On Tuesday, Cameco
The Canadian uranium miner's profit surge owes primarily to a step-change in uranium contract terms that occurred last year. In U.S. dollar terms, price realizations in the first quarter were up 70% versus the year-ago period, and 5% sequentially. The Canadian dollar terms are more meaningful, though, and they showed a still impressive 55% increase in uranium pricing year over year.
Because of various long-term supply agreements with utilities, Cameco's prices bear little correlation to the wild swings of the uranium spot price. One might think that price protection would shield Cameco from the negativity surrounding the entire sector, from enrichment guru USEC
In the uranium mining business, unit costs are up 15%, which takes some of the fun out of those higher prices. A production expansion at McArthur River is running behind schedule, and a cloud of uncertainty continues to hang over the flooded Cigar Lake project. Then there's the joint venture over in Kazakhstan, where Cameco's partner is being stingy with raw material supplies. This could cut the project's 2008 output in half. Italian oil company Eni
The fuel services business has also stumbled. A suspension at the Port Hope UF6 conversion plant slashed supply and wiped out gross margins. The facility has been closed since last summer, when ground contamination was discovered at the site.
As if this weren't enough, there is also regulatory uncertainty regarding one of Centerra Gold's major gold properties in the Kyrgyz Republic. While Cameco's large stake in Centerra is non-core to the overall enterprise, the additional hassle couldn't come at a much worse time.