Saskatoon, Saskatchewan, Canada, October
26, 1999
To Our Shareholders
Highlights from Bernard Michel, Chair, President and Chief Executive
Officer
"Cameco has recorded an after tax net gain of $71 million from
the sale of uranium assets announced in the second quarter and used
the net proceeds of $238 million to reduce debt. In addition, the
company has reduced the carrying value of its gold assets by $43
million after tax as a result of concerns over the continued volatility
in the gold market."
"Annual uranium sales volumes are expected to be higher than
last year, even though volumes were lower in the third quarter as
a result of the flexible delivery schedules demanded by customers."
"The company remains a strong generator of cash in spite of net
earnings which continue to reflect declining uranium and gold prices."
"Cameco is eagerly anticipating production startup at the McArthur
River project before year end after receiving a mine operating licence
from the Atomic Energy Control Board on October 7, 1999."
"Despite sustained demand from utilities, the uranium spot market
remains under pressure from a few sellers who appear to be committed
to make short-term sales in a weakening market."
"At the end of the third quarter, we announced the company's share
repurchase program. We have commenced the purchase of Cameco shares
which we believe is in the best interest of our shareholders."
Financial Highlights
Consolidated Financial Results
Cash Flow
During the first nine months of 1999, Cameco's cash flow from operations,
after working capital changes, was $170 million ($2.96 per share)
compared to $66 million ($1.16 per share) generated during the first
nine months of 1998. This increase of $104 million is due to changes
in working capital as Cameco's trade receivables and inventories
are significantly lower than they were a year ago. Receivables are
down due to timing of sales while inventories are lower as a result
of greater sales volumes and reduced uranium production at the Key
Lake and Rabbit Lake minesites. The lower production is part of
the company's strategy to reduce its product inventory now that
McArthur River is in the startup phase. Before working capital changes,
cash provided by operations was $147 million compared to $165 million
in 1998. This reduction is largely attributable to decreased profit
margins caused by lower prices.
In the nine months ended September 30, 1999, Cameco generated positive
cash flow of $65 million from its investing activities. This reflected
the net proceeds from the sale of uranium assets to Cogema Resources
Inc. (Cogema) of $238 million and capital expenditures of $175 million
related mainly to the continued development of McArthur River and
Cigar Lake.
Earnings
For the nine months ended September 30, 1999, net earnings attributable
to common shares were $53 million ($0.93 per share) compared to
$55 million ($0.97 per share) in 1998. Earnings in 1999 were significantly
impacted by two unusual items which were recorded in the third quarter;
the gain on the sale of uranium assets to Cogema and the writedown
of gold assets. Excluding the impact of these two items, net earnings
attributable to common shares would have been $25 million ($0.44
per share) for the first nine months of 1999.
The sale of assets to Cogema resulted in a net gain of $71 million,
of which $59 million is recorded as a deferred income tax recovery
with the remainder appearing as a gain on the sale of assets.
The company reduced the carrying values of its gold assets in the
third quarter which resulted in a $43 million charge to earnings,
net of a $6 million deferred tax recovery. The majority of this
charge, or $40 million, relates to the company's investment in Kumtor.
The remaining $3 million has been taken against Cameco's investments
in other gold companies.
The lower earnings in the third quarter from the nuclear segment
reflect the following factors; declining uranium spot prices combined
with a higher proportion of uranium deliveries with pricing based
upon the current spot price, lower delivery volumes, and more sales
of higher-cost purchased uranium. Cameco's earnings fluctuate with
the timing of uranium deliveries and therefore, earnings from quarter
to quarter can vary significantly. It is anticipated that the fourth
quarter will see a much higher volume of uranium deliveries. Total
1999 volumes are expected to surpass the 1998 levels.
The company's earnings were also weakened by decreased operating
profits from Kumtor, which has been negatively impacted by lower
realized gold prices, lower production volumes and grades, and higher
depreciation charges. Higher interest expenses and preferred securities
charges also reduced earnings for the nine-month period compared
to last year.
Financial Position
At September 30, 1999, total debt was $379 million compared to
$601 million at December 31, 1998, and the company's debt-to-capitalization
ratio had declined to 16% from 24% at the end of 1998. Cameco used
the proceeds from the Cogema sale to reduce long-term indebtedness.
In July, the company issued $100 million of 6.9% debentures with
a seven-year term. The net proceeds of this transaction were used
to repay commercial paper as it matured.
On September 27, 1999, the company announced a program to purchase
for cancellation up to 2.9 million of its common shares, representing
5% of the 57.7 million issued and outstanding common shares of the
company. Under the program, purchases can be made during the period
beginning on September 29, 1999 and ending on September 28, 2000.
The company will make only open-market purchases of its shares and
will pay the market price of the shares at the time of purchase.
Cameco began purchasing shares in early October 1999.
Segmented Financial Results
Nuclear Business
To September 30, 1999, nuclear revenue increased to $421 million
from $381 million for the same period one year ago. Sales volume
rose by 17% for U3O8 primarily due to the
addition of UEM Inc. (Uranerz) delivery commitments. Conversion
services sales volumes rose by 10% due to normal variations in delivery
patterns. Cameco's average realized price for uranium concentrates
declined due to lower U3O8 spot prices which
averaged about 3% less than in 1998.
Cost of products and services sold, including depreciation, depletion
and reclamation were lower on a per unit basis but, in total increased
by 14% reflecting higher uranium and conversion delivery volumes.
The unit cost for uranium has been favourably influenced by the
UEM acquisition which has increased Cameco's share of low-cost production
from the Key Lake and Rabbit Lake mines. In addition, the average
cost of purchased product was slightly lower than a year earlier.
Gold Business
As noted in our report to shareholders for the second quarter ended
June 30, 1999, Cameco has undertaken a review of the carrying value
of its investment in Kumtor. This review was completed in the quarter
ended September 30, 1999, with the result that Cameco has reduced
the carrying value of its investment in Kumtor by $31 million (US),
or $46 million (Cdn). This represents a writedown of Cameco's initial
equity investment to the project in excess of its one-third equity
in the Kumtor Gold Company (KGC).
Gold prices tested the $250 (US) per ounce level during the quarter
and continue to be volatile despite the improvement near the end
of September. Cameco believes that gold prices still face pressure
from the downward trend which began three years ago and is of the
view that taking a conservative outlook of future gold prices is
justified. Following the writedown, Cameco's book value of its interest
in KGC was $125 million (US) on September 30, 1999.
The review also indicated that KGC would be able to meet its payment
obligations as they become due to its senior lenders at an average
realized gold price of about $225 (US) per ounce or higher over
the life of the mine. Following the scheduled debt repayment of
$25 million (US) on June 1, 1999, KGC's outstanding senior indebtedness,
all of which is guaranteed by Cameco, was reduced to $216 million
(US).
For the nine months ended September 30, 1999, gold revenue declined
by 31% to $76 million compared to a year earlier, due to lower sales
volume and lower prices. Sales volume declined by 39,674 ounces
(22%) to 141,650 ounces, partly due to a decrease in Kumtor production
and partly due to the shutdown of Contact Lake mine in mid-1998.
Cameco's share of Kumtor production for the nine months ended September
30, 1999 declined by 7% to 146,756 ounces compared to 157,575 ounces
last year, largely reflecting an anticipated lower average ore grade.
In 1999, the average grade processed was 4.4 grams per tonne with
recoveries averaging almost 80%. The average realized gold price
declined to $345 (US) per ounce for the nine months ended September
30, 1999, from $396 (US) per ounce for last year.
For the first nine months of 1999, KGC's total cash cost per ounce
was about $178 (US). This cost is calculated in accordance with
the standards of The Gold Institute.
KGC's hedge position at the end of September 1999 was 1,256,240
ounces at an average expected price of about $300 (US) per ounce.
This represents a net increase of 755,180 ounces since the end of
the previous quarter and the total position now covers the equivalent
of about two years of production. The mark-to-market unrealized
loss of KGC's hedge position was $3 million based on a market spot
gold price of $299 (US) per ounce at quarter end.
Outlook
Total forecast revenue for 1999 is expected to show a modest increase
over levels achieved in 1998 due to the effect of greater uranium
sales being offset by lower gold volume and price. Product costs
over the next two years are expected to vary as the company brings
new high-grade, underground uranium mines into steady state operation.
For the remainder of the year, a $1.00 (US) change in the U3O8
spot price from current levels would change revenue by about $3
million (Cdn) and net earnings by about $1 million (Cdn). Cameco's
share of 1999 uranium production is expected to be about 16 million
pounds U3O8 .
At Kumtor, gold production for the year is expected to exceed 600,000
ounces. (Cameco's share is one-third).
Uranium Spot Market
The U3O8 restricted spot price averaged $9.90
(US) per pound U3O8 on September 30, 1999,
which was a decline of 5% from $10.41 (US) at the end of the second
quarter, and an increase of 12% over the average spot price at the
end of 1998. Utility demand continued to be strong during the third
quarter, but certain sellers were motivated to conclude sales, particularly
for near-term deliveries, at increasingly lower prices.
The uranium spot market volume for the quarter was about 4 million
pounds U3O8 bringing the year's volume to
approximately 19 million pounds. This compares to just 11 million
pounds for the entire year in 1998.
The spot market price for uranium conversion services also declined,
ending the quarter at $2.90 (US) per kilogram uranium as UF6
compared to $3.40 (US) three months earlier. As with U3O8
, prices weakened as secondary suppliers were aggressive in
liquidating conversion inventory for near-term delivery.
Uranium Long-Term Market
Late in the third quarter, the long-term price indicator fell to
$11.00 (US) per pound U3O8 from $11.25 (US).
This decline reflects the lack of activity in this market to date
in 1999 and the softening of the spot price over the last two quarters.
Long-term market activity for 1999 is expected to be in the range
of the 50 million pounds U3O8 reported in
1998.
Operation and Development Updates
On October 7, 1999, the Atomic Energy Control Board (AECB) approved
a two year, renewable operating licence for the McArthur River uranium
mine. The licence permits the mining and processing of ore at McArthur
River and the transport of ore slurry to Key Lake. In preparation
for mining, extraction chambers and test holes for raise boring
are being completed and commissioning of the underground ore preparation
circuit is underway. The overall project is expected to be completed
within the feasibility cost estimates and on schedule. Sinking of
shaft number three, which is not needed to begin production, has
begun and is scheduled for completion in 2001. The McArthur River
mine contains the largest, high-grade uranium reserves in the world.
When the mine achieves full production capacity, expected in 2001,
it is expected to be one of the world's lowest-cost uranium production
centres.
Retrofitting of the Key Lake mill to process the McArthur River
ore continued during the third quarter and will be completed by
the end of October. Subsequently, the mill will be restarted using
Key Lake feed, followed by commissioning of the McArthur ore receiving
station. The first delivery of McArthur River ore is expected later
in the fourth quarter. The Key Lake capital modification projects
are on budget and on schedule.
An operating licence permitting the milling of McArthur River ore
at the Key Lake mill will be considered for approval by the AECB
on November 4, 1999.
Year 2000 Readiness
Cameco's overall year 2000 readiness program continues to progress
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. All operating locations are well advanced
with respect to developing Y2K-specific, year-end operating and
contingency plans.
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 priority given to this issue in Kyrgyzstan.
The development and implementation of a year 2000 business continuity
planning process at Cameco began in April 1999. This process utilizes
a standard methodology which is being deployed at operating locations.
The cost estimate for Cameco's entire Y2K 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
|
Elaine Kergoat
Manager, Media and 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
Common Shares
CCO
The Toronto Stock Exchange
The Montreal Exchange
CCJ
New York Stock Exchange
Preferred Securities
CCJPR
New York Stock Exchange
|
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
|
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