Cameco Posts C$13 Million Loss, Still Optimistic About Uranium

Shares of top uranium producer Cameco (TSX:CCO,NYSE:CCJ) jumped more than 14 percent after the company said it is increasing its revenue outlook for the year.

In its Q3 results, the miner also reported a net loss of C$13 million compared to earnings of C$28 million for the same quarter last year. Revenue hit C$303 million, down from C$488 million last year.

“Our results reflect the outlook we provided for 2019 and the normal quarterly variations in contract deliveries,” said Tim Gitzel, Cameco’s president and CEO, in the quarterly release. “We are on track to achieve our outlook, and in fact, have increased our revenue outlook for 2019, demonstrating our resilience as we position for a market transition.”

Cameco expects full-year revenue to be between C$1.77 billion and C$1.92 billion, with an anticipated average realized price for uranium forecast at C$44.70 per pound.

Uranium prices have remained relatively flat, with continued uncertainty about the Nuclear Fuel Working Group’s recommendations weighing on the sector. Prices are currently trading at US$24.

In late July, Cameco announced it is not going to restart production at its McArthur River and Key Lake operations in Saskatchewan until the spot price makes upward movements.

Cameco is the leading uranium producer supplying, 17 percent of global output. McArthur River is both Canada’s most significant and the world’s largest high-grade uranium-producing mine.

“We recognize that today’s low price is creating tomorrow’s opportunity for us,” Gitzel said. “The price needs to transition to one where price is set by the production cost curve.”

Aside from McArthur River and Key Lake, other Cameco operations that are currently suspended include Crow Butte and Smith Ranch-Highland in the US. Right now, the company has one mine operating in Northern Saskatchewan, Cigar Lake, and owns a 40 percent interest in Inkai, a joint venture with Kazatomprom, which is majority owned by the Kazakh government.

Following the news, analysts at CIBC reiterated their neutral rating for Cameco and maintained their target share price of C$13.

“We continue to expect uncertainty surrounding the US Section 232 study group recommendations to limit spot uranium price upside and increased activity in the uranium term market, resulting in weak gross profit margins in 2019-20,” they said in a note to clients.

According to CIBC, this market dynamic plus potential labor disruptions at the McClean Lake mill, which processes Cigar Lake production, are likely to cap the company’s performance in the near term.

“We see a limited number of positive catalysts for CCO near term, namely a favorable resolution to US Section 232 (that may lead to agreeable long-contract terms) and the CRA tax dispute,” the firm added.

For Raymond James analysts, Cameco provides investors with lower-risk exposure to the uranium market given its diversification of low-cost mines.

“These mines are supported by a portfolio of long-term contracts that provide some downside protection in periods of depressed spot uranium prices while maintaining optionality to higher uranium prices,” they said, giving the company a target price of C$15.

On Monday (November 4), shares of Cameco closed up 8.58 percent at US$10 in New York and up 8.77 at C$13.15 in Toronto.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.