Tuesday, April 7, 2009

Sluggish Uranium Prices Leave Cameco Vulnerable

Cameco operates one of the few U mines in the US that's still active...Butte Crow in Nebraska.

Posted: April 06, 2009, 11:15 AM by David Pett

The much anticipated rally in uranium prices hasn't happened yet, leaving Cameco Corp. earnings vulnerable, says Blackmont analyst George Topping.

"While we are bullish on uranium, we are wary of Cameco as we get closer to the Q1 release due May 1," he said in a note to clients. "Cameco has a history of disappointing."

Mr. Topping noted that his biggest concern is the lingering effect of the financial crisis on uranium prices. Despite a favourable supply/demand environment, the spot uranium price hit an average of US$44 per pound in the first quarter versus the US$69 per pound for the term price.

The Blackmont analyst said the weak Q1 has forced him to reduce his 2009 price from US$70 per pound to US$60. He also reduced his future years forecast by US$10., with 2010 prices now expected to average US$70.

Regarding Cameco, he noted additional concerns, including the major recession in Ontario and the effect that will have on Bruce Power. He also doesn't like the lack of control over Centerra Gold's cash flow. Cameco owns a majority position in Centerra, which operates the Kumtor mine in Kyrgyz Republic.

The sum of these concerns will lower Cameco's cash flow this year, but due to improved investor sentiment, Mr. Topping maintained his "hold" rating and $26 price target.


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