China seeking supply deal with CamecoChina seeking supply deal with Cameco$0Andy Hoffman$0Friday, May 01, 2009$0$0China, with ambitious plans to boost the amount of electricity produced from nuclear power, is in talks with Cameco Corp. about a potential uranium supply agreement.$0$0The Asian giant has become a significant buyer of the radioactive metal on the spot market as it increases its nuclear power capacity, and has entered talks with Saskatoon-based Cameco, the world's largest uranium producer.$0$0China is actively taking advantage of weak prices to secure supply of the metal used to make nuclear fuel.$0$0A spokesman for Cameco confirmed the company is in discussions with Chinese officials about a supply deal. The company also said that power utilities, including state-controlled Chinese entities, have accounted for about half of the recent purchases on the uranium spot market.$0$0“When you talk about utility buying, a good portion of that would have to be attributed to the Chinese. In their case, they are looking to stockpile significant quantities of inventory for the Chinese program,” George Assie, Cameco's senior vice-president of marketing and business development, said on a conference call.$0$0Chinese demand for uranium could underpin a recovery in spot prices, which have recently hit $44 (U.S.) a pound after plunging to about $40 from a peak of $135 in 2007.$0$0Stockpiling of copper by China has driven a recovery in prices of that metal. Copper has rallied from recent low of $1.25 a pound to above $2.$0$0Cameco spokesman Lyle Krahn said the company is currently in discussions with China regarding a potential uranium supply agreement.$0$0The Asian superpower expects to have 75 gigawatts (a gigawatt is one billion watts) of nuclear power generating capacity by 2030. That represents just three-quarters of current capacity in the U.S. – the largest nuclear power producer – and only 10 per cent of China's total electricity demand.$0$0“The uranium market potential in China is absolutely huge,” Mr. Krahn said.$0$0Scotia Capital Inc. China strategist Na Liu said the market is underestimating the speed at which China is adding nuclear capacity.$0$0He is forecasting that China will have total nuclear capacity of 35 gigawatts by 2015 and 75 gigawatts by 2020, up from the 9.068 gigawatts operating today.$0$0China is currently building 20 new nuclear reactors, with approximately one gigawatt of capacity each.$0$0Scotia Capital predicts that by 2020, China will consume 15,700 tonnes of uranium a year.$0$0“At this rate, China's currently known uranium resources can only last for five to 10 years. Clearly, in our opinion, it is imperative for China to secure long-term supply through imports or investment,” Mr. Liu said in a recent note to clients.$0$0China has also recently held discussions with Australian producers regarding potential supply agreements.$0$0A group of Japanese utilities recently struck a long-term uranium supply deal and took an equity stake in Toronto-based producer Uranium One Inc., while a South Korean consortium struck a similar deal with Denison Mines Corp.$0$0The news about China's rising nuclear-power ambitions came as Cameco said its quarterly profit fell 38 per cent, missing analysts' estimates. Costs were boosted by purchases of uranium at above-production prices for future resale.$0$0The company raised its 2009 sales forecast slightly.$0$0Cameco's uranium purchases – part of a plan to benefit from a longer-term rise in the price – contributed to an increase in uranium production costs to $220-million in the first quarter from $169-million in the same quarter a year ago and prompted the company to predict a 15- to 20-per-cent rise in the cost of sales for the year.$0$0Faced with analysts' questions on a conference call, chief executive officer Jerry Grandey defended the purchases as a longer-term trading strategy.$0$0“Down the road, we will realize additional revenue and earnings as we deliver the purchased material to our customers,” he said.$0$0The higher costs helped pull down profit to $82-million, or 22 cents a share, from $133-million, or 37 cents a year earlier.$0$0Excluding one-time items, the company said it earned $89-million or 24 cents, missing the 33-cent profit expected by analysts polled by Reuters Estimates.$0$0Quarterly revenue rose 4 per cent to $615-million, as uranium production rose 26.3 per cent to 4.8 million pounds, while the company also had stronger results at its electricity generation business.$0$0With file from Reuters$0$0© The Globe and Mail$0$0$0