Saskatoon, Saskatchewan, Canada, July 23,
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
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 U
3O
8
and 8% for conversion services due to normal variations in delivery
patterns and in the case of U
3O
8,
the addition of the Uranerz delivery commitments. Cameco's average
realized price for uranium concentrates declined due to lower U
3O
8
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 U
3O
8
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 U
3O
8
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 U
3O
8
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 U
3O
8
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 U
3O
8.
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
UF
6.
This reduction represents about 7% of western world UF
6
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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Profile
Cameco is the world's largest publicly traded uranium producer.
The company has 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
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
Phone: (306) 956-6400
Fax: (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
Phone: (306) 751-7550
Fax: (306) 751-7552
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