Kumtor hurts Cameco

A pit failure at the Kumtor gold mine in Kyrgyzstan more than halved Cameco‘s (CCO-T) earnings in the third quarter.

For the three months ended Sept. 30, Cameco pocketed $7 million (or 12 per share) on revenue of $158 million, compared with $15 million (27 per share) on $170 million in the corresponding period of 2001. Earnings from operations slipped $5 million between the two periods, to $8 million.

During the first nine months of this year, Cameco earned $24 million (43 a share), compared with $28 million (51) in the year-earlier period. Revenue climbed $98 million, to $477 million, mostly on the back of the uranium business, while earnings from operations rose $8 million, to $44 million.

In early July, a rockslide sent 7.5 million tonnes of rock into the bottom of the Kumtor mine, in which Cameco has a one-third interest. One miner was killed, and the mine’s 2002 production target was cut by 200,000 oz., to 500,000 oz., as crews shifted to safer but lower-grade areas.

The company’s gold business saw revenue plummet 50% to $15 million on lower sales volumes. Grades at the mine slipped 2.2 grams, to 3 grams gold per tonne, and recovery rates fell to 71% from 83%. As a result, cash costs soared US$123 per oz., to US$271 per oz.

The company realized an average of US$295 per oz. for its share of production. Adding to the misery was Kumtor’s hedge book, which generated a $3-million mark-to-market loss. In the end, the gold business chipped in a before-tax loss of $7 million.

For the first three quarters of the year, the gold business contributed a before-tax loss of $1 million on revenue $65 million, down 24%. Cash costs climbed to US$204 from US$139 per oz. Cameco realized an average price of US$295 per oz.

The Kyrgyzstani government owns 67% of Kumtor.

Cameco’s Saskatchewan-centred uranium business, consisting of interests in the McArthur River, Key Lake and Rabbit Lake, Highland and Crow Butte mines, earned $18 million (before taxes) on revenue of $119 million — up 3% over the third quarter of 2001. Cameco’s share of production climbed more than 20%.

So far this year, the uranium business has made a pretax profit of $50 million on revenue of $325 million, an increase 46% over the year-earlier period, on higher sales.

Cameco says its $77-million investment in the Bruce Power nuclear plants is safe, even with its partner, British Energy (BE), in dire financial straits. BE holds an 82.4% share in Bruce; the Power Workers union has 2.6%. Cameco is in talks with BE to boost its 15% stake in the operation. The company has questioned the validity of BE’s use of the operation as a guarantee against up to $1.6 billion in loans from the British government, which come due at the end of November.

Cameco notes that it isn’t obligated to invest more than $100 million in Bruce and that its share of financial guarantees does not exceed $102 million.

“It is our view that the guarantee extracted by the British government from British Energy and its subsidiaries was not properly authorized by Bruce Power,” says Cameco Chief Executive Officer Bernard Michel.

Michel expects the Bruce plants to “contribute significantly” to Cameco’s 2003 earnings. For the third quarter, Cameco’s Bruce share returned pretax earnings of $11 million, off $2 million from a year earlier.

Cameco President Gerald Grandey will replace the retiring Michel as CEO on Jan. 1, 2003. Grandey will remain president.