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Saskatoon, Saskatchewan, Canada, July 24, 1998
This news release combines the information previously contained in the quarterly news release and the printed quarterly report. This new format will allow Cameco to distribute the information more efficiently to shareholders and other interested parties.
Second Quarter Overview
To Our Shareholders
Highlights from Bernard Michel, Chair, President and Chief Executive Officer>
"Cameco's net earnings reflect declining uranium prices, however, the company remains a strong generator of cash." "We are pleased that the Kumtor operation has demonstrated it can consistently produce about 50,000 ounces per month at a cash cost of approximately $170 (US) per ounce." "We are continuing to work with local communities and government officials in Kyrgyzstan to clear up the confusion and misinformation which followed the cyanide truck accident. The World Health Organization's report indicates that it is unlikely that the mass illnesses reported in the media were caused by cyanide intoxication. Nevertheless, there are many questions that remain to be answered and these will be addressed as work by the experts continues." "Cameco's agreement in principle to purchase Uranerz Exploration and Mining Limited and Uranerz U.S.A. has received all regulatory approvals except for one from the German ministry of economics which is expected shortly. We anticipate final negotiations will be completed in the near future."Financial Highlights
| Six Months Ended | Six Months Ended | ||||||||||
| June 30/98 | June 30/97 | Change | |||||||||
| Revenue ($ millions) | 289 | 276 | 5% | ||||||||
| Earnings from operations ($ millions) | 59 | 73 | -19% | ||||||||
| Cash provided from operations ($ millions) | 81 | 7 | 1,057% | ||||||||
| Net earnings ($ millions) | 37 | 42 | -12% | ||||||||
| Earnings per share ($) | 0.65 | 0.80 | -19% | ||||||||
| Average uranium spot price for the period (US$/lb U3O8) | 11.06 | 12.64 | -13% | ||||||||
| Cameco's average realized gold price for the period (US$/ounce) | 405 | 426 | -5% | ||||||||
| Average LME gold price for the period (US$/ounce) | 297 | 347 | -14% | ||||||||
Earnings
Cameco's revenue increased 5% to $289 million in the first six months of 1998 compared to the previous year. This was due to a greater volume of gold sales, partially offset by lower uranium revenue caused by lower volumes, as a result of routine variations in delivery schedules, and reduced uranium prices.
Earnings from operations were $59 million in the first half of 1998 compared to $73 million for the same period last year. This difference was due to tighter margins for uranium, partially offset by greater gold sales. The cost of products and services sold including depreciation, depletion and reclamation increased by 16% reflecting greater sales of Kumtor gold and the sale of larger quantities of higher cost purchased uranium.
Net earnings were $37 million ($0.65 per share) compared to $42 million ($0.80 per share) in the first six-months of 1997.
The LME gold price averaged $297 (US) per ounce during the first half of 1998, while Cameco's average selling price for gold was $405 (US) ($584 (CDN)) per ounce.
Cameco's quarterly earnings fluctuate significantly with the timing of uranium deliveries, and therefore, annual results should not be extrapolated from quarterly results.
Cash Flow
Cash provided by operations in the first two quarters of 1998 was $81 million compared to $7 million for the same period last year. This was primarily due to changes in working capital, reflecting decreased uranium purchases as well as the timing of uranium sales.
Cash used in investing activities decreased substantially from 1997. In the first half of 1997, the higher use of cash was related to Cameco's purchase of Power Resources, Inc. (PRI) and advances made to the Kumtor Gold Company.
Financial Position
At June 30, 1998, total long-term debt was $295 million compared to $143 million at December 31, 1997. This largely reflects the replacement of the short-term PRI bridge loan with long-term debt.
Uranium Market
On June 30, 1998, the average of uranium spot price indices was $10.85 (US) per pound U3O8 similar to the $10.80 (US) reported at the end of the first quarter 1998 but down from $12.13 (US) at the end of 1997.
The spot market appeared to reach an equilibrium between supply and demand, a situation which resulted in stable prices during the second quarter.
U3O8 Spot Market Volume-Western World
| First Quarter | Second Quarter | Total | |||||||||
| 1998 | 1.7 million lbs | 2.2 million lbs | 3.9 million lbs | ||||||||
| 1997 | 4.8 million lbs | 1.7 million lbs | 6.5 million lbs | ||||||||
The spot market price for uranium conversion services continued to decline, closing the quarter at $4.46 (US) compared to $4.90 (US) at the beginning of the quarter. This reflected the anticipation of abundant supplies of blended down Russian highly enriched uranium.
Uranium Long-Term Market
Long-term uranium price indicators declined during the quarter reflecting continued low levels of activity in the market. Demand in the long-term market is expected to increase in the second half of the year as utilities move to cover future needs.
Market Developments
Highly Enriched Uranium
Last December, Russia ended negotiations with Cameco and two other western companies on highly enriched uranium, indicating their intention to make their own marketing arrangements. After the Russian President shuffled his cabinet and appointed a new Minister of Atomic Energy, the western partners were approached to renew negotiations. Cameco agreed to enter these discussions on the basis of broader Russian government representation and the prospect of a commercial opportunity. In June, Cameco and its western partners signed a non-binding protocol with Russia and agreed to resume negotiating a contract to purchase uranium resulting from the dismantling of nuclear weapons. Given the long history of negotiations, the outcome is uncertain.
United States Enrichment Corporation
Also in June, the United States Enrichment Corporation (USEC) announced it would be privatized through an initial public offering and disclosed that its current inventory and expected transfers of uranium from the US Department of Energy (DOE) will total about 75 million pounds of uranium equivalent. Of this, USEC expects to sell 62 million pounds into the long-term market during 1999 through 2005. The prospect of such sales may negatively impact uranium prices.
The Uranium Producers of America (UPA), a trade association representing US uranium mining and production companies, have launched a law suit against the DOE for transferring large quantities of uranium to USEC. The UPA claims that the transfers are in violation of US federal law.
Operation Updates
On May 20, a truck transporting 20 tonnes of sodium cyanide overturned and fell into the Barskaun River 78 kilometres from the Kumtor minesite in Kyrgyzstan. Kyrgyz government officials and Kumtor personnel determined that less than 1800 kilograms of sodium cyanide escaped into the river.
Two cranes from the Kumtor minesite removed the truck and its cargo from the river within five and a half hours.
The driver and the vehicle were properly licensed and operating in accordance with Kyrgyz safety regulations and company policy. An accident reconstruction expert, who was retained to review the circumstances of this incident, has determined the accident was caused by the driver travelling at a speed that was excessive for the curvature of the road.
Water sampling began immediately after environmental personnel arrived about two hours after the accident. The results of monitoring show that water quality returned to normal within 24 hours in the Barskaun River and within two days in the bay in Lake Issyk-Kul, 12 kilometres downstream. This is consistent with the information available about the properties of cyanide, which indicates that cyanide dilutes quickly in fast flowing water (such as the Barskaun River) and disappears rapidly following a well known degradation process.
Kyrgyz government officials estimated that the spill rendered some 2,500 people ill and caused one or two deaths. As a result, the Kyrgyz government took extreme precautionary action and temporarily evacuated more than 4,800 residents in the area.
Kumtor Operating Company (KOC) medical representatives, technical experts from DuPont, as well as independent physicians, health and environmental experts have travelled to Kyrgyzstan, at the invitation of the government, to assess the situation. Their preliminary reports indicate it is unlikely that significant human health effects resulted directly from the cyanide spill and that there is no threat to the local population and environment. A lethal effect of cyanide occurs within minutes and there are no known, long-term, low-level residual effects.
Following community meetings and to alleviate some of the suffering caused by the resulting confusion, KOC announced a number of humanitarian measures to assist the people of the Barskaun region in their return to normal life. To date, the total cost of these humanitarian measures to the joint venture is estimated to be about $4 million (US), of which $1.4 million (US) was paid in the second quarter.
In addition, the Prime Minister of Kyrgyzstan established a committee to investigate the accident, estimate the extent of the environmental and economic damage, assess the responsibility of officials and make recommendations to the Kyrgyz government.
The Kumtor mine continued normal operations throughout this period and production remains on track to produce in excess of 600,000 ounces for the year.
Company Updates
Cameco's agreement in principle to purchase Uranerz Exploration and Mining Limited and Uranerz U.S.A. has received all regulatory approvals except for one from the German ministry of economics which is expected shortly. It is anticipated that the agreement will be finalized in the near future. This acquisition will substantially increase our ownership in the world's best uranium operations and projects and provide approximately 30% more uranium reserves and resources and uranium production.
1998 Sensitivity
Excluding the anticipated acquisition of Uranerz, for the remainder of the year, a $1.00 (US) increase (decrease) in the U3O8 spot price from current levels would increase (decrease) revenues by about $7 million (CDN) and net earnings by about $3 million (CDN).
Forward Looking Statements
Statements contained in this report to shareholders which are not historical facts are forward-looking statements that involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Such factors include among others: volatility and sensitivity to market prices for uranium and gold, competition, the impact of changes in foreign currency exchange rates, environmental risks, political risk arising from operating in certain developing countries, changes in government regulations, and policies including trade laws and policies, demand for nuclear power, replacement of production, receipt of permits and approvals from government authorities as well as other operating and development risks.
For Further Information Contact:
Alice Wong
Director, Investor & Corporate Relations
Cameco Corporation
Phone: (306) 956-6337
Fax: (306) 956-6318
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Cameco Corporation is harnessing the power of the world's richest uranium assets and growing its nuclear and gold businesses. The company's uranium products are used to fuel nuclear energy plants, one of the cleanest sources of electricity generation.
Investor Information|
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