Earnings Estimates for Cameco Lowered on Near-Term Uranium Outlook

Supply is rising faster than demand in the uranium market and forcing prices down, says Canaccord Adams analyst Scott Finlay.

The analyst told clients in a note that his forecast surplus in 2009 has shrunk from 13.5 to 2.7 million pounds and uncovered reactor requirements currently sit at 14 million pounds. The analyst reduced his spot price expectations by 19% in 2008 and 2% in 2009.

"In 2008, whilst demand remains flat with little uncovered material remaining to be purchased, any upward rise in price will need to be driven from supply shortfalls."

Over the next three years, he expects key growth to come from Africa and Kazakhstan.

"The power crisis affecting Southern Africa looks unlikely to dissipate until 2012 and political problems in Niger are likely to lead to further expansion delays. In Kazakhastan, the acid shortage and aggressive ramp up targets will put considerable pressure on that country's infrastructure."

Mr. Finlay said he favors North American and Australian producers and developers and cautions against Southern African producers and companies exposed to Kazakhstan's production.

He lowered his price target on Uranium One Inc. shares slightly from C$7 to C$6.90 and left his "buy" rating unchanged.

Colleague Orest Wowkodaw, meanwhile, maintained his "hold" rating on Cameco (CCJ) and raised his price target from C$38 to C$40.50. This despite lowering earnings estimates for the company due to the lower near-term uranium outlook.

"We believe Cameco is likely to benefit from the near-term rotation of capital away from African production given the current power issues," he wrote.

Comments

[Candace]

I see Cameco as undervalued, but I admit that I have a long position in Cameco. That said.....

People always overlook the fact that Cameco is part owner of a couple of nuclear power plants at Bruce Ontario. The Bruce nuclear power people have recently disclosed they are exploring the possibility of building a nuclear power plant or 2 in Alberta. If this comes to pass, Cameco will be part owner of that or those too.

People over look the mineral interests Cameco has in the middle east. Small, compared to the total earnings of the company, but a little gold production when the value of the commodity is up, should look good. I see the fact that acid is in short supply draws more press, and is apparantly more interesting. I suppose.......

People also overlook the fact that Cameco is a major producer of nuclear fuel. They buy some from Russia too, at a tidy profit.

I think the minor partners in projects like Cigar Lake are interesting too. One of the biggest electric power producers in Japan is a small partner in Cigar Lake, there are a couple of others. They put up some capital, and their nuclear fuel needs are assured and the price hedged, I like their thinking.