Cameco Reports Third Quarter Financial Results
(firmenpresse) - SASKATOON, SASKATCHEWAN -- (Marketwire) -- 11/07/11 -- ALL AMOUNTS ARE STATED IN CDN $ (UNLESS NOTED)
Cameco (TSX: CCO) (NYSE: CCJ) today reported its consolidated financial and operating results for the third quarter ended September 30, 2011 in accordance with International Financial Reporting Standards (IFRS).
"Cameco performed well during the quarter despite the prevailing economic uncertainty. We realized higher prices on our uranium sales and achieved higher sales volumes resulting in higher adjusted earnings," said president and CEO Tim Gitzel. "With sales commitments of over 300 million pounds, we are positioned to continue delivering solid financial performance while preparing our assets for the growth we expect in the nuclear industry.
"During the quarter, we undertook several initiatives to advance our strategy to double annual uranium production by 2018 and add value for our shareholders. We signed a memorandum of agreement (MOA) with our Inkai partner to increase total production to 5.2 million pounds annually. We also signed a non-binding memorandum of understanding (MOU) to process all Cigar Lake ore at McClean Lake mill, which we expect will result in a significant reduction in the operating cost.
"We believe in the long-term fundamentals of the nuclear industry and will continue to pursue our strategy in a disciplined manner to ensure we can respond appropriately to evolving market conditions."
Transition to IFRS
Effective January 1, 2011, we adopted IFRS for Canadian publicly accountable enterprises. Our unaudited condensed consolidated interim financial statements for the quarter ended September 30, 2011 (interim financial statements) have been prepared using IFRS. Amounts relating to the year ended December 31, 2010 in this document, our interim financial statements and related third quarter management's discussion and analysis (third quarter MD&A) have been recast to reflect our adoption of IFRS. Details of the more significant accounting differences can be found in note 3 to our interim financial statements.
Third quarter
Net earnings attributable to our shareholders (net earnings) this quarter were $39 million ($0.10 per share diluted) compared to $98 million ($0.25 per share diluted) in the third quarter of 2010. Net earnings were down this quarter primarily as a result of losses on foreign exchange derivatives compared to gains in 2010, partially offset by lower income taxes and the item noted below. The Canadian dollar weakened in the third quarter of 2011 relative to the US dollar, while it strengthened in the third quarter of 2010.
On an adjusted basis, our earnings this quarter were $104 million ($0.26 per share diluted) compared to $80 million ($0.20 per share diluted) (see non-IFRS measure) in the third quarter of 2010 mainly due to:
See Financial results by segment for more detailed discussion.
First nine months
Net earnings in the first nine months of the year were $186 million ($0.47 per share diluted) compared to $311 million ($0.79 per share diluted) in the first nine months of 2010. Net earnings were lower than in 2010 mainly as a result of the items noted below along with losses on foreign exchange derivatives compared to gains in 2010, partially offset by lower income taxes.
On an adjusted basis, our earnings for the first nine months of this year were $259 million ($0.66 per share diluted) compared to $307 million ($0.78 per share diluted) (see non-IFRS measure) mainly due to:
See Financial results by segment for more detailed discussion.
Outlook for 2011
Over the next several years, we expect to invest significantly in expanding production at existing mines and advancing projects as we pursue our growth strategy. The projects are at various stages of development, from exploration and evaluation to construction.
We expect our existing cash balances and operating cash flows will meet our anticipated requirements over the next several years, without the need for significant additional funding. Cash balances will decline as we use the funds in our business and pursue our growth plans.
Our outlook for 2011 reflects the expenditures necessary to help us achieve our strategy. Our outlook for uranium production, exploration, fuel services production, direct administration costs and capital expenditures has changed from the outlook included in our second quarter MD&A. We explain the changes below. All other items in the table are unchanged. We do not include an outlook for the items in the table that are marked with a dash.
See Financial results by segment for details.
(1)Based on a uranium spot price of $52.00 (US) per pound (the Ux spot price as of October 31, 2011), a long-term price indicator of $63.00 (US) per pound (the Ux long-term indicator on October 31, 2011) and an exchange rate of $1.00 (US) for $1.00 (Cdn).
(2) This increase is based on the unit cost of sale for produced material. Any additional discretionary purchases in 2011 may cause the overall unit cost of product sold to increase further.
(3) Direct administration costs do not include stock-based compensation expenses.
(4) Does not include our share of capital expenditures at BPLP.
Our customers choose when in the year to receive deliveries of uranium and fuel services products, so our quarterly delivery patterns, and therefore our sales volumes and revenue, can vary significantly. A delivery that was expected in the third quarter was moved into the fourth quarter. We now expect deliveries in the fourth quarter to account for over one-third of our 2011 sales volumes.
We now expect uranium production to be 21.7 million pounds this year compared to our previous forecast of 21.9 million pounds. The decrease is due to lower expected production at our US and Inkai operations, partially offset by higher expected production at McArthur River/Key Lake. Please see our Uranium production outlook in our third quarter MD&A for more information.
Exploration costs are now expected to increase 0% to 5% over 2010 (previously a 5% to 10% decrease) based on increased evaluation activities at Kintyre.
Due to current unfavourable market conditions for UF6 conversion, we are reducing production for this year. We now expect fuel services to produce between 14 million and 15 million kgU this year (previously 15 million to 16 million kgU).
We have narrowed the scope of some of our business development activities and now expect our direct administration costs to increase 10% to 15% over 2010 (previously a 15% to 20% increase).
We expect capital expenditures to be about $575 million in 2011 compared to our previous estimate of $590 million due to changes in the scheduling of some projects. We do not expect this reduction in capital expenditures in 2011 will impact our plans to double annual uranium production to 40 million pounds by 2018.
Sensitivity analysis
For the rest of 2011:
Debt
We use debt to provide additional liquidity. We have sufficient borrowing capacity with unsecured lines of credit totalling about $1.2 billion at September 30, 2011, the same as at June 30, 2011. At September 30, 2011, we had approximately $606 million outstanding in letters of credit.
On November 1, 2011:
With these changes, our unsecured lines of credit total about $1.9 billion as of November 4, 2011.
Adjusted net earnings (non-IFRS measure)
Adjusted net earnings is a measure with no standardized meaning under IFRS (non-IFRS measure). We use this measure as a more meaningful way to compare our financial performance from period to period. Adjusted net earnings is our net earnings 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.
Adjusted net earnings is non-standard supplemental information, and not a substitute for financial information prepared according to accounting standards. Other companies may calculate this measure differently. The table below reconciles adjusted net earnings with our net earnings.
(1)In 2008, we opted to discontinue hedge accounting for our portfolio of foreign currency forward sales contracts. Since then, we have adjusted our gains or losses on derivatives as reported under IFRS to reflect what our earnings would have been had hedge accounting been applied.
Of note this quarter
On August 30, 2011, we made an all-cash offer to acquire all the outstanding shares of Hathor Exploration Limited (Hathor) for a price of $3.75 per share in a transaction which values the fully diluted share capital of Hathor at approximately $520 million.(1)
(1) Estimated fully diluted share capital of approximately 139 million shares, based on Hathor's public disclosure.
On October 19, 2011, Hathor announced that it had entered into an agreement with Rio Tinto pursuant to which Rio Tinto will make an offer for all of the common shares of Hathor. Rio Tinto subsequently made its offer.
We are reviewing the Hathor announcement and Rio Tinto offer. On October 31, 2011, we announced the extension of the expiry date of our offer to November 14, 2011.
Uranium market update
The uranium market during the third quarter can be characterized as uncertain. We expect this uncertainty to continue in the near to medium term as the industry continues to determine the extent to which short- to medium-term demand has been impacted by the March nuclear incident in Japan. The biggest drivers of uncertainty are concerns about excess German and Japanese uranium inventories and the extent to which deferrals and/or cancellations under sales contracts will introduce additional volumes into the market.
Germany, which has 17 nuclear reactors and represents 5% of the global generating capacity, has decided to revert to its previous phase out policy. Currently, eight of its reactors (about 2% of global generating capacity) are shutdown; we do not expect these reactors to restart. Germany has indicated it plans to shut down the remaining nine reactors by 2022.
In Japan, 11 of its 54 nuclear reactors are currently operating. Many of the reactors currently off-line were unaffected by the March earthquake and tsunami; however, they require regulatory and political approvals before they can restart (four of the Fukushima-Daiichi units are permanently shut down). There is concern that these approvals may be delayed due to decreased public support for nuclear in Japan. However, there has been some progress. In August, the local government approved the restart of the first nuclear reactor since March - Hokkaido's Tomari 3 reactor. Japan's 54 reactors represent 12% of global nuclear generating capacity.
Despite the near- to medium-term uncertainty, in the long term we continue to see a very strong and promising growth profile for the nuclear industry. Countries around the world, with very few exceptions, have reconfirmed their commitment to nuclear energy. China, India, France, Russia, South Korea, the United Kingdom, Canada, the United States, and almost every other country with a nuclear program are maintaining nuclear as a part of their energy mix.
Other previously non-nuclear countries are either moving ahead with their reactor construction programs or considering adding nuclear to their energy programs in the future. For example, the United Arab Emirates is proceeding with its plans to have 5.6 gigawatts of nuclear capacity in place by 2020 and is beginning the process to secure fuel for those reactors. In Saudi Arabia, where power demand has been increasing by 7% to 8% annually, plans to build 16 reactors by 2030 have been announced.
We are in the enviable position of being heavily committed under long-term sales contracts until 2016. With more than 300 million pounds of uranium under contract, we expect to have a solid revenue stream for years to come, even in the event of declining uranium market prices. With a target of 40% fixed-price contracts and 60% market-related, our portfolio is designed to give us increasing leverage when uranium prices increase, and to protect us when prices decline.
Caution about forward-looking information relating to the March 2011 Japanese nuclear incident
This discussion of the expected impact of the March 2011 nuclear incident in Japan, including its potential impact on future global uranium demand and the number of operating reactors, 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.
Financial results by segment
Uranium
Third quarter
Production volumes this quarter were 5% lower compared to the third quarter of 2010 primarily due to lower production from Smith Ranch-Highland and Inkai. See Operations and development project updates for more information.
Uranium revenues this quarter were up 38% compared to 2010, due to a 29% increase in sales volumes and a 7% increase in the $Cdn realized selling price.
Our realized prices this quarter were higher than the third quarter of 2010 mainly due to higher $US prices under market-related contracts, partially offset by a less favourable exchange rate. In the third quarter of 2011, our realized foreign exchange rate was $0.97 compared to $1.06 in the prior year.
Total cash cost of sales (excluding DDR) increased by 68% ($165 million compared to $98 million in 2010). This was mainly the result of the following:
The net effect was a $25 million increase in gross profit for the quarter.
The following table shows our cash cost of sales per unit (excluding DDR) for produced and purchased material, including royalty charges on produced material, and the quantity of produced and purchased uranium sold.
First nine months
Production volumes for the first nine months of the year were 4% lower than in the previous year mainly due to lower production from Smith Ranch-Highland and Inkai. See Operations and development project updates for more information.
For the first nine months of 2011, uranium revenues were down 2% compared to 2010, due to a 7% decline in sales volumes partially offset by a 6% increase in the $Cdn realized selling price.
Our realized prices were higher than the first nine months of 2010 mainly due to higher $US prices under market-related contracts, partially offset by a less favourable exchange rate. In the first nine months of 2011, our realized foreign exchange rate was $0.99 compared to $1.06 in the prior year.
Total cash cost of sales (excluding DDR) increased by 6% ($487 million compared to $460 million in 2010). This was mainly the result of the following:
The net effect was a $24 million decrease in gross profit for the first nine months.
The following table shows our cash cost of sales per unit (excluding DDR) for produced and purchased material, including royalty charges on produced material, and the quantity of produced and purchased uranium sold.
Please see our third quarter MD&A for updates to our uranium price sensitivity analysis.
Fuel services
(includes results for UF6, UO2 and fuel fabrication)
Third quarter
Total revenue was $17 million higher than in 2010 due to a 7% increase in the average realized price for our fuel services products along with an 18% increase in sales volumes.
Our $Cdn realized price for fuel services was affected by a 5% increase in our realized price for UF6 as well as the mix of products delivered in the quarter. In 2011, a higher proportion of fuel services sales were for fuel fabrication, which typically yields a much higher price than the other fuel services products.
The total cost of products and services sold (including DDR) increased by 34% ($71 million compared to $53 million in the third quarter of 2010) due to the increase in sales volumes along with the mix of products delivered in the quarter. As a result of the product mix, the average unit cost of sales was 13% higher for the quarter.
The net effect was a $1 million decrease in gross profit.
First nine months
In the first nine months of the year, total revenue increased by 2% due to a 4% increase in sales volumes, partially offset by a 1% decline in the realized selling price.
The total cost of products and services sold (including DDR) increased by 18% ($170 million compared to $144 million in 2010) due to the increase in the unit cost of product sold. The average unit cost of sales was 15% higher due to the mix of products delivered in the year and the recognition of higher cost recoveries in 2010.
The net effect was a $23 million decrease in gross profit.
Electricity results
Third quarter
Total electricity revenue decreased slightly this quarter compared to the third quarter of 2010 due to lower realized prices which were almost completely offset by increased output. Realized prices reflect spot sales, revenue recognized under BPLP's agreement with the OPA and financial contract revenue. BPLP recognized revenue of $119 million this quarter under its agreement with the OPA, compared to $41 million in the third quarter of 2010. About 53% of BPLP's output was sold under financial contracts this quarter, compared to 46% in the third quarter of 2010. Pricing under these contracts was lower than in 2010. From time to time BPLP enters the market to lock in the gains under these contracts.
The capacity factor was 93% this quarter, up from 88% in the third quarter of 2010 due to a lower volume of planned and unplanned outage days when compared to last year. Operating costs were similar at $232 million compared to $229 million in 2010.
The result was a 3% decrease in our share of earnings before taxes.
BPLP distributed $80 million to the partners in the third quarter. Our share was $25 million. The partners have agreed that BPLP will distribute excess cash monthly, and will make separate cash calls for major capital projects.
During the fourth quarter, there is a planned maintenance outage at one unit.
First nine months
Total electricity revenue for the first nine months decreased 9% compared to 2010 due to lower output and lower realized prices. Realized prices reflect spot sales, revenue recognized under BPLP's agreement with the OPA and financial contract revenue. BPLP recognized revenue of $351 million in the first nine months of 2011 under its agreement with the OPA, compared to $224 million in the first nine months of 2010. The equivalent of about 49% of BPLP's output was sold under financial contracts in the first nine months of this year, compared to 41% in 2010. Pricing under these contracts was lower than in 2010. From time to time BPLP enters the market to lock in the gains under these contracts.
The capacity factor was 87% for the first nine months of this year, down from 90% in 2010 due to a higher volume of outage days during this year's planned outage compared to last year's planned outage. Operating costs were $735 million compared to $685 million in 2010 due to higher maintenance costs incurred during outage periods and increased staff costs.
The result was a 39% decrease in our share of earnings before taxes.
BPLP distributed $205 million to the partners in the first nine months of 2011. Our share was $65 million.
Operations and development project updates
Uranium - production overview
McArthur River/Key Lake
At McArthur River/Key Lake, production was 3% higher in the third quarter and 1% higher for the first nine months of the year compared to the same periods last year. These increases were due to better recovery and improved equipment reliability at the mill. We expect the mill to operate through year end with no scheduled shutdown until 2012.
At Key Lake, we continued work on the new oxygen, acid and steam plants. Commissioning of the steam plant commenced in the third quarter. We expect that the oxygen, acid and steam plants will all be operating by the end of the year.
Smith Ranch-Highland and Crow Butte
Production this quarter was 17% lower and 10% lower for the first nine months of the year compared to the same periods last year due to lower production from Smith Ranch-Highland. We have decreased our production forecast for the year by 8% to 2.3 million pounds. The review process to obtain regulatory approvals has lengthened at Smith Ranch-Highland, which has increased the timeline to bring new wellfields into production.
We continue to seek regulatory approvals to proceed with expansions at our various satellite operations in Wyoming and Nebraska. However, we are experiencing some permitting delays. As a result, we do not expect to receive approval to expand Reynolds Ranch this year. We recognize the regulators have a large volume of permits to process. We are working with them to improve communications and ensure we understand and meet their needs.
Inkai
Production for the quarter was 38% lower and 14% lower for the first nine months of the year compared to the same periods last year. For the quarter, lower production was primarily due to in-process uranium inventory changes. Prior to final commissioning of the processing facilities in 2010, the in-process uranium inventory had built up. A significant reduction of this inventory added to production in the third quarter of 2010 compared to 2011.
In addition, during 2010, the first year of full operation at Inkai, production benefited from the grade peak associated with multiple new wellfields. As our existing wellfields mature, the grades decrease. Average grades at in situ recovery operations typically stabilize at levels lower than initial years as uranium is recovered from a mix of wellfields of varying maturities. We are ramping up capacity at the Inkai operation in order to accommodate lower grades. We have lowered our production forecast to 2.5 million pounds, a 7% decrease from our initial estimate but in line with the currently approved production level.
Inkai's supply of sulphuric acid was consistent during the quarter. We experienced brief interruptions to supply during the first six months of the year. We do not anticipate any further interruptions to supply this year.
As announced on August 31, 2011, we signed an MOA with our partner, Kazatomprom, to increase production from blocks 1 and 2 to 5.2 million pounds of U3O8 (100% basis). Under the MOA, our share of Inkai's annual production will be 2.9 million pounds with the processing plant at full capacity. We will also be entitled to receive profits on 3.0 million pounds.
We believe this is a fair and reasonable approach that allows both parties to benefit from changes in the uranium market that were not envisioned when the initial agreements were signed. To implement the increase, we need a binding agreement finalizing the terms of the MOA, government approval and an amendment to the resource use contract.
We continue to proceed with delineation drilling and the engineering of infrastructure and the test leach facility at block 3.
Cigar Lake
The sinking of shaft 2 continues as planned. We expect to reach the main mine workings on the 480 metre level before the end of the year. The final depth of the shaft will be 500 metres.
We also continued drilling freeze holes from surface during the quarter.
For the remainder of the year, we will focus on carrying out our plans and implementing the strategies we outlined in our annual MD&A.
As announced on October 5, 2011, we signed a non-binding MOU with our joint venture partners, which contemplates a change in the milling arrangements for the ore from Cigar Lake. Under the current toll milling agreements, both the McClean Lake mill and the Rabbit Lake mill would process uranium from Cigar Lake. Under the new arrangement, the McClean Lake mill would process and package all of the Cigar Lake uranium.
Rabbit Lake will continue to process ore mined on site and has the flexibility to process ore from other sources.
We expect the new milling arrangement will have a positive impact on the economics of the Cigar Lake project. To reflect the impact of this new milling arrangement and other developments (such as surface freezing) since the March 2010 Cigar Lake technical report, we are planning to file an updated Cigar Lake technical report with, or prior to, our February 2012 annual information form.
The most significant project developments since the March 2010 technical report are:
The projected production startup date remains mid-2013.
Binding agreements with the owners of the Cigar Lake project and McClean Lake mill are required to proceed with the new milling arrangements. We expect these to be complete before November 30, 2011.
Cigar Lake is a key part of our plan to double annual uranium production to 40 million pounds by 2018, and we are committed to bringing this valuable asset safely into production.
The intention to mill all Cigar Lake ore at the McClean Lake mill and the expected benefit of that arrangement, the estimated average cash operating cost and our expected share of the total capital cost at completion for Cigar Lake, and our projected production startup date of mid-2013 are forward-looking information. They are based on the assumptions and subject to the material risks discussed under Caution about forward-looking information and specifically on the assumptions and risks listed below.
Assumptions
Material Risks
Fuel services
Fuel services production totalled 2.8 million kgU this quarter, compared to 2.3 million kgU in the third quarter of 2010. Production was 22% higher due to the planned maintenance shutdown of the Port Hope UF6 plant in 2010.
Production for the first nine months of the year was 11.6 million kgU compared to 11.7 million kgU in the first nine months of 2010.
Due to current unfavourable market conditions for UF6 conversion, we are reducing production for this year. We now expect fuel services to produce between 14 million and 15 million kgU this year (previously 15 million to 16 million kgU).
Based on the unfavourable market outlook for UF6 conversion, we have discontinued discussions to extend our toll conversion contract with SFL beyond 2016. We remain fully committed to the current contract. Should market conditions improve over the next few years, we would consider resuming our discussions to extend the contract.
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 and 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
Conference call
We invite you to join our third quarter conference call on Monday, November 7, 2011 at 11:00 a.m. Eastern.
The call will be open to all investors and the media. To join the call, please dial (877) 240-9772 (Canada and US) or (416) 340-8530. An operator will put your call through. A live audio feed 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 third quarter MD&A and interim financial statements on our website at cameco.com, on SEDAR at sedar.com and on EDGAR at sec.gov/edgar.shtml.
Additional information, including our 2010 annual management's discussion and analysis, annual audited financial statements and annual information form, is available on SEDAR at sedar.com, on EDGAR at sec.gov/edgar.shtml 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, including Ontario where we are a limited partner in North America's largest nuclear electricity generating facility. 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 and Cameco mean Cameco Corporation and its subsidiaries and affiliates unless stated otherwise.
Contacts:
Cameco
Investor inquiries:
Rachelle Girard
(306) 956-6403
Media inquiries:
Rob Gereghty
(306) 956-6190
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Datum: 07.11.2011 - 13:00 Uhr
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