November 11, 2008 / 1:44 PM / 10 years ago

UPDATE 3-Cameco profit rises, to reexamine projects

* Third-quarter earnings up 48 percent

* May defer projects, cut costs amid credit crunch

* Cuts 2008 uranium production forecast

* Stock down 5.8 percent to C$18.60 in Toronto (Adds analysts’ comments. In U.S. dollars, unless noted)

By Cameron French

TORONTO, Nov 11 (Reuters) - Cameco Corp (CCO.TO) reported a 48 percent jump in third-quarter profit on Tuesday, but also cut its 2008 uranium production forecast and said it would look to cut costs and defer projects amid the global credit crunch.

The world’s top uranium producer said its growth will likely slow due to debt markets that are “effectively shut”.

Cameco Chief Executive Jerry Grandey said the uncertain timing of contract uranium sales means that Cameco has to rely on short-term debt to fund fluctuations in working capital.

“We will look for opportunities to reduce costs and defer projects that cannot be funded internally,” he said in a statement, adding that the company has sufficient borrowing capacity to meet its current requirements.

The credit crunch has already prompted other miners to close mines or defer projects. Uranium One UUU.TO said on Tuesday it would lay off more than one thousand workers at its Dominion mine in South Africa, which it closed in October.

Shares of Cameco, which are down more than 50 percent so far this year, fell 5.8 percent, or C$1.14 to C$18.60 on Tuesday, roughly in line with other Toronto-listed miners.

Cameco also cut its 2008 production outlook to 17.7 million pounds of uranium from its previous forecast of 19.6 million pounds due to operational issues across all of its operations.

David Whetham, a portfolio manager at Scotia Cassels, called the outlook “less than positive”, but said both the production forecast reduction and potential project deferments could end up being a positive for the company.

“The other side of it is the lower their production is, the tighter the uranium market is, and that’s good for prices,” he said.

Spot uranium UX-U308-SPT was as low as $7 a pound in 2000, but surged above $135 last June. It has since retreated, and was at $46 a pound this week.


Cameco’s net profit rose to C$135 million ($112 million), or 39 Canadian cents a share, from a year-earlier C$91 million, or 25 Canadian cents a share, due largely due to one-time charges the company took in the year-earlier period.

Revenue rose 7 percent to $729 million due to a stronger performance from its electricity and gold businesses, which consist of a 31.6 percent share of the Bruce Power Limited Partnership and just over half of gold miner Centerra (CG.TO).

Uranium sales volumes jumped to 9.8 million pounds from 7.2 million pounds, but this was offset by realized uranium prices that fell to $37.88 a pound from $52.76 a pound.

In a note, Blackmont Capital analyst George Topping downgraded the company’s shares to “hold” from “buy” due to Cameco’s short and long-term debt, which he pegged at C$1.3 billion, as well as technical challenges at its mines.

However, he said he expects uranium prices will rise to $70 a pound in 2009 and $80 a pound in 2010.

Cameco produces most of its uranium at its McArthur River mine in Saskatchewan.

Its main development project is the Cigar Lake mine, also in Saskatchewan, which has been repeatedly delayed following a flood in 2006.

The company suspended remediation work on the mine in August following an increased rate of water inflow.

On Tuesday, it said it is still trying to locate the source of the inflow.

$1=$1.20 Canadian Additional reporting by Scott Anderson; Editing by Peter Galloway

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