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Cameco Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 1998, 1997 and 1996
| 1. | Cameco Corporation (Cameco) |
| Cameco is incorporated under the Canada Business Corporations Act. Cameco is primarily engaged in the exploration for and the development, mining, refining and conversion of uranium for sale as fuel for generating electricity in nuclear power reactors in Canada and other countries. Cameco is also involved in the exploration for and the development, mining and sale of gold. |
| 2. | Accounting Policies |
| A summary of significant accounting policies of Cameco follows the notes to the consolidated financial statements. |
| 3. | Accounts Receivable | ||||||||||||||||||||||||||||||||
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| 4. | Inventories | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 5. | Property, Plant and Equipment | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| In 1998 Cameco recorded a writedown of $15,964,000 relating to certain of its in situ leach development properties located in the United States. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6. | Long-term Receivables, Investments and Other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| The security agreement between Kumtor Gold Company (KGC)
and the senior debt lenders to the project requires funds sufficient to
meet those senior debt principal and interest payments scheduled to occur
over the ensuing six months to be held in a debt reserve account until paid. |
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| Deferred charges includes unrecognized losses on foreign currency exchange contracts designated as hedges of committed future cash flows and closed during the year. These deferred charges will be recognized against earnings in accordance with the designation dates which are from 1999 to 2003. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7. | Short-term Debt |
| Cameco has unsecured short-term facilities available totaling $55,000,000 of which $32,651,000 was drawn at December 31, 1998 at an average rate of 5.3%. This facility bears interest at a margin of 0.25% over bankers acceptances and matures in May 1999. The balance of the facility was used to support outstanding letters of credit. |
| 8. | Long-term Debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cameco has a $400,000,000 long-term revolving credit facility that is available until February 18, 2003 and bears interest at margins over bankers acceptances and LIBOR of 0.17%. At December 31, 1998, $32,038,000 was drawn as bankers acceptances (6.0% average rate) and $53,000,000 (US) ($81,117,000 Cdn) as LIBOR based loans (5.6% average rate). Outstanding commercial paper bears interest at an average rate of 5.3%. Cameco has a $350,000,000 long-term revolving credit facility that is available until January 24, 2000 and bears interest at margins over bankers acceptances and LIBOR of 0.1625%. There were no drawings under this facility at year end. Amounts drawn under long-term revolving credit facilities plus commercial paper are classified as long-term debt up to the limit available under the facilities. Cameco has a $15,000,000 overdraft facility and $216,800,000 ($102,000,000 (Cdn) and $75,000,000 (US)) in letter of credit facilities. Outstanding letters of credit at December 31, 1998 amounted to $125,600,000 (1997 - $117,487,000). The repayment schedule below represents scheduled repayments
of long-term debt over the next five years and thereafter, including Cameco's
one-third share of Kumtor Gold Company principal repayments on debt and
Cameco's share savings plan payments.
Pursuant to the terms of the Kumtor financing arrangements [note 19], Cameco has guaranteed, subject to exclusions in respect of defined political force majeure events, the repayment of Kumtor's senior debt. Cameco's contingent obligations under these guarantees exceed the amount included in Cameco's long-term debt as at December 31, 1998 by $245,220,000 (1997 - $253,781,000). |
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| 9. | Provision for Reclamation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Cameco's estimates of decommissioning and reclamation costs are based on reclamation standards which meet or exceed regulatory requirements and are stated in current dollars. Elements of uncertainty in estimating these amounts include potential changes in regulatory requirements, decommissioning and reclamation alternatives and amounts to be recovered from other parties.
Cameco estimates total future decommissioning and reclamation costs for its operating assets to be $217,000,000. These estimates are formally reviewed by Cameco technical personnel at least every two years or more frequently as required by regulatory agencies. These costs are accrued and charged to operations using the unit-of-production method so that the estimated future liability will be fully provided when decommissioning and reclamation activities are undertaken. In connection with future decommissioning and reclamation costs, Cameco has provided all required financial assurances satisfying current regulatory requirements.
| 10. | Other Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Deferred revenue includes unrecognized gains on forward sale contracts for gold designated as hedges against future production and closed during the year. These deferred gains will be recognized as earnings in accordance with hedge designation dates which are in 1999 and 2000. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 11. | Preferred Securities |
| On October 14, 1998,
Cameco issued $125,000,000 (US), 8.75% preferred securities in denominations
of $25 (US) each due September 30, 2047 accruing interest from the date
of issuance payable quarterly commencing December 31, 1998.
Cameco has the right to defer, subject to certain conditions, payments of interest on the preferred securities for a period of up to 20 consecutive quarterly periods, provided that no such extension period may extend beyond the stated maturity of the preferred securities. Except in certain limited circumstances, during any extension period, Cameco shall not pay or declare dividends on any of its capital stock (except by way of stock dividend). There may be multiple extension periods of varying lengths, each of up to 20 consecutive quarterly periods, throughout the term of the preferred securities. During any extension period, interest will accrue but will not compound. Cameco may satisfy its obligation to pay deferred interest on any applicable interest payment date by delivering to the trustee common shares of Cameco. The holders of the preferred securities shall be entitled to receive cash payments equal to the deferred interest from the proceeds of the sale of the common shares by the trustee. The preferred securities are redeemable, at the option of Cameco, in whole or in part at any time on or after October 14, 2003 at a redemption price equal to 100% of the principal amount of the preferred securities to be redeemed plus any accrued and unpaid interest thereon to the date of redemption. Cameco may satisfy its obligation to pay the applicable redemption price or the principal amount of the preferred securities plus accrued and unpaid interest thereon on the applicable payment date by delivering to the trustee common shares of Cameco. The holders of the preferred securities shall be entitled to receive cash payments equal to the applicable redemption price of the principal amount of the preferred securities plus accrued and unpaid interest thereon from the proceeds of the sale of the common shares by the trustee. The principal amounts of the preferred securities, net of after tax issue costs of $4,330,000 (Cdn) have been classified as equity, and interest payments on an after tax basis will be classified as distributions of equity, as Cameco has the unrestricted ability to settle its obligations by delivering common shares to the trustee. |
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| 12. | Share Capital | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 13. | Cumulative Translation Adjustment |
| The balance of $22,560,000 (1997 - $16,088,000) represents the cumulative unrealized net exchange gain on Cameco's net investments in foreign operations, and on the foreign debt and preferred securities designated as hedges of the net investment. |
| 14. | Interest | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 15. | Other Expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 16. | Income Taxes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The provision for income taxes differs
from the amount computed by applying the combined expected federal and provincial
income tax rate to earnings before income taxes. The reasons for these differences
are as follows:
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| 17. | Other Operating Items | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 18. | Joint Ventures | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Certain of Cameco's development mining
and milling activities are conducted through joint ventures as follows:
(a) During 1998, Cameco purchased [note 23] the interests of the other joint venture participant in the Key Lake, Rabbit Lake and Contact Lake joint ventures. As a result, these projects are no longer operated as joint ventures. (b) Cameco holds an additional 2% voting interest in the Cigar Lake joint venture. Production expenses relating to mining and milling activities are included in the cost of inventory. Certain of the joint ventures allocate inventory to each of the joint venture participants and the joint venture participants derive revenue directly from the sale of such inventory. Cameco's share of assets and liabilities of these joint ventures is as follows:
For the Kumtor gold joint venture, which obtains revenue from the sale of products, Cameco's share of the assets and liabilities, revenue and expenses is as follows:
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| 19. | Kumtor Gold Company (KGC) Joint Venture | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| On May 26, 1994 Cameco, the Republic
of Kyrgyzstan and Kyrgyzaltyn, an instrumentality of the Republic, signed
an amended joint venture master agreement that provided for the exploration,
development, operation and arrangement of financing, of the Kumtor gold
project by Cameco. KGC was formed in the Republic of Kyrgyzstan as a joint
stock company to hold the assets of the Kumtor gold project pursuant to
the master agreement. Kyrgyzaltyn holds a two-thirds interest in KGC and
Cameco holds a one-third interest.
Cameco has contributed $45,000,000 (US) in equity, loaned $107,437,276 (US) in the form of subordinated debt under the financing agreements, and arranged $265,000,000 (US) in senior debt and $20,000,000 (US) in third party subordinated debt. Cameco guarantees repayment of KGC senior debt in the event of certain project related defaults. This guarantee would not apply to certain political force majeure events. Cameco has proportionately consolidated its one-third interest in KGC. KGC's long-term debt at December 31, is as follows:
Cameco's one-third proportionate share of KGC senior debt is $122,610,000 (1997 - $126,891,000) and of KGC's third party subordinated debt is $10,203,000 (1997 - $9,577,000) [note 8]. |
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| 20. | Cameco Share Savings Plan | ||||||||||||||||||||||||||||||||||||
| On December 31, 1990, Cameco issued
10-year, 11% redeemable and exchangeable bonds registered to subscribing
employees. At the option of employees, bonds may be exchanged or redeemed
at the end of any calendar quarter. Bonds were exchanged for shares of Cameco
as disclosed in note 12.
Under terms of the plan, Cameco agreed to provide financing to employees to purchase the bonds, and agreed to partially match the employees' repayment of the loans. Loan balances are required to be fully repaid at the time of exchange. Cameco's estimated maximum commitment under this matched repayment program is $882,000. The outstanding bonds and loans receivable are as follows:
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| 21. | Stock Option Plan | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cameco has established a stock option
plan under which options to purchase common shares may be granted to directors,
officers and other employees of Cameco. Options granted under the stock
option plan have an exercise price of not less than the closing price quoted
on The Toronto Stock Exchange for the common shares of Cameco on the trading
day prior to the date on which the option is granted. The options expire
10 years from the date of the grant of the option.
Under the stock option plan, participants are eligible to receive loans from Cameco to assist in the purchase of common shares pursuant to the exercise of certain options. The maximum term of the loans is 10 years from the date of the grant of the related option. These loans bear interest at a rate equivalent to the regular dividends paid on the common shares to which these loans were provided. Common shares purchased by way of a company loan are held in escrow in the account of the optionee and are pledged as security until the loan has been repaid in full. Outstanding loans are shown as a reduction from share capital.
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