Liquidity and Capital Resources
At the end of 2010, we had cash and short-term investments of $1.3 billion in a mix of short-term deposits and treasury bills, while our total debt amounted to $1 billion. We were in a similar position at the end of 2009.
We have large, reliable customers that need uranium regardless of world economic conditions, and we expect the uranium contract portfolio we've built to provide a solid revenue stream for years to come.
Our financial objective is to make sure we have the cash and debt capacity to fund our operating activities, investments, and growth. We have several alternatives to fund future capital needs, including our significant cash position, credit facilities, future operating cash flow and debt or equity financing, and are continually evaluating these options to make sure we have the best mix of capital resources to meet our needs.
Our strong financial position gives us the flexibility to fund longer term requirements until the balance accumulates to the point where it makes sense to refinance in the capital markets.
| 2010 | 2009 | |
|---|---|---|
| Cash position ($ millions) (cash, cash equivalents, short-term investments) |
1,260 | 1,304 |
| Cash provided by operations ($ millions) (net cash flow generated by our operating activities after changes in working capital) |
507 | 690 |
| Cash provided by operations/net debt (net debt is total consolidated debt, less cash and cash equivalents) |
n/a | n/a |
| Net debt/total capitalization (total capitalization is total long-term debt and equity) |
n/a | n/a |
Credit ratings
Third-party ratings for our commercial paper and senior debt as of December 31, 2010:
| Security | DBRS | S&P |
|---|---|---|
| (1) Canadian National Scale Rating. The Global Scale Rating is A-2. | ||
| Commercial paper | R-1 (low) | A-1 (low)1 |
| Senior unsecured debentures | A (low) | BBB+ |
| ($ millions) | 2010 | 2009 |
|---|---|---|
| Cash and cash equivalents at beginning of year | 1,304 | 64 |
| Cash from operations | 507 | 690 |
| Investment activities | ||
| Additions to property, plant and equipment | (470) | (393) |
| Dispositions | — | 871 |
| Acquisitions | — | — |
| Other investing activities | 11 | (36) |
| Financing activities | ||
| Change in debt | (10) | (231) |
| Issue of shares | 18 | 442 |
| Dividends | (106) | (93) |
| Other financing activities | 10 | — |
| Exchange rate on changes on foreign currency cash balances | (4) | (10) |
| Cash and short-term investments at end of year | 1,260 | 1,304 |
Cash from operations
Cash from operations was 27% lower than in 2009 mainly due to higher working capital requirements relating to increased inventory levels and a reduction in accounts payable. Not including working capital requirements, our operating cash flows in the year were up $2 million. See note 19 to the financial statements.
Investing activities
Cash used in investing includes acquisitions and capital spending.
Acquisitions and divestitures
In 2010, we concluded no significant acquisitions or divestitures. In 2009, we sold our interest in Centerra for net proceeds of $871 million. We concluded no significant acquisitions in 2009.
Talvivaara Agreement
On February 7, 2011, we signed two agreements with Talvivaara Mining Company Plc (Talvivaara) to buy uranium produced at the Sotkamo nickel-zinc mine in eastern Finland. Under the first agreement with Talvivaara, we will provide an up-front payment, to a maximum of $60 million (US), to cover certain construction costs. This amount will be repaid through the initial deliveries of uranium concentrates. Once the full amount has been repaid, we will continue to purchase the uranium concentrates produced at the Sotkamo mine through a second agreement, which provides for the purchase of uranium using a pricing formula that references market prices at the time of delivery. The second agreement expires on December 31, 2027.
Capital spending
We classify capital spending as growth or sustaining. Growth capital is money we invest to generate incremental production, and for business development. Sustaining capital is the money we spend to keep our operations at current production levels.
| (Cameco's share in $ millions) | 2010 plan | 2010 actual | 2011 plan |
|---|---|---|---|
| (1) We updated our 2010 capital cost estimate in the Q2 MD&A to $510 million and in the Q3 MD&A to $475 million. | |||
| Growth capital | |||
| Cigar Lake | 111 | 90 | 176 |
| Inkai | 4 | 5 | 9 |
| McArthur River | — | — | 14 |
| Millennium | — | — | 6 |
| US ISR | — | — | 13 |
| Total growth capital | 115 | 95 | 218 |
| Sustaining capital | |||
| McArthur River/Key Lake | 220 | 165 | 169 |
| US ISR | 53 | 45 | 38 |
| Rabbit Lake | 56 | 49 | 85 |
| Inkai | 18 | 5 | 19 |
| Fuel services | 29 | 20 | 32 |
| Other | 9 | 8 | 14 |
| Total sustaining capital | 385 | 292 | 357 |
| Capitalized interest | 52 | 48 | — |
| Total uranium & fuel services | 5521 | 435 | 575 |
| Electricity (our 31.6% share of BPLP) | 41 | 35 | 80 |
Capital expenditures were 21% below our 2010 plan mainly as a result of reduced activity at our Saskatchewan uranium operations. We do not expect this reduction in capital expenditures in 2010 will impact our plans to double annual uranium production by 2018. The variance at Cigar Lake was due mainly to the cleanup and remediation of the underground workings taking longer than originally expected and the revision to project schedules as a result of the decision to proceed with surface freezing. The variance at McArthur River was due mainly to a change in the mine development plans and postponement of some capital projects that were not critical to production. The variance at Key Lake was mainly a result of delays in the construction of the acid and oxygen plants and deferring some of the other Key Lake revitalization projects.
Outlook for investing activities
We expect total capital expenditures for uranium and fuel services to be 32% higher in 2011, as a result of higher spending for:
- growth capital at Cigar Lake
- sustaining capital at Rabbit Lake
Major sustaining expenditures in 2011 include:
- McArthur River/Key Lake – At McArthur River, the largest component is mine development at about $50 million. Other projects include site facility expansion and equipment purchases. At Key Lake, construction of the new acid, steam and oxygen plants continues at an estimated cost of $30 million. Additional work to revitalize the mill will also be undertaken, as well as work on the tailings facilities.
- US in situ recovery (ISR) – Wellfield construction and well installation is the largest project at approximately $25 million. We also plan to work on the development of the Gas Hills and North Butte projects.
- Rabbit Lake – At Eagle Point, the largest project includes mine development at about $20 million. Other projects include dewatering systems, continued work on mine ventilation expansion and replacement of components of the acid plant estimated at $24 million.
For the next several years, we expect our capital expenditures will be similar to 2011.
Financing activities
Cash from financing includes borrowing and repaying debt, and other financial transactions including paying dividends and providing financial assurance. In the fourth quarter, we renewed a $100 million revolving credit facility until February 2012.
As a result of our significant cash balance, there was little in the way of financing activities in 2010.
2009 was a very active year for us. We carried out six separate transactions to build on our already strong financial position, and to support our corporate strategy:
- We issued approximately 26.7 million common shares, netting $440 million, and put in place or renewed $600 million in revolving lines of credit.
- We issued 10-year debentures bearing interest at a rate of 5.67%, netting $495 million. At the same time, we cancelled a $500 million revolving credit facility that was to mature in June 2010.
- We renewed a $100 million revolving credit facility until February 2011, and sold our interest in Centerra, netting $871 million.
| December 31, 2010 ($ millions) |
2011 | 2012 and 2013 |
2014 and 2015 |
2016 and beyond |
Total |
|---|---|---|---|---|---|
| Long-term debt | 13 | 31 | 337 | 572 | 953 |
| Interest on long-term debt | 53 | 105 | 96 | 113 | 367 |
| Provision for reclamation | 14 | 23 | 22 | 406 | 465 |
| Provision for waste disposal | 1 | 2 | 2 | 33 | 38 |
| Other liabilities | — | — | — | 374 | 374 |
| Total | 81 | 161 | 457 | 1,498 | 2,197 |
We now have unsecured lines of credit of about $1.2 billion, which include the following:
- A $500 million, unsecured revolving credit facility that matures November 30, 2012. In addition to borrowing directly from this facility, we can use up to $100 million of it to issue letters of credit, and we keep up to $400 million available to provide liquidity for our commercial paper program, as necessary. The facility ranks equally with all of our other senior debt. At December 31, 2010, there was nothing outstanding under this credit facility, and nothing outstanding under our commercial paper program.
- A $100 million, unsecured revolving credit facility that matures on February 4, 2012. At December 31, 2010, there was nothing outstanding under this credit facility.
- Approximately $600 million in short-term borrowing and letters of credit provided by various financial institutions. We use these facilities mainly to provide financial assurance for future decommissioning and reclamation of our operating sites, and as overdraft protection. At December 31, 2010, we had approximately $550 million outstanding in letters of credit.
We have $800 million in senior unsecured debentures:
- $300 million bearing interest at 4.7% per year, maturing on September 16, 2015
- $500 million bearing interest at 5.67% per year, maturing on September 2, 2019
We have issued a $73 million (US) promissory note to GLE to support future development of its business. We do not expect any amounts to be drawn on this note until 2012.
Debt covenants
Our revolving credit facilities include the following financial covenants:
- our funded debt to tangible net worth ratio must be 1:1 or less
- our tangible net worth must be more than $1.25 billion
- other customary covenants and events of default
Funded debt is total consolidated debt less the following: non-recourse debt, $100 million in letters of credit, cash and short-term investments.
Not complying with any of these covenants could result in accelerated payment and termination of our revolving credit facilities. At December 31, 2010, we complied with all covenants, and we expect to continue to comply in 2011.
Off-balance sheet arrangements
We had two kinds of off-balance sheet arrangements at the end of 2010:
- purchase commitments
- financial assurances
| December 31, 2010 ($ millions) |
2011 | 2012 and 2013 |
2014 and 2015 |
2016 and beyond |
Total |
|---|---|---|---|---|---|
| (1) Denominated in US dollars, converted to Canadian dollars as of December 31, 2010 at the rate of $0.99. | |||||
| Purchase commitments1 | 266 | 620 | 173 | 6 | 1,065 |
Most of these are commitments to buy uranium and fuel services products under long-term, fixed-price arrangements.
At the end of 2010, we had committed to $1.1 billion (Cdn) for the following:
- About 27 million pounds U3O8 equivalent from 2011 to 2014. Of these, about 23 million pounds are from our agreement with Techsnabexport Joint Stock Company (Tenex) to buy uranium from dismantled Russian weapons (the Russian HEU commercial agreement) through 2013.
- Over 36 million kgU as UF6 in conversion services from 2011 to 2016 primarily under our agreements with Springfields Fuels Ltd. (SFL) and Tenex.
- Almost 1.1 million Separative Work Units (SWU) of enrichment services to meet existing forward sales commitments under agreements with a non-western supplier.
Non-delivery by Tenex or SFL under their agreements could have a material adverse effect on our financial condition, liquidity and results of operations.
Tenex, SFL and the SWU supplier do not have the right to terminate their agreements other than pursuant to customary event of default provisions.
| December 31 ($ millions) |
2010 | 2009 | change |
|---|---|---|---|
| Standby letters of credit | 550 | 592 | (7)% |
| BPLP guarantees | 82 | 87 | (6)% |
| Total | 632 | 679 | (7)% |
Standby letters of credit mainly provide financial assurance for the decommissioning and reclamation of our mining and conversion facilities. We are required to provide letters of credit to various regulatory agencies until decommissioning and reclamation activities are complete. Letters of credit are issued by financial institutions for a one-year term.
Our total commitment for financial guarantees on behalf of BPLP was an estimated $94 million at the end of the year. See note 25 to the financial statements.
| December 31 ($ millions except per share amounts) |
2010 | 2009 | 2008 | change from 2009 to 2010 |
|---|---|---|---|---|
| Inventory | 543 | 453 | 398 | 20% |
| Total assets | 7,671 | 7,394 | 7,011 | 4% |
| Long-term financial liabilities | 1,465 | 1,471 | 1,800 | (1)% |
| Dividends per common share | 0.28 | 0.24 | 0.24 | 17% |
Total product inventories increased by 20% to $543 million this year due to higher levels of inventory for uranium, where the quantities produced and purchased exceeded sales for the year. The average cost of uranium was lower as a result of fewer purchases at near-market prices.
At the end of 2010, our total assets amounted to $7.7 billion, an increase of $0.3 billion compared to 2009 due primarily to a higher rate of investment in property, plant and equipment. In 2009, the total asset balance increased by $0.4 billion, largely attributable to a higher cash balance.
The major components of long-term financial liabilities are long-term debt, future income taxes and the provision for reclamation. In 2010, our balance was similar to that of the prior year. In 2009, our balance declined by $0.3 billion primarily due to the repayment of debt during the year.
