Consolidated Financial Results
Earnings
For the first half of 2000, net earnings attributable to common
shares were $20 million ($0.36 per share) compared to $24 million
($0.41 per share) in the first half of 1999. The reduction in earnings
was mainly attributable to lower realized prices for both nuclear
and gold products.
For the same reasons, earnings from operations declined by $11
million to $46 million. The overall gross profit margin fell to
23% from 27% in 1999. The impact of the reduced margin was partially
offset by lower expenses for interest and administration. The decrease
in interest expense was due to reduced debt levels and foreign exchange
gains.
Net earnings also benefited from a lower effective tax rate which
declined to 48% from 51% a year ago.
Cash Flow
During the first six months, Cameco generated cash from operations,
after working capital changes, of $115 million ($2.05 per share)
compared to $73 million ($1.27 per share) in 1999. This increase
was related primarily to a draw down of inventory during the first
half of 2000. Before working capital changes, cash provided by
operations was $91 million compared to $108 million in 1999. This
reduction was primarily attributable to decreased revenue caused
by lower prices.
Cash used in investing activities, the majority of which was for
the further development and commissioning of the McArthur River
mine, declined by $37 million to $71 million.
Balance Sheet
At June 30, 2000, total inventories had declined by 7% to $392
million from $421 million at December 31, 1999. By the end of the
year, inventory is expected to decrease by 10% from year-end 1999
levels. Cameco expects to continue to reduce its uranium inventory
during the period of production ramp up at McArthur River.
In comparison to the 1999 year end, both accounts receivable and
accounts payable have declined significantly. Receivables, which
reflect sales revenue, are typically higher in December than at
any other time of the year. Payables have declined due mainly to
the timing of product purchases.
Cameco continued to repurchase its shares for cancellation bringing
the total to about 2.4 million shares at a cost of $50 million.
The company expects to repurchase all 2.9 million shares permitted
under the announced share repurchase program which expires September
28, 2000.
Segmented Financial Results
Nuclear Business
During the first six months of 2000, revenue from the nuclear business
decreased by 5% to $264 million compared to $278 million in 1999.
This decline was due primarily to a 9% lower average realized price
for uranium concentrates. This reflected weaker spot prices which
were on average 15% lower than in the first half of 1999. The average
realized price for conversion services also decreased somewhat but
remained well above the current spot price levels. The effect of
these weaker realized prices was partially offset by higher sales
volumes for uranium concentrates and conversion services which rose
2% and 7% respectively over the same period in 1999. The volume
increases were due to normal variations in delivery patterns and
are not expected to be maintained for the year.
The total cost of products and services sold, including depreciation,
depletion and reclamation (DDR), rose $7 million to a total of $201
million, reflecting mainly the increased sales volumes. The unit
cost for uranium was comparable to 1999 while the unit costs for
conversion services increased moderately due to lower production.
During the first half of 2000, pre-tax profits from the nuclear
business fell by $20 million or 26% compared to 1999 and the gross
profit margin dropped to 24% from 30% a year earlier.
Gold Business
In comparison to the first half of 1999, revenue from the gold
business of $42 million decreased by $9 million. The decrease was
due to a lower average realized price which declined by 10% from
$347 (US) to $314 (US) per ounce. Compared to last year, hedge positions
were less favourable and gold sales of 86,467 ounces were 7% lower.
Year-to-date in 2000, Cameco's share of gold production at Kumtor
of 95,979 ounces was similar to the previous year. In comparison
to the first quarter this year, production in the second quarter
improved by 40% due mainly to higher grade ore, averaging 4.47 grams
per tonne, up from 3.64 grams. The grade is expected to improve
through the remainder of the year. Kumtor's cash cost per ounce
was $171 (US) to date in 2000 compared to $179 (US) in 1999.
In 2000, the gross profit margin for gold was 19% compared to 14%
in 1999. The effect of the lower gold price on earnings has been
more than offset by reduced cash costs and a lower depreciation
rate following the writedown of carrying value in 1999.
Kumtor Gold Company's hedge position at the end of June was 1,059,890
ounces. Cameco's share is one-third. It is expected that these hedges
will yield prices ranging from $311 (US) to $323 (US) per ounce.
The mark-to-market gain on Cameco's share of the hedge position
was $5 million (US) at June 30, 2000 based on a spot market gold
price of $288 (US) per ounce.
Outlook
Cameco expects annual uranium sales volumes to be similar to 1999.
The remaining uranium deliveries for the year are expected to be
heavily weighted to the fourth quarter. If uranium spot prices remain
at current levels, decreases in annual revenue, earnings and cash
flow, when compared to 1999 results before special items, are anticipated.
The company's long-term contract portfolio continues to hold a
mix of pricing mechanisms. About 60% of the contracts are sensitive
to changes in the spot price at the time of delivery. The remaining
40% typically have either a fixed price or a base price which is
escalated by inflation or another factor.
For the remainder of the year, a $1.00 (US) change in the U3O8
spot price from current levels would change revenue by about $7
million (Cdn), net earnings by about $3 million (Cdn) and cash flow
by about $5 million (Cdn).
Cameco's uranium production is expected to be about 17 million
pounds U3O8
in 2000, similar to last year, and assumes the ramp up of McArthur
River continues on schedule. During the two-year ramp up, uranium
production costs are expected to be higher than at full production
of 18 million pounds which is expected in 2002. Forecast production
at the conversion plants is expected to be about 10,000 tonnes of
uranium, down about 11% from 1999.
Kumtor's production for 2000 is expected to be about 650,000 ounces
(Cameco's share is one-third), an increase over 1999, due to higher
grade and mill feed tonnage. The cash cost per ounce is projected
to be marginally lower than the $179 (US) per ounce reported for
1999. The average realized gold price in the second half is expected
to be similar to the $314 (US) per ounce recorded to date.
Capital expenditures are expected to total about $120 million for
the year.
Uranium Spot Market
The uranium spot market volume for the second quarter was 3 million
pounds U3O8
bringing volume for the first half of the year to 7 million pounds
compared to 14 million pounds for the first half of 1999. Spot market
volume has been disappointingly low to date in 2000 and is expected
to finish the year in the 15 to 20 million pound range. Reflecting
the low volumes, the restricted spot price was $8.10
(US) per pound U3O8 on June 30, 2000, compared
to $9.20 (US) three months earlier and $10.30 (US) a year earlier.
During the quarter, spot sellers continued to compete aggressively
for limited sales maintaining the slow but steady downward trend
in the spot price.
The conversion market continues to be over-supplied. As a result,
the spot market price for uranium hexafluoride conversion ended
the quarter at $2.45 (US) per kgU, unchanged from March 31, 2000,
and about $1.00 lower than at June 30, 1999.
Uranium Long-Term Market
In the quarter, the long-term market remained moderately active
and the long-term price indicator published by TradeTech ended the
quarter at $9.50 (US) per pound U3O8.
This was unchanged from the previous quarter but down from the $11.65
(US) posted at the end of June 1999.
Volumes contracted to date or under negotiation at June 30 totalled
approximately 40 million pounds with the forecast for the year
remaining in the range of 70 to 80 million pounds.
Market Developments
In Germany, the government and the nuclear energy utilities have
agreed to a plan to phase-out nuclear power. Essentially the utilities
agreed to close all reactors after an average lifespan of 32 years
in exchange for a more certain operating environment. The deal is
expected to have little impact on uranium demand for the next several
years as the largest and most efficient reactors are expected to
run well beyond another decade. Germany presently has 19 operating
reactors producing about 30% of the country's electricity.
In early July, Ontario Power Generation (OPG) announced that it
had signed an agreement to lease the Bruce A and B nuclear power
plants to Bruce Power, 95% owned by British Energy plc., for an
initial term to 2018. With this transaction, OPG is moving toward
a condition set by the Ontario Energy Board to reduce its share
of generating capacity to no more than 35% within 10 years of the
provincial market becoming deregulated.
Also in early July, Brazil started up its second reactor, Angra
2, which has a capacity of 1,245 megawatts and is expected to supply
energy to 5 million people.
Operation and Development Updates
At McArthur River, the commissioning of the mine progressed significantly
in the second quarter and process systems are working well. Some
minor modifications continue to be made.
Tests on the larger three-metre diameter reaming heads were successful
and these heads now are being routinely used in two of the three
mining chambers. The underground ore storage capacity which was
reported as causing difficulties last quarter has been returned
to service ensuring smoother operations of both the mining and grinding
processes. Systems to protect workers from radiation continue to
work well.
Early in the quarter, an inconsistent size of grind was causing
handling and recovery problems. However, modifications to the grinding
circuit have resulted in a consistent and fully satisfactory grind
quality since late May allowing both process operations at McArthur
River and mill operations at Key Lake to run more efficiently.
In the month of June, McArthur River mine production exceeded
one million pounds U3O8 and
a similar result is expected in July. With this, the mine will be
producing at rates of production expected at this stage of the ramp
up phase and the company anticipates the forecast for the year of
11 million pounds will be achieved.
In mid-July, the United Steel Workers of America ratified a collective
agreement covering unionized workers at McArthur River and Key Lake
for the term ending December 31, 2002.
Foreign Ownership Restrictions
The federal government introduced legislation recently to allow
more foreign ownership of the company's shares. The proposed changes
would allow individual non-residents to hold a maximum of 15%, up
from 5%, and non-residents in total to vote up to 25%, up from 20%.
The ownership limit for an individual Canadian shareholder is unchanged
at 25%.
Dividend Announcement
On July 27, 2000, Cameco's board of directors declared the regular
quarterly dividend of $0.125 per common share, payable on October
13, 2000 to shareholders of record at the close of business on September
29, 2000.
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, with its head office in Saskatoon, Saskatchewan, is the
world's largest uranium producer. The company's competitive position
is based on its large, high-grade reserves and low-cost operations.
Cameco is also one of the world's largest commercial providers of
uranium conversion services. 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. Cameco also produces gold. The company's shares trade on
the Toronto and New York stock exchanges.
Investor Information
Common Shares
CCO
The Toronto Stock 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
|
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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