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Cameco Announces First Quarter Financial Results for 1999
To Our Shareholders
Highlights from Bernard Michel, Chair, President and Chief Executive Officer
"Cameco and its partners have signed an historic agreement to purchase uranium resulting from dismantling Russian nuclear weapons. This will provide additional business opportunities for our company and enhance the prospects for greater stability and predictability in the uranium market. The agreement also provides Cameco with greater marketing strength and flexibility, building on Cameco's uranium acquisition last year and complementing the company's next generation of high-grade uranium mining operations at McArthur River and Cigar Lake."
"The uranium spot market strengthened during the first quarter as prices increased more than 20% from the end of last year to $10.80 (US) per pound. However, uranium and gold prices were less than a year ago and contributed, together with a higher depreciation rate for Kumtor, to lower net earnings in the first quarter."
"Cameco's strong cash flow is expected to be sufficient to finance a capital program of about $200 million in 1999. Most of these expenditures will be used to bring into production the world's largest, highest-grade uranium deposit at McArthur River later this year."
"After a period of significant growth through acquisitions, Cameco's financial structure is strong and the company's total debt to capitalization ratio of 25% remains among the most conservative of the metals and minerals subindex on the Toronto Stock Exchange."
Financial Highlights
| Three Months Ended | Three Months Ended | ||||||||
| March 31/99 | March 31/98 | Change | |||||||
| Revenue ($ millions) | 147 | 132 | +11% | ||||||
| Earnings from operations ($ millions) | 22 | 26 | -15% | ||||||
| Cash provided by operations ($ millions) | 34 | 22 | +55% | ||||||
| Net earnings attributable to common shares ($ millions) | 9 | 18 | -50% | ||||||
| Earnings per share ($) | 0.15 | 0.31 | -52% | ||||||
| Average uranium spot price for the period (US$/lb U3O8 ) | 10.52 | 11.27 | -7% | ||||||
| Cameco's average realized gold price for the period (US$/ounce) | 348 | 401 | -13% | ||||||
| Average LME gold price for the period (US$/ounce) | 287 | 294 | -2% | ||||||
Consolidated Financial Results
Cash Flow
In the first quarter of 1999, after working capital changes (noted as other operating items), Cameco generated cash from operations of $34 million ($0.59 per share), an increase of $12 million from last year. The improvement reflects a lower level of uranium purchases in the quarter. Before working capital changes, cash provided by operations was $48 million ($0.83 per share), unchanged from the prior year. Cash used in investing activities more than doubled to $51 million. Most of the funds were utilized by the McArthur River project which is entering the final stages of construction.
Earnings
Total revenue increased to $147 million from $132 million a year ago as a result of increased sales of uranium concentrates and conversion services. Despite the higher revenue, earnings from operations of $22 million were 13% lower than in 1998. This is primarily due to the reduced earnings contributions from the gold operations and higher interest expenses.
Net earnings attributable to common shares during the first quarter were $9 million ($0.15 per share) compared to $18 million ($0.31 per share) in 1998. In the first quarter of 1999, income taxes rose because of the higher proportion of nuclear earnings which are taxable as compared to gold earnings which are subject to favourable tax concessions in Kyrgyzstan.
Financial Position
At March 31, 1999, total long-term debt was $603 million compared to $569 million at December 31, 1998. This increase largely reflected the excess of spending on development projects over the cash inflows from operations. For the year, it is expected that cash from operations will be sufficient to fund the approved capital program. During the quarter, the debt to total capitalization ratio rose nominally to 25%.
Segmented Financial Results
Nuclear Business
During the first quarter in 1999, nuclear revenue increased to $121 million from $92 million a year ago. Sales volumes rose by more than 40% for U3O8 and 15% for conversion services due to normal variations in delivery patterns. Cameco's average realized price for uranium concentrates declined on a quarter to quarter basis consistent with the uranium spot price which averaged less than the first quarter of last year.
Cost of products and services sold, including depreciation, depletion and reclamation were lower on a per unit basis but, in aggregate increased by 28% essentially reflecting the greater uranium and conversion delivery volumes.
Gold Business
Gold revenue declined by 34% when compared to the first quarter of 1998 due primarily to lower sales volumes. This resulted from Kumtor's lower production level to date in 1999 and the completion of Contact Lake mining in 1998. Also, the realization of reduced hedge prices contributed to lower revenues in the first quarter of 1999. The LME gold price averaged $287 (US) per ounce while Cameco's average selling price for gold was $348 (US) or $526 (CDN) per ounce during the quarter. This compares to $401 (US) or $574 (CDN) per ounce during the same period in 1998. Cost of products and services sold including depreciation, depletion and reclamation fell by 16% reflecting the lower sales volume partly offset by the higher depreciation rate resulting from the restatement of Kumtor's reserves.
Outlook
At current price levels for uranium and gold, total forecast revenue for 1999 is expected to show a modest increase over 1998. Product costs in 1999 and over the following two years are expected to be variable as the company manages the transition from depleted orebodies to the startup of new, high-grade operations in northern Saskatchewan.
For the remainder of the year, a $1.00 (US) increase in the U3O8 spot price would increase revenue by about $13 million (CDN) and net earnings by about $5 million (CDN).
Cameco's quarterly earnings fluctuate significantly with the timing of uranium deliveries, and therefore, annual results are not reliably extrapolated from the results of any one quarter.
Uranium Spot Market
Uranium spot prices averaged $10.80 (US) per pound U3O8 on March 31, 1999, an increase of 23% from $8.75 (US) at the end of 1998. Increased activity in the uranium spot market led to the stronger prices. For the first quarter, spot market volume was 8.0 million pounds U3O8 versus just 2.2 million pounds in the first quarter of 1998 and 10.9 million pounds for all of 1998. Customer demand was higher as utilities made purchases for discretionary purposes as well as actual requirements.
The spot market price for uranium conversion services also firmed during the quarter, closing at $3.85 (US) per kilogram compared to $3.50 (US) at the beginning of the quarter.
Uranium Long-Term Market
The long-term market had less activity than the spot market and as a result, the long-term uranium price indicators have risen at a slower rate than spot prices. At March 31, 1999, the long-term price indicator had risen about 6% to $11.75 (US) per pound U3O8 from $11.10 (US) at the end of 1998. Demand in the long-term market is expected to increase over the remainder of the year as utilities move to cover future needs and volumes should exceed the 1998 long-term contracting activity level of 50 million pounds U3O8 .
Market Development
On March 24, 1999, Cameco and its partners, Cogema of France and Nukem of the United States and Germany signed a commercial agreement with Techsnabexport (Tenex), the commercial arm of the Russian Federation's Ministry of Atomic Energy for the purchase of natural uranium derived from highly enriched uranium (HEU) contained in Russian nuclear weapons.
The agreement gives Cameco and its partners options to purchase about 260 million pounds U3O8 over the term of 15 years. Cameco's share is about 100 million pounds. The agreement allows Tenex to return material not purchased by the western companies to Russia and use about 7 million pounds annually for blending down HEU to low enriched uranium. Pursuant to the bilateral agreement between the US and Russian governments, the balance of the returned uranium is to be placed in a monitored stockpile and will be kept off the market for the duration of the HEU agreement, which is anticipated to be 15 years. When the stockpile exceeds 58 million pounds, which may take a few years to accumulate, Tenex is permitted to sell the excess into supply contracts it currently has in place, mainly with utilities in eastern Europe.
As part of the bilateral agreement, the US Department of Energy (DOE) purchased the uranium feed component of the 1997 and 1998 HEU deliveries for $325 million (US). This material, along with an additional 30 million pounds of DOE uranium inventory, will constitute the US stockpile which will also be impounded off-market for a 10-year period.
These agreements address a significant uncertainty that has pervaded the uranium market and removes one of the factors that has depressed uranium prices since the availability of this material was first announced in 1993.
Operation Updates
As planned, the reduction of the Rabbit Lake mining workforce continued in the first quarter. Simultaneously, the production schedule for the mill was reduced to approximately one-half its capacity where it is expected to remain for about two years. The Key Lake mill will produce at normal volume to the end of the second quarter. Then it will be retrofitted to accommodate the first delivery of McArthur River ore. During the first quarter, construction of the receiving station for the McArthur River ore continued.
At McArthur River, project construction remains within the feasibility study cost estimates and on schedule for startup in the fourth quarter of 1999. The freeze plant was commissioned in January and freezing of the initial mining area of the orebody was initiated. Completion of the freeze hole drilling and freezing is on the critical path. Sinking of shaft number two is behind schedule as a result of an extensive grouting program undertaken in early 1999 to control water inflow. However, this delay is not expected to impact completion of the overall project. Cameco is in the process of filing its application with federal authorities for the McArthur River mine operating licence.
Cameco agreed to purchase from Korea Electric Power Corporation an additional 1.275% of the Cigar Lake project, increasing its controlling interest from 48.75% to 50.025%.
Kumtor gold production during the first quarter declined by 10% as the headgrades milled were on budget but lower than those of a year earlier. Production for the year is expected to exceed 600,000 ounces (Cameco's share is one-third).
Year 2000 Readiness
There are five primary areas of concern which the Year 2000 readiness program has been mandated to address. Remediation of centralized business systems is complete and final testing is targeted to be finished by June 30, 1999. Testing of end user workstation systems is about 95% complete and is expected to be finished by the end of the second quarter. Review of imbedded systems and industrial automation is approximately 90% complete and final remediation and testing is scheduled to be concluded during summer shutdowns at the operating sites. Uncertainties remain with regards to the company's dependence on the systems of business partners. Cameco continues to seek assurances that business partners are dealing with this issue responsibly. The company is working with key business partners to resolve these uncertainties. However, if they cannot be satisfactorily resolved in a timely manner, business interruptions or delays may occur that could have a material adverse effect on Cameco's business and financial condition. Contingency planning began on March 1, 1999. The cost estimate for the entire program remains unchanged at under $1 million.
Forward-Looking Statements
Certain statements in this report to shareholders constitute forward-looking statements as defined in the United States Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Cameco or of the uranium or gold business to be materially different from future results, performance or achievements express or implied by those forward-looking statements. These factors are discussed in greater detail in Cameco's most recent annual information form and management's discussion and analysis on file with the Canadian provincial securities regulatory authorities and the United States Securities and Exchange Commission.
For Further Information Contact:
| Alice Wong Director, Investor & Corporate Relations Cameco Corporation Phone: (306) 956-6337 Fax: (306) 956-6318 |
Elaine Kergoat Manager, Media & Public Relations Cameco Corporation Phone: (306) 956-6315 Fax: (306) 956-6318 |
Profile
Cameco is the world's largest publicly traded uranium producer. The company operates underground uranium mines in Saskatchewan, Canada, in situ leach uranium facilities in Wyoming and Nebraska in the United States, uranium refining and conversion facilities in Ontario, Canada and a gold mine in Kyrgyzstan, Central Asia. The company's uranium products are used to generate electricity in nuclear energy plants around the world, providing one of the cleanest sources of energy available today.
Investor Information|
Common Shares CCOThe Toronto Stock Exchange CCJ Preferred Securities CCJPR |
Investor Inquiries Cameco Corporation2121, 11th Street West Saskatoon, Saskatchewan S7M 1J3 Telephone: (306) 956-6400 Facsimile: (306) 956-6318 Web: www.cameco.com |
Transfer Agent CIBC Mellon Trust Company1080 - 2002 Victoria Avenue Regina, Saskatchewan S4P OR7 Telephone: (306) 751-7550 Facsimile: (306) 751-7552 |
