Cameco announces 2022 results; strong market fundamentals captured in record long-term contracting of 80 million pounds uranium and 17 million kgU of conversion services; disciplined return to tier-one run rate with exposure to improving prices
Cameco (TSX: CCO; NYSE: CCJ) today reported its consolidated financial and operating results for the fourth quarter and year ended December 31, 2022 in accordance with International Financial Reporting Standards (IFRS).
“Demand for nuclear power, supported by growth across the near, medium and long term, is driving the best fundamentals we have ever seen for the nuclear fuel market. The growing structural gap has led to supply uncertainty, which was amplified in 2022. As a proven, reliable, independent, commercial supplier of nuclear fuels, Cameco is positioned to benefit from these fundamentals. Our 2022 results, and our guidance for 2023, reflect the transformative year that we have had and the opportunity that remains ahead of us. In 2022, we were successful in contracting 80 million pounds of uranium and 17 million kgU of conversion services, with a record number of contracts signed in a market that has strengthened and is in durable growth mode. Our contracting also allows us to sustainably operate our assets, including tier-one assets that are expected to generate full-cycle value for Cameco. And, in 2022, with the resumption of production at McArthur River and Key Lake, we began the return to a tier-one run rate, which we expect will significantly improve our financial results,” said Tim Gitzel, Cameco’s president and CEO.
“The geopolitical events that impacted 2022 accelerated security of supply concerns and coupled with the ongoing focus on the climate crisis, created what we believe are transformative tailwinds for the nuclear power industry from both a demand and supply perspective. In early-January, unrest in Kazakhstan raised concerns about the security of the more than 40% of global uranium supply that originates from Kazakhstan. However, it was the Russian invasion of Ukraine in late-February that was the most transformative event for our industry. We believe it has set in motion a geopolitical realignment in energy markets that is highlighting the crucial role for nuclear power not just in providing clean energy, but also in providing secure and affordable energy. And, with the global nuclear industry reliant on Russian supplies for approximately 14% of uranium concentrates, 27% of conversion and 39% of enrichment, it is highlighting the security of supply risk associated with the growing primary supply gap and shrinking secondary supplies, and increasing the focus on origin of supply.
“We continue to believe that Cameco remains the best way to invest in the recovery of the uranium market. With nuclear energy clearly back in durable growth mode, Cameco is also back in durable growth mode. Growth that will be sought in the same manner as we approach all aspects of our business; strategic, deliberate, disciplined, and with a focus on generating full-cycle value.
“We have had success capturing the improving market fundamentals with a record number of contracts signed. Our contracting focus has been on obtaining market-related pricing mechanisms, while also providing adequate downside protection. We continue to be strategically patient in our discussions to maximize value in our contract portfolio and to maintain exposure to higher prices with unencumbered future productive capacity.
“With the improvements in the market, the new long-term contracts we have put in place and our pipeline of contracting discussions, we are moving to the next phase of our supply discipline. Our plan will now be for McArthur River/Key Lake to produce 18 million pounds per year (100% basis) starting in 2024 and we will continue to operate Cigar Lake at its licensed capacity of 18 million pounds per year (100% basis) in 2024. At Inkai, production will continue to follow the 20% reduction planned by Kazatomprom (KAP) until the end of 2023. With annual licensed capacity of 25 million pounds at McArthur River/Key Lake, we continue to have the ability to expand production from our existing assets. If we took advantage of all of the tier-one expansion opportunities available to us, our annual share of tier-one supply could be about 32 million pounds. However, any decision to expand production will be dependent on further improvements in the uranium market and our ability to secure the appropriate long-term contract homes for our unencumbered, in-ground inventory, demonstrating that we continue to responsibly manage our supply in accordance with our customers’ needs.
“Thanks to our deliberate actions and conservative financial management we have been and continue to be resilient. The strength of our balance sheet allowed us to take advantage of two opportunities in 2022 that we believe will add significant long-term value for Cameco. We acquired a greater share in the Cigar Lake mine, increasing our ownership to 54.5%. We are pleased to increase our share in the Cigar Lake operation, which is a proven, permitted and fully licensed tier-one mine in a safe and stable jurisdiction that we operate with the tremendous participation and support of our neighbouring Indigenous partner communities. And, we entered a strategic partnership with Brookfield Renewable Partners and its institutional partners (Brookfield Renewable) to jointly acquire 100% of Westinghouse Electric Company (Westinghouse), a global provider of mission-critical and specialized technologies, products and services across most phases of the nuclear power sector. The acquisition is expected to close in the second half of 2023 and is subject to customary closing conditions and certain regulatory approvals. Once the transaction closes, Brookfield Renewable, will beneficially own a 51% interest in Westinghouse and we will beneficially own 49%. We believe bringing together our expertise in the nuclear industry with Brookfield Renewable’s expertise in clean energy positions nuclear power at the heart of the clean energy transition and creates a powerful platform for strategic growth across the nuclear sector.
“With the renewed recognition of the role nuclear power must play, we are optimistic about Cameco’s role in supporting the transition to a net-zero carbon economy. Through our innovative decarbonization actions across efficiency, electrification, waste to value, carbon economy, and fuel switching themes – we expect to achieve a 30% absolute reduction from our total Scope 1 and 2 emissions level by 2030 from our 2015 baseline as our first major milestone on the journey to achieve our ambition of being net zero. We believe our largest contribution to the transition to a net-zero carbon economy comes from the nuclear fuels that we supply to support the generation of nuclear power – 100% carbon-free electricity.
“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 also provide our customers with access to conversion, as well as fuel fabrication and reactor components for heavy water CANDU reactors. 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. 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.
“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.”
Summary of Q4 and 2022 results and developments:
- Record contracting secures long-term revenues and cash flows: In our uranium segment, in 2022, we added 80 million pounds to our portfolio of long-term uranium contracts, with a record number of contracts signed. Of the 80 million pounds, about 58 million pounds have been finalized under contracts and the remaining 22 million pounds have been accepted with key commercial terms, such as pricing mechanism, volume and tenor having been agreed to, but still awaiting contract finalization. We also have a large and growing pipeline of uranium business under discussion. In addition, with strong demand in the UF6 conversion market, we were successful in adding long-term contracts that we expect will underpin that operation for years to come. We finalized contracts for almost 12 million kgU of UF6 conversion in 2022 and have another almost 5 million kgU that have been accepted and are awaiting contract finalization.
- Contract acceptance with Energoatom: As announced on February 8, we have reached agreement on commercial terms for a major supply contract to provide sufficient volumes of natural uranium hexafluoride (UF6) (consisting of uranium and conversion services) to SE NNEGC Energoatom (Energoatom) to meet Ukraine’s full nuclear fuel needs through 2035. Key commercial terms, such as pricing mechanism, volume and tenor, have been agreed to, but the contract is subject to finalization, which is anticipated in the first quarter of 2023. The agreement will contain a required degree of flexibility, given present circumstances in Ukraine. The volumes are not included in our total 2022 contracted volumes, and represent potential total requirements of 25.7 million kgU as UF6 (the equivalent of 67.3 million pounds of uranium) that were accepted in 2023. This brings our total contracting from the start of 2022 to over 147 million pounds of uranium (58 million pounds finalized and 89 million pounds accepted and awaiting contract finalization) and almost 43 million kgU in conversion services (12 million kgU finalized and almost 31 million kgU accepted and awaiting contract finalization).
- 2023 guidance provided, returning to tier-one run rate: Our outlook for 2023 is beginning to reflect the transition of our cost structure back to a tier-one run rate, as we plan our production to satisfy the growing long-term commitments under our contract portfolio. With the improvements in the market, the new long-term contracts we have put in place, and a pipeline of contracting discussions, our plan will now be for McArthur River/Key Lake to produce 18 million pounds (100% basis) starting in 2024 and to continue to operate Cigar Lake at its licensed capacity of 18 million pounds per year (100% basis) in 2024. At Inkai, production will continue to follow the 20% reduction planned by KAP until the end of 2023. With annual licensed capacity of 25 million pounds (100% basis) at McArthur River/Key Lake, we continue to have the ability to expand production from our existing assets, however some additional investment would be required. Any decision to expand production will be dependent on further improvements in the uranium market and our ability to secure the appropriate long-term contract homes for our unencumbered, in-ground inventory, demonstrating that we continue to responsibly manage our supply in accordance with our customers’ needs. In addition to our plans to expand uranium production, at our Port Hope conversion facility we are working on increasing UF6 production to 12,000 tonnes by 2024 to satisfy our book of long-term business for conversion services and customer demand at a time when conversion prices are at historic highs. As a result of these plans, we expect to see continued improvement in our financial performance. See Outlook for 2023 in our 2022 annual MD&A for more information.
- Increased ownership at Cigar Lake: In May 2022, we announced the acquisition of a greater share in the Cigar Lake mine for $107 million, increasing our ownership to 54.5% (from 50%). Cigar Lake is a proven, permitted and fully licensed tier-one mine in a safe and stable jurisdiction that we operate with the tremendous participation and support of our neighbouring Indigenous partner communities.
- Proposed acquisition of Westinghouse: In October 2022, we announced we had entered into a strategic partnership with Brookfield Renewable to jointly acquire 100% of Westinghouse, a global provider of mission-critical and specialized technologies, products and services across most phases of the nuclear power 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 in full of the option to purchase additional shares. The acquisition is expected to close in the second half of 2023 and is subject to customary closing conditions and certain regulatory approvals. Once the transaction closes, Brookfield Renewable will beneficially own a 51% interest in Westinghouse and we will beneficially own 49%. We believe bringing together our expertise in the nuclear industry with Brookfield Renewable’s expertise in clean energy positions nuclear power at the heart of the clean energy transition and creates a powerful platform for strategic growth across the nuclear sector. See Proposed acquisition of Westinghouse in our 2022 annual MD&A and our October 18, 2022 material change report (available on www.sedar.com and www.sec.gov) for more information.
- Fourth quarter net loss of $15 million; adjusted net earnings of $36 million: Fourth quarter results are driven by normal quarterly variations in contract deliveries and the continued execution of our strategy. Adjusted net earnings is a non-IFRS measure, see page 5.
- Annual net earnings of $89 million; adjusted net earnings of $135 million: Annual results are beginning to reflect the transition of our cost structure back to a tier-one run rate as contemplated by the continued execution of our strategy. Our results also reflect the improvement in average realized prices as uranium prices and conversion prices continue to increase catalyzed by geopolitical uncertainty and security of supply concerns. In our uranium segment we delivered over 25 million pounds. Production for 2022 was 10.4 million pounds in our uranium segment as Cigar Lake met its annual production target of 18 million pounds (100% basis) and McArthur River/Key Lake restarted operations producing 1.1 million pounds (100% basis). In our fuel services segment, we produced 13.0 million kgU, which included an annual UF6 production record. In addition, we generated $305 million in cash from operations, with higher sales volumes in our uranium segment and higher average realized prices in both our uranium and fuel services segments compared to 2021. Adjusted net earnings is a non-IFRS measure, see page 5.
- Strong balance sheet: As of December 31, 2022, we had $2.3 billion in cash and cash equivalents and short-term investments and $997 million in long-term debt. Net proceeds from the announced share issuance were received in October 2022 and the US dollar cash and cash equivalents and short-term investments are included on our balance sheet. The final financing for the Westinghouse acquisition is not required until close of the acquisition and will be determined based on market conditions and the expected run rate of our business at that time. We expect a permanent financing mix of capital sources, including cash, debt and equity, designed to preserve our balance sheet and ratings strength, while maintaining healthy liquidity. In addition, we have a $1 billion undrawn credit facility.
- Received dividends from JV Inkai: In 2022, we received dividend payments from JV Inkai totaling $93 million (US). JV Inkai distributes excess cash, net of working capital requirements, to the partners as dividends. See Uranium – Tier-one operations – Inkai in our 2022 annual MD&A.
Source: Cameco
