CALGARY – A global oversupply of uranium, partly brought on by the closures of dozens of nuclear reactors in Japan, continues to buffet Cameco as the Saskatoon-based miner issues pink slips and warns investors that its financials are worse than expected.
Cameco (TSX:CCO), the world’s largest publicly-traded uranium producer, said analyst estimates are too high and it expects to report a net loss in 2016 as it writes down the value of its assets.
Company spokesman Gord Struthers said the disappointing news stems from a range of one-off charges last year totalling $120 million related mostly to the closure of its Rabbit Lake mine, corporate restructuring and increased legal fees.
“2016 was an unusual year,” he said. “There were a lot of developments for the company that impacted our earnings.”
Struthers said the company also had to write down the book value of its assets, which will help knock down adjusted earnings by between $180 million and $220 million for the year.
“Because the market for uranium is weak, it requires us to write down the value of some of the assets that are on our books,” he said.
That weakness has persisted for years, particularly since the 2011 Fukushima Daiichi nuclear disaster, which prompted Japan to shut down its 54 nuclear reactors, resulting in a world glut of uranium. The country has brought back three reactors online since.
“We continue to see an oversupply situation in the current market,” said Nick Carter, vice-president of uranium at Ux Consulting Co., which monitors the industry.
Carter said last year saw about 21 million pounds of oversupply in a global market that produced about 206 million pounds of uranium. New reactors have failed to pick up the slack caused by the Japan shutdowns, he said.
That oversupply helped drive down uranium prices to US$18 a pound in December, the lowest they’ve been since June 2004, said Carter, though Cameco was paid more than double that last year thanks to long-term contracts.
Producers have responded by cutting production and costs. Cameco closed its Rabbit Lake uranium mine last April, a move that cost 500 jobs, and cut back its U.S. operations while instituting rotating production cuts at its mines.
With expectations of a continued surplus, Cameco says it will be cutting back further to improve efficiencies, with 120 jobs or 10 per cent of its mined workforce phased out over the next three months.
The company said the changes were necessary to endure the tough market and prepare it for a rebound, without giving any indication as to when it expects that may happen.
Over the next few years, the uranium market will likely continue to be oversupplied, Carter said, despite cuts from Cameco and others. He said demand could increase by the early 2020s as Japan restarts more reactors and other reactors come online.
Cameo shares closed Wednesday at $14.39 on the Toronto Stock Exchange, down $2.93 or nearly 17 per cent.
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