World’s top uranium miner Cameco in no hurry to resume production

Operations at the company’s flagship McArthur River mine in Saskatchewan, the world’s biggest uranium mine, and the Key Lake mill (pictured) remain suspended. (Image courtesy of Cameco.)

Canada’s Cameco (TSX:CCO) (NYSE:CCJ), the world’s largest publicly traded uranium miner, is in no rush to resume production at its idled operations due to “ongoing challenging and uncertain” uranium market conditions.

The Saskatchewan-based miner indefinitely shut last year its flagship McArthur River mine — the world’s biggest — and also the Key Lake mill, which has helped the market. But while the company says it has seen a significant improvement over the past year, with prices up about 20%, it believes conditions are not where they need to be to restart idled capacity, or to warrant investment in value-adding growth opportunities.

“There is plenty of idle tier-one production and tier-one expansion capabilities, as well as idle tier-two production and expansion capabilities,” Cameco says in its management’s discussion and analysis, released with its fourth-quarter and year-end financial results. “We can’t lose sight of material sitting with financial players. This is capacity that can come back to the market relatively quickly. As a result, new supply poses a significant risk to the uranium market recovery,”

The company says it has seen a significant improvement over the past year, with prices up about 20%, but believes conditions are not where they need to be to restart idled capacity.

The company has more than trebled full-year 2018 adjusted earnings to C$211 million, or 53 cents a share, significantly beating analysts’ estimates of 25 cents.

For the 12 months ended December, Cameco said net earnings were at $166 million or 42 cents a share, compared with a $205 million or 52 cents per share loss a year earlier.

As expected, production was lower than 2017 due to the suspension of production in Canada and the change in reporting for Inkai, the Kazakhstan-based mine in which holds a 40% stake.

Last year, the miner undertook a number of deliberate actions, which resulted in lower direct administration and exploration costs, lower capital expenditures and $1.1 billion in cash on its balance sheet, largely as a result of inventory drawdown.

Sales volumes increased to 35.1 million pounds, slightly up from 33.6-million pounds the year before, with average realized prices improving by 2% to $37.01 per pound.

Cameco highlighted its win in the Canada Revenue Agency (CRA) case, in which the country’s Tax Court ruled in favour of the miner for the 2003, 2005 and 2006 years. And while the tax authority has challenged this in the Federal Court of Appeal, the company says it does not foresee a materially different outcome on appeal.

It also referred to its dispute with Tokyo Electric Power Company Holdings (TEPCO), the operator of Japan’s wrecked Fukushima nuclear plant, which in 2017 cancelled a supply contract citing force majeure due to the nuclear disaster.

Cameco, which is claiming $700 million in damages, noted the arbitration hearing to solve the issue took place in January and a number of post hearing steps will now follow.

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