What happened
Shares of Cameco Corp (CCJ 2.61%) rose over 11% today after the company announced second-quarter 2018 earnings and provided an operational update that has investors cheering.
The expertly managed uranium miner has navigated difficult market conditions in recent years with remarkable efficiency. While weakness lingered in the uranium market for the period ended June 30, the company announced that it will keep two of its most productive assets, McArthur River and Key Lake, on the sidelines for the foreseeable future. Instead, it will ship and sell product mostly from inventory to limit losses and boost cash flow.
As of 3:51 p.m. EDT, the stock had settled to a 4.1% gain.
Image source: Getty Images.
So what
The stock movement today is a bit confusing, considering that the outlook for uranium is downright awful. Management struck a less optimistic tone in remarks about uranium market dynamics than it has in past periods, when it remained cautiously optimistic that conditions would improve. But weak selling prices have lingered far longer than many imagined -- and it showed in the company's second-quarter 2018 results.
Compared to the year-ago period, Cameco Corp reported a 29% drop in revenue, a 72% decrease in gross profit, and a 56% plunge in operating cash flow (although first-half 2018 operating cash flow is 172% higher than the year-ago period). In order to preserve the long-term viability of the company and protect its world-leading assets, the uranium miner made the decision to permanently layoff 550 employees at McArthur River and Key Lake and reduce the headcount at corporate headquarters by 150 positions (some of which are already vacant).
Now what
Wall Street appears happy that the recent moves will extend the company's ability to endure the poor market conditions of the uranium market even longer, but considering that over 550 people lost their jobs, it might be a bit difficult for investors to get overly excited. Nonetheless, Cameco's management has made the right (albeit difficult) moves to preserve the company in the last several years, so shareholders likely will maintain their faith in the team. But at some point, investors may want to consider if the uranium market is suffering from lingering weakness or facing a new, permanent reality.
