Cameco CEO ‘suprised’ after $1.3B uranium contract cancelled

A Japanese utility’s decision to abruptly end a uranium supply contract worth about $1.3 billion

CALGARY — A Japanese utility’s decision to abruptly end a uranium supply contract worth about $1.3 billion from now through 2028 came “out of the blue,” the CEO of Cameco Corp. said Wednesday.

Tim Gitzel said Tokyo Electric Power Co. or TEPCO sent a notice on Jan. 24 saying it wanted to terminate a long-term contract signed in 2009 and would not accept delivery of a shipment due Wednesday.

Gitzel said TEPCO confirmed the notice Tuesday despite Cameco’s attempts in the interim to discuss possible remedies.

“We were very surprised to get that notice,” Gitzel said in an interview, adding that Saskatoon-based Cameco (TSX:CCO) considers TEPCO to be in default and will pursue all legal “rights and remedies.”

He said the Japanese power company cited forces beyond its control — specifically government regulations arising after the 2011 earthquake and tsunami wiped out reactors at TEPCO’s Fukushima facility — that have prevented the operation of its nuclear plants.

“The Fukushima accident happened six years ago and we’ve been dealing with them since then,” said Gitzel.

“They’ve taken delivery under this contract in 2014, 2015 and 2016, so we’re a bit perplexed as to why now all of a sudden they think there’s a case of, as they say, ‘force majeure.”’

Shares in Cameco, the world’s largest publicly-traded uranium producer by volume, closed Wednesday at $14.70 on the Toronto Stock Exchange, down $1.87 or 11.3 per cent.

TEPCO did not respond to an email request for comment.

Cameco estimated the revenue at risk this year as a result of TEPCO’s decision is $126 million, out of $2.1 billion to $2.2 billion in total revenue from all sources.

A termination would jeopardize about 9.3 million pounds of uranium to be supplied by Cameco through 2028.

The company recently reported deliveries of about 31.5 million pounds of uranium last year at an average realized price of $54.46 per pound.

Gitzel said the short notice won’t cause any logistical problems for Cameco because delivery is usually made through a “book transfer” and likely involves no physical movement of product.

He said TEPCO, like other customers, has been stockpiling its reactor fuel as it awaits approval to restart its power plants.

Analyst David Talbot of Dundee Capital Markets said in a note to investors that Cameco has a winning record in previous contract disputes.

He said the company reported cash payments of $46.7 million and $12.3 million last year to allow two customers to cancel long-term contracts for deliveries through to 2020 and 2022, respectively.

Nick Carter, vice-president of uranium at Ux Consulting Co., an American firm that monitors the industry, said he believes TEPCO is the first Japanese utility to terminate a long-term contract — although many others have tried to renegotiate contracts to reduce volumes or prices or delay shipments.

Cameco, which reports 2016 financial results on Feb. 9, warned on Jan. 18 that analyst earnings estimates were too high.

It also said it would lay off 120 employees or 10 per cent of staff at its mining operations to reduce costs and improve efficiency.


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