Cameco (TSX: CCO; NYSE: CCJ) today reported its consolidated financial and operating results for the second quarter ended June 30, 2018 in accordance with International Financial Reporting Standards (IFRS).
“Our results reflect the impact of a weak uranium market and the deliberate actions we have taken driven by the goal of increasing long-term shareholder value,” said Tim Gitzel, Cameco’s president and CEO. “We continue to expect to generate strong cash flow this year as we draw down inventory and focus on operating efficiently. However, we have not seen the improvement needed in the uranium market to restart McArthur River and Key Lake.
“This means we will extend the suspension of production at McArthur River and Key Lake for an indeterminate duration. It was a difficult decision to make, because of the impact it will have on our employees, their families, and other stakeholders, but we must take this action to ensure the long-term sustainability of the company. We thank our workforce for their hard work and dedication.
“We believe our assets are among the best in the world, and we will continue to show the type of leadership needed to position the company to add significant value over the long-term. We will not produce from our tier-one assets to deliver into an oversupplied spot market. Until we are able to commit our production under long-term contracts that provide an acceptable rate of return for our owners, we do not plan torestart.
“As 2018 unfolds, we will continue to evaluate the market signals. However, we remain resolved in our efforts to maximize cash flow, while maintaining our investment-grade rating so we can self-manage risk and preserve the value of our tier-one assets.”
Summary of second quarter results and developments:
- Net losses of $76 million; adjusted net losses of $28 million: Results were impacted by lower gross profit in our uranium and fuel services segments. A persistently weak market continues to impact our business and contributed to weaker realized uranium prices in the quarter compared to the second quarter last year. In addition, as expected, the average unit cost of sales in our uranium segment was higher compared to the second quarter of 2017 as a result of the care and maintenance costs we are incurring at McArthur River and Key Lake while production is suspended, and in the US now that production has ceased. Also as expected, our production, direct administration costs, and exploration costs were all down due to the measures we have taken to deal with the weakness in our market. A $41 million expense related to an update to the reclamation provision for Rabbit Lake and higher losses as a result of changes in foreign exchange rates resulted in greater net losses this quarter compared to in 2017. On an adjusted basis we exclude these expenses as they do not impact cash and we do not consider them reflective of our underlying financial performance. Adjusted net losses are a non-IFRS measure, see page
- McArthur River/Key Lake suspension extended for indeterminate duration: This action will result in the permanent layoff of approximately 550 site employees, including those currently on temporary layoff since January of this year. A reduced workforce of approximately 200 employees will remain at the McArthur River and Key Lake sites to keep the facilitiesinastateofsafecareandWeexpectourshareofthecoststomaintainbothsitestorangebetween
$5 million and $6 million per month once these layoffs take effect. In addition, to further decrease costs, the workforce at Cameco’s corporate office will be reduced by approximately 150 positions including employees and vacancies. As a result
of the layoffs at the two sites and corporate office, we expect to incur between $40 million and $45 million in severance costs in the third quarter. Our joint venture partner, Orano, has agreed to extend the suspension, and we have agreed to extend its repayment of up to 5.4 million pounds of uranium concentrates. Orano is now obligated to repay us, in kind, no later than December 31, 2023.
- Updated annual outlook: We have made the following updates to our 2018 financial outlook table in our second quarter MD&A: our consolidated revenue is expected to be between $1,890 million and $2,140 million; in our uranium segment we expectourdeliveryvolumestobebetween34millionand35millionpounds,revenueofbetween$1,550millionand$1,640 million, an average realized price of $46.10 per pound, and our average unit cost of sales between $40 per pound and $42 per pound. In addition to our committed purchases, we expect to purchase an additional 2 million to 4 million pounds of uranium to meet our delivery commitments and maintain our target inventory; we expect capital expenditures of $80 million; we expect the contribution to gross profit to be 81% from our uranium segment and 19% from our fuel services segment; and cash provided by operations for 2018 is now expected to be between 20% and 30% higher than in 2017. For more information on the changes, see Outlook for 2018 in our second quarterMD&A.
- 2019 outlook for production, delivery volumes and purchases: In 2019, in our uranium segment, we expect to produce 9 million pounds, and have commitments to purchase between 5 million and 6 million pounds and deliver between 25 million and 27 million pounds. In addition to our committed purchases, we expect to purchase an additional 9 million to 11 million pounds of uranium to meet our delivery commitments and maintain our target
Consolidated financial results
The following table shows what contributed to the change in net earnings and adjusted net earnings (non-IFRS measure, see page 3) in the second quarter and first six months of 2018, compared to the same period in 2017.
ADJUSTED NET EARNINGS (NON-IFRS MEASURE)
Adjusted net earnings is a measure that does not have a standardized meaning or a consistent basis of calculation under IFRS (non-IFRS measure). We use this measure as a meaningful way to compare our financial performance from period to period. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate our performance. Adjusted net earnings is our net earnings attributable to equity holders, adjusted to reflect the underlying financial performance for the reporting period. The adjusted earnings measure reflects the matching of the net benefits of our hedging program with the inflows of foreign currencies in the applicable reporting period, and has also been adjusted for reclamation provisions for our Rabbit Lake and US operations, which had been impaired, the gain on restructuring of JV Inkai, and income taxes on adjustments.
Adjusted net earnings is non-standard supplemental information and should not be considered in isolation or as a substitute for financial information prepared according to accounting standards. Other companies may calculate this measure differently, so you may not be able to make a direct comparison to similar measures presented by other companies.
The following table reconciles adjusted net earnings with net earnings for the second quarter and first six months of 2018 and compares it to the same periods in 2017.
Every quarter we are required to update the reclamation provisions for all operations based on new cash flow estimates, discount and inflation rates. This normally results in an adjustment to an asset retirement obligation asset in addition to the provision balance. When the assets of an operation have been written off due to an impairment, as is the case with our Rabbit Lake and US ISR operations, the adjustment is recorded directly to the statement of earnings as “other operating expense (income)”. In the second quarter, our estimate for Rabbit Lake decommissioning costs increased due to a scheduled revision to its preliminary decommissioning plan that was submitted to the relevant regulatory authorities. See note 9 of our interim financial statements for more information. This amount has been excluded from our adjusted net earnings measure.
Selected segmented highlights
Management’s discussion and analysis and financial statements
The second quarter MD&A and unaudited condensed consolidated interim financial statements provide a detailed explanation of our operating results for the three and six months ended June 30, 2018, as compared to the same periods last year. This news release should be read in conjunction with these documents, as well as our audited consolidated financial statements and notes for the year ended December 31, 2017, first quarter and annual MD&A, and our most recent annual information form, all of which are available on our website at cameco.com, on SEDAR at sedar.com, and on EDGAR at sec.gov/edgar.shtml.
The technical and scientific information discussed in this document for our material property McArthur River/Key Lake was approved by the following individual who is a qualified person for the purposes of NI 43-101:
- Greg Murdock, manager, operations, McArthur River,Cameco
Annual dividend information
In 2017, our board of directors reduced the planned dividend to $0.08 per common share to be paid annually. The decision to declare a dividend by our board will be based on our cash flow, financial position, strategy and other relevant factors including appropriate alignment with the cyclical nature of our earnings. Accordingly, the dividend will be considered at the time of the third quarter earnings release.
We invite you to join our second quarter conference call on Thursday, July 26, 2018, at 8:00 a.m. Eastern.
The call will be open to all investors and the media. To join the call, please dial 800-319-4610 (Canada and US) or 604-638- 5340. An operator will put your call through. The slides and a live webcast of the conference call will be available from a link at cameco.com. See the link on our home page on the day of the call.
A recorded version of the proceedings will be available:
- on our website, cameco.com, shortly after thecall
- on post view until midnight, Eastern, August 26, 2018, by calling 800-319-6413 (Canada and US) or 604-638-9010 (Passcode 2376)
2018 quarterly report release dates
We plan to announce our third quarter consolidated financial and operating results before markets open on November 2, 2018. The 2019 date for the announcement of our fourth quarter and 2018 consolidated financial and operating results will be provided in our 2018 third quarter MD&A. Announcement dates are subject to change.
Cameco is the operator of both McArthur River mine and the Key Lake mill that processes all of the ore from McArthur River to uranium concentrate. Cameco owns 70% of McArthur River and 83% of Key Lake. Orano Canada Inc. owns the remainder.
Together, in 2017 the operations produced 16.1 million pounds of uranium (Cameco’s share 11.2 million pounds).
Cameco is one of the world’s largest uranium producers, a significant supplier of conversion services and one of two Candu fuel manufacturers in Canada. Our competitive position is based on our controlling ownership of the world’s largest high-grade reserves and low-cost operations. Our uranium products are used to generate clean electricity in nuclear power plants around the world. Our shares trade on the Toronto and New York stock exchanges. Our head office is in Saskatoon, Saskatchewan.
As used in this news release, the terms we, us, our, the Company and Cameco mean Cameco Corporation and its subsidiaries unless otherwise indicated.