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.
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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