FILE-- Cameco CEO and President Jerry Grandey gestures in Saskatoon, Sask. in this May 16, 2007 photo. THE CANADIAN PRESS/Geoff Howe"
China and India are expected to begin signing more long-term contracts for uranium to supply their rapidly growing nuclear power industries, creating huge opportunities for suppliers like Cameco Corp., says the uranium giant's CEO.
"The ever-increasing projections regarding the size and scope of nuclear power generation in China and India are driving the global nuclear renaissance and will create great opportunities for suppliers," Jerry Grandey said Tuesday on a conference call with analysts.
"We expect these countries like others will sign long-term contracts for future needs. This of course includes China which so far has not been very active in the long-term market."
Uranium, like many commodities, is sold through both negotiated long-term contracts as well as on shorter-term spot markets. Grandey acknowledged that weak spot prices have characterized the uranium market for months, but said he doesn't expect this to last for long.
The weak prices — which fell to US$41.75 a pound in April from a high of $136 a pound in June 2007 — reflect the fact that most utility companies have already secured uranium for the next few years. However, with 90 new reactors forecast to come online in the next decade, demand is expected to soar.
"In today's nuclear power market, utilities like to see spot market bargains, but their main goal is to seek security of uranium supply and that comes through long-term contracts," Grandey said.
"In Europe and the U.S., where nuclear power development has been on a long hiatus, things are changing. There and elsewhere, nuclear power is increasingly seen as the right answer to supply an energy-hungry world while at the same time reducing energy's carbon footprint."
Besides traditional markets like Europe and the U.S. and rapidly developing markets like China and India, Grandey said he also sees supply opportunities in countries like Vietnam, the United Arab Emirates, Jordan and Kuwait.
Cameco is aiming to double its uranium production by 2018 to meet this burgeoning demand. Grandey said the troubled Cigar Lake project — of which it owns half — will be the most important asset to the company's long-term production plans.
The Saskatchewan mine sat flooded for three years while Cameco worked to find the source of the water and seal it off. Crews were able to successfully enter the mine in February and are now inspecting, assessing and securing the underground development. This will be followed by restoration of the mine's infrastructure.
Cameco expects Cigar Lake to begin producing in 2013 and then ramp up to annual production of 18 million tonnes a year over three to four years.
"While there's been an understandable focus on the increased development and operating costs projected for this deposit, let me be clear: Cigar Lake remains a robust project that has an attractive net present value to Cameco and its partners, not to mention significant upside potential. If we didn't own it, we'd be trying to acquire it," Grandey said.
The company is also working on several other exploration and development projects, including the Kintyre project in Australia, Inkai in Kazakhstan and Millennium in Saskatchewan.
Earlier Tuesday, Saskatoon-based Cameco reported a first-quarter profit of $142 million, up from $82 million in the same period a year earlier, even as uranium prices and sales volumes declined.
The company said its earnings amounted to 36 cents per share, versus 22 cents per share in the year-earlier period. Quarterly earnings benefited from a $31-million after-tax gain on unrealized mark-to-market gains on financial instruments, whereas Cameco had posted a similar loss of $24 million in the comparable period of 2009.
Stripping out the impact of one-time items, Cameco's adjusted earnings rose eight per cent to $111 million or 28 cents per share, driven by higher profits from its fuel services and electricity businesses. Revenues declined two per cent to $485 million in the quarter.
Cameco said its uranium production volume rose 27 per cent to 6.1 million pounds but sales volume dropped seven per cent to 6.6 million pounds while the average spot price fell six per cent to US$41.79.
Cameco is one of the world's largest uranium producers, with uranium mines, mills, conversion plants and exploration projects in Saskatchewan, Ontario, the United States and Australia. Cameco is also a key partner in the Bruce Power nuclear power plant on the shores of Lake Huron in southwestern Ontario.
Shares in the company added 21 cents to $24.99 in afternoon trading on the Toronto Stock Exchange.
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