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Cameco results: Stock falls as uranium miner swings to Q1 loss; analyst says buy the dip

A media tour of the Cameco uranium mine in Cigar Lake is shown on Wednesday, September 23, 2015.  THE CANADIAN PRESS/Liam Richards
A media tour of the Cameco uranium mine in Cigar Lake is shown on Wednesday, September 23, 2015. THE CANADIAN PRESS/Liam Richards (The Canadian Press)

Cameco (CCO.TO)(CCJ) shares fell as much as eight per cent on Tuesday after the Canadian uranium producer swung to a loss in its latest quarter. The Saskatoon-based company blamed seasonal sales trends, as well as its recently acquired 49 per cent stake in Westinghouse Electric.

Cameco reported a $7 million net loss for the three months ended March 31, compared with $119 million profit in the same quarter last year. Revenue dropped to $634 million from $687 million, as uranium sales fell below analyst forecasts.

“Financial results are in line with the 2024 outlook we provided, which has not changed, and are as expected, reflecting normal quarterly variability,” Cameco president and CEO Tim Gitzel stated in a news release.

Toronto-listed shares dropped 5.73 per cent to $63.68 as at 2:01 p.m. ET. The stock has benefited from soaring uranium prices amid fears of short supply coupled with strong demand. Shares are up over 81 per cent over the past 12 months.

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RBC Capital Markets analyst Andrew Wong says Cameco’s weaker headline numbers in the first quarter due to sales timing shouldn't worry investors. He maintains an “outperform” rating on the stock, with a $70 per share price target.

“We believe this is a fundamentally solid result for Cameco,” Wong wrote in a note to clients on Tuesday morning. “We believe the long-term positive uranium thesis remains intact, Cameco continues to execute well, and would be buyers of weakness.”

Earlier this year, the spot price of uranium climbed above US$106 per pound, its highest level since 2007. The contract price as of April 22 is US$89.75, according to data firm UxC. The nuclear fuel plunged to the US$30-range after Japan’s Fukushima accident in 2011 prompted several nations to shift major infrastructure plans away from nuclear power.

Cameco says its realized sales prices increased 27 per cent year-over-year in the first quarter to US$57.57 per pound, while its long-term price rose 42 per cent to US$74.84.

"When you're talking about tripling nuclear power over the next 25 years . . . the pressure is going to be there on the price," Gitzel told analysts on a post-earnings conference call on Tuesday. "The pressure is going to be there for a long time to come."

Meanwhile, ongoing geopolitical tensions between the United States and Russia continue to favour Cameco and its peers in North America's nuclear industry. Russia controls almost 50 per cent of global uranium enrichment capacity. According to Bloomberg News, the Biden administration is considering a ban on imports of enriched Russian uranium.

In February, the head of the largest western supplier of enriched uranium used to fuel nuclear plants in the U.S. told the Financial Times a ban would strengthen nuclear supply chains in North America and other western nations.

Gitzel says he is currently in the U.S. Capitol to attend a conference and take meetings with key policymakers on the current state and future of the industry.

Speaking on Tuesday's conference call, Cameco chief financial officer Grant Isaac warned Russia could pre-emptively restrict its exports before the reported U.S. ban is expected to take effect in 2028.

"That kind of voluntary export restraint on the part of the Russians has absolutely not been priced into the market," he said. "You would have to go back and look at an analogue like the Cigar Lake flood event, the kind of shock that it would create."

The 2008 flood at Cameco's mine in northern Saskatchewan caused a significant spike in uranium prices at the time.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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