Uranium giant says patient investors will be rewarded

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Cameco’s suspended McArthur River uranium mine in northern Saskatchewan. Source: Cameco Corp.

Cameco Corp. [CCO-TSX; CCJ-NYSE] said Friday February 9 that it hopes patient investors will be rewarded after the Canadian uranium mining giant posted what analysts described as solid fourth quarter results.

The company’s net loss narrowed to $62 million, or 16 cents per share in the quarter ended December 31, 2017, from $144 million, or 36 cents a year earlier. On an adjusted basis, the company earned 46 cents per share. Analysts had anticipated a profit of 35 cents. Revenue in the quarter fell 8.8% to $809 million from $887 million.

The uranium industry has been struggling since a 2011 earthquake and tsunami in Japan disabled three reactors at the Fukushima nuclear plant, causing their cores to melt down, forcing Japan to shut down 50 nuclear reactors that remained intact.

Cameco said the overall spot price averaged US $21.78 in 2017, down from US $72.63 in January, 2011.

In January 2017, Tokyo Electric Power Co. (TEPCO) issued a termination notice for a $1.3 billion supply contract with Cameco by claiming “force majeure.” Termination of the Cameco contract raised concerns about what would happen to 9.3 million pounds of uranium that was scheduled to be delivered between 2017 and 2018, an amount that equals 775,000 pounds annually.

The Japanese company said the decision was prompted by forces beyond its control and arise from the 2011 Fukushima accident that prevented the operation of its plants. Cameco has said it sees no basis for terminating the agreement and vowed to pursue all its legal rights and remedies against TEPCO.

On Friday, Cameco said it expects arbitration in the TEPCO dispute to begin in the first quarter of 2019. “The timing for a final decision will be dependent on how long arbitrators deliberate following the conclusion of the hearing,” the company said. “We have filed our statement of claim for US $682 million, plus interest and legal costs.”

Still, the company said it continues to benefit from the protection in its contract portfolio, despite the removal of the disputed TEPCO contract and sustained low price environment.

Cameco said the company’s average realized price was US $36.13 in 2017, well above the average spot price.

Cameco said it exercised supply discipline by temporarily suspending production at the McArthur River/Key Lake operation in Saskatchewan, which ranks as the largest high-grade production source in the world.

“We will continue to evaluate our strategy in the context of the market and believe that our stakeholders will be rewarded for their patience and support of our strategy to deliver long-term value,” said Cameco CEO Tim Gitzel.

On Friday, Cameco shares eased 4.79% or $0.54 to $10.74. The 52-week range is $16.17 and $9.90.

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