Shares of leading uranium miner and nuclear fuel processor Cameco Corp (NYSE: CCJ) sank up to 13% Friday morning after the company announced third-quarter 2017 earnings. The results were in line with management's expectations and guidance, although that doesn't mean they were pretty.
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The uranium market's slump continued last quarter and forced the miner to reduce its volume guidance for the full year, eat a big quarterly loss, and implement more cost-saving measures. Although investors have become accustomed to awful news updates about all things uranium, it seems every quarterly financial update provides an in-your-face reminder of the dismal state of affairs that prompts scores of investors to head for the exits.
As of 12:27 p.m. EDT, the stock had settled to a 9.2% loss.
It's important to state again that third-quarter 2017 financial results were in line with management's expectations that have been publicly disclosed multiple times this year. Several highlights:
- Cameco Corp noted that uranium spot prices are down about 20% from the year-ago period. The miner ceased selling into the spot market earlier this year, but spot prices are still a good indicator of how things are going in the market. Answer: not good.
- The company made changes to global marketing activities that resulted in a one-time charge of $5 million. The moves will save between $8 million and $10 million per year going forward.
- Production output expectations for full-year 2017 were lowered to 24 million pounds from 25.2 million pounds. Ironically, that may end up being a good thing. The production cut is the result of delays from infrastructure improvement activities at one of its mines, but given the current market prices, and a healthy inventory, Cameco Corp may actually benefit from keeping more uranium in the ground right now.
- The uranium miner expects full-year 2017 operating cash flow in excess of the $242 million reported in 2016 (remember, numbers in the press release are reported in Canadian dollars -- I converted to U.S. dollars here). That's despite a widening loss this year, which illustrates the benefits of the company's various cost-saving measures.
Additionally, Cameco Corp noted that an arbitration panel had been established for its dispute with TEPCO of Japan, which recently (and abruptly) terminated a massive supply deal. A decision may not be made until early 2019 at the earliest. However, this month's election sweep of Shinzo Abe and his party -- which is in favor of restarting Japan's 50 or so idled nuclear reactors -- may hint that investors won't need to wait that long to know how the situation will shake out. It's a rare bit of long-term good news for the uranium miner.
Today's move lower seems a bit overdone. The fact that the uranium market is facing pressure from multiple angles -- and will continue to do so without major developments in nuclear power -- is not news. That said, although the company is very well-managed all things considered, I would stay away from Cameco Corp stock. Uranium ore and nuclear power are simply not the future of electricity generation.
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