Cameco Reports 2024 Second Quarter Results
Cameco reports Q2 results: 2024 outlook on track; strong operational performance; financial results reflect transition to tier-one economics; durable demand outlook driving long-term price increases; disciplined strategy capturing long-term value
Saskatoon, Saskatchewan, Canada, July 31, 2024
Cameco (TSX: CCO; NYSE: CCJ) today reported its consolidated financial and operating results for the second quarter ended June 30, 2024, in accordance with International Financial Reporting Standards (IFRS).
“Second quarter operational performance was strong, driving financial results that remain in line with our full-year 2024 outlook,” said Tim Gitzel, Cameco’s president and CEO. “As expected, those results reflect normal quarterly variability, and while we believe Westinghouse is on track and continues to perform as expected, our overall results continue to be impacted by the required purchase accounting and other non-operational acquisition-related costs related to that investment.
“At the end of the second quarter, Alice Wong announced her retirement as senior vice-president and chief corporate officer. It’s been an absolute pleasure to work with Alice during her 37-year career with Cameco. Personally, and on behalf of the company, I would like to thank Alice for her expertise, wisdom, leadership and outstanding contributions, and I wish her the very best in retirement. Rachelle Girard, who was in the role of vice-president of investor relations and has demonstrated sound judgment and excellent leadership qualities in her 18 years with Cameco, has been appointed senior vice-president and chief corporate officer. We are pleased to welcome Rachelle to Cameco’s senior executive team and look forward to a strong contribution as we position the company to leverage opportunities in these exciting times for the nuclear industry.
“Cameco is in the enviable position of having what we believe are the world’s premier, tier-one assets, with investments across the fuel cycle and the reactor life cycle. With our disciplined strategy that aligns our operational, marketing, and financially focused decisions, in a market where we are seeing sustained, positive momentum for nuclear energy, we believe those assets and investments will allow us to generate full-cycle value.
“Under the marketing element of our strategy, with the positive demand sentiment and a long-term uranium price that has continued to strengthen, we are continuing to be selective in committing our unencumbered, tier-one, in-ground uranium inventory and UF6 conversion capacity to capture greater upside for many years to come. Our contract portfolio spans more than a decade, with annual commitments from 2024 through 2028 increasing this past quarter to an average of about 29 million pounds per year. That portfolio guides the operational element of our strategy, which is underpinned by production rates that align with the market demand, and costs in our uranium segment that continue to reflect our transition back to a tier-one cost structure. And from the perspective of our financial decisions, the strategy sets the foundation for strong cash flow generation, which guides our conservative, risk-managed capital allocation priorities, including a focus on debt reduction and the prudent refinancing activities undertaken in 2024.
“As a proven, reliable supplier we are recognized for our experience and our thorough understanding of how nuclear fuel markets work. With full-cycle support emerging for nuclear energy, reinforced by positive public opinion, promising policy decisions, and market-based solutions, we believe we are in the unique position of utilizing that experience and understanding to provide reliable sources of supply to meet the durable, long-term demand emerging across the fuel cycle.
“Nuclear energy is clearly being recognized as a critical tool in the fight against climate change, with additional advantages in the context of reliability, capacity, scalability and energy security being highlighted by governments and energy-intensive industries alike. Cameco and Westinghouse, as proven producers of uranium products and services that have demonstrated strong and sustainable performance, underpinned by licensed and permitted operations in geopolitically stable jurisdictions, can be expected to benefit from those significant tailwinds.
“We are a responsible, commercial supplier with a strong balance sheet, long-lived, tier-one assets in reliable jurisdictions, and a proven operating track record. We believe we have the right strategy to achieve our vision of ‘energizing a clean-air world’ in a manner that reflects our values, including a commitment to address the risks and opportunities that we believe will make our business sustainable over the long term.”
- 2024 financial outlook on track: We continue to expect strong cash flow generation, with estimated consolidated revenue of between about $2.85 billion and $3.0 billion. We maintain the outlook for our share of Westinghouse’s 2024 adjusted EBITDA of between $445 million and $510 million. See Outlook for 2024 in our second quarter MD&A for more information. Adjusted EBITDA attributable to Westinghouse is a non-IFRS measure, see page 5.
- Financial results continuing to reflect a transition to tier-one economics: Solid second quarter results with net earnings of $36 million, adjusted net earnings of $62 million, adjusted EBITDA of $337 million; first six months net earnings of $29 million, adjusted net earnings of $118 million, and adjusted EBITDA of $681 million. Results are driven by normal quarterly variations in contract deliveries in our uranium and fuel services segments, and the addition of Westinghouse, which is also impacted by quarterly variability. Gross profit improved due to increased sales volume and an increase in the Canadian dollar average realized price. Adjusted net earnings and adjusted EBITDA are non-IFRS measures, see page 5.
- Uranium segment on track for 2024 outlook with strong operational performance: In our uranium segment, production and financial results for the quarter and for the first six months of the year were strong. Higher revenues and gross profit compared to last year were primarily driven by a higher average realized price. Deliveries of 6.2 million pounds during the quarter were higher than in the second quarter of 2023, while deliveries of 13.5 million pounds year-to-date were lower than the same period last year due to normal quarterly variations, although it remained in line with the delivery pattern disclosed in our annual MD&A. Our annual expectation for uranium deliveries of between 32 million and 34 million pounds remains unchanged. See Uranium in our second quarter MD&A for more information.
- Combined fuel services production unchanged: In our fuel services segment, normal quarterly variations in contract deliveries resulted in lower delivery volumes during the second quarter and for the first half of the year, compared to the same periods in 2023. Production was lower in the second quarter and for the first six months due to temporary operational issues that impacted the first half of 2024, resulting in a higher unit cost of sales, driving a slight increase in our 2024 outlook for fuel services average unit cost of sales. Although fuel services outlook and production results are not broken down by individual product line (includes the combined production of UO2, UF6, and heavy water reactor fuel bundles), we previously indicated we were targeting production of 12,000 tonnes at the Port Hope UF6 conversion facility in 2024. Our annual production expectation for fuel services remains between 13.5 million and 14.5 million kgU of combined fuel services products in 2024, but we now expect the conversion component of that guidance to be between 11,000 tonnes and 11,500 tonnes of UF6. See Fuel Services in our second quarter MD&A for more information.
- Long-term contracting success continues, maintaining exposure to higher prices: As of June 30, 2024, we had commitments requiring delivery of an average of about 29 million pounds per year from 2024 through 2028, an increase from an average of about 28 million pounds per year at the end of March. We also have contracts in our uranium and fuel services segments that span more than a decade, and in our uranium segment, many of those contracts benefit from market-related pricing mechanisms. In addition, we have a large and growing pipeline of business under discussion, which we expect will help further build our long-term contract portfolio.
- Maintaining financial discipline and balanced liquidity to execute on strategy:
- Strong balance sheet: As of June 30, 2024, we had $362 million in cash and cash equivalents and $1.4 billion in total debt. In addition, we have a $1.0 billion undrawn credit facility, which matures October 1, 2027. With improving prices under our long-term contract portfolio, the progress we are making in our uranium segment towards the return to our tier-one cost structure, and an expected increase in our UF6 conversion production, we expect to see strong cash flow generation in 2024.
- Focused debt reduction: Thanks to our risk-managed financial discipline, and strong cash position, in the second quarter we continued to prioritize the reduction of the floating-rate term loan used to finance the Westinghouse acquisition, repaying another $100 million (US) of the remaining $400 million (US) principal outstanding. We plan to continue to prioritize repayment of the remaining $300 million (US) outstanding principal on the term loan while balancing our liquidity and cash position.
- Prudent refinancing: Consistent with the conservative financial management we have demonstrated and our 2024 capital allocation priorities, in the second quarter we successfully refinanced the $500 million senior unsecured debentures that we retired at maturity on June 24, 2024. The new $500 million senior unsecured debentures, Series I, mature May 24, 2031, and have a coupon of 4.94%.
- Maintaining financial flexibility: We plan to file a new base shelf prospectus when the current one expires in October.
- JV Inkai production purchase allocation remains under discussion: Production at our JV in Kazakhstan was lower for the quarter and the first half of 2024 due to challenges with sulfuric acid supply in the early part of the year. JV Inkai continues to experience procurement and supply chain issues, most notably related to the stability of sulfuric acid deliveries. The 2024 production expectation of 8.3 million pounds of U3O8 (100% basis) is tentative and contingent upon receipt of sufficient volumes of sulfuric acid. Subsequent to the end of the quarter, Kazatomprom issued a news release indicating that at the end of June, the government of the Republic of Kazakhstan introduced amendments to the country’s Tax Code, including significant increases to the Mineral Extraction Tax (MET) rate paid by mining entities on uranium production, beginning in 2025. We are evaluating the new MET and if it remains as currently formulated, preliminary conclusions indicate that production costs in Kazakhstan would be similar to northern Saskatchewan operations, depending on the assumptions used for uranium price, production profile, and exchange rate. See Uranium 2024 Q2 Updates in our second quarter MD&A for more information.
- Collective agreements approved by union membership at McArthur River/Key Lake and Cameco Fuel Manufacturing (CFM): New three-year collective agreements were signed with United Steelworkers Local 8914 at the McArthur River mine and Key Lake mill, and with unionized employees at CFM, with terms expiring in December 2025 and June 2027, respectively.
- Changes to the executive team: Effective June 30, 2024, Alice Wong retired from her role as senior vice-president and chief corporate officer after more than 37 years with Cameco, serving in her current role since 2011. Effective July 1, 2024, Rachelle Girard was appointed senior vice-president and chief corporate officer with oversight of investor relations, human resources, supply chain management, and internal audit and corporate ethics, and Cory Kos was appointed vice-president, investor relations.