February 1, 2017 / 1:30 PM / 7 months ago

Tepco scraps uranium supply contract with Canada's Cameco

Visitors gather in front of Tokyo Electric Power Co's (TEPCO) booth at the Energy Market Liberalisation Expo in Tokyo, Japan March 2, 2016.Toru Hanai

(Reuters) - Canadian uranium producer Cameco Corp (CCO.TO) said on Wednesday that Tokyo Electric Power (Tepco) (9501.T), the operator of Japan's wrecked Fukushima nuclear plant, had scrapped its uranium supply contract with the company.

Shares of Cameco slid 12.2 percent to C$14.55 in early trading on Wednesday.

The company, one of the world's largest uranium producers, said it considered Tepco's move to terminate the contract unfair and that it would pursue legal action.

Cameco said Tepco cited a force majeure for ending the contract as it had been unable to operate its nuclear plants for 18 straight months due to Japanese regulations arising from the 2011 Fukushima nuclear accident.

The company said it was notified of the contract termination by Tepco last week.

Tepco's termination of the contract would affect about 9.3 million pounds of uranium deliveries through 2028, worth about C$1.3 billion ($995.41 million) in revenue to Cameco, the Saskatoon, Canada-based company said.

Cameco's earnings before interest, taxes, depreciation and amortization could take a 10-15 percent hit in the near-term as a result of the Tepco dispute, said Edward Sterck, an analyst at BMO Capital Markets.

Tepco's move comes amid a fall in demand for uranium that is largely a result of the Fukushima nuclear plant meltdown, which led to shutdowns of all of Japan's nuclear reactors.

Some reactors have since come back online, but global inventories of the radioactive metal remain high.

Cameco warned late last year that the uranium market would remain depressed until Japan's nuclear reactors were restarted and excess supply was depleted.

Cameco also said it expected 2017 revenue of C$2.1 billion to C$2.2 billion, inclusive of Tepco's volume, adding that it could withstand any potential loss of revenue this year from the dispute.

Reporting by Sai Sachin Ravikumar in Bengaluru; Editing by Anil D'Silva

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