Cameco (TSX: CCO; NYSE: CCJ) today reported its consolidated financial and operating results for the third quarter ended September 30, 2017 in accordance with International Financial Reporting Standards (IFRS).
“Our third quarter results were anticipated and in line with the outlook we provided in the second quarter,” said president and CEO, Tim Gitzel. “And, they reflect a very deliberate strategy to strengthen the company in the long term.
“There has been little change to the market and we continue to face difficult conditions, with the average year-to-date uranium spot price down about 20% compared to the 2016 annual average. In line with the other disciplined actions we have taken to address these weaker prices, we made some changes during the quarter to the way our global marketing activities are organized. As a result, we incurred $5 million in one-time costs, but expect to reduce costs between $8 million and $10 million per year once fully implemented.
“We have lowered our production outlook for the year to 24.0 million pounds from 25.2 million pounds. The reduction is due to production delays at Key Lake caused by work required on the existing calciner circuit and lower production than expected at Smith Ranch-Highland. Given our inventory position, we are willing to accept some variability in production this year, and expect there could be further variability in the future if current market conditions continue. However, we won’t compromise safety, the environment, or the long-term health of the company.
“As a result of our prudent actions, we continue to generate solid cash flows and this year we expect them to exceed the $312 million reported in 2016 despite weaker earnings.
“We can’t control the timing of a market recovery, so we continue to focus on our tier-one strategy; on being as streamlined and efficient as possible; responsibly managing our production, inventory and purchases; protecting and extending the value of our contract portfolio, and maximizing cash flow while maintaining our investment-grade rating. Ultimately, our goal is to remain competitive and position the company to ensure we have the ability to be among the first to respond when the market calls for more uranium.”
Summary of third quarter results and developments:
- Net losses of $124 million; adjusted net losses of $50 million: As expected, pricing terms in contracts we delivered under during the quarter were lower resulting in a lower average realized price, and unit costs of production were higher due to the implementation of a mandatory summer vacation and planned maintenance shutdowns at our northern Saskatchewan operations. In addition, when comparing 2017 to 2016, our third quarter results were impacted by the loss of revenue under the disputed TEPCO contract, and the one-time costs incurred as a result of the change in the way our marketing activities are organized including the associated $111 million impairment of NUKEM’s goodwill.
- Updated annual outlook: We have made the following updates to our 2017 financial outlook table in our third quarter MD&A: in our uranium segment we expect production of 24.0 million pounds, delivery volumes between 32 million and 33 million pounds, an average realized price of $47.50/lb, and an average unit cost of sales between $35/lb and $36/lb. On a consolidated basis, we expect a tax expense of less than $10 million, and capital expenditures of $160 million. Based on the outlook provided in the table and the assumptions for uranium prices and foreign exchange rates used in and listed below the table, and as we reported in the second quarter, we continue to expect 2017 adjusted net earnings to be weaker than in 2016. However, we continue to expect cash from operations to be higher in 2017 than the $312 million reported in 2016. This is forward looking information that is based on the additional assumptions and subject to the material risks discussed under the heading Caution about forward looking information beginning on page 4 of our news release.
- CRA trial concluded: Final arguments concluded on September 13, 2017. We expect a decision from the judge could take six to 18 months. We remain confident in our position.
- TEPCO arbitration schedule set: The three arbitrators have been appointed and based on the current schedule set by them, we expect the case will be heard in the first quarter of 2019. However, the timing for a final decision will be dependent on how long the arbitrators deliberate following the conclusion of the hearing.