Quarterly Report - 2022 - Q3

On October 27, 2022, Cameco (TSX: CCO; NYSE: CCJ) reported its consolidated financial and operating results for the third quarter ended September 30, 2022 in accordance with International Financial Reporting Standards (IFRS).

“Our results reflect the execution of our strategy of full-cycle value capture and are in line with the preliminary third quarter operating update provided on October 11, 2022. We are benefiting from higher average realized prices in our uranium segment and our fuel services segment as the market continues to transition and geopolitics continue to highlight security of supply concerns,” said Tim Gitzel, Cameco’s president and CEO. “With improving financials as we begin to restore our tier-one run rate and exposure to rising prices, we continue to believe Cameco is the best way to invest in the uranium market recovery.

“We have continued to have success in securing long-term contracts that will underpin the operation of our tier-one assets and that we expect to benefit from for many years thanks to our strategic patience. Year-to-date we have added 50 million pounds to our long-term uranium contract portfolio. And, we have added 7 million kgU as UF6 to our portfolio. Additionally, we have advanced contracting discussions for about 27 million pounds of long-term uranium business and 7.5 million kgU of conversion services from initiation to accepted. Key commercial terms, such as pricing mechanism, volume and tenor have been agreed upon, but contracts are subject to finalization. Once all contracts are finalized, the total volume of uranium successfully contracted since the beginning of 2022 is expected to be about 77 million pounds, and the total volume of conversion services contracted is expected to be about 14.5 million kgU. Finalization of these contracts may or may not occur in this calendar year. And, while it has already been a successful year of contracting, our pipeline of uranium and conversion negotiations remains large, and we expect to see more long-term demand come to the market.

“We remain disciplined and balanced in managing our assets over the long term. Continued contracting success and further improvements in the uranium market will be the key to enable us to make production planning decisions that will get us back to operating at our tier-one run rate.

“We continue to transition from care and maintenance to operational readiness at McArthur River and Key Lake. Commissioning has been completed for all process circuits at the McArthur River mine and critical mining equipment and initial production areas have been prepared and are ready for new production. The Key Lake mill has undergone significant upgrades, including a new computer operating system, installation of several automated systems and the incorporation of digital technology. We have been working through normal commissioning issues as we integrate the existing and new assets with the upgraded operating system. Commissioning activities are winding down and first production is scheduled for later in the fourth quarter. We continue to expect up to 2 million pounds of production (100% basis) this year. And, while it has already been a successful year of contracting, our pipeline of uranium and conversion negotiations remains large, and we expect to see more long-term demand come to the market.

“Thanks to our deliberate actions and conservative financial management we have been and continue to be resilient. With $1.3 billion in cash and cash equivalents and short-term investments on our balance sheet, improving fundamentals for our business and our decision to prepare McArthur River/Key Lake for production, our plans give us line of sight to a significant improvement in our future financial performance.

“We are optimistic about Cameco’s role in supporting the transition to a net-zero carbon economy. We have tier-one assets that are licensed, permitted, long-lived, and proven reliable, and that have expansion capacity. These tier-one assets are backed up by idle tier-two assets and what we think is the best exploration portfolio that leverages existing infrastructure. We have locked in significant value for the fuel services segment of our business in the recent price transition in the conversion market and we are exploring opportunities in the nuclear fuel cycle and in innovative, non-traditional commercial uses of nuclear power in Canada and around the world.

“And of course, with the pending joint acquisition of Westinghouse, we are excited about being able to extend the base of our reach in the nuclear fuel cycle with assets that, like ours, are strategic, proven, licensed, permitted, and located in geopolitically important jurisdictions. Assets that we expect will be able to participate in the growing demand profile for nuclear energy from their existing footprint.

“We believe we have the right strategy to achieve our vision of ‘energizing a clean-air world’ and we will do so in a manner that reflects our values. Embedded in all our decisions is a commitment to addressing the environmental, social and governance risks and opportunities that we believe will make our business sustainable over the long term.”

• Q3 net loss of $20 million; adjusted net earnings of $10 million: Results are driven by normal quarterly variations in contract deliveries and the continued execution of our strategy, including the operational readiness activities to reach planned tier-one production by 2024. Adjusted net earnings is a non-IFRS measure, see page 4.
• Strong performance in the uranium and fuel services segments: Third-quarter results reflect the impact of higher average realized prices in both the uranium and fuel services segments under our long-term contract portfolio. In our uranium segment we produced 2 million pounds (our share) during the quarter and delivered 5.3 million pounds at an average realized price 48% higher than the same period last year. In our fuel services segment average realized prices were 27% higher than in the third quarter of 2021. Uranium and fuel services production and deliveries were in line with the preliminary third quarter operating update provided on October 11, 2022.
• Contracting success continues while maintaining leverage to higher prices: Year-to-date, we have added to our long-term contract portfolio more than 50 million pounds in our uranium segment and more than 7 million kgU UF6 conversion in our fuel services segment. In addition, we have advanced contracting discussions for about 27 million pounds of long-term uranium business and 7.5 million kgU of conversion services from initiation to accepted. Key commercial terms such as pricing mechanism, volume and tenor have been agreed to, but the contracts are subject to finalization. Once all contracts are finalized, the total volume of uranium successfully contracted since the beginning of 2022 is expected to be about 77 million pounds, and the total volume of conversion services contracted is expected to be about 14.5 million kgU. Finalization of these contracts may or may not occur in this calendar year. And, while it has already been a successful year of contracting, our pipeline of uranium and conversion negotiations remains large, and we expect to see more long-term demand come to the market.
• McArthur River/Key Lake continue to expect first production in fourth quarter: During the quarter we continued to advance the recruitment, training and operational readiness activities at the McArthur River mine and Key Lake mill. We expensed the operational readiness costs directly to cost of sales, which totaled approximately $51 million during the quarter. Commissioning has been completed for all process circuits at the McArthur River mine and critical mining equipment and initial production areas have been prepared and are ready for new production. The Key Lake mill, has undergone significant upgrades, including a new computer operating system, installation of several automated systems and the incorporation of digital technology. We have been working through normal commissioning issues as we integrate the existing and new assets with the upgraded operating system. Commissioning activities are winding down and first production is scheduled for later in the fourth quarter. We continue to expect up to 2 million pounds of production (100% basis) this year.
• JV Inkai shipments still delayed: JV Inkai has continued to experience delays in shipping its finished product via the Trans-Caspian route. The first shipment of our share of JV Inkai’s 2022 production has been dispatched at the end of September but is delayed in transit. We continue to work closely with JV Inkai and our joint venture partner, Kazatomprom, to begin receiving our production share via this shipping route that doesn’t rely on Russian rail lines or ports, however, there are no assurances regarding the timeline for resolution of this delay. In the event that it takes longer than anticipated to secure this shipping route, we could experience further delays in our expected Inkai deliveries this year. To mitigate this risk, we have inventory, long-term purchase agreements and loan arrangements in place we can draw on. Depending on when we receive the shipment of our share of Inkai’s 2022 production, our 2022 share of earnings from this equity-accounted investee and the timing of the receipt of our share of dividends from the joint venture may be impacted.
• Strong balance sheet: As of September 30, 2022, we had $1.3 billion in cash and cash equivalents and short-term investments and $997 million in long-term debt. In addition, we have a $1 billion undrawn credit facility which matures October 1, 2026.
• 2022 outlook updated: We have updated our outlook for purchases and average realized price. See Outlook for 2022 in our third quarter MD&A for more information.
• Also of note, joint venture formed to acquire Westinghouse: Following the quarter, as announced on October 11, 2022, we have entered into a strategic partnership with Brookfield Renewable Partners (Brookfield Renewable) and its institutional partners to acquire Westinghouse Electric Company (Westinghouse), a global provider of mission-critical and specialized technologies, products and services across most phases of the nuclear power sector. Brookfield Renewable, with its institutional partners, will beneficially own a 51% interest in Westinghouse and Cameco will beneficially own 49%. Bringing together Cameco’s expertise in the nuclear industry with Brookfield Renewable’s expertise in clean energy positions nuclear power at the heart of the energy transition and creates a powerful platform for strategic growth across the nuclear sector. Concurrently with the execution of the acquisition agreement, we secured commitments that provide for a $1 billion (US) bridge loan facility and $600 million (US) in term loans. Following the announcement, we undertook a $650 million (US) bought deal offering of common shares, with an underwriter option to purchase additional shares. The offering closed on October 17, 2022, providing us with gross proceeds of approximately $747.6 million (US) including the underwriters’ exercise of the option to purchase additional shares in full. Closing is anticipated in the second half of 2023. The transaction is subject to closing conditions, including regulatory approvals. See Subsequent event; proposed acquisition of Westinghouse in our third quarter MD&A and our October 18, 2022 material change report (available on www.sedar.com and www.sec.gov) for more information.

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