Cameco to sell stake in Bruce Power nuclear to OMERS division for $450M

TORONTO – One of Canada’s largest pension funds is going deeper into the energy business by becoming the majority owner of Bruce Power, the operator of Ontario’s biggest nuclear power complex.

Borealis Infrastructure, a division of the Ontario Municipal Employee Retirement System, said Friday that it will pay $450 million to Cameco Corp. (TSX:CCO) to expand its current stake in Bruce Power by one-third.

Upon completion of the sale, Borealis will hold a 56.1 per cent ownership in the nuclear power operator, located on the eastern shore of Lake Huron.

Calgary-based TransCanada Corp. (TSX:TRP), best known these days for the contested Keystone XL pipeline, is Bruce Power’s second largest owner. While the other partners include the Power Workers’ Union and the Society of Energy Professionals.

The Ontario government will continue to own the Bruce Power site in Tiverton, Ont., which operates eight nuclear reactors.

Last year, the site produced about a third of the province’s electricity.

Ontario has recently announced plans to go ahead with the refurbishment of six more reactors at the Bruce generating station, which is the world’s largest nuclear power plant. The cost and timelines associated with such a massive project have yet to be released.

“Nuclear power will continue to be the backbone of our electricity system. We will continue to work with the province’s nuclear operators, including Bruce Power, to ensure Ontario has a clean, reliable and affordable supply of electricity,” Andrea Arbuthnot, a spokeswoman for the Ontario Ministry of Energy said in an email.

Duncan Hawthorne, Bruce Power’s president and CEO, said the deal is an opportunity to revamp the partnership as it prepares for the province’s long-term energy plan.

Saskatoon-based Cameco Corp., which mines and processes uranium for use in nuclear reactors around the world, said the deal is good for its investors, as it can now refocus on its main business.

“We believe the best option for our shareholders is to sell our interest in Bruce Power and continue to reinvest in our core uranium business where we see strong potential for growth,” said Tim Gitzel, Cameco’s president and CEO.

Metals and mining analyst Rob Chang said the move initially took some by surprise, but Cameco can now use the funds for investing in other uranium projects.

“Rerouting dollars to fund the utilities portion, given that there is a refurbishment coming along in the horizon, it would make sense for Cameco to avoid all of that and redivert all their focus towards the mining and processing side of the business, which is much more profitable,” said Chang, who works at Cantor Fitzgerald Canada.

He said analysts expect uranium prices to continue to rise in the near future, which will make the industry even more lucrative.

In the third quarter, Cameco (TSX:CCO) said it earned $211 million in the three months ended Sept. 30, up from $79 million a year earlier. Its third-quarter adjusted earnings quadrupled to $208 million — triple analyst estimates.

Cameco’s revenue doubled to $597 million from $296 million, as the average uranium price realized grew by 15 per cent and sales volume jumped 63 per cent compared with a year earlier to 8.5 million pounds.

The company forecasts that overall revenue for 2013 will climb 30 to 35 per cent compared with 2012.

Chang said Cameco may look at expanding its long-delayed Cigar Lake uranium mine in Saskatchewan, which is slated to begin producing early next year due to years of delays due to massive underground flooding.

It may also explore acquisitions, for instance of junior miners Fission Uranium Corp. (TSX:FCU) and Denison Mines Corp. (TSX:DML), which are both active in the Athabasca Basin region of Saskatchewan where Cameco already has a strong presence.

The company is one of the world’s largest uranium producers with mines, mills and conversion plants in Canada, the United States and abroad. Shares in Cameco closed down more than three per cent, or 91 cents, to $23.67 on the Toronto Stock Exchange.

Michael Rolland, president and CEO of Borealis Infrastructure, said the purchase “is an investment that continues to fit with our long-term strategy to invest in core, large-scale and high-quality infrastructure assets.”

“It also plays a critical role in meeting the supply needs of the province of Ontario,” he said in a statement.

OMERS, which has more than 430,000 members, manages net assets exceeding $60 billion.

Last month, the Ontario Power Authority said it was still undecided over whether Bruce Power will be on the hook for missing a deadline to restart two nuclear reactors in 2012.

Bruce Power said the delay in getting two refurbished units back online was attributable to an equipment problem, which it said should not result in a penalty because it was beyond its control. In May 2012, damage to some non-nuclear equipment forced a delay in reconnecting the refurbished Unit 2 to the provincial power grid.