Cameco disappointed with uranium ruling

Cameco Corp. [CCO-TSX; CCJ-NYSE] says a tribunal of international arbitrators has ruled in favour of the uranium giant in its contract dispute with Tokyo Electric Power Company Holdings Inc. (TEPCO).

The Tribunal rejected TEPCO’s assertion that it had the right to terminate its uranium supply agreement alleging force majeure, and awarded damages to Cameco of US $40.3 million. Damages were based on the Tribunal’s interpretation of losses under the supply agreement.

“We are pleased that the Tribunal agreed that TEPCO was not entitled to terminate the supply agreement, but we are disappointed with the amount of damages awarded,” said Cameco President and CEO Tim Gitzel.

Cameco filed a statement of claim for US$682 million, plus interest and legal costs.

“However, remember we had already removed this contract from our financial outlook. So overall the result is a positive for us,” Gitzel said.

Investors evidently didn’t see it that way as Cameco’s share price fell 5.88% or $0.085 to $13.61 on volume of 1.19 million. The shares are trading in a 52-week range of $12.31 and $17.12.

The dispute stems from TEPCO’s decision in January, 2017 to issue a termination notice for a $1.3 billion supply contract with Cameco by claiming “force majeure.”

Termination of the Cameco contract raised concerns about what would happen to 9.3 million pounds of uranium that was scheduled to be delivered between 2017 and 2018, an amount that equals 775,000 pounds annually.

The Japanese company said the decision was prompted by forces beyond its control and arise from the 2011 Fukushima accident that prevented the operation of its plants.

Cameco has said it saw no basis for terminating the agreement and vowed to pursue all its legal rights and remedies against TEPCO.

Cameco said the supply agreement does not allow for an appeal of the Tribunal’s decision. “The decision of the Tribunal is subject to a confidentially order which limits the information that we are able to disclose,” Cameco said.

The uranium industry has been struggling since a 2011 earthquake and tsunami in Japan disabled three reactors at the Fukushima nuclear plant, causing their cores to melt down, that resulted in Japan shutting down 50 nuclear reactors that remained intact.

The devastating repercussions in Japan sent uranium prices tumbling, and convinced some countries to decommission their nuclear reactors and switch to other fuels.

Trading at US$24.80 a pound last week, the spot price of uranium is still a long way from US$72.63, the level reached before the 2011 Fukushima disaster.

Cameco remains among the world’s largest providers of uranium fuel. Its competitive position is based on a controlling ownership of the world’s largest high-grade reserves and low-cost operations. Its head office is in Saskatoon, Saskatchewan.

Meanwhile, the Trump Administration has elected not to proceed with a recommendation by the U.S. Commerce Department to apply punitive tariffs on imported uranium and/or quotas on domestically source uranium supply.

The decision is being viewed as positive news as it removes some market uncertainty and prevents more uneconomic U3O8 supply from depressing a still fragile market.