Uranium
| Highlights | 2010 | 2009 | change |
|---|---|---|---|
| Production volume (million lbs) | 22.8 | 20.8 | 10% |
| Sales volume (million lbs) | 29.6 | 33.9 | (13)% |
| Average spot price ($US/lb) | 46.83 | 46.06 | 2% |
| Average realized price | |||
| ($US/lb) | 43.63 | 38.25 | 14% |
| ($Cdn/lb) | 45.81 | 45.12 | 2% |
| Average unit cost of sales ($Cdn/lb U3O8) (including DDR) | 28.40 | 30.59 | (7)% |
| Revenue ($ millions) | 1,374 | 1,551 | (11)% |
| Gross profit ($ millions) | 503 | 488 | 3% |
| Gross profit (%) | 37 | 31 | 19% |
Production volumes in 2010 were 10% higher than 2009 due to higher production at McArthur River/Key Lake and the continued rampup of production at Inkai.
Uranium revenues this year were down 11% compared to 2009, due to a 13% decline in sales volumes.
Sales volumes in 2010 were 13% lower than 2009 due to some customers deferring deliveries under contracts until 2011. In addition, given the discretionary nature of spot market demand and the low level of spot market prices during the first three quarters of 2010, we intentionally reduced our spot market sales for the year.
Our realized prices this year in US dollars were 14% higher than 2009 mainly due to higher prices under fixed-price sales contracts. Our Canadian dollar selling price, however, was only slightly higher than 2009 as it was impacted by a less favourable exchange rate. Our exchange rate averaged $1.05 compared to $1.18 in 2009.
Total cash cost of sales (excluding DDR) decreased by 23% this year, to $699 million ($23.32 per pound U3O8). This was mainly the result of the following:
- the 13% decline in sales volumes
- average unit costs for produced uranium were 6% lower
- average unit costs for purchased uranium were 17% lower due to fewer purchases at spot prices
- a lower proportion of sales of purchased uranium, which carries a higher cash cost
The net effect was a $15 million increase in gross profit for the year.
The following table shows our cash cost of sales per unit (excluding DDR) for produced and purchased material, including royalty charges on produced material, and the quantity of produced and purchased uranium sold.
| Unit cash cost of sale ($Cdn/lb U3O8) |
Quantity sold (million lbs) |
|||||
|---|---|---|---|---|---|---|
| 2010 | 2009 | change | 2010 | 2009 | change | |
| Produced | 22.45 | 23.86 | (1.41) | 20.0 | 20.9 | (0.9) |
| Purchased | 25.11 | 30.22 | (5.11) | 9.6 | 13.0 | (3.4) |
| Total | 23.32 | 26.33 | (3.01) | 29.6 | 33.9 | (4.3) |
Outlook for 2011
We expect to produce 21.9 million pounds of U3O8 in 2011.
Based on the contracts we have in place, we expect to sell between 31 million and 33 million pounds of U3O8 in 2011. We expect the unit cost of sales to be 0% to 5% higher than in 2010. This increase is based on the unit cost of sale for produced material. If we decide to make discretionary purchases in 2011 then we expect the overall unit cost of product sold to increase further.
Based on current spot prices, revenue should be about 15% to 20% higher than it was in 2010 as a result of increases in expected realized prices and sales volumes in 2011.
Price sensitivity analysis: uranium
The table below is not a forecast of prices we expect to receive. The prices we actually realize will be different from the prices shown in the table.
It is designed to indicate how the portfolio of long-term contracts we had in place on December 31, 2010 would respond to different spot prices. In other words, we would realize these prices only if the contract portfolio remained the same as it was on December 31, 2010, and none of the assumptions we list below change.
Expected realized uranium price sensitivity under various spot price assumptions
(rounded to the nearest $1.00)
| ($US/lb U3O8) | |||||||
|---|---|---|---|---|---|---|---|
| Spot prices | $20 | $40 | $60 | $80 | $100 | $120 | $140 |
| 2011 | 38 | 41 | 47 | 52 | 57 | 63 | 68 |
| 2012 | 36 | 40 | 50 | 58 | 68 | 77 | 86 |
| 2013 | 43 | 45 | 54 | 63 | 73 | 82 | 90 |
| 2014 | 44 | 47 | 55 | 64 | 74 | 83 | 91 |
| 2015 | 40 | 45 | 55 | 65 | 75 | 85 | 94 |
The table illustrates the mix of long-term contracts in our December 31, 2010 portfolio, and is consistent with our contracting strategy. It has been updated to reflect deliveries made and contracts entered into up to December 31, 2010.
Our portfolio includes a mix of fixed-price and market-price contracts, which we target at a 40:60 ratio. We signed many of our current contracts in 2003 to 2005, when market prices were low ($11 to $31 (US)). Those that are fixed at lower prices or have low ceiling prices will yield prices that are lower than current market prices. These older contracts are beginning to expire, and we are starting to deliver into more favourably priced contracts.
Our portfolio is affected by more than just the spot price. We made the following assumptions (which are not forecasts) to create the table:
Sales- sales volumes on average of 32 million pounds per year
- customers take the maximum quantity allowed under each contract (unless they have already provided a delivery notice indicating they will take less)
- we defer a portion of deliveries under existing contracts for 2011 and 2012
- the average long-term price indicator is the same as the average spot price for the entire year (a simplified approach for this purpose only). Since 1996, the long-term price indicator has averaged 13% higher than the spot price. This differential has varied significantly. Assuming the long-term price is at a premium to spot, the prices in the table will be higher.
- we deliver all volumes that we don't have contracts for at the spot price for each scenario
- is 2.0% per year
Tiered royalties
As sales of material we produce at our Saskatchewan properties increase, so do the tiered royalties we pay. The table below indicates what we would pay in tiered royalties at various realized prices. We record tiered royalties as a cost of sales.
This table assumes that we sell 100,000 pounds U3O8 and that there is no capital allowance available to reduce royalties, and is based on 2010 rates. The index value to calculate rates for 2011 is not available until April 2011.
| Realized price ($Cdn) |
Tier 1 royalty 6% x (sales price - $17.51) |
Tier 2 royalty 4% x (sales price - $26.27) |
Tier 3 royalty 5% x (sales price - $35.03) |
Total royalties |
|---|---|---|---|---|
| 25 | 44,940 | — | — | 44,940 |
| 35 | 104,940 | 34,920 | — | 139,860 |
| 45 | 164,940 | 74,920 | 49,850 | 289,710 |
| 55 | 224,940 | 114,920 | 99,850 | 439,710 |
| 65 | 284,940 | 154,920 | 149,850 | 589,710 |
| 75 | 344,940 | 194,920 | 199,850 | 739,710 |
| 85 | 404,940 | 234,920 | 249,850 | 889,710 |
