Resource companies enjoy eventful year
Murray Lyons, The StarPhoenix
Published: Wednesday, December 26, 2007
Observers and investors in the two big publicly traded resource companies based in Saskatoon might be forgiven for wanting to quote Charles Dickens in describing the fortunes of Potash Corporation of Saskatchewan, Inc. and uranium producer Cameco Corp. respectively in 2007.
It was the best of times. It was the worst of times . . .
Both companies are widely held and listed both on the Toronto and New York exchanges, but shareholders of each had a different rides during the year.
A graph of the PotashCorp share price looks like an expedition heading up Everest. The share price started at around $51 at the beginning of the year and marched uphill well past $130. It has managed to linger in that region as the year neared its end. All along the way up, the company reported record quarterly sales and net profits.
This year, PotashCorp overtook Toronto-based Barrick Gold to become Canada's highest valued gold mining company by market capitalization, with a $40-billion market cap exceeding the former leader by a healthy $7 billion.
Things couldn't have gone better for the company on the sales front. Demand for fertilizer, particularly potash, grew in both Asia and the Americas along with the rising demand for crops such as corn, soybeans and palm that are grown for both human consumption and processing into biofuels. Asian potash buyers were paying $265 US a tonne out of Vancouver in November, a 44 per cent year-over-year rise.
Meanwhile, the "worst of times" analogy may be a bit overblown for Cameco, although there were times when the company seemed to be under siege or just under water. A graph of Cameco's share price showed the stock moving steadily upward until mid-summer when it hit a peak of $59.90 and then began a steady slide down to below $36. The spot price of uranium slid as Cameco reported more difficulties throughout its far flung operations, including contamination under its key refining building in Port Hope, Ont., a longer time frame for fixing the flooded Cigar Lake asset, and late in the year, yet another underground flood at a mine in northern Saskatchewan. This time, it was the venerable Rabbit Lake operation that temporarily shut down.
Throughout the year, Cameco kept revising the time frame it would take to fully plug the major geological leak underground at the Cigar Lake project and move that high-grade deposit toward production, now not slated until 2011. In the week before Christmas, Cameco provided a Cigar Lake update that seemed like positive news.
The company expected to be ready by February to do a test to show how well its concrete plug at the water inflow area is holding. It also said work to control water inflow at Rabbit Lake was successful. In two days of trading after that update, Cameco's share price recovered to $39.56
Cameco executives might argue the "worst of times" never applied to the company's quarter-by-quarter results in 2007.
Because of the big run-up in uranium prices, partly triggered by the Cigar Lake flood itself in October 2006, Cameco is headed for a year of record revenues and perhaps net earnings as well.
In the Saskatchewan economy, both big public companies accelerated capital spending with PotashCorp announcing major expansions at Rocanville potash mine in eastern Saskatchewan and at two Saskatoon-area mines at Cory and Patience Lake. The company also announced an expansion at its New Brunswick operations, on par with the expansions of Rocanville and Cory.
Permanent job growth at the mine and mill sites in Saskatchewan is expected to grow by several hundred people at each as the company accelerates, by three years, its ability to produce 15 million tonnes of potash annually by 2012. All told, the company is committed to spending about $3.5 billion in Saskatchewan and another $1.6 billion in New Brunswick.
PotashCorp president and CEO Bill Doyle says his company is the best positioned in the world to expand production quickly, by using existing mine infrastructure to expand underground operations and add to milling capacity at surface.
Some junior companies in Saskatchewan have announced they are well into the "scoping" process and could see completely new mines built in the province, the first in four decades while several other producers such as Agrium and Mosaic Company are also looking at expansions of existing mines and possibly new greenfield mines as well. But PotashCorp's head says they won't be caught napping.
Cameco increased the size of its permanent staff throughout the year as it took on more experts in such areas as hydrology and mine engineering. The growing staff complement was bolstered also by increased work for engineering and environmental consulting companies based in Saskatoon. The company went looking for more office space in the city.
Besides the ongoing problems with mines and uranium refineries requiring environmental cleanups before operations can restart, Cameco's top executives spent part of the year playing defence, especially after a particularly harsh assessment by an analyst in mid-summer who referred to Cameco's head office -- hived off in an industrial part of Saskatoon -- as Sleepy Hollow due to its inability to make big acquisitions to broaden its global uranium reach.
In at least two successive conference calls with analysts, Cameco president Jerry Grandey bristled at the notion his company was not attempting to secure future quality uranium properties.
Grandey told them the company has an active exploration program. He said the company is working on joint venture projects on highly prospective uranium properties in Canada and around the world and the soaring spot price of uranium had skewed economics this year away from potential targets.
Grandey pointed out to analysts that Cameco's mine production should grow 80 per cent over the next nine years, reaching 36 million pounds of uranium by 2016, just through organic growth.
Analysts are hoping 2008 is the year Cameco will make the water in its mines go away.
mlyons@sp.canwest.com
Source