Canada’s largest uranium miner, Cameco, has cautioned against investing in new uranium mines, saying that “even the promise” of new supply could create a headwind and put downward pressure on uranium prices.
The Saskatoon-headquartered company, which last year idled its McArthur River/Key Lake operation for an indeterminate duration, argues that much of the supply that has been removed from the market is the result of supply curtailment, not supply destruction.
“There is plenty of idle tier-one production and tier-one expansion capabilities, as well as idle tier-two production and expansion capabilities. And, we can’t lose sight of material sitting with financial players. This is capacity that can come back to the market relatively quickly. As a result, new supply poses a significant risk to the uranium market recovery,” Cameco says in its management’s discussion and analysis, accompanying its fourth-quarter and year-end financial results.
The uranium market has improved significantly in 2018, with spot prices having risen by more than 20% since last year this time. Cameco also states that interest in long-term contracting has returned, but adds that prices and contracting opportunities are not where they need to be to restart idled capacity, or to warrant investment in value-adding growth opportunities.
The July 2018 suspension of the McArthur River/Key Lake operation for an indefinite time had removed 18-million pounds a year of production from the market.
The miner, which also has a 40% interest in the Inkai joint venture in Kazakhstan, produced 9.2-million pounds of uranium in 2018, compared with 23.8-million pounds in 2017. Its sales volumes increased to 35.1-million pounds, from 33.6-million pounds in 2017, and it also enjoyed a 2% improvement in the average realised price to $37.01/lb. Production from the fuel services segment increased by 33%.
Cameco posted a 3% decrease in revenue to $2.09-billion, while gross profit fell 32% to $296-million. Net earnings jumped to $166-million, from a loss of $205-million in 2017, when impairment charges impacted on the results.
Adjusted net earnings rose to $211-million, or $.53 a share, compared with $59-million, or $0.15 a share, in 2017.
Meanwhile, Cameco highlights the Canada Revenue Agency (CRA) case and the dispute with Tepco as significant developments to watch in 2019.
Regarding the CRA case, the Tax Court of Canada ruled in favour of Cameco for the 2003, 2005 and 2006 years, although the tax authority had challenged this in the Federal Court of Appeal. The miner states that it does not foresee a materially different outcome on appeal.
In the Tepco dispute, which dates back to 2017 when the Japanese power company cancelled a supply contract citing force majeure following the Fukushima nuclear disaster, Cameco is claiming $700-million in damages. The arbitration hearing to resolve the dispute took place in January and Cameco reports that a number of post hearing steps will now follow.