This report is organized under the following major headings:
1. Consolidated financial results
2. Updates on markets, operations and strategy, and
3. Outlook.
1. CONSOLIDATED FINANCIAL RESULTS
First Quarter. For the three months ended March 31,
2002, net earnings attributable to common shares increased by $4
million to $5 million ($0.09 per share) compared to $1 million ($0.01
per share) in 2001. This improvement was attributable to the uranium
business where profits rose due to a higher realized selling price
and increased volume. These improvements were partially offset by
lower earnings from the gold business, which were the result of
a higher unit cash cost for the quarter.
Earnings from operations were $11 million in the
first quarter of 2002 compared to $3 million in 2001. The aggregate gross
profit margin declined to 18% from 22% in 2001.
Cash flow from operating activities of $134 million
was $106 million higher than in the first three months of 2001 due to a
reduction in the amount of accounts receivable.
Segmented Financial Results
In the past, Cameco has discussed its operating results
under the sections entitled nuclear business and gold business. Beginning with
this quarterly report, the narrative on results will provide additional insight
into the company's operations under the sections: uranium business, conversion
business, Bruce Power and gold business.
Uranium Business
| Highlights |
Three months ended
March 31/02 |
Three months ended
March 31/01 |
| Revenue ($ millions) |
72 |
27 |
| Gross profit ($ millions) |
12 |
1 |
| Gross profit % |
16 |
2 |
| EBT* ($ millions) |
9 |
(1) |
*Earnings before taxes.
First Quarter. Revenue from the uranium business
increased by 160% to $72 million from $27 million in the first quarter
of 2001 due mainly to a 120% increase in sales volume. As the timing
of deliveries of nuclear products within a calendar year is at the
discretion of customers, Cameco's quarterly delivery patterns can vary
significantly. A 19% increase in the average realized selling price for uranium
concentrates compared with the first quarter of 2001 also contributed to the
higher revenue. The higher realized price was the result of a change in the mix
of contracts under which deliveries were made in the first quarter and also an
increase in the uranium spot price which averaged $9.79 (US) in the first
quarter compared to $7.72 (US) in 2001.
The total cost of products and services sold, including
depreciation, depletion and reclamation (DDR) was $60 million in the first
quarter of 2002 compared to $26 million in 2001. This increase was primarily
attributable to the higher sales volume for the quarter. The unit cost of
products and services sold rose by about 5% over the previous year due to
increased deliveries of purchased material and higher costs for care and
maintenance at Rabbit Lake. During the first quarter of 2002, both the mine and
the mill were in care and maintenance mode pending restart in the second
quarter.
Earnings before taxes from the uranium business increased
by $10 million in the first quarter of 2002 while the profit margin improved to
16% from 2% in 2001.
Conversion Business
| Highlights |
Three months ended
March 31/02 |
Three months ended
March 31/01 |
| Revenue ($ millions) |
26 |
18 |
| Gross profit ($ millions) |
6 |
7 |
| Gross profit % |
22 |
41 |
| EBT ($ millions) |
5 |
7 |
First Quarter. Revenue from the conversion business
increased by 43% to $26 million from $18 million in the first quarter
of 2001 due mainly to an 87% increase in sales volume. As with uranium
deliveries, quarterly delivery patterns can also vary significantly.
The increase in volume was partially offset by a 23% decline in
the realized selling price which was attributable to the contracts
into which product was delivered.
The total cost of products and services sold, including
depreciation, depletion and reclamation (DDR) was $20 million in the first
quarter of 2002 compared to $11 million in 2001. This increase was primarily
attributable to the higher sales volume for the quarter. The unit cost of
products and services sold rose by about 3% over the previous year due to
increased deliveries of purchased material.
Earnings before taxes from the conversion business
decreased by $2 million in the first quarter of 2002 while the profit margin
declined to 22% from 41% a year earlier.
Bruce Power
| Highlights |
Three months ended
March 31/02 |
| Output (terawatt hours) |
5.0 |
| Capacity factor (%) |
74 |
| ($ million) |
|
| Revenue |
199 |
| Operating cost |
195 |
| Earnings before interest & taxes |
4 |
| Interest |
15 |
| Earnings (loss) before taxes |
(11) |
| Cameco's share of earnings (loss) before taxes |
(2) |
Note: Capacity factor for a given period represents the amount
of electricity actually produced for sale as a percentage of the
amount of electricity the plants are capable of producing for sale.
First Quarter. In the first quarter, major overhaul work was completed
during the planned maintenance outage on one of the Bruce B reactors and
following the restart of that unit, another one was shutdown for a scheduled
refurbishment which is expected to last until July. As a result, Cameco
recorded a loss before taxes of $2 million. The first quarter's capacity factor
of 74% was consistent with the 2002 operating plan which is expected to achieve
an annual average capacity factor of about 80%.
Work continues on the restart program for two Bruce A
reactors which are scheduled to be online by the summer of 2003, subject to
regulatory approval. Approximately $124 million of the total project
expenditures of $340 million has been spent to date.
Two Bruce B reactors achieved capacity factors of 99% in
2001 and were the best performing Candus in the world, a result of Bruce
Power's commitment to the pursuit of operational excellence.
Gold Business
| Highlights |
Three months ended
March 31/02 |
Three months ended
March 31/01 |
| Revenue ($ millions) |
26 |
25 |
| Gross profit ($ millions) |
6 |
7 |
| Gross profit % |
22 |
29 |
| EBT ($ millions) |
4 |
5 |
| Selling price (US$/ounce) |
284 |
288 |
| Unit cash cost (US$/ounce) |
166 |
127 |
First Quarter. Revenue from the gold business increased
by 5% to $26 million from $25 million compared to the first quarter
of last year due to a 3% increase in volume sold. Cameco's realized
price for gold declined to $284 (US) in the quarter from $288 (US)
per ounce last year due to less favourable hedge positions.
Gold production at Kumtor was 18% lower than in the first
quarter of 2001 due to a lower ore grade averaging 4.2 grams per tonne compared
to 5.1 grams in 2001. Kumtor's cash cost per ounce increased to $166 (US)
compared to $127 (US) in 2001 due to a decline in production. For the quarter,
the gross profit margin for gold declined to 22% from 29% in 2001 due to the
higher unit cash cost.
Corporate Expenses
In the first quarter of 2002, costs for administration,
exploration and interest were about $11 million, similar to 2001. Income tax expense increased by $1 million as the
result of higher operating income. Compared to the first quarter last year, the
effective rate for income taxes increased to 18% from 12%.
Cash Flow
In the first three months of 2002, Cameco generated cash
from operations of $134 million ($2.42 per share) compared to $28 million
($0.50 per share) in 2001. This increase of $106 million reflects the
collection of the unusually high balance in accounts receivable existing at the
end of 2001. Cash from operations, excluding the changes in other operating
items such as accounts receivable and payable, was $32 million compared to $17
million in 2001. This improvement was due to higher sales for the quarter.
Cash used in investing activities increased to $19 million
this year from $12 million last year due to additional investment in Bruce
Power. During the quarter, Cameco contributed $9 million to Bruce Power for the
ongoing refurbishment of the Bruce A reactors.
Balance Sheet
During the first three months of 2002, total long-term
debt decreased by $46 million to $308 million from $354 million at December 31,
2001. At March 31, 2001, Cameco's net debt to capitalization ratio was 10%,
down from 15% at the end of 2001.
At March 31, 2002, the current portion of long-term debt
was $126 million compared to $26 million at December 31, 2001. Cameco's
long-term revolving credit facility matures in February 2003 and until a new
agreement is in place, any amounts supported by this facility will be reflected
as current liabilities on the balance sheet. At March 31, 2002, the current
portion of long-term debt included $99 million from the revolving credit
facility.
Compared to the end of 2001, 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.
The decline in payables was due mainly to the timing of product purchases.
2. UPDATES ON MARKETS, OPERATIONS AND STRATEGY
On
February 14, 2002 the province of Saskatchewan sold its remaining Cameco common
shares. The sale of such 5.4 million shares, representing 9.7%, eliminated the
uncertainty of government ownership and increased market liquidity.
The
most significant factors impacting the financial performance of Cameco are:
- the market price for U3O8,
- sales volumes for nuclear products,
- foreign exchange rates between the Canadian and US
dollars,
- the market price for gold,
- the unit costs of production, and
- the quantity and profitability of electricity generated
by Bruce Power.
Uranium Market Update
Uranium Spot Market
The industry average spot price on
March 31, 2002 was $9.85 (US) per pound U3O8, compared to
$9.53 (US) at December 31, 2001, an increase of about 3%. The spot price was
$8.18 (US) at the end of the first quarter of 2001.
The spot market volume in the
quarter ended March 31, 2002 was 5.0 million pounds U3O8,
with about 1.8 million pounds under evaluation by buyers at month end. This
compares to 3.1 million pounds of spot market volume to the end of the first
quarter of 2001.
Spot demand has been relatively
strong through the first quarter and appeared to remain strong into the second
quarter. While spot supply has been sufficient to meet new demand, sellers have
generally been bidding prices up, and consequently the spot price continued the
upward trend that began in January 2001.
Uranium Long-term Market
The long-term market is expected
to be as active in 2002 as it was in 2001 with long-term contracting expected
to range from 75 to 80 million pounds U3O8.
The long-term price indicator,
published by TradeTech, was at $10.40 (US) per pound U3O8
at March 31, 2001, down modestly from $10.50 (US) at the end of 2001.
UF6 Conversion Spot Market
The industry average spot market
price for uranium conversion services decreased slightly (by about 2.5%) during
the quarter to $5.13 (US) per kilogram of uranium as UF6 (kgU) from
$5.25 (US) at December 31, 2001. This compares to $4.13 (US) per kgU at the end
of the first quarter of 2001. The weakening resulted from an abundance of UF6
supply in North America. This is expected to be a temporary situation
that will be resolved as this material is worked off and/or moved to Europe.
Gold Market Update
During the first quarter of 2002, the average spot market
gold price was $290 (US) per ounce compared to $279 (US) in the fourth quarter
of last year. Gold prices started the new year on a strong note reflecting
global uncertainty and a flat to declining outlook for mine supply. Prices
ended the quarter at $301 (US).
Kumtor Gold Company's hedge position at the end of March
was 1,109,000 ounces, one-third being Cameco's share. It is expected that these
hedges will yield average prices of approximately $300 (US) per ounce. The mark-to-market loss on Cameco's share of
the hedge position was $2 million (US) at March 31, 2002 based on a spot market
gold price of $301 (US) per ounce.
Foreign Exchange Update
Most of the company's revenue is in US dollars. At March 31,
2002, Cameco had a foreign currency hedge portfolio of $548 million (US) with
an average spot exchange rate of $1.5841. Timing differences between the maturity
and final usage of hedge contracts result in deferred revenue. This impact will
be recognized in the financial statements as hedge contracts are closed against
their underlying exposure. At the end of the first quarter, deferred charges
will have the effect of reducing the reported exchange rate by $0.07 over the
five-year hedge designation period.
During the quarter, the Canadian dollar weakened slightly
against the US dollar from $1.5926 at the end of 2001 to $1.5935 as of March
31, 2002. Cameco's mark-to-market position on its foreign currency hedge
portfolio was a loss of $6 million.
Update on Market Trends and Developments
Capacity Factors Continue to Rise
In 2001, the US nuclear reactor fleet achieved an average
capacity factor of about 91%, up one percentage point from 2000. The world
average capacity factor in 2001 was about 79%, up about three percentage points
from 2000. Higher capacity factors mean increased uranium and uranium
conversion demand.
Sweden Backs Away From Near-term Phase-out
In its revised energy policy,
Sweden has backed away from plans for a near-term phase-out of nuclear power.
The Industry Minister has acknowledged that the country's 11 nuclear reactors
will likely continue to operate for at least 30 years. The government has
recognized that nuclear power, which supplies 50% of Sweden's electricity,
cannot be replaced by renewable sources. In addition, it appears that energy
conservation programs have not been effective in reducing the growing demand
for electricity.
Belgium Limits Reactor Life Times
The Belgian cabinet approved draft
legislation limiting the lifetime of the nation's seven nuclear reactors to 40
years, potentially resulting in their closure between 2015 and 2025. The
legislation also prohibits the construction and operation of new reactors.
However, an exception might be granted if security of energy supply becomes an
issue. Currently, almost 60% of electricity in Belgium is generated by nuclear
power.
US Spent Fuel Repository Moves Toward Approval
In February, President Bush
approved the recommendation that Yucca Mountain be selected as the long-term
spent fuel repository for the US. In April, the state of Nevada vetoed this
decision, as expected. The US Congress has 90 legislative days to override the
veto with a simple majority vote in each of the House of Representatives and
the Senate.
US DOE Develops Nuclear Energy Plan
The US Department of Energy (DOE) released a new plan,
Nuclear Power 2010, aimed at building a new nuclear power plant in the US
before the end of the decade. DOE has proposed a joint venture with the US
electric utility industry to explore sites that could best host nuclear plants,
conduct research to develop nuclear plant technologies, and demonstrate an
efficient and timely licensing process for new plants. Three US utilities have
expressed interest in testing the licensing process for new plants and have
indicated they will submit early site permit applications in 2003. The early
approval of potential sites will provide the companies with the flexibility to
construct new reactors at a later date, without having to commit now.
Operations Update
Uranium Mining
At Rabbit Lake, progress continues toward the restart of the
mine at Eagle Point. Mining operations are expected to resume in mid-May. In
Kazakhstan, the Inkai test mine began operation in March with initial uranium
production expected in late May. At Cigar Lake, the application for the
construction license was submitted to the regulators with approval expected in the
spring of 2003.
Fuel Services
Blind River refinery was officially
certified under the ISO14001 standard for environmental management.
Bruce Power
On May
1, 2002, the electricity market in Ontario is scheduled to be open to
competition. Upon market opening, the arrangement through which Bruce
Power sells all of its output at a fixed price to Ontario Power Generation will
end. At that time, Bruce Power will begin to sell its electricity to the spot
market through the new Independent Market Operator and to wholesale electricity
customers such as power traders, local distribution companies, new retailers
and large industrial power users. Bruce Power has already negotiated a number
of wholesale contracts for a substantial part of its expected output.
Corporate Strategy Update
During the quarter, the company acquired a 52% interest in
AGR Limited, an Australian gold company, through a cash investment of $12
million (US) and a promissory note for $4.8 million (US). Cameco's strategy is
to accumulate, without major investment, a critical mass of gold reserves and
production capacity to facilitate a merger or divestiture of its gold assets.
The following initiatives were undertaken as part of the
company's strategy to assess, at an early stage and with limited investment
risk, the market potential of new nuclear-related technologies. An investment
of $3 million (US) was made in Technology Commercialization International,
Inc., a private US company which will produce and market medical isotopes for
imaging and therapeutic applications. Cameco also made an investment of $4
million (US) in General Hydrogen, a development stage technology company
seeking to provide an efficient refueling system for the emerging generation of
hydrogen fuel cell vehicles.
3. OUTLOOK FOR YEAR
Uranium Business
Cameco's uranium revenue in 2002 is expected to be about 5%
greater than in 2001 due to higher sales volume. Although market prices have
risen over the past year, the average realized price in 2002 is expected to be
relatively unchanged from 2001. This is due to the expiration of more favorably
priced base-escalated contracts. The gross profit margin for the year is
expected to be similar to 2001.
For the balance of 2002 deliveries, a $1.00 (US) change in
the U3O8 spot price from current levels would
change revenue by about $17 million (Cdn), net earnings by about $8 million
(Cdn) and cash flow by about $11 million (Cdn).
Conversion Business
Cameco's conversion revenue in 2002 is expected to increase
by about 10% compared to 2001 due primarily to higher sales volumes. The gross
profit margin is expected to rise moderately.
Bruce Power
For the year, Cameco's share of earnings at Bruce Power is
expected to be similar to that achieved in 2001. Beginning in 2003, Bruce Power
is expected to contribute significantly to Cameco's earnings and cash flows.
Gold Business
Kumtor's operating plan now anticipates production of about
700,000 ounces (Cameco's share is one-third). This is an increase from the
660,000 ounces previously reported. However, it represents an 8% decline from
the 2001 volume due to a drop in average ore grade to 4.9 grams per tonne. The
unit cash cost is expected to increase year-over-year by about 4% to $147 (US)
per ounce from $142 (US) per ounce due to the lower production.
Second Quarter of 2002
Revenue in the second quarter of 2002 is expected to be
about 50% greater than in the first quarter reflecting higher volumes and
prices in the uranium and conversion businesses. Accordingly, earnings from
each of these segments are projected to improve significantly compared to the
first quarter. On a consolidated basis, earnings for the second quarter are
expected to be similar to those recorded in the same period last year.
The results from Bruce Power are expected to be similar to
those of the first quarter as the major refurbishment program continues.
Positive results are projected to begin in the third quarter.
PROFILE
Cameco, with its head office in Saskatoon, Saskatchewan, is
the world's largest producer of uranium and the largest supplier of combined
uranium and conversion services. The company's competitive position is based
upon its controlling ownership of the world's largest, high-grade reserves and
low-cost operations. Cameco's uranium products are used to generate clean
electricity in nuclear power plants around the world including Ontario where
the company has an interest in a partnership which generates nuclear
electricity. The company also mines gold and explores for uranium and gold in
North America, Australia and Asia. Cameco's shares trade on the Toronto and New
York stock exchanges.
CAUTION REGARDING FORWARD-LOOKING INFORMATION
Statements contained in this news
release 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. Factors that could cause such differences, without limiting the
generality of the following, include: volatility and sensitivity to market
prices for uranium, electricity in Ontario and gold; the impact of the sales
volume of uranium, conversion services, electricity generated and gold;
competition; the impact of change in foreign currency exchange rates and
interest rates; imprecision in reserve estimates; environmental and safety
risks including increased regulatory burdens; unexpected geological or
hydrological conditions; political risks arising from operating in certain
developing countries; a possible deterioration in political support for nuclear
energy; changes in government regulations and policies, including trade laws
and policies; demand for nuclear power; replacement of production and failure
to obtain necessary permits and approvals from government authorities;
legislative and regulatory initiatives regarding deregulation, regulation or
restructuring of the electric utility industry in Ontario; Ontario electricity
rate regulations; weather and other natural phenomena; ability to maintain and
further improve positive labour relations; operating performance of the
facilities; success of planned development projects; and other development and
operating risks.
CONFERENCE CALL
Cameco is hosting a conference
call on Tuesday, April 30, 2002 from 10:00 a.m. to 11:00 a.m. Eastern time
(8:00 a.m. to 9:00 a.m. Saskatoon time) to discuss the first quarter results.
To join the call, please dial (416) 695-5261 or (877) 888-4210. Alternatively
an audio feed of the conference call will be available on the web site at www.cameco.com by using Windows Media Player
or Real Player software. See the link on the home page on the day of the call.
A recorded version of the
proceedings will be available:
- on our web site,
www.cameco.com, shortly after the call, and
- on post view until midnight on Tuesday, May 14 by calling (416) 695-9728 (no code required)
Cameco's annual and special meeting will be held
on May 2 at Cameco's head office in Saskatoon. An audio feed of the meeting
will be available on Cameco's web site at www.cameco.com on May 2 beginning at
3:30 p.m. Eastern time (1:30 p.m. Saskatoon time).
For further information, please contact:
| Bob Lillie |
Jamie McIntyre |
| Manager, Investor Relations |
Director, Investor & Corporate Relations
|
|
| Cameco Corporation |
Cameco Corporation |
| Phone: (306) 956-6639 |
Phone: (306) 956-6337
|
|
| Fax: (306) 956-6318 |
Fax: (306) 956-6318 |
INVESTOR INFORMATION
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