Cameco Converting Clients to High Uranium PriCameco Converting Clients to High Uranium Prices
By Tim Wood
28 Feb 2005 at 08:16 PM EST
NEW YORK (ResourceInvestor.com) -- The world’s largest producer of fuel for nuclear power plants, Cameco [CCJ], says it is steadily gaining more exposure to higher spot prices for uranium as long-term contracts come up for renewal. Only 10% of the Canadian company’s production benefits from prices higher than $20/lb this year, but that exposure rises to 35% in 2006 and 57% in 2008 presaging much improved profits.
Cameco chief financial officer Kim Goheen said the company was well placed to take advantage of the emerging “nuclear renaissance”. He was addressing delegates to BMO Nesbitt Burns 2005 Global Resources Conference ongoing in Tampa, Fla.
Uranium oxide prices have doubled in the past 2 years as stockpiles and scrap supplies have dried up. On the demand side, more material will be needed to fuel a new wave of environment friendly nuclear power generators are permitted to satisfy global energy demand. According to the company, more than 6,000 new MW of new nuclear generation capacity was added worldwide in 2004.
“Our cash flow is isolated from global cycles,” said Goheen. He also emphasised the company’s attempt to become more fully integrated in the nuclear energy business, seeking more power generation, as well as entering the enrichment and fabrication business to complement what it already does.
Goheen said it is writing new and renewal business at higher than $20/lb which is at the high end of recent prices as monitored by UxConsulting of Georgia. However, there is broad expectation for considerably higher prices and Cameco's CEO Gerald Grandey is on record supporting forecasts of prices rising into the high twenties.
Whilst the higher prices have sparked a rash of uranium exploration financings lately as companies scramble to take advantage of the opportunity, Goheen warned that the neutralizing effect of the dollar left margins depressed.
“Going forward, prices must reflect the risk being taken as well as the returns required by producers to bring on new mines,” Goheen said, suggesting that more aggressive pricing may be seen in contracts still to be signed.
He says the company has experienced varied customer reaction to price increases, with some “in denial” whilst others are attempting to secure much longer contracts than Cameco is prepared to agree to.
“The issue for most utilities is supply. In the scope of the operating cost for a nuclear reactor the fuel in total, let alone the uranium, is a relatively small percentage of the total. They’re much more concerned about supply than cost,” he said.
Cameco recently approved the commencement of construction at its Cigar Lake project which some analysts though would not be bankable. First production from Cigar Lake is expected in 2007 reaching full production by the end of this decade. Cameco is also seeking government approval to expand by nearly one fifth capacity at its McArthur River and Key Lake operations.
The company has refused to comment specifically on market rumours that it is considering a bid for Australia’s WMC Resources, which Olympic Dam uranium resources would fit well in Cameco’s portfolio.
Goheen confirmed that Cameco intends to divest from its stake in Centerra, which was created from the company’s consolidated gold assets. Worth some $750 million in market value to Cameco, Goheen says the company won’t make any hasty decisions on Centerra.