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Mine visitors walk toward the mine head at Cameco's McArthur River unranium mine in northern Saskatchewan in this June, 2007, file photo.


Uranium giant Cameco Corp. lowered its annual production forecast and reported third-quarter financial results below expectations amid continuing upheaval in the nuclear power industry.

Saskatoon-based Cameco, in a bidding war with Rio Tinto PLC for Hathor Exploration Ltd. during the current uranium price slump, cited "unfavourable market conditions" for the earnings underperformance.

"Production is not quite where we wanted it to be," Tim Gitzel, chief executive officer of Cameco, told investors in a conference call on Monday while presenting the results from his first quarter in the top job.

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Production of uranium used to fuel nuclear power plants fell 5 per cent to 5.3 million pounds in the quarter, and for the year it is expected to drop 1 per cent to 21.7 million pounds, Cameco said. It also lowered guidance for UF6, a compound used to make enriched uranium, by 6 per cent.

Quarterly revenue rose 26 per cent to $527-million, but was below analyst estimates, while profit fell 60 per cent to $39-million or 10 cents a share, largely the result of foreign-exchange losses.

Cameco shares closed down 6.5 per cent to $20.35 on the Toronto Stock Exchange on Monday, a sign investors are worried that Cameco will continue to suffer from volatility in the sector following the Japanese nuclear disaster.

"We expect the current uncertainly in the uranium market to linger for the near to medium term," Mr. Gitzel warned.

Driving industry concerns are forecasts for excess uranium inventories in Japan and Germany, which represent 12 and 5 per cent of global nuclear generating capacity, respectively. Germany is phasing out its nuclear program, and Japan is operating only 11 of its 54 reactors since a tsunami and earthquake destroyed its Fukushima Daiichi nuclear plant this past March.

"With the political flux they've been experiencing, the mixed public sentiment toward nuclear, and the difficult and emotional cleanup from the earthquake and tsunami, it is certainly not what you would call an easy situation in Japan," said Mr. Gitzel, who recently visited the country.

China, too, is slowing its rapid nuclear power expansion plans as it takes extra measures to ensure its facilities are safe. But Cameco is depending on steady uranium demand in China and other countries, such as India and South Korea, as they continue to rely on nuclear power over the longer term. The company is pressing ahead with plans to double uranium production to 40 million pounds by 2018.

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To help reach that goal, Cameco made a bid to buying Hathor, a Vancouver-based explorer with assets near Cameco's own in the uranium-rich Athabasca basin in Saskatchewan.

Hathor rejected Cameco's hostile $3.75-a-share bid and in October agreed to a friendly $4.15-a-share offer from Rio Tinto. Cameco is now deciding whether to outbid Rio or walk away.

"We will let you know when any decisions have been made," Mr. Gitzel told investors on Monday.

Cameco said it has doubled and extended its credit facility to $1.25-billion, leading some investors to speculate that it may be used to help increase the offer for Hathor.

"You want to come up with a number that allows you to take advantage of opportunities that might be presenting themselves in the market right now," Cameco chief financial officer Grant Isaac said when asked about the increased credit facility.

"You want to be able to plan for different conditions that might adversely affect your plans … It's both a good offence and a good defence."

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