ENERGY

Cameco reversing the trend

World's biggest listed uranium miner reverses stock price underperformance, leaving rivals far behind.

Author: Barry Sergeant
Posted: Thursday , 13 Sep 2007

JOHANNESBURG  - 

Cameco (CCO.T, C$45.08 a share), by far the most heavily capitalized of listed uranium stocks, has reversed months of underperformance amid a hemorrhaging mining sub sector, currently off by an average of nearly 50% from highs. Cameco's stock price is now only a quarter off its highs, not least on the news of a share repurchase of up to 5% of its outstanding common shares. This would cost around C$750m at prevailing stock prices.

Cameco has long taken a sanguine, if not cynical, view on the dot.com-type rush that investors make into the "uranium" name in the last while. By the same token, Cameco has fully resisted the merger and takeover mania that enveloped the sector over the past six months in particular, with some deals now looking to have been made at sickly rich levels.

Cameco CEO Gerald Grandey told Bloomberg in January that "it made absolutely no sense for Cameco to pay inflated market caps for junior mining companies that are out there with uranium in their title". Instead, Cameco expects to increase production using joint ventures with smaller explorers rather than by acquiring competitors. Cameco has spent ``a few million dollars", in the words of Grandey, buying stakes of 10% to 20% of ``five or six" uranium explorers in the past year.

Cameco also recently announced an update on countering flooding conditions at its key prospect, Cigar Lake, the world's largest untapped uranium deposit. Pouring cement and injecting grout to block water entry has commenced and is expected to take another six to ten weeks to complete. The effectiveness of the plug will only be known when actual dewatering is underway. The next steps of the remediation will include verification that the inflow is sufficiently sealed. Meanwhile, Port Hope production, affected by a leak, remains suspended but Cameco has indicated sufficient stocks to meet deliveries until the end of the first quarter of calendar 2008.

Cameco's stock is back in favour among analysts. RBC Capital Markets sees "excellent upside potential from current price levels", with a price target of C$63 a share. The series of negative events and announcements beginning in July 2007, combined with the correction in spot uranium prices, have resulted in Cameco's stock surrendering all of its price gains of the past 20 months. On the bright side, RBCCM analysts see Cameco's realized prices and earnings increasing strongly over the next five years. Other analysts, such as those at UBS, are also bullish on Cameco, with a stock price target of C$60 a share.

Selected listed uranium stocks
	Stock	From	Market value
	price	high	bn
Producers
Cameco	C$45.08	-24.7%	C$17.21
Uranium One	C$11.86	-36.4%	C$5.98
Paladin Resources	A$6.10	-43.5%	A$3.78
ERA	A$17.69	-38.1%	A$3.38
Denison Mines	C$9.44	-43.0%	C$1.94
Developers
First Uranium	C$8.00	-39.5%	C$1.01
Aurora	C$13.00	-41.8%	C$0.82
Mega Uranium	C$3.55	-60.5%	C$0.63
Forsys	C$3.87	-62.1%	C$0.34
Laramide	C$7.12	-55.8%	C$0.43
Tournigan Gold	C$2.45	-45.6%	C$0.32
Ur-Energy	C$3.04	-44.2%	C$0.30
Western Prospector	C$2.65	-57.4%	C$0.13
Khan Resources	C$2.29	-55.4%	C$0.14
Strathmore Minerals	C$2.59	-52.9%	C$0.20
Berkeley Resources	£0.52	-44.0%	£0.06
Simple average		-46.6%