Uranium
| Highlights | 2012 | 2011 | Change |
|---|---|---|---|
| Production volume (million lbs) | 21.9 | 22.4 | (2)% |
| Sales volume (million lbs) | 32.5 | 32.9 | (1)% |
| Average spot price ($US/lb) | 48.40 | 56.36 | (14)% |
| Average long-term price ($US/lb) | 60.13 | 66.79 | (10)% |
| Average realized price | |||
| ($US/lb) | 47.62 | 49.17 | (3)% |
| ($Cdn/lb) | 47.61 | 49.18 | (3)% |
| Average unit cost of sales ($Cdn/lb) (including D&A) | 32.09 | 29.94 | 7% |
| Revenue ($ millions) | 1,546 | 1,616 | (4)% |
| Gross profit ($ millions) | 504 | 632 | (20)% |
| Gross profit (%) | 33 | 39 | (15)% |
Production volumes in 2012 were 2% lower than 2011 due to lower production from Smith Ranch-Highland and McArthur River/Key Lake, which had record production in 2011. See Uranium — production overview for more information.
Uranium revenues this year were down 4% compared to 2011, due to a slight decrease in sales volumes and a decrease of 3% in the Canadian dollar average realized price. Our realized prices this year in US dollars were 3% lower than 2011 mainly due to lower US dollar prices under market-related contracts. The spot price for uranium averaged $48.40 in 2012, a decline of 14% compared to the 2011 average price of $56.36. Total cost of sales (including D&A) increased by 6% this year ($1.0 billion compared to $984 million in 2011). This was mainly the result of the following:
- average unit costs for produced uranium were 13% higher and average unit costs for purchased uranium were 9% higher due to an increase in spot purchases
- lower royalty charges in 2012 due mainly to the decline in the realized price. In 2012, total royalties were $116 million compared to $124 million in 2011.
The net effect was a $128 million decrease in gross profit for the year.
The following table shows the costs of produced and purchased uranium incurred in the reporting periods (non-IFRS measures, see below). These costs do not include selling costs such as royalties, transportation and commissions, nor do they reflect the impact of opening inventories on our reported cost of sales.
| ($Cdn/lb) | 2012 | 2011 | Change |
|---|---|---|---|
| Produced | |||
| Cash cost | 19.95 | 18.45 | 8% |
| Non-cash cost | 8.13 | 6.50 | 25% |
| Total production cost | 28.08 | 24.95 | 13% |
| Quantity produced (million lbs) | 21.9 | 22.4 | (2)% |
| Purchased | |||
| Cash cost | 28.50 | 26.08 | 9% |
| Quantity purchased (million lbs) | 11.2 | 9.6 | 17% |
| Totals | |||
| Produced and purchased costs | 28.22 | 25.29 | 12% |
| Quantities produced and purchased (million lbs) | 33.1 | 32.0 | 3% |
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 table below presents a reconciliation of these measures to our unit cost of sales for the years ended 2012 and 2011 as reported in our financial statements.
Cash And Total Cost Per Pound Reconciliation
| ($ millions) | 2012 | 2011 |
|---|---|---|
| Cost of product sold | 871.3 | 824.3 |
| Add / (subtract) | ||
| Royalties | (116.0) | (123.6) |
| Standby charges | (28.6) | (22.0) |
| Other selling costs | (6.2) | (9.4) |
| Change in inventories | 35.6 | (5.7) |
| Cash operating costs (a) | 756.1 | 663.6 |
| Add / (subtract) | ||
| Depreciation and amortization | 170.9 | 159.2 |
| Change in inventories | 7.2 | (13.6) |
| Total operating costs (b) | 934.2 | 809.2 |
| Uranium produced and purchased (millions lbs) (c) | 33.1 | 32.0 |
| Cash costs per pound (a ÷ c) | 22.84 | 20.74 |
| Total costs per pound (b ÷ c) | 28.22 | 25.29 |
Outlook For 2013
We expect to produce 23.3 million pounds in 2013 and have commitments under long-term contracts to purchase 12 million pounds.
Based on the contracts we have in place, we expect to sell between 31 million and 33 million pounds of U3O8 in 2013. We expect the unit cost of sales to be up to 5% higher than in 2012. The increase is due primarily to higher costs for produced material. If we decide to make additional discretionary purchases in 2013, then we expect the overall unit cost of sales to increase further.
Based on current spot prices, revenue should be up to 5% higher than it was in 2012 as a result of an expected increase in the realized price.
Price Sensitivity Analysis: Uranium
The table and graph below are not forecasts of prices we expect to receive. The prices we actually realize will be different from the prices shown in the table and graph. They are designed to indicate how the portfolio of long-term contracts we had in place on December 31, 2012 would respond to different spot prices. In other words, we would realize these prices only if the contract portfolio remained the same as it was on December 31, 2012, and none of the assumptions we list below change.
We intend to update this table and graph each quarter in our MD&A to reflect deliveries made and changes to our contract portfolio each quarter. As a result, we expect the table and graph to change from quarter to quarter.
Expected realized uranium price sensitivity under various spot price assumptions
| Spot Prices ($US/lb U3O8) | $20 | $40 | $60 | $80 | $100 | $120 | $140 |
|---|---|---|---|---|---|---|---|
| 2013 | 43 | 46 | 53 | 61 | 69 | 77 | 83 |
| 2014 | 45 | 48 | 56 | 64 | 73 | 82 | 89 |
| 2015 | 41 | 46 | 56 | 66 | 76 | 86 | 95 |
| 2016 | 43 | 48 | 58 | 69 | 80 | 90 | 98 |
| 2017 | 42 | 47 | 57 | 67 | 78 | 87 | 95 |
The table and graph illustrate the mix of long-term contracts in our December 31, 2012 portfolio, and are consistent with our contracting strategy. Both have been updated to December 31, 2012 to reflect:
- deliveries made and contracts entered into up to December 31, 2012
- our best estimate of future deliveries
Our portfolio includes a mix of fixed-price and market-related contracts, which we target at a 40:60 ratio. Those that are fixed at lower prices or have low ceiling prices will yield prices that are lower than current market prices. In 2012, a number of older contracts expired and we are starting to deliver into more favourably priced contracts.
Our portfolio is affected by more than just the spot price. We made the following assumptions (which are not forecasts) to create the table:
Sales
- sales volumes on average of 32 million pounds per year
Deliveries
- customers take the maximum quantity allowed under each contract (unless they have already provided a delivery notice indicating they will take less)
- we defer a portion of deliveries under existing contracts for 2013
Inflation
- is 2% per year
Prices
- the average long-term price indicator is the same as the average spot price for the entire year (a simplified approach for this purpose only). Since 1996, the long-term price indicator has averaged 15% higher than the spot price. This differential has varied significantly. Assuming the long-term price is at a premium to spot, the prices in the table and graph will be higher.
Tiered Royalties
As sales of material we produce at our Saskatchewan properties increase, so do the tiered royalties we pay. The table below indicates what we would pay in tiered royalties at various realized prices. We record tiered royalties as a cost of sales.
This table assumes that we sell 100,000 pounds U3O8 and that there is no capital allowance available to reduce royalties, and is based on 2012 government prescribed rates. The index value to calculate rates for 2013 is not available until April 2013.
| Realized Price ($Cdn) |
Tier 1 Royalty 6% X (sales Price - $18.66) |
Tier 2 Royalty 4% X (sales Price - $28.00) |
Tier 3 Royalty 5% X (sales Price - $37.33) |
Total Royalties |
|---|---|---|---|---|
| 25 | 38,040 | – | – | 38,040 |
| 35 | 98,040 | 28,000 | – | 126,040 |
| 45 | 158,040 | 68,000 | 38,350 | 264,390 |
| 55 | 218,040 | 108,000 | 88,350 | 414,390 |
| 65 | 278,040 | 148,000 | 138,350 | 564,390 |
| 75 | 338,040 | 188,000 | 188,350 | 714,390 |
| 85 | 398,040 | 228,000 | 238,350 | 864,390 |