In recent fourth quarter results, Cameco Corporation’s EPS of 52¢ remained far better than Street’s 31¢ estimate and our 32¢ forecast, mainly due to favourable exchange rate movement. Additionally, analysts believe following reasons after Cameo’s performance: (a) cash costs dropped by 8.95%, mainly on higher production volumes, the cessation of standby charges at the McClean Lake mill, as well as the timing of royalties; and (b) sales volumes were about 1 million lb more than we had estimate.
As per 2015 outlook, company is aiming for 31 million to 33 million lb of total uranium sales volumes, due to 25.3 million to 26.3 million lb of production (23.3 million lb in 2014). Total revenue should be up to 5% lower than previous year, with uranium revenue up to 10% lower. Costs per lb are estimate by company to be 5% to 10% higher year-over-year as a result of the Cigar Lake incline. On Cigar Lake, company believes 3 million to 4 million lb of production (net to company). Capex for 2015 and 2016 will be below earlier thought, at $370 million and $300 million to $350 million , correspondingly.
Production and packaged uranium from Cigar Lake remained highlights in 2014, in spite of company downgrading its full-year production outlook in third quarter. The firm still expects to hit 18 million lbs by 2018 (100% basis) and refrained from giving outlook on the path that production would take from 2016 to 2018.
Company wrote off Eagle Point mine assets at Rabbit Lake for $126 million , as well as a separate $41 million write-down on assets under construction for other projects.
We are shifting our target to $25 (up $1) as we roll forward to 2016, which reflects soared Cigar Lake output versus 2015. To be conservative, we lowered our target multiple to 1.35 times net asset value, or to the L/T average since Fukushima occurred (March 2011). Our revised net asset value forecast post-fourth quarter of 2014 is $16.59 per share, which means company has been trading in the 1.0 times to 1.1 times net asset value range over the past while. Since Fukushima, company has averaged 1.35 times net asset value, which is also what we moderately use to value the stock at $25. However, for those investors searching for stocks that will benefit from a falling C$, we believe this part of the trade is mainly priced in.