Saskatoon, Saskatchewan, Canada, April
27, 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
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
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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
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Common Shares
CCO
The Toronto Stock Exchange
The Montreal Exchange
CCJ
New York Stock Exchange
Preferred Securities
CCJPR
New York Stock Exchange
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Investor Inquiries
Cameco Corporation
2121, 11th Street West
Saskatoon, Saskatchewan
S7M 1J3
Telephone: (306) 956-6400
Facsimile: (306) 956-6318
Web: www.cameco.com
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Transfer Agent
CIBC Mellon Trust Company
1080 - 2002 Victoria Avenue
Regina, Saskatchewan
S4P OR7
Telephone: (306) 751-7550
Facsimile: (306) 751-7552
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