Cameco: Expect Short-Term Negative Effect from Contamination Worries

The latest news from Cameco Corp. (CCJ) that contaminants in the soil at its Port Hope conversion plant may be leaching into Lake Ontario could spell trouble for the stock over the next few days, according to Desjardins analyst John Redstone.

Long term, however, Mr. Redstone doesn't expect this latest set back to materially impact the company's earnings.

Cameco first suspended production at Port Hope in July 2007 when it discovered contaminated soil under the plant. Recent studies now suggest that contaminants may reaching the lake, although as of now, lake water samples remain unchanged.

Mr. Redstone said:

We assume there is sufficient spare conversion capacity within the industry to absorb any material not processed at Port Hope.

Furthermore, we estimate the conversion fee charged by other companies to be roughly the same as the operating cost at Port Hope. Thus, the company's profit margin should not change substantially, even if Cameco delivers its uranium to third parties for further processing.

The analyst maintained his "hold" rating and C$34.20 price target, telling clients the stock may slide for a few days while the market assesses the clean-up costs related to possible Lake Ontario contamination.

Comments

[Fish_Bot:]

What does the analyst mean by the C$34.20 price target?

2008 May 31 07:18 PM