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Saskatoon, Saskatchewan, Canada, October 30, 1998
To Our Shareholders
Highlights from Bernard Michel, Chair, President and Chief Executive Officer
"During the first nine months of 1998, despite weak uranium and gold prices, Cameco provided strong cash flow and continuing profitability." "While the current uranium market may be characterized by low demand and corresponding low prices, Cameco has successfully positioned itself to capitalize on future uranium market improvements. Following the acquisition of Uranerz Exploration and Mining Limited and Uranerz U.S.A., Inc. in August, Cameco now accounts for about one-third of the world's uranium production and supplies approximately one-fifth of the western world's uranium requirements." "Cameco's $125 million (US) offering of preferred securities, which was completed in early October, established long-term funding for a portion of the purchase price of Uranerz. This issue provided the company with more financial flexibility and diversity as well as greater exposure in the US financial markets." "Cameco celebrated its tenth anniversary in October 1998 as the world's largest company in the international uranium and uranium conversion business. In the last decade, Cameco has had many successes including doubling uranium production and sales, accumulating more than $4 billion in revenue, generating more than $1 billion in cash flow and earning three-quarters of a billion dollars of net profit for shareholders."Financial Highlights
The financial results include Uranerz Exploration and Mining Limited and Uranerz U.S.A., Inc. as of the date of acquisition (August 11, 1998).| Nine Months Ended | Nine Months Ended | ||||||||||
| Sept 30/98 | Sept 30/97 | Change | |||||||||
| Revenue ($ millions) | 492 | 463 | 6% | ||||||||
| Earnings from operations ($ millions) | 95 | 113 | -16% | ||||||||
| Cash provided from operations ($ millions) | 66 | 54 | 22% | ||||||||
| Net earnings ($ millions) | 55 | 63 | -13% | ||||||||
| Earnings per share ($) | 0.97 | 1.19 | -19% | ||||||||
| Average uranium spot price for the period (US$/lb U3O8) | 10.77 | 11.93 | -10% | ||||||||
| Cameco's average realized gold price for the period (US$/ounce) | 396 | 417 | -5% | ||||||||
| Average LME gold price for the period (US$/ounce) | 294 | 339 | -13% | ||||||||
Earnings
In the first three quarters of 1998, Cameco's revenue rose to $492 million, a 6% increase over the same period in 1997. The increase reflects higher gold sales volumes partially offset by lower uranium revenue due to a decrease in volume, and to a lesser extent lower realized uranium prices. Earnings from operations were $95 million in the first three quarters of 1998 compared to $113 million for the same period last year. This difference was due to smaller margins for uranium, partially offset by increased gold sales. The cost of products and services sold including depreciation, depletion and reclamation increased by 15% compared to 1997, reflecting a higher volume of gold sales from Kumtor and the sale of larger quantities of purchased uranium which carry higher costs than produced material. Net earnings were $55 million ($0.97 per share) compared to $63 million ($1.19 per share) in the first nine months of 1997. The LME gold price averaged $294 (US) per ounce during the first three quarters of 1998, while Cameco's average selling price for gold was $396 (US) ($579 (CDN)) per ounce.Cash Flow
Cash provided by operations in the first three quarters of 1998 was $66 million compared to $54 million for the same period last year. This increase was due to changes in working capital, reflecting decreased uranium purchases. Cash used in investing activities increased significantly from 1997 due to the Uranerz acquisition. In 1997, investments related to the purchase of Power Resources, Inc. (PRI) and advances made to Kumtor Gold Company.Financial Position
At September 30, 1998, total long-term debt was $586 million compared to $143 million at December 31, 1997. This primarily reflects a portion of the financing required for the Uranerz acquisition and refinancing of the short-term PRI bridge loan. The remainder of the Uranerz financing is reflected in short-term debt at September 30, 1998 and was rolled over to long-term financing in early October 1998 through an issue of preferred securities described below. In addition, increases in accounts receivable, inventories, property, plant and equipment and deferred income taxes have resulted wholly or partially from the Uranerz transaction.Preferred Securities Offering
On October 2, 1998, the company completed an offering of $125 million (US) of preferred securities in the US market. These junior subordinated debentures carry a 49-year term, an interest rate of 8.75% and are redeemable at the company's option at par after five years. The net proceeds of $121 million (US) will replace a portion of the short-term financing used in the Uranerz acquisition. In accordance with Canadian generally accepted accounting principles, the preferred securities will be accounted for as equity.Uranium Spot Market
The uranium spot market in 1998 has been characterized by extremely low volume as utilities continue to reduce their inventories and defer spot purchases to meet 1999 requirements. To September 30, spot market activity was limited to approximately 6.0 million pounds U3O8 compared to 15.7 million pounds in the same period a year earlier. On September 30, 1998, the average of uranium spot price indices was $9.79 (US) per pound U3O8, compared to the $10.85 (US) at the end of the second quarter and $12.13 (US) at the end of 1997.U3O8
Spot Market Volume-Western World
| Third Quarter | Year to Date | |
| 1998 | 2.1 million lbs | 6.0 million lbs |
| 1997 | 9.2 million lbs | 15.7 million lbs |
Uranium Long-Term Market
Long-term uranium price indicators remained steady through the third quarter at $11.10 (US) per pound U3O8 reflecting continued low levels of activity in the long-term market. Total volume this year is expected to be less than 50 million pounds versus 72 million pounds in 1997 and 116 million pounds for 1996. Contracting activity is not expected to pick up until 1999 when utilities move to cover their requirements for 2000 and beyond.Market Developments
Highly Enriched Uranium Cameco and its western partners continue to negotiate with Russia to purchase the uranium component of Russian HEU. In an effort to facilitate an agreement, representatives of the Russian and US governments met in September. Through these discussions, the US government offered to take certain steps including deferring approximately 30 million pounds U3O8 of inventory sales by the US Department of Energy (DOE) for up to 10 years and arranging for an advance payment to Russia. In turn, Russia indicated its willingness to conclude an agreement with the western companies on terms which allowed Russia to realize a substantial portion of the fair market value for the uranium component. Subsequently in its 1999 budget, the US Congress authorized the DOE to spend $325 million (US) for the purchase of approximately 28 million pounds U3O8 contained in the 1997 and 1998 HEU deliveries. However, this expenditure is contingent on the conclusion of a commercial agreement covering the deliveries scheduled for 1999 and thereafter.The purchased uranium component will become part of DOE's inventory and, therefore subject to any decision by the DOE to defer inventory sales as described above.
Development Updates
Development of Cameco's future low-cost uranium operations continues. The McArthur River project remains on budget and on schedule to begin operations in late 1999. Construction and development work was approximately 55% complete at September 30. After the Uranerz acquisition, Cameco holds an 84% interest in the project, which is the world's largest known, high-grade uranium deposit. Regarding the Cigar Lake project, Cameco and its joint venture partners are reviewing various milling and operating options. The company expects uranium production to begin in late 2001 or 2002.Operation Updates
With respect to the truck accident which resulted in a spill of sodium cyanide in the Barskaun River, 78 kilometres from the Kumtor minesite in Kyrgyzstan, a scientific commission of international experts was assembled at the request of the Kyrgyz Republic. The commission presented its report to the Kyrgyz government September 11, 1998 and two weeks later released its findings to the public. The commission concluded, among other things, that no one died as a result of the spill and that there was no possibility of harmful exposure to cyanide in the air, in the soil or in the Barskaun and Tamga watering ditches. Despite the findings of the international experts, a separate commission established by the Prime Minister of Kyrgyzstan determined that damages amounted to approximately $4.6 million (US) as a result of the incident. While not finalized, the company expects that total liability payments for the accident will not be materially more than this amount. The Kumtor gold operation remains on track to produce more than 600,000 ounces (Cameco share 200,000 ounces) of gold this year after producing its one millionth ounce on October 21. With milling completed at the Contact Lake gold mine in June 1998, the site is being reclaimed to its natural state.Company Updates
The company completed its purchase of Uranerz Exploration and Mining Limited and Uranerz U.S.A. on August 11, 1998. Cameco now manages about one-third of the world's uranium production and supplies one-fifth of the western world's uranium requirements. The acquisition of a 6.45% interest in Energy Resources of Australia was approved in October by all necessary third parties and is expected to close soon. This transaction will provide Cameco with an interest in low-cost production from significant Australian operations.Outlook
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 $2.3 million (CDN) and net earnings by about $0.9 million (CDN). In light of the continuing weakness of uranium and gold prices, Cameco is reviewing the management of its assets, which in the near term could result in decisions regarding the sale of assets, the rate of production, the reduction of inventory levels and the carrying value of certain assets.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, please 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 Corporation is harnessing the power of the world's richest uranium assets and targeting growth in 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|
Stock Symbols CCOThe Toronto Stock Exchange New York Stock Exchange |
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 |
Financial statements.