Blackmont slashes Cameco recommendation

Posted by Andrew Bell on November 11, 2008

Making money in mining is getting tougher and tougher… but when a company has a debt load to consider, investors tend to get extra jumpy.

Blackmont Capital analyst George Topping has cut his rating on uranium titan Cameco Corp. (CCO – TSX) to "Hold" from "Buy" after the release of today’s Q3 numbers.  Cameco stock is down 6% today to trade just under $18.50 (the TSX miners’ index has tanked 10%)

Topping has a $25 price target for CCO but he says that "in light of Cameo’s debt and possible technical challenges, we believe it prudent to move to the sidelines…. Uranium Participation Corp. (U-TSX) is a safer investment vehicle."

Topping reckons that backing out a stock option recovery, Cameco’s Q3 earnings were just 21 cents a share, well shy of the 40-cent consensus. Cash costs jumped 47% to $28 a pound US, while 2008 and 2009 production guidance was cut to 17.7 and 20.6 million pounds, down from 19.6 and 22 million previously.
 
Moreover, water woes continue at the company’s mines.

"On Cigar Lake, management has still not pinpointed the source of the leak. The water inflow at McArthur River was not mentioned, which is surprising, and could mean unfavourable news," he said.

Topping also noted that Cameco's short-term debt is $570 million, meanwhile long-term borrowings are $720 million.  

"While Cameco has $1.4bln in lines of credit, management note that the debt market is 'effectively shut down,'" he said.

 

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