Will 2013 Be the Turnaround Year for Uranium Stocks?
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Uranium stocks have been under consideration for a while. Though the price for uranium has been in a downtrend since mid-2012, there are bulls out there who believe that they see steady growth in the demand for this metal. David Talbot, the mining analyst at Dundee Securities, said that 2013 should be the turnaround year for uranium. Let’s have a look at the earnings preview of a few uranium stocks.
Cameco Corporation (NYSE: CCJ)
In 4Q12, the Street expects uranium production/sales of 5.5/13.4 million lbs of U3O8 (mixture of uranium oxides) at an average cash cost of $25/lb.
Timing of uranium sales is highly variable on a quarter-to-quarter basis due to the discretionary nature of customer deliveries, and the management previously noted that they expect Q4 deliveries to account for ~40% of FY12 sales. The company has three segments:
1) Uranium – involved in mining, milling, purchasing and sale of uranium concentrate
2) Fuel Services – refining, conversion and fabrication of uranium concentrate
3) Electricity – generation and sale of nuclear electricity
The following chart shows the amount revenue that each segment makes:
The forecast for 4Q12 EBIT from these three segments is as follows:
a) Uranium - $164 million (78%)
b) Fuel Services - $2 million (1%)
c) Electricity Generation Business - $44 million (21%).
The company will report on Feb 8.
Uranium One (NASDAQOTH: SXRZF)
The Street forecasts 4Q12 Uranium production/sales of 2.9/2.9 million lbs of U3O8 at an average cash cost of $18/lb.
The company recently announced that it has entered into a definitive agreement with its majority shareholder, JSC Atomredmetzoloto (ARMZ) under which ARMZ would acquire all outstanding shares of Uranium One for $2.86/share. The transaction is subject to approval by a majority of votes cast by shareholders other than ARMZ and approval by 66.67% of votes cast by all shareholders. Uranium One stated that a special shareholder meeting is expected to take place in March 2013. The BoD of the company has unanimously approved the transaction, and all of the directors and senior officers have entered into lockup agreements to vote in favor of the transaction. The company reports on March 5.
Paladin Energy (NASDAQOTH: PALAF)
Paladin previously reported a production of 2.19 million lbs of U3O8 in 2Q13, which was well above the Street’s estimate of 2.04 million. The uranium sales volumes of 2.78 million lbs of U3O8 were ahead of the 2.4 million lbs estimate, partially offset by a softer realized price of $48/lb vs. the estimate of $53/lb. The 2Q13 revenue of $134 million was more than the estimated $125 million. The cash costs are expected to come in at $35/lb of U3O8 sold.
Paladin previously announced a program to realize cost savings of $60-80 million over the next two years, including the targeted reductions in FY13 at Langer Heinrich ($10 million), Kayelekera ($10 million), and in exploration ($4 million), inventory management ($15 million), and corporate overhead ($3 million). Currently, cash cost improvements of 8% YoY are forecasted in FY13 (to $35/lb from $38/lb). Paladin noted that its strategic initiatives process is ongoing, the results of which are expected by March/April 2013. Paladin has targeted a debt/asset ratio of below 30% in the medium-term (from 43% at end 1Q13), a level which is mostly achievable through pre-payment cash inflows (EdF contract) and the sale of a minority stake (20-30%) in its Queensland (Australia) assets, which could raise proceeds of $80-100 million. Currently, Paladin’s total development portfolio (excluding Michelin) is expected to be worth ~$500 million (based on an in-situ value of $3/lb).
Investors will be looking forward to the company’s conference call on Feb. 14.
Foolish Bottom Line
For the time being, the future of the uranium stocks seems uncertain. However, I believe that the massive restructuring at these companies will surely bring the supply in balance with demand. However, nothing can be concluded for the time being, and this earnings season will be an important one to form a judgment on the future situation.
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