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Cameco Announces Second Quarter Financial Results for 1999
To Our Shareholders
Highlights from Bernard Michel, Chair, President and Chief Executive Officer
"The sale of assets to Cogema provides Cameco with an additional $250 million to pay down debt and an after tax gain of about $65 million which will be recorded in the third quarter. This transaction gives us greater flexibility in managing our business activities with more than one-third of our debt being eliminated."
"Cameco's net earnings in the first half of 1999 were primarily impacted by a higher contribution from the company's nuclear activities and a lower contribution from the company's gold activities."
"The McArthur River site is a hub of activity as employees and contractors remain on track to begin commercial production in the fourth quarter of 1999."
"During the first half of 1999, strong demand from utilities and producers more than tripled the volume on the uranium spot market compared to last year. However, eager sellers were putting downward pressure on the price by offering lower prices as the quarter closed."
Financial Highlights| Six Months Ended | Six Months Ended | ||||||||
| June 30/99 | June 30/98 | Change | |||||||
| Revenue ($ millions) | 328 | 289 | 13% | ||||||
| Earnings from operations ($ millions) | 57 | 59 | -3% | ||||||
| Cash provided by operations ($ millions) | 69 | 81 | -15% | ||||||
| Net earnings attributable to common shares ($ millions) | 24 | 37 | -35% | ||||||
| Earnings per share ($) | 0.41 | 0.65 | -37% | ||||||
| Average uranium spot price for the period (US$/lb U3O8) | 10.57 | 11.06 | -4% | ||||||
| Cameco's average realized gold price for the period (US$/ounce) | 347 | 405 | -14% | ||||||
| Average LME gold price for the period (US$/ounce) | 280 | 297 | -6% | ||||||
Consolidated Financial Results
Cash Flow For the first half of 1999, Cameco's cash flow from operations after working capital changes (noted as other operating items), declined to $69 million ($1.20 per share) compared to $81 million in the same period last year. This was primarily due to the paydown of current liabilities. Before working capital changes, cash provided by operations was $108 million ($1.88 per share) compared to $103 million last year. Cash used in investing activities of $108 million primarily reflected development expenditures at McArthur River and Cigar Lake. Earnings Revenue in the first half of the year increased to $328 million from $289 million in 1998. This was due to higher uranium deliveries partly offset by lower realized uranium and gold prices and lower gold sales volume. Despite the increase in revenue, earnings from operations of $57 million were marginally lower than in the first half of 1998, reflecting lower realized gold prices, higher depreciation expenses for Kumtor and increased administration and interest charges. After preferred securities charges, net earnings attributable to common shares during the first six months were $24 million ($0.41 per share) compared to $37 million ($0.65 per share) in 1998. The 1998 results benefited from a lower effective income tax rate as a larger proportion of pre-tax earnings had been generated outside of Canada from our gold operations. Also in 1998, there were no charges for preferred securities as they were not issued until later in the year. Financial Position At June 30, 1999, total debt was $627 million compared to $601 million at December 31, 1998. In July 1999, Cameco announced the closing of the transaction in which Cogema Resources Inc. acquired an interest in selected Saskatchewan uranium assets for $250 million. The net proceeds were used to pay down debt and an after tax gain of approximately $65 million will be recognized in the third quarter. Including the effect of this transaction, Cameco's debt-to- capitalization ratio would decline to 15%, compared to 24% at the end of 1998. Also in July the company issued $100 million of 6.9% debentures with a seven-year term. The net proceeds were used to repay commercial paper as it matured, and therefore, the debentures do not represent increased indebtedness. The company has adopted the new Canadian guidelines regarding accounting for income taxes. The effect of this change was to increase property, plant and equipment and deferred income taxes as described in note 6 to the consolidated financial statements. Segmented Financial Results Nuclear Business During the first half of 1999, nuclear revenue increased to $278 million from $212 million a year ago. Sales volume rose by more than 40% for U3O8 and 8% for conversion services due to normal variations in delivery patterns and in the case of U3O8, the addition of the Uranerz delivery commitments. Cameco's average realized price for uranium concentrates declined due to lower U3O8 spot prices which averaged about 4% less than in the first half 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 27% reflecting the increase in uranium and conversion delivery volumes. The unit cost for uranium has been favourably influenced by the Uranerz acquisition which has increased Cameco's share of low-cost production from the Key Lake and Rabbit Lake mines. Gold Business Gold revenue of $51 million for the first six months of 1999 was down 34% from a year earlier due to both lower sales volume and prices. To date in 1999, the average realized gold price was $347 (US) per ounce compared to $405 (US) through the first six months of 1998. Approximately half of the decline in sales volume is due to the shutdown of Contact Lake mine in mid-1998. At Kumtor, production to date is on budget and cash costs remain below $175 (US) per ounce. Outlook Compared to 1998, total forecast revenue for 1999 is expected to show a modest increase. 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) change in the U3O8 spot price from current levels would change revenue by about $9 million (Cdn) and net earnings by about $3 million (Cdn). The gold hedge position at the end of June 1999 was 501,000 ounces at an average price of $305 (US). Kumtor gold production for the year is expected to exceed 600,000 ounces (Cameco's share is one-third). Kumtor's life of mine plan is presently under review along with the value at which Cameco carries the Kumtor investment in its financial statements. Cameco's quarterly earnings fluctuate significantly with the timing of uranium deliveries, and therefore, annual results may not be reliably extrapolated from the quarterly results. Uranium Spot Market Uranium spot prices averaged $10.41 (US) per pound U3O8 on June 30, 1999, a decrease of 4% from $10.80 (US) at the end of the first quarter. Although spot demand from utilities and producers was stronger than last year, eager sellers were concluding sales by offering lower prices as the quarter came to a close. During the quarter, total spot market volume was approximately 5 million pounds U3O8 bringing the year-to-date total to more than 13 million pounds, a significant improvement over the 4 million pounds sold in the first half of 1998. The spot market price for uranium conversion services also declined during the quarter by 12%, closing at $3.40 (US) compared to $3.85 (US) at the beginning of the quarter. Prices weakened as non-primary suppliers were aggressive in selling conversion for near-term delivery. Uranium Long-Term Market The long-term market continued to be relatively quiet in the second quarter with the long-term uranium price indicator declining marginally to $11.65 (US) per pound U3O8 from $11.75 (US) at the end of the previous quarter. Demand in the long-term market is expected to increase over the remainder of the year as utilities move to cover future needs and volume for the year is expected to exceed the 1998 estimated level of 50 million pounds U3O8. Market Development On May 14, 1999, ConverDyn, a US convertor, announced that it was reducing its annual production by 25% or about 3,200 tonnes U as UF6. This reduction represents about 7% of western world UF6 production capacity. Operation and Development Updates Key Lake mill operations were shut down at the end of June to retrofit the plant for processing of McArthur River ore. The mill is expected to be back in operation in the fourth quarter of 1999. Construction of the ore receiving station continued during the second quarter. Also, at Key Lake, contract negotiations continued during the quarter with the United Steel Workers of America. At McArthur River, freeze hole drilling has been completed around the initial mining area and the freezing system has been put into full operation. Freezing of the first mining area is essential prior to the start of mining. Sinking of shaft number two has now been completed. Work on shaft number three, scheduled for completion in 2001, has been started. Construction of all surface facilities is expected to be complete in September after which mine commissioning will begin. The project remains within the feasibility study cost estimates and on schedule for startup in the fourth quarter of 1999. Cameco has filed an application for the McArthur River operating licence with the Atomic Energy Control Board (AECB). The AECB has given initial consideration to the application and an operating licence should be received early in the fourth quarter. At Cigar Lake, additional testing of the jet boring tools was successfully completed, further confirming the potential of this innovative mining technology. In June, the United States Enrichment Corporation (USEC) announced the suspension of the Atomic Vapor Laser Isotope Separation (AVLIS) enrichment project. Cameco has partnered with USEC in developing a process to supply metal grade feed to the AVLIS project. USEC will refund Cameco's contribution to the partnership of approximately $3 million (Cdn). The company's marketing sales force will be relocated to a new Minneapolis office effective August 1, 1999. Year 2000 Readiness Cameco's overall year 2000 readiness program is progressing in accordance with expectations and the company has met all milestone dates in its project plan. Core business information systems have been fully assessed and remediation activities are essentially complete. A quality assurance (QA) program was established to ensure that critical corporate business systems were subjected to an additional level of integrated testing in a simulated end user production environment. The QA test plan was completed successfully by June 30, 1999. The company has completed its corporate-wide impact assessment of imbedded systems and utilized an external audit process to independently review the results achieved at Cameco's Canadian locations. Replacement and/or remediation of identified at-risk imbedded systems components is substantially complete with only a small number of items remaining to be addressed during the routine maintenance shutdowns in July and August 1999. While business partners generally have responded in a positive manner regarding their year 2000 planning, this information cannot be verified, and therefore, should be viewed with some caution. At Kumtor, the company views the Y2K uncertainty to be greater because of the low profile of this issue in the local environment. The development and implementation of a year 2000 business continuity planning process began in April 1999. This process utilizes a standard methodology which is being deployed at operating locations through on-site visits of a corporate contingency planning facilitator. The cost estimate for the entire program remains unchanged at under $1 million. The effects of the year 2000 issue may be experienced before, on, or after January 1, 2000, and, if not addressed, the impact on operations and financial reporting may have a material adverse effect on Cameco's business and financial condition. It is not possible to be certain that all aspects of the year 2000 issues affecting the company (including the operations of the Kumtor gold mine) will be fully resolved, including those related to the efforts of customers, suppliers or third parties. 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 expressed 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 |
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Investor Inquiries
Cameco Corporation 2121, 11th Street West Saskatoon, Saskatchewan S7M 1J3 Phone: (306) 956-6400 Fax: (306) 956-6318 Web: www.cameco.com |
Transfer Agent
CIBC Mellon Trust Company 1080 - 2002 Victoria Avenue Regina, Saskatchewan S4P OR7 Phone: (306) 751-7550 Fax: (306) 751-7552 |
