Quarterly Report - 2017 - Q4

On February 9, 2018, Cameco reported its consolidated financial and operating results for the fourth quarter and year ended December 31, 2017 in accordance with International Financial Reporting Standards (IFRS).

“Our fourth quarter and annual results are in line with the outlook that we provided in the third quarter,” said president and CEO, Tim Gitzel. “While the market has struggled to transition, we remain resolved in our efforts to strengthen the company in the long-term.

“We remain protected under our contract portfolio and have taken the necessary actions to improve our costs. While these decisions have been difficult, we are starting to see them reflected in our lower capital, operational, and administration spend, and our cash flow generation.

“We have demonstrated supply discipline over the past couple of years now. We curtailed our Rabbit Lake and US ISR operations in 2016 and as of January we have temporarily suspended the largest high-grade production source in the world – our McArthur River/Key Lake operation. Consistent with our strategy, we have taken action to preserve the value of our tier-one assets while at the same time removing some of the lowest cost production from an oversupplied market. We have done this at a time where we have inventory and potential opportunity to purchase to fulfill our contractual commitments.

“We will continue to evaluate our strategy in the context of the market and believe that our stakeholders will be rewarded for their patience and support of our strategy to deliver long-term value.”

Summary of 2017 results and developments:

• 2017 performance in line with outlook provided; net loss of $205 million; adjusted net earnings of $59 million: As expected, production was lower than 2016 due to both planned and unplanned reductions. During the year, we successfully implemented operational changes at our northern sites, as part of our focus on cost reduction and to improve efficiency. The operational and administrative changes made in 2017 are reflected in lower capital expenditures, unit cost of sales, exploration, and administration spend. However, earnings were lower than 2016 primarily due to lower uranium prices. Lower prices also contributed to the recognition of impairment charges of $358 million in 2017 ($362 million in 2016).
• Average realized price was 66% above spot price: We continue to benefit from the protection of our contract portfolio, despite removal of the disputed Tokyo Electric Power Company Holdings, Inc. (TEPCO) contract and the sustained low price environment. Overall the spot price averaged $21.78 (US) in 2017, while our average realized price was $36.13 (US). We continue to work on protecting and extending the value of our portfolio. In 2017, we extended our contract with Bruce Power to meet 100% of their requirements to 2030. This extension has an estimated total value of $2 billion to 2030.
• Additional supply curtailment – 2018 suspension of McArthur River/Key Lake, the world’s largest high-grade production source: After suspending our Rabbit Lake operation and curtailing our US ISR wellfields in 2016, on November 8, 2017 we announced a temporary suspension of McArthur River and Key Lake commencing at the end of January 2018. Through the month of January, the McArthur River and Key Lake operations were brought into a safe shutdown state. Production for 2018 is expected to be negligible. We will continue to review market conditions on an ongoing basis as we are looking for a sustained improvement to support our restart. As we have previously indicated, we will continue to evaluate the optimal mix of our sources of uranium supply to feed into our contract portfolio, which could see us make further changes to our inventory position, production profile or purchasing activity.
• JV Inkai restructure completed: As announced on December 11, 2017, the restructuring of JV Inkai took effect on January 1, 2018. The restructure includes an amendment to the resource use contract resulting in the right to increase production to 10.4 million pounds per year (our share 4.2 million pounds), a licence extension to 2045, and changes to the boundaries to match the agreed production profile to 2045. Under the implementation agreement, our ownership interest in JV Inkai has been adjusted to 40% and Kazatomprom’s to 60% as of January 1, 2018. As a result, we will account for JV Inkai on an equity basis.
• Reduction to planned dividend and change to annual payment: In the ongoing low price environment, we continue to evaluate the optimal capital allocation. On November 8, 2017, we announced the reduction in our planned dividend to $0.08 per share and amendment of the payment frequency to annual as part of our continued focus on maintaining our investment-grade rating and self-managing risk. Ultimately, we hope to reward our stakeholders for their continued patience and support of our strategy to build long-term value.
• Canada Revenue Agency (CRA) dispute, awaiting trial decision: The trial for 2003, 2005 and 2006 was concluded in September 2017. We remain confident in our position and await a decision from the judge. We had stated that we expect the decision could take six to 18 months, from the conclusion of the trial.
• TEPCO dispute, arbitration schedule set: We expect arbitration to begin in the first quarter of 2019. The timing for a final decision will be dependent on how long the arbitrators deliberate following the conclusion of the hearing. We have filed our statement of claim for $682 million (US) plus interest and legal costs.