The Core Business Activity: Cameco Corporation - Assignment Example

Company Strategy Research Report – Cameco Corporation Introduction: Cameco Corporation has its headquarters in Saskatoon, Canada, and commenced operations in 1987. Cameco is a dominant player in the field of uranium production by being the world’s largest low-cost uranium producer. Cameco Corporation accounts for approximately twenty percent of the production of uranium globally. The dominance of Cameco Corporation in the field of uranium production is expected to grow with the control that Cameco exercises over more than sixty percent of all known new uranium production. (1) Business Activities: The core business activity of Cameco Corporation is in the exploration, development, mining, refining, and conversion of uranium that finds use as fuel for generating electricity in nuclear power stations all over the world. Cameco Corporation has mining operations in four uranium mines in Canada and the United States of America, and a further interest in two uranium mines that are under development in Canada and Central Asia. Cameco extends its interests in uranium by taking up the refining and conversion of uranium concentrate, and is also involved in the purchase and sale of conversion services. These conversion services include the commercial conversion of uranium concentrates to uranium hexaflouride or uranium dioxide, and supply of fuel fabrication services for CANDU reactors. Besides these core competencies Cameco Corporation is also involved in the generation and sale of electricity, and in the exploration, mining, milling, and sale of gold. The involvement in generation and sale of electricity comes through a 31.6% interest in Bruce Power Limited Partnership, which runs four Bruce B nuclear reactors in Ontario. The involvement of Cameco Corporation in the commercial activity in gold is through a 52.7% stake in Centerra Gold Inc. that has a 100% interest in the Kumtor gold mine located in the Krygyz Republic, and 95% interest in the Boroo gold mine in Mongolia. Gold exploration activities again come through the involvement in Centerra Gold Inc., which has a 100% interest in the Gatsuurt property in Mongolia, and a 62% joint venture interest in the REN property in Nevada. (2) Business Performance: The vision of Cameco Corporation is to establish a dominant position in the nuclear energy industry, and provide clean electricity through the use of uranium fuel. The mission of Cameco Corporation is to make available the multiple benefits of nuclear energy all around the world. Through a combination of its extraordinary assets, unique employee expertise, and unique industry knowledge, the company believes that it is capable of meeting the rising demand for clean, safe and reliable energy, and thereby provides enhanced shareholder value. The key measures of success that are of relevance to Cameco Corporation include a safe, healthy and rewarding work environment for its employees, a clean environment, supportive communities, and an extraordinary financial performance. (3) Going through the 2005 Annual Report of Cameco Corporation the impression is gained that Cameco Corporation is proceeding in the right direction in achieving its vision and mission objectives. The year of 2005 has been a year of success for Cameco Corporation. The success has been achieved through the construction of two low-cost new uranium mines, and thereby augmenting mining capacity. Additional factors that played a role in its success include utilization of excess refining capacity, increase in conversion supply, and value creation that has resulted from a series of transactions. The persistence of difficulties that Cameco Corporation experienced at their Port Hope conversion facility led to a shortfall in the achievement of planned conversion targets, but in all other spheres of business activities objectives set were either achieved or surpassed. Production of uranium in was up in 2005, leading to an increase of 3% in Cameco’s share, over 2004. So was the case with Uranium conversion and gold production, leading to a respective increase of 20% and 27% in Cameco’s share, over 2004. Cameco Corporation was able to incorporate the rising prices for its products into contracts that it negotiated. As a result there was rising trend in the average price of uranium products that Cameco Corporation was able to realize in 2005 over 2004. The exemplary health and safety record of Cameco Corporation was seen in the year of 2005 also. The improved achievements of Cameco Corporation in their business activities was reflected in the annual results of 2005, with revenue up by 25% over 2004, and adjusted net earnings up by 14% above 2004. Cameco Corporation was able to deliver enhanced shareholder value with earnings per share up by 14% over 2004. Cameco Corporation intends improving on this performance in the year 2006. There is growing demand for energy worldwide, and in particular in the emerging economies of Asia led by China and India. Restrictions on supply of uranium fuel to India are likely to be eased, and Cameco intends a thrust into the Asian market with focus on India, as part of their strategic initiatives to meet objectives set for 2006. (3). Strategic Analysis: In the strategic analysis of any business activity the PEST (political, economic, social, & political) analysis, and the SWOT (strength, weakness, opportunities, & threat) analysis are the basic tools. (4). PEST Analysis of Cameco Corporation: Uranium and nuclear fuel are two products that face severe restrictions in their supply. The reason for this is that besides it utility for nuclear energy, it has high destructive use potential, and as such cannot fall into the hands of irresponsible nations, groups, or individuals for it would lead to devastating consequences. For this reason its supply is strictly controlled in particular to the developing nations. Even if a country has the technical potential to utilize uranium and nuclear fuel for nuclear energy purposes, it cannot be considered as a market unless it is signatory and willing to abide by the Nuclear Non-proliferation Treaty (NPT). India is an example of huge readymade market, but with restricted potential because of these restrictions, though negotiations are on to eases these restrictions. Therefore the current political environment is less conducive to the use of uranium and nuclear fuel to the extent that Cameco Corporation would like to have in its core business activity. (5). There is resistance to the increased use of nuclear energy by many key governments, and as a result despite an expected increase in demand for electricity by 75%, the forecasted increase in nuclear electricity generation is expected to go up by only five percent. (6). There is a silver line in this cloudy situation, and that is the emerging situation with fossil fuels, which have been the mainstay of meeting the energy requirements of the world, facing reliable supply issues, rising costs, and environment pollution issues. (7). It is on the economic front that Cameco Corporation is on a very strong footing. Cameco Corporation meets twenty percent of the demand for uranium worldwide, making it the largest low-cost supplier of uranium. (8). Dependence on fossil fuels is become more and more difficult due to several factors, which include unreliability of supply, rising costs, and carbon emission leading to global warming, and nuclear energy offers means of offsetting the dependence on fossil fuels particularly in the area of electricity generation. There is already an increase in demand for uranium, and from a low of $7 per pound for uranium in 2000 the price in the last six years has soared to $41.50 per pound currently, leading to a gain of 493% in a short span of time. Cameco Corporation with its dominant position in the mining, refining, and conversion of uranium is in a position to be a major factor in the supply and demand of uranium globally. (9). Cameco Corporation is involved in community development and social projects in and around the communities of its business activities, and gives priority to the area of safety. The end use of the products in its core area of business activity gives rise for concern. Nuclear power plants pose a threat to communities around it, and incidents like the devastation caused at Chernobyl make societies resistant to location of nuclear energy using facilities in their vicinity. In addition to this the disposal of waste products of nuclear power stations pose a threat to the environment. (6). Cameco Corporation displays considerable technological skills in the field of mining. It also demonstrates technological competence in the refining and conversion of uranium ore. The demands for its services in these areas are on the rise, as it has keeps upgrading its technology in these areas. Cameco Corporation has expanded its mining and extraction technical skills into the field of gold mining. (3). SWOT Analysis: Cameco Corporation derives its strength from its dominance in the supply of low-cost uranium and uranium converted products as nuclear energy fuel. Rising demand and rising costs for these products adds to the strength of Cameco Corporation. The effect of a dominant player in the field of oil in the form of OPEC, and the economic power that has accrued to it, because of its control on the supply and demand of oil is an example of the role of a dominant player in a particular market. Though not in the same league as OPEC, Cameco Corporation still commands an important role in meeting the demand and supply of Uranium. In addition Cameco Corporation has displayed strategic management techniques in cornering adequate share of the emerging new uranium production facilities to remain a dominant factor in the supply of uranium and nuclear energy fuel. (1) The weakness of Cameco Corporation is that it has placed nearly all its eggs in the uranium and nuclear energy fuel basket. Cameco Corporation has displayed a strategy of concentrating its business activities around uranium and nuclear energy fuel and technology, except for the foray into gold mining activity. Decrease in demand for these products either due to political or social action could create a severe dent in the fortunes of Cameco Corporation, which its gold business activity would not be able to offset. (6). The growing demand for energy due to rising populations, and emerging economies with particular reference to the Asian nations, and China and India therein open a window of opportunity for Cameco Corporation. Dependence on fossil fuels to meet this growing demand is proving futile as supply of these products is affected by depleting resources, unreliability of supply, escalating costs, and environment issues. This growing energy demand and lesser dependence on fossil fuels have seen a reflection in the demand for uranium, and its price has shot up in the recent past. (9). Restrictions on supply of nuclear fuel to countries like India are expected to ease, and offer an excellent opportunity for Cameco. (3). The human race has shown a penchant for unplanned overexploitation of the natural resources, and this is proving true in the case of products that are mined. Mining operations have become more technically challenging, as mines get older, deeper, and into unfriendly environments. Cameco Corporation has demonstrated technical capabilities in challenging situations, and has expanded its operations into gold mining. (3). Providing mining technical services in mining operations that are similar to uranium and gold extraction, which is familiar ground to Cameco Corporation is an opportunity that is still to be tapped by Cameco Corporation. Nuclear proliferation, safety and environmental concerns over the use of nuclear energy are the greatest threats that Cameco Corporation face. Any nuclear proliferation incidents would lead to increased restrictions in the supply of uranium and nuclear fuel. Nuclear power plant disaster like Chernobyl, would lead to social and political action to curb use of nuclear energy. Unsafe management practices of disposal of nuclear waste would lead to social action calling for reduced use of nuclear energy. (6). Works Cited 1. Neal Jeff. “World’s Largest Uranium Producer Foresees Huge Growth”. OPTIONETICS. 16 July 2006. . 2. “Cameco Corp. (CCJ)”. YAHOO! FINANCE. 16 July 2006. . 3. “The Future is Nuclear”. CAMECO 2005 ANNUAL REPORT. 16 July 2006. . 4. “pest market analysis tool”. businessballs.com. 16 July 2006. . 5. “PLENARY 2: CONTROL OVER SENSITIVE NUCLEAR FUEL CYCLE”. 2005. 16 July 2006. . 6. Ansolabehere, Stephen., et al. “The Future of Nuclear Power”. 2003. Massachusetts Institute of Technology. !6 July 2006. . 7. Hore-Lacy, Ian. “The Future of Nuclear Energy”. 2000. 16 July 2006. . 8. “Uranium”. Cameco. 16 July 2006. . 9. Wright, Scott. “The great uranium bull run”. May 25, 2006. The Asian Times Online. 16 July 2006. . Read More