Cameco's image takes a beating

Cameco's image takes a beating

By Randy Burton, The StarPhoenix

2nd August 2007

Under normal circumstances, these would be the best of times for Cameco Corp.

The uranium giant is just coming off the most profitable quarter in its history, with earnings of $205 million on record revenues of $725 million.

It has been selling uranium at rates that are 61 per cent higher than a year ago and sales volumes have doubled. For 2007, revenue is expected to be up by a whopping 40 per cent over 2006.

All of this tends to blunt the complaints in the stock market that Cameco has been too complacent in an era of unprecedented prices for uranium and a wave of consolidation in the industry.

It should also help to ease concerns about the future of the company as one piece of bad news follows another.

In many ways, the past year can only be described as Cameco's annus horribilis. First it was the flooding at the company's Cigar Lake mine, caused by the failure of sealing metal doors and a shortage of underground pumps.

Then it was revealed that it will take at least a year longer than anticipated to bring the mine back into production. The latest blow to the company's profile came with the abrupt suspension of operations at its Port Hope, Ont., conversion facility following the discovery of soil contaminated with uranium.

The combination of these events has been driving down the price of the company's stock in spite of the balance sheet triumphs.

Cameco now finds itself characterized as "Sleepy Hollow" in the pages of the national Globe and Mail, where it is described as a staid sort of company where complacency is good enough.

Cameco's cautious approach to expansion makes an easy target in an era of rapid-fire deal making, but it ignores the fact that progress in uranium mining tends to be measured in decades rather than months. However, there's no doubt Cameco is operating in a climate of market hostility at the moment.

It was against this backdrop that Cameco president and CEO Jerry Grandey responded to the criticisms in discussing Cameco's financial results and operations with analysts and reporters this week.

While he acknowledges Cameco is suffering through some difficulties, Grandey argues the strength of the company's balance sheet is "a far better indication of the company's potential than recent news."

He also announced the company has launched a series of initiatives aimed at improving the company's oversight and accountability mechanisms.

"We understand that our operational performance must improve, from the top of the organization to the people on the front lines," he said.

Given the importance of Cameco to Saskatchewan, this is all good news. The question is whether it's enough for federal regulators.

Linda Keen, the tough, no-nonsense chief executive of the Canadian Nuclear Safety Commission (CNSC), has been less than pleased with Cameco's recent performance.

At a meeting with company officials in June, Keen made no bones about where she thinks responsibility lies for the string of setbacks the company has suffered of late.

She bluntly told Cameco officials that the CNSC has lost faith in the company following the flooding of the Cigar Lake mine.

"One of the very serious results of this is a lack of confidence that now the CNSC, the commission and the staff, has in Cameco and in the leadership of Cameco," she said.

Keen was having none of Grandey's argument that there were a number of root causes for the accident.

"Mr. Grandey, with due respect . . . I think there was a root cause of leadership and I think it's leadership that we all accept at the top of organizations for what happens in this," she said.

If you look at the situation from Keen's point of view, it's easy to understand her skepticism. After all, Cameco has also had flooding at its McArthur River mine back in 2003, and appears to have been extremely slow to learn the lessons of that disaster.

Keen also has pressures of her own to deal with. The CNSC has taken over from the old Atomic Energy Control Board (AECB), which she recently suggested was seen as being too close to industry. Thus, she is motivated to ensure the federal regulator is not only independent, but is seen to be independent.

Consequently, Keen is in no mood to cut Cameco any slack with regard to its responsibilities. In a recent speech to the Canadian Nuclear Association, she talked about licencees' need to understand that they also have a "social licence" to fulfil, "where a better understanding of their responsibility for transparency and clarity must be achieved with communities, public interest groups and citizens."

Cameco, of course, is a model corporate citizen within Saskatchewan, and Grandey himself has been more than generous in his contributions to community life.

But the confluence of problems on his watch has presented him with some serious challenges.

It's one thing to have back seat drivers in the investment community pick apart your decisions and whine about shareholder value. It's quite another when the head of the country's nuclear regulator suggests you're not doing your job.

After all, the company's future and the fate of thousands of jobs in the Saskatchewan uranium industry depend on satisfying the national licensing agency.

Cameco has clearly been put on notice that it has to do better.