August 14, 2008 / 1:26 PM / in 9 years

Cameco profit sags; Cigar Lake delays seen

TORONTO (Reuters) - Cameco Corp posted a 27 percent drop in quarterly profit and trimmed its 2008 production outlook on Thursday, while the company’s CEO said to expect delays in overhauling its Cigar Lake uranium project after additional flooding this week.

Speaking on a conference call, Chief Executive Jerry Grandey said the company would need some time to determine the full impact of the water inflow reported on Tuesday.

However, he acknowledged it would affect the company’s overhaul of the mine, which has been under repair since it flooded while under construction in 2006. The mine is the richest undeveloped uranium deposit in the world, with the potential to supply 10 percent of global needs.

“No doubt this is going to delay things. We have to understand where the inflow is coming from and then, once we understand that, we’re going to have to develop a plan to deal with it,” Grandey said.

Cameco, the world’s top uranium producer, had been in the process of pumping water out of the mine, but a surge of water flowing into the main shaft forced it to stop pumping and let the shaft fill up.

The mine had originally been expected to begin production in 2007, but the 2006 flood, coupled with other delays has forced the company to push its expectations back to 2011 at the earliest, and that was before the most recent setback.

The company will provide a further update next month.

SHARES WEAKER, PRICES HIGHER

The troubles at Cigar Lake have pulled Cameco’s shares lower, but have also driven uranium prices higher due to the delays in bringing the supply to a tight market.

Discussion of Cigar Lake overshadowed the company’s second-quarter profit, which fell 27 percent from the previous year, due largely to a 44 percent drop in uranium shipments.

“The earnings were pretty much in line,” said Orest Wowkodaw, an analyst at Canaccord Adams.

Net profit was C$150 million, or 42 Canadian cents a share, down from C$205 million, or 55 Canadian cents a share.

In addition to Cigar Lake, Cameco is waiting to reopen its Port Hope, Ontario, nuclear fuel conversion plant, which was closed last year due to contaminants such as uranium and arsenic found in the ground beneath the facility.

Port Hope is expected to reopen next month, but costs could rise after its sole supplier of hydrofluoric acid said it would raise its prices. Acid constitutes a significant share of Port Hope’s costs, Grandey said.

As well, the ramp-up of Cameco’s Inkai mine in Kazakhstan has been hurt by a shortage of sulphuric acid in the region. Cameco said continued shortages would halve expected output from Inkai for the year to 1 million pounds.

For the company as a whole, Cameco cut its expected 2008 output to 19.6 million pounds from 20.6 million pounds. Grandey has said production should hit 36 million pounds by 2016.

Cameco shares rose 47 Canadian cents to C$33.36 in Toronto, but are down 45 percent from June 2006, when uranium prices hit record levels and before the troubles at Port Hope.

Outside of higher uranium prices, Wowkodaw said there were few reasons to expect the stock to rise in the near future.

“There’s not a lot of foreseeable catalysts coming in the short term here,” he said.

Spot uranium was as low as $7 a pound in 2000, but surged as high as $136 last June. It has since retreated, and was at $64.50 a pound this week.

However, as Cameco sells most of its uranium into long-term contracts, the realized price has lagged spot prices.

Cameco sold 6.3 million pounds of uranium at $47.35 a pound, compared with 11.2 million pounds at $34.69 a pound.

($1=$1.06 Canadian)

Reporting by Cameron French; editing by Rob Wilson

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