 17Correction is a buying opportunity As short interest in Cameco Corporation (CCJ) mounts to 6.2% of shares outstanding, short sellers are betting that the confluence of certain factors presents a ripe time to bet against a uranium stock that has seen a healthy YTD increase. click to enlarge The first decreases in the uranium spot price to the current $129US/lb, coupled with Cameco's July 11 announcement of further delays in Cigar Lake that will delay production until at least 2011 have spurred short sellers into their present bearish position on the uranium giant. As Cameco struggles being the bellweather uranium stock most synonymous with general market sentiment, the pessimism surrounding the future trends of yellowcake has never been greater. This is further exemplified by the essentially flat performance of other uranium seniors not named Cameco. Whether it be Paladin Resources (PALAF.PK) or sxr Uranium One (SXRZF.PK), and to a lesser extent, Denison Mines (DNN), they have collectively been both flat YTD in the context of an ever-rising North American market. Moreover, they have reacted very little to the announcement to delay Cigar Lake for another year; usually a bullish supply-demand argument, it carried much less weight in the context of falling uranium spot prices. However, one must remember that we saw a diversion between the uranium spot price and uranium stocks much earlier in the year. While uranium spot has essentially doubled YTD, the aforementioned uranium seniors-not-named-Cameco have assuredly not. In this context, although much fear has been injected in recent weeks as experts predict a uranium meltdown scenario where the spot price plunges, the astute observer will question exactly how much froth is in these stocks. Yes, there are concerns overhanging uranium stocks: millions of pounds held by funds who have no intention of using uranium, nuclear utilities who are banding together to collectively halt the rising spot price, and the general inability for uranium stocks in the last few months to head higher despite favorable market conditions. Even so, the fundamental story of nuclear power must dictate that investors take advantage of irrational overselling and stake positions when fear and apathy abounds. Uranium prices fell for the third straight week as buyer interest continues to cool. TradeTech’s spot price indicator fell US$4 to US$129 per pound of uranium, it said in Friday’s issue of Nuclear Market Review. An auction of 392,000 pounds of U3O8 equivalent last week drew limited interest from buyers as the availability of supply from other sellers made auctions less appealing, TradeTech said. Cameco Corp.’s (CCJ) announcement that the start up of its Cigar Lake mine could be delayed another year until 2011 demonstrates the anticipated shortfall that remains in the long-term uranium market. While total worldwide demand for 2008 to 2013 is estimated at 1.1 billion pounds, planned production is forecasted to be roughly 0.9 billion pounds of U3O8 equivalent, the report said. Planned production problems could push this shortfall higher. Meanwhile, investors may be ignoring the short-term weakness in spot uranium prices. They may also be shrugging off consolidation in the mining sector, according to StockInterview.com. But has recent weakness led to a buying opportunity in uranium equities? They may be exiting the downtrend for the year, according to Matthew Smith of TheInvestar Group. “We may see the juniors move a little ahead of producers at this point, in terms of percentage moves upward as investors move back into the most beaten up stocks,” he added. Cameco's McArthur River uranium deposit an absolute "gold mine"High uranium grades mean Cameco's McArthur Lake deposit contains far higher values per tonne of ore at current uranium prices than even the richest gold mine. Author: Cameron FrenchPosted: Sunday , 01 Jul 2007 McARTHUR RIVER, Saskatchewan (Reuters) - You could say Cameco Corp. With spot uranium prices around $135 a pound and the mine producing an industry best 21 percent pure uranium ore, the product piped up from the half-kilometre deep deposit is far more valuable than anything you'd find in a typical gold mine. The mine -- which is also 30 percent owned by France's state-owned nuclear group Areva "It is the single most unique mine of any mineral commodity in the world," Cameco Chief Executive Jerry Grandey told reporters at the company's head office in Saskatoon this week. "Take the best gold mine in the world at 2 ounces per tonne, and gold is at $650 an ounce, so it's $1,300 per ton of rock. You take 410 pounds (of uranium per tonne) times $136 a pound, and you're where, $50,000?" "Do the math, it's astonishing." Of course, Cameco isn't selling its ore at the spot price of around $135, as it mostly sells into long-term contracts at lower prices. But even so, the mine is a lucrative operation, and promises to remain so as it contains reserves that should last another two decades. On a tour of the mine this week, reporters saw a high-tech operation that extracts the radioactive metal using techniques that would have been out of reach of the miners of the last uranium boom that ended in the 1980s. The ore deposit sits about 500 to 600 metres (yards) below the surface, where dry bedrock meets the water-saturated sandstone of the Athabasca Basin -- the same type of sandstone that flooded Cameco's Cigar Lake mine last year, delaying its expected date of production to 2010. Underground tunnels at McArthur River are carved in the bedrock and holes are drilled vertically into the ore to retrieve the uranium. to avoid flooding, the water-soaked sandstone is frozen in the immediate area by piping in brine at -30 degrees Celsius (-22 Fahrenheit). "It's just a sponge under pressure, and we're just working right underneath it," says mine manager Joel Rheault, adding that at 530 metres underground -- the upper part of the deposit -- the water pressure is equal to being 530 metres underwater. The surrounding water pressure is evident on the half-kilometre (1,640-foot) elevator ride down to the tunnels, as a steady rain cascades down the elevator shaft. To maintain air quality, high-powered vents blast fresh air through the tunnels at a rate that recycles the underground atmosphere every 7 minutes. The uranium ore, which at an average 21 percent is too concentrated to be handled safely, is dealt with only from afar, as it is picked up by remote-controlled front-end loaders, or "scoops", which deposit it in an underground processing system. The purity of the deposit is about 100 times that of an average uranium mine, meaning the volume of ore extracted is a mere fraction of what would be pulled from a typical mine. However, despite the radioactivity, the main concern is the potential of flooding, particularly after an "inflow" in 2003 that was stopped before it could become much worse. Since that incident, the mine has added extra precautions, including increasing the capacity to pump out water and not using explosives in tunnel boring. At Cigar Lake, workers were unable to stop the water, forcing them to abandon the mine and let it flood. The resulting delay in production has been a factor in the continued rise in uranium prices, as the mine's annual production is expected to almost match McArthur River's once it gets going. With the small amount of actual ore extracted, McArthur could quite easily raise its own production, Cameco says, but is prevented from doing so by federal environmental laws. The company has applied to boost production to help make up for the delay of the Cigar Lake's output. Cameco -- along with several other companies -- is also exploring elsewhere in the area, hoping to stumble upon another "gold mine" buried deep under the Saskatchewan sandstone. "It's a lot of guesswork," said Rheault. "Its just a matter of poking at it until you hit something."
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