Cameco kicks off third ISR mine in U.S.

The North Butte in situ uranium mine in Wyoming has started initial production as a satellite facility for Cameco Corp.’s (CCO-T, CCJ-N) Smith Ranch-Highland in situ mine.

The North Butte in situ uranium mine in Wyoming has started initial production as a satellite facility for Cameco Corp.’s (CCO-T, CCJ-N) Smith Ranch-Highland in situ mine.

North Butte is expected to produce about 300,000 lb of uranium concentrate this year and ramp up to an annual production rate of more than 700,000 lb of uranium concentrate by 2015. Resin containing uranium from North Butte will be transported to a central processing facility at Smith Ranch-Highland to be turned into uranium concentrate.

Cameco is also in the final stages of refurbishing and bringing back into operation a second processing facility at Smith Ranch-Highland, which has not operated for several years. The second processing plant will enable Cameco to increase production from material provided from North Butte and two more planned satellite mines, as well as toll processing.

Elsewhere in the United States, Cameco operates the Crow Butte in situ uranium mine and central processing facility in Nevada and has five other satellite sites in various stages of development and regulatory approval in Wyoming and Nevada.

Mining analyst Rob Chang of Cantor Fitzgerald in Toronto expects Cameco’s US-based ISR production will reach 2.6 million lb of U3O8 in 2013. Of that amount, about 1.8 million lb is expected to come from Smith Ranch-Highland and another 800,000 lb from Crow Butte. He also estimates that about 11% of the 23.2 million lb of U3O8 Cameco is expected to produce this year will stem from its ISR operations.

North Butte is the latest ISR uranium mine to come on line this year but it won’t be the last. Chang says he anticipates “a lot of action in the space for the remainder of the year” and points to Ur-Energy’s (URE-T, URG-X) Lost Creek ISR mine, which he believes will begin initial production this summer, and Uranerz’s (URZ-T, URZ-X) Nichols Ranch mine, which could be in production before the end of the year.

But he also comments that “Cameco’s ability to bring on new well fields in both Wyoming and Nebraska into production is being affected by the lengthened review process to obtain regulatory approval.”

Chang believes that due to the privatization of Uranium One (UUU-T), “fund flows towards Cameco are likely as investment dollars targeted towards exposure to the excellent supply and demand fundamentals of uranium flow from one +$1B company to the sole remaining one.”

“Note that there were only five publicly traded uranium focused producers to begin with and the supply of investment choices for investors looking for exposure to the uranium market becomes even more limited," he continues, "especially for portfolios looking for the liquidity of a [greater-than] $1B market capitalization.”

Cameco expects that Japan will restart six to eight nuclear reactors this year, which should drive uranium prices higher.

When Cameco released its first quarter financial results on May 1, it updated investors on its view of the uranium market, noting that Japan’s Nuclear Regulatory Authority in January issued draft safety guidelines outlining the proposed requirements for the restart of nuclear reactors in the country.

“In our view, utilities are beginning to move into the window of time during which they would normally begin contracting for requirements in 2016, and, as the regulatory process is worked through in Japan, we believe reactors will be restarted in 2013,” the company stated.

On the supply side of the equation, the company pointed to the end of the Russian highly enriched uranium commercial agreement this year, which “will remove more pounds from the market than Cameco’s total annual production, and there is no secondary source of similar scale expected.” It also noted that future primary supply “is also starting to suffer as a number of projects were cancelled or deferred in 2012 while the uranium spot price remained at a level well below that required to incentivize new projects.”

Cameco forecasts that project nuclear generating capacity will rise from the current 392 GW to 510 GW by 2022—representing an average annual growth rate of 3%. Currently, 65 new reactors (65 GW of generating capacity) are under construction, and India and China together plan to bring eight new reactors online in 2013.

Cameco reported net earnings attributable to shareholders in the first quarter of $9 million, or $0.02 per diluted share, compared to $129 million, or $0.33 per diluted share, in the first quarter of 2012. On an adjusted basis, earnings reached $27 million or $0.07 per diluted share, down from the $121 million or $0.31 per diluted share in the year earlier quarter.

Production rose 23% from 4.8 million lb of U3O8 in the first quarter of 2012 to 5.9 million lb in the first quarter of 2013. The 23% increase was attributed to higher production at McArthur River-Key Lake and Inkai. Revenues dropped 39% to $247 million from $406 million in the first quarter of 2012 due to a 38% decline in sales volumes.

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