Amended Uranium Agreement Better Value for Cameco

Cameco Corp.'s (CCJ) amended agreement with state-owned Russian company Tenex to purchase uranium from dismantled nuclear weapons is expected to add more value than originally anticipated, according to Blackmont Capital analyst George Topping.

In a research note Mr. Topping said:

These negotiations started last year and we had assumed that Cameco would split the profits 50:50 with Tenex and accordingly reduced Cameco's net asset value by C$1.85 per share. The actual profit sharing deal announced is significantly better.

The agreement calls for Cameco to purchase 1 million pounds in 2011 and 3 million pounds in both 2012 and 2013.

Mr. Topping said he estimates Cameco's purchase price will increase from C$12 per pound to an average of roughly C$45 per pound over the life of the contract. 

Based on his assumption for uranium prices of C$100 to C$120 per pound over the same period, the analyst's net asset value for Cameco increases by C$1.37 per share to C$42.85.

Mr. Topping said:

However, given the accelerating inflation in the mining industry, we have elected to absorb the benefits in higher operating costs rather than increasing our target price.

He maintained his C$55.85 price target and left his "buy" rating unchanged.