Cameco Reports Second Quarter Financial Results
(firmenpresse) - SASKATOON, SASKATCHEWAN -- (Marketwired) -- 07/28/16 -- ALL AMOUNTS ARE STATED IN CDN $ (UNLESS NOTED)
Cameco (TSX: CCO)(NYSE: CCJ) today reported its consolidated financial and operating results for the second quarter ended June 30, 2016 in accordance with International Financial Reporting Standards (IFRS).
"Our quarterly results were again influenced by a quiet market, as well as a number of notable and one-time items," said president and CEO, Tim Gitzel. "However, our annual sales guidance and cost of sales expectations remain unchanged, our long-term contract portfolio continues to keep our average realized price above market prices, and we remain focused on controlling costs across the organization.
"Market conditions have become increasingly challenging over the past five years. Primary supply has simply not responded to decreased demand, and coupled with an abundance of secondary material available today, the uranium market continues to be oversupplied. As a result, prices have remained under pressure, and because we don't know how long the current weak conditions will persist, we must manage the company with that uncertainty in mind.
"Despite the current market challenges, we remain confident in nuclear power as an important part of the long-term global energy mix. Based on the reactor construction that is underway around the world today, we continue to expect uranium demand to increase in the long-term."
SECOND QUARTER
Net losses attributable to equity holders this quarter were $137 million (losses of $0.35 per share diluted) compared to net earnings of $88 million ($0.22 per share diluted) in the second quarter of 2015 due to:
partially offset by:
On an adjusted basis, our losses this quarter were $57 million (losses of $0.14 per share diluted) compared to earnings of $46 million ($0.12 per share diluted) (non-IFRS measure, see below) in the second quarter of 2015. The change was mainly due to:
partially offset by:
See Financial results by segment below for more detailed discussion.
FIRST SIX MONTHS
Net losses in the first six months of the year were $59 million (losses of $0.15 per share diluted) compared to earnings of $79 million ($0.20 per share diluted) in the first six months of 2015 mainly due to:
partially offset by:
On an adjusted basis, our losses for the first six months of this year were $64 million (losses of $0.16 per share diluted) compared to earnings of $115 million ($0.29 per share diluted) (non-IFRS measure, see below) for the first six months of 2015. Key variances include:
partially offset by:
ADJUSTED NET EARNINGS (NON-IFRS MEASURE)
Adjusted net earnings is a measure that does not have a standardized meaning or a consistent basis of calculation under IFRS (non-IFRS measure). We use this measure as a more meaningful way to compare our financial performance from period to period. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate our performance. Adjusted net earnings is our net earnings attributable to equity holders, adjusted to better reflect the underlying financial performance for the reporting period. The adjusted earnings measure reflects the matching of the net benefits of our hedging program with the inflows of foreign currencies in the applicable reporting period, and has also been adjusted for NUKEM purchase price inventory write-downs and recoveries, impairment charges, and income taxes on adjustments.
Adjusted net earnings is non-standard supplemental information and should not be considered in isolation or as a substitute for financial information prepared according to accounting standards. Other companies may calculate this measure differently, so you may not be able to make a direct comparison to similar measures presented by other companies.
The following table reconciles adjusted net earnings with our net earnings.
See Financial results by segment below for more detailed discussion.
Also of note:
IMPAIRMENT
Production was suspended at our Rabbit Lake operation during the second quarter, requiring us to determine the excess carrying value of the mine and mill over the fair value less costs to sell. As a result, we have recognized an impairment charge for the full carrying value of $124.4 million.
CONTRACTING
In July, we agreed to terminate a long-term supply contract with one of our utility customers, which had product deliveries from 2016 through 2021. The resulting gain on contract settlement of $46.7 million will be reflected in our financial results for the third quarter as other income.
Our strategy
We are a pure-play nuclear fuel supplier, focused on taking advantage of the long-term growth we see coming in our industry, while maintaining the ability to respond to market conditions as they evolve. Our strategy is to profitably produce from our tier-one assets at a pace aligned with market signals to increase long-term shareholder value, and to do that with an emphasis on safety, people and the environment.
We believe the best way to create value is to focus our investible capital on maintaining a strong balance sheet and on preserving the production flexibility of our tier-one assets. This approach provides us with the opportunity to meet rising demand with increased production from our best margin assets, and helps to mitigate risk during a prolonged period of uncertainty. In the context of continued depressed market conditions, we have positioned our production to come from our lower-cost operations.
Going forward, we plan to:
You can read more about our strategy in our 2015 annual management's discussion and analysis (MD&A).
Uranium market update
The second quarter of 2016 continued much the same as the first - with demand remaining low and uranium prices depressed. That is as expected, given that there have been no events to catalyze a change in the current state of the market. In Japan, reactors continue to progress towards restart at a very slow pace, facing further challenges in the form of injunctions from the lower courts. Adding pressure to the market were a number of premature reactor retirement announcements in the United States, as well as the vote by the United Kingdom to leave the European Union, which has increased uncertainty around their new build program.
On the other side of the equation, supply continued to be readily available, with secondary supplies abundant and no interruptions to primary supply.
Making positive news for the industry were two new reactor startups - one in China and one in the United States - bringing the total for the year to five.
Longer term, strong fundamentals underpin a positive outlook for the industry. With 60 reactors under construction today and additional units planned over the next decade, uranium demand is expected to increase as those reactors come online. In addition, as future supply continues to be negatively affected by current depressed market conditions and utilities refrain from contracting replacement volumes, we expect to see a shift from the currently over-supplied market we are experiencing today to a demand-driven market that requires more primary supply. Demand growth combined with the timing, development and execution of new supply projects and the continued performance of existing supply, will determine the pace of that shift.
Caution about forward-looking information relating to our uranium market update
This discussion of our expectations for the nuclear industry, including its growth profile, future global uranium supply and demand is forward-looking information that is based upon the assumptions and subject to the material risks discussed under the heading Caution about forward-looking information below.
Outlook for 2016
Our outlook for 2016 reflects the expenditures necessary to help us achieve our strategy. Our outlook for our consolidated tax rate, and NUKEM's delivery volumes, revenue and gross profit, has changed. We do not provide an outlook for the items in the table that are marked with a dash.
See 2016 Financial results by segment below for details.
We have increased our uranium production outlook to 25.8 million pounds U3O8 (previously 25.7 million pounds) to reflect the final 2016 production from Rabbit Lake following the operational changes made in April. See Uranium 2016 Q2 updates below for more information.
We have decreased our outlook for NUKEM sales volumes to 7 million to 8 million pounds U3O8 (previously 9 million to 10 million pounds) due to continued light activity in the market. This change, along with the inventory write-down that we recognized during the second quarter, has also resulted in a change to our outlook for NUKEM's revenue and gross profit. We now expect NUKEM's revenue to decrease 5% to 10% (previously increase 5% to 10%) and gross profit to be a maximum of 1% (previously 4% to 5%).
We have adjusted our outlook for the consolidated tax rate to a recovery of 175% to 200% (previously 50% to 55%) due to the changes to our NUKEM outlook noted above, and a change in the distribution of earnings between jurisdictions.
In our uranium and fuel services segments, our customers choose when in the year to receive deliveries, so our quarterly delivery patterns, delivery volumes and revenue can vary significantly. We expect remaining 2016 uranium deliveries to be more heavily weighted to the fourth quarter.
REVENUE AND EARNINGS SENSITIVITY ANALYSIS
For the rest of 2016:
TRANSFER PRICING DISPUTES
We have been reporting on our transfer pricing disputes with Canada Revenue Agency (CRA) since 2008, when it originated, and with the Internal Revenue Service (IRS) since the first quarter of 2015. Please see our second quarter MD&A for a discussion of the general nature of transfer pricing disputes and, more specifically, the ongoing disputes we have.
Financial results by segment
SECOND QUARTER
Production volumes this quarter were 30% higher compared to the second quarter of 2015, mainly due to higher production from Cigar Lake, Inkai and Rabbit Lake. See Uranium 2016 Q2 updates below for more information.
The 40% decrease in uranium revenues was a result of a 37% decrease in sales volume and a 4% decrease in the Canadian dollar average realized price. Sales in the second quarter were lower than in 2015 due to the timing of deliveries, which are driven by customer requests and can vary significantly.
The US dollar average realized price decreased by 8% compared to 2015 mainly due to lower prices on market-related contracts, while the lower Canadian dollar realized prices this quarter were a result of that decrease, partially offset by the weakening of the Canadian dollar compared to 2015. This quarter the exchange rate on the average realized price was $1.00 (US) for $1.30 (Cdn) compared to $1.00 (US) for $1.25 (Cdn) in the second quarter of 2015.
Total cost of sales (including D&A) decreased by 27% ($218 million compared to $297 million in 2015) due to a 37% decrease in sales volume, partially offset by a 17% increase in the unit cost of sales. The increase in the unit cost of sales was mainly the result of care and maintenance costs and severance costs related to the curtailment of production at Rabbit Lake and in the US, partially offset by lower production costs related to higher production from Cigar Lake compared to the second quarter of 2015.
The net effect was an $89 million decrease in gross profit for the quarter.
FIRST SIX MONTHS
Production volumes for the first six months of the year were 33% higher than in the previous year due to the addition of production from Cigar Lake and higher production at McArthur/Key Lake, and Inkai, partially offset by lower production at our US operations. See Uranium 2016 Q2 updates below for more information.
Uranium revenues decreased 24% compared to the first six months of 2015 due to a 27% decrease in sales volumes, partially offset by a 3% increase in the Canadian dollar average realized price, in the first six months.
In our uranium and fuel services segments, our customers choose when in the year to receive deliveries, so our quarterly delivery patterns, sales volumes and revenue can vary significantly. We are on track to meet our 2016 uranium sales targets, and, therefore, expect to deliver between 20 million and 22 million pounds in the remainder of the year.
Our Canadian dollar realized prices for the first six months of 2016 were higher than 2015, primarily as a result of the weakening of the Canadian dollar compared to 2015. For the first six months of 2016, the exchange rate on the average realized price was $1.00 (US) for $1.34 (Cdn) compared to $1.00 (US) for $1.23 (Cdn) for the same period in 2015.
Total cost of sales (including D&A) decreased by 18% ($454 million compared to $552 million in 2015) mainly due to a 27% decrease in sales volume for the first six months, partially offset by a 12% increase in the unit cost of sales. The increase in the unit cost of sales was mainly the result of care and maintenance costs and severance costs related to the curtailment of production at Rabbit Lake and in the US.
The net effect was a $92 million decrease in gross profit for the first six months.
The table below shows the costs of produced and purchased uranium incurred in the reporting periods (which are non-IFRS measures, see the paragraphs below the table). These costs do not include care and maintenance costs, selling costs such as royalties, transportation and commissions, nor do they reflect the impact of opening inventories on our reported cost of sales.
The average cash cost of production this quarter was 40% lower than the comparable period in 2015, primarily due to increased low-cost production from Cigar Lake, and the impact of our first quarter production changes at Rabbit Lake.
Although purchased pounds are transacted in US dollars, we account for the purchases in Canadian dollars. In the second quarter, the average cash cost of purchased material in US dollar terms was $29.20 (US) per pound with an average exchange rate of $1.00 (US) for $1.31 (Cdn), compared to $36.48 (US) per pound at an average exchange rate of $1.00 (US) for $1.25 (Cdn) in the second quarter of 2015. For the first six months, the average cash cost of purchased material was $36.18 (US) per pound at an average exchange rate of $1.00 (US) for $1.38 (Cdn), compared to $37.40 per pound at an average exchange rate of 1.00 (US) for $1.25 (Cdn) in the same period in 2015.
Cash cost per pound, non-cash cost per pound and total cost per pound for produced and purchased uranium presented in the above table are non-IFRS measures. These measures do not have a standardized meaning or a consistent basis of calculation under IFRS. We use these measures in our assessment of the performance of our uranium business. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate our performance and ability to generate cash flow.
These measures are non-standard supplemental information and should not be considered in isolation or as a substitute for measures of performance prepared according to accounting standards. These measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently, so you may not be able to make a direct comparison to similar measures presented by other companies.
To facilitate a better understanding of these measures, the following table presents a reconciliation of these measures to our unit cost of sales for the second quarter and the first six months of 2016 and 2015.
SECOND QUARTER
Total revenue for the second quarter of 2016 increased to $81 million from $70 million for the same period last year. A 21% increase in sales volumes was partially offset by a 7% decrease in average realized price, primarily due to mix of products sold partially offset by the weakening of the Canadian dollar compared to 2015.
The total cost of products and services sold (including D&A) increased by 24% ($62 million compared to $50 million in the second quarter of 2015) due to the increase in sales volumes, partially offset by a decrease in the average unit cost of sales. When compared to 2015, the average unit cost of sales was 1% lower.
Gross profit remained unchanged at $19 million.
FIRST SIX MONTHS
In the first six months of the year, total revenue increased by 3% due to a 6% increase in realized price that was the result of the weakening of the Canadian dollar and the mix of products sold, partially offset by a 4% decrease in sales volumes.
The total cost of products and services sold (including D&A) decreased 1% ($108 million compared to $109 million in 2015) due to the 4% decrease in sales volume, partially offset by a 3% increase in the average unit cost of sales, which resulted from an increase in the unit opening inventory rate.
The net effect was a $5 million increase in gross profit.
SECOND QUARTER
During the second quarter of 2016, NUKEM delivered 2.4 million pounds of uranium, an increase of 60% from the same period last year due largely to the timing of customer requirements. The majority of the deliveries in the quarter were under existing contracts with utilities. Activity in the spot market continued to be light, as was the case in the first quarter. Total revenues increased by 59% as a result of higher sales volumes.
NUKEM recorded a gross loss of $10 million in the second quarter of 2016, compared to an $11 million gross profit in the second quarter of 2015. Included in the 2016 gross loss is a $14 million net write-down of inventory. The write-down was a result of a decline in the spot price during the period.
FIRST SIX MONTHS
During the six months ended June 30, 2016, NUKEM delivered 2.4 million pounds of uranium, a decrease of 40%, due to very light market activity with a lack of profitable opportunities, and the timing of customer requirements. Total revenues decreased 26% due to a decrease in sales volumes, partially offset by a 22% increase in average realized price. The increase in realized price was mainly the result of deliveries under contracts negotiated in prior years when market prices were higher.
Gross profit percentage was a loss of 8% for the first six months of 2016, a decrease from a profit of 12% in the same period in 2015. Included in the 2015 margin was a $3 million recovery compared to a $14 million net write-down of inventory in 2016. The write-down in 2016 was a result of a decline in the spot price during the period.
The net effect was a $32 million decrease in gross profit.
Uranium 2016 Q2 updates
MCARTHUR RIVER/KEY LAKE
Production for the second quarter was 3% lower compared to the same period last year due to a longer mill maintenance shut down. Production for the first six months was slightly higher than last year when unplanned mill maintenance affected our first quarter production.
A new calciner has been installed at the Key Lake mill to accommodate an annual production increase to 25 million pounds when the market signals that more production is needed. However, reliability issues have been encountered with the new equipment during commissioning. Since market conditions do not currently support increased production at McArthur River/Key Lake, and as part of our continuing efforts to reduce costs, we have suspended the commissioning of and transition to the new calciner. We are assessing the cost to resolve the issues and expect to complete commissioning at a time when we see the need for the new calcining capacity. The existing calciner has sufficient capacity to meet our 2016 production target of 18 million pounds (12.6 million pounds our share).
CIGAR LAKE
Total packaged production from Cigar Lake was 67% higher in the second quarter, and 169% higher in the first six months compared to the same periods last year. The increases are related to the scheduled rampup of the operation. We are on track to achieve our target of 16 million pounds of production (8 million pounds our share) in 2016, and full production of 18 million pounds (9 million pounds our share) in 2017.
In the second quarter, AREVA's application to increase the capacity of the McClean Lake mill from 13 million to 24 million pounds of annual production was approved by the Canadian Nuclear Safety Commission.
The unionized employees at AREVA's McClean Lake mill accepted a new three-year collective agreement during the second quarter. The previous contract expired in May, 2016.
INKAI
Production was 83% higher for the quarter and 83% higher for the first six months compared to the same periods last year, due to the timing of new wellfield development in our 2016 mine plan. The operation remains on track to achieve our planned 2016 production.
As previously disclosed, we also signed an agreement with our partner Kazatomprom and JV Inkai to restructure and enhance JV Inkai. Please see our second quarter MD&A for more information.
RABBIT LAKE
Given the continued depressed market conditions in the near term, we suspended production at our Rabbit Lake operation during the second quarter. Production was 250% higher than the same period last year due to the timing of maintenance in 2015. Production for the first six months was 1.1 million pounds, unchanged from the comparable period in 2015. The facilities are now in care and maintenance.
We expect to complete the transition of the Rabbit Lake operation to care and maintenance by the end of August, at a cost of about $45 million. We then expect the cost to maintain the site in a safe care and maintenance state for the remainder of the year to be about $15 million. We previously estimated the total cost of transition and care and maintenance activities to be about $35 million in 2016. However, due to an accelerated start for transition of the mill to care and maintenance, and the timing of workforce reductions, additional costs were incurred and categorized as care and maintenance costs. Previously, we expected some of those costs to be categorized as operating or capital costs.
As long as production is suspended, we expect care and maintenance costs to range between $40 million and $45 million annually for the first few years. A workforce of 120 is remaining on site (down from 650) to maintain the facilities and sustain environmental monitoring and reclamation activities. The related severance cost of $11.8 million is included in our cost of sales and reflected in our results.
Qualified persons
The technical and scientific information discussed in this document for our material properties (McArthur River/Key Lake, Inkai and Cigar Lake) was approved by the following individuals who are qualified persons for the purposes of NI 43-101:
MCARTHUR RIVER/KEY LAKE
CIGAR LAKE
INKAI
Caution about forward-looking information
This document includes statements and information about our expectations for the future. When we discuss our strategy, plans, future financial and operating performance, or other things that have not yet taken place, we are making statements considered to be forward-looking information or forward-looking statements under Canadian and United States securities laws. We refer to them in this document as forward-looking information.
Key things to understand about the forward-looking information in this document:
Examples of forward-looking information in this document
Material risks
Material assumptions
Quarterly dividend notice
We announced today that our board of directors approved a quarterly dividend of $0.10 per share on the outstanding common shares of the corporation that is payable on October 14, 2016, to shareholders of record at the close of business on September 30, 2016.
Conference call
We invite you to join our second quarter conference call on Thursday, July 28, 2016 at 1:00 p.m. Eastern.
The call will be open to all investors and the media. To join the call, please dial (800) 769-8320 (Canada and US) or (416) 340-8530. An operator will put your call through. The slides and a live webcast of the conference call will be available from a link at cameco.com. See the link on our home page on the day of the call.
A recorded version of the proceedings will be available:
Additional information
You can find a copy of our second quarter MD&A and interim financial statements on our website at , on SEDAR at sedar.com and on EDGAR at .
Additional information, including our 2015 annual management's discussion and analysis, annual audited financial statements and annual information form, is available on SEDAR at sedar.com, on EDGAR at and on our website at cameco.com.
Profile
We are one of the world's largest uranium producers, a significant supplier of conversion services and one of two CANDU fuel manufacturers in Canada. Our competitive position is based on our controlling ownership of the world's largest high-grade reserves and low-cost operations. Our uranium products are used to generate clean electricity in nuclear power plants around the world. We also explore for uranium in the Americas, Australia and Asia. Our shares trade on the Toronto and New York stock exchanges. Our head office is in Saskatoon, Saskatchewan.
As used in this news release, the terms we, us, our, the Company and Cameco mean Cameco Corporation and its subsidiaries; including NUKEM Energy GmbH, unless otherwise indicated.
Contacts:
Investor inquiries:
Cory Kos
(306) 956-8176
Media inquiries:
Rob Gereghty
(306) 956-6190
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