Earnings Cameco posts 46 per cent Q3 profit brownout, but upbeat on prospects

B4

Kristine Owram
THE CANADIAN PRESS

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TORONTO - Cameco Corp. (TSX:CCO) is looking to cut costs after a 46 per cent slump in adjusted third-quarter profit, but an analyst says the world's biggest uranium miner is well positioned to weather the economic downturn as demand for the nuclear fuel is virtually recession-proof.

"In the last few months, the outlook for the demand for uranium, unlike the demand for almost anything else, has actually improved," said Salman Partners analyst Raymond Goldie.

"China has tripled the number of nuclear plants it's going to build by 2020 and "¦ even if we halve our consumption of electricity we'll continue to consume the same amount of uranium."

This is because nuclear plants require a "base load" of uranium to operate no matter how much electricity is being consumed.

In its financial report Tuesday, Cameco said it is "re-examining its expenditures" as "the capital market for debt, for Cameco and most other companies, has effectively shut down."

"However, unlike most companies, we have exceptionally reliable revenue streams," stated CEO Jerry Grandey.

"Cameco is blessed with high-quality customers whose requirements for uranium are independent of the state of the global economy."

Still, the company said growth "will take place but at a slower and more measured pace," and management "will look for opportunities to reduce costs and defer projects that cannot be funded internally."

In its financial report, Cameco said its net earnings rose to $135 million or 39 cents per share in the July-September period, up from $91 million or 26 cents per share in the year-ago period.

However, adjusted for one-time items, earnings declined to $142 million or 41 cents per share from $263 million in the summer quarter of 2007 "due to lower earnings in the uranium business, partially offset by improved results in the electricity and gold businesses."

Besides its core uranium operations, Cameco is a major partner in the Bruce Power nuclear plant on the shores of Lake Huron in southwestern Ontario. In addition, the company holds a 53-per-cent stake in Centerra Gold (TSX:CG), a Toronto gold miner with operations in central Asia.

Cameco reported its cash flow from operations tumbled to $109 million from $450 million.

Third-quarter revenue grew 18 per cent to $729 million from $681 million "due to increased volumes in the uranium, fuel services, electricity and gold businesses partially offset by lower realized selling prices in the uranium business."

Uranium results were hurt by higher costs and lower production, while the nuclear fuel services segment was hit by the shutdown of the leaky uranium hexafluoride plant in Port Hope, Ont.

Looking ahead, Cameco said it expects consolidated revenue in 2008 for its uranium, fuel services and nuclear businesses to increase by between 10 per cent and 15 per cent, up from its previous forecast of between three per cent and 10 per cent.

"The recent decline in the Canadian dollar relative to the U.S. dollar is expected to have a favourable impact on revenues in 2008," the company stated.

Cameco said it expects to produce 17.7 million pounds of uranium in 2008, down from its previous forecast of 19.6 million pounds.

"The decline in forecast production is due to reduced production at all of our sites," the company stated.

But Goldie said the decline in production isn't necessarily bad news for the company.

"What they lose on volume they probably more than make up on the higher price as a result of the fact that there will be less uranium around," he said.

Cameco shares were down 98 cents or five per cent to $18.76 in Tuesday morning trading on the Toronto Stock Exchange.