Second Quarter. Revenue from the gold business decreased
by $7 million or 22% compared to the second quarter of last year
due to a 31% decrease in volume sold. Cameco's realized price for
gold increased to $307 (US) in 2002 from $287 (US) per ounce last
year.
Gold production at Kumtor was 41% less than in the second quarter
of 2001 due to a lower ore grade which averaged 3.7 grams per tonne
compared to 5.2 grams in 2001. With the lower grade of ore mined,
the recovery rate also decreased to 78% from 84% in 2001. As a result,
Kumtor's cash cost per ounce increased to $202 (US) compared to
$141 (US) in 2001.
For the quarter, the gross profit margin for gold was 20% compared
to 34% in 2001 due to the higher unit cash cost.
Year-to-Date. Revenue from the gold business declined
by $6 million compared to the same period last year, reflecting
a 16% decrease in sales volume which more than offset an increase
in the average realized selling price. Cameco's realized price for
gold has increased to $295 (US) in 2002 compared to $287 (US) per
ounce in the first six months of 2001.
Gold production at Kumtor was 31% lower than in the first half
of 2001 due mainly to lower grade ore which averaged 4.0 grams per
tonne compared to 5.1 grams last year. Production was also influenced
by a lower recovery rate which decreased to 80% from 84% in the
prior year. Kumtor's cash cost per ounce was $183 (US) in the first
six months of 2002 compared to $134 (US) in 2001.
The gross profit margin for gold was 20% in the first six months
compared to 31% in 2001.
Corporate Expenses
During the first six months of 2002, costs for administration
increased by $1 million compared to 2001. Exploration costs increased
by $2 million due to greater activity in both uranium and gold.
CASH FLOW
In the first six months of 2002, Cameco generated cash from operations
of $214 million ($3.85 per share) compared to $40 million ($0.72
per share) in 2001. This increase of $174 million largely reflects
a reduction of accounts receivable balances and a reduction in uranium
inventories. Cash from operations, excluding the changes in other
operating items such as accounts receivable and payable, was $85
million compared to $55 million in 2001. This improvement was due
to the higher sales in the uranium and conversion businesses.
Cash used in investing activities decreased to $23 million this
year from $110 million last year due to the initial investment in
Bruce Power in 2001.
BALANCE SHEET
At June 30, 2002, total long-term debt decreased by $61 million
to $293 million from $354 million at December 31, 2001. At June
30, 2002, Cameco's net debt to capitalization ratio was 7%, down
from 15% at the end of 2001.
At June 30, 2002, the current portion of long-term debt was $113
million compared to $26 million at December 31, 2001. Cameco's long-term
revolving credit facility matures in February 2003 and until a new
facility is put in place, any amounts supported by the revolver
are reflected as current liabilities on the balance sheet. At June
30, 2002, the current portion of long-term debt included $95 million
supported by the revolving credit facility.
Compared to the end of 2001, accounts receivable has declined significantly.
Receivables, which reflect sales revenue, are typically higher in
December than at any other time of the year.
Gold Business Update
During the second quarter, Kumtor Gold Company's (KGC) senior debt
was restructured and resulted in an extension to the term of repayment
to June 1, 2006 and the replacement of the non-commercial agencies
as senior lenders. On June 1, 2002, KGC made an $18 million (US)
principal payment on this debt. Cameco continues to guarantee the
senior debt which has a current balance of $77 million (US).
On June 6, 2002, Cameco received a $13.7 million (US) payment of
principal and interest on its subordinated loan to KGC bringing
the outstanding balance to $65 million (US).
KGC's hedge position at the end of June was 1,125,900 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 $6 million (US)
at June 30, 2002 based on a spot market gold price of $319 (US)
per ounce.
During the second quarter of 2002, the average spot market gold
price was $312 (US) per ounce compared to $290 (US) in the first
quarter. Prices ended the quarter at $319 (US).
Foreign Exchange
Most of the company's revenue is in US dollars. At June 30, 2002,
Cameco had a foreign currency hedge portfolio of $526 million (US)
with an average spot exchange rate of $1.5588. Timing differences
between the maturity and final usage of hedge contracts may result
in deferred revenue or deferred charges. This impact will be recognized
in earnings as hedge contracts are closed against their underlying
exposure. At the end of the second quarter, deferred charges will
have the effect of reducing the reported exchange rate by $0.04
over the five-year hedge designation period.
During the quarter, the Canadian dollar strengthened significantly
against the US dollar from $1.5935 at the end of March to $1.5187
as of June 30, 2002. Cameco's mark-to-market position on its foreign
currency hedge portfolio was a gain of $19 million.
2. UPDATES ON MARKETS, OPERATIONS AND STRATEGY
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 June 30, 2002 was $9.90 (US)
per pound U3O8, compared to $9.85 (US) at
March 31, 2002. The spot price was $8.83 (US) at the end of the
second quarter of 2001.
The spot market volume in the quarter ended June 30, 2002 was approximately
4 million pounds U3O8, bringing the year-to-date
total to about 11 million pounds, compared to 5 million and 9 million
pounds respectively in the corresponding periods in 2001.
While spot demand has been stronger over the half-year, spot supply
has been sufficient to meet each successive new demand. Sellers
have been reluctant to increase price, and consequently the spot
price has been flat over the quarter.
Uranium Long-term Market
The long-term market has been slow during the first half of the
year, with long-term contracting reported by market analysts being
about 14 million pounds U3O8. Long-term contracting
activity is expected to increase significantly in the second half
of the year.
The long-term price indicator at June 30, 2002, as published by
TradeTech, remains at $10.40 (US) per pound U3O8,
unchanged during the quarter.
UF6 Conversion Spot Market
The industry average spot market price for uranium conversion services
decreased marginally to $5.08 (US) per kgU from $5.13 (US) at March
31, 2002. This compares to $4.95 (US) per kgU at the end of the
second quarter of 2001.
Update on Uranium Market Trends and Developments
US Congress Approves Siting of Spent Fuel Repository
In the US, the House of Representatives and Senate enacted a law
to override Nevada's veto of the Yucca Mountain waste repository.
This paves the way for the US Department of Energy to apply to the
US Nuclear Regulatory Commission for a license for the repository.
The license application is expected in 2004. Assuming all approvals
are granted, Yucca Mountain could begin accepting waste by 2010.
Brown's Ferry Reactor to be Restarted
Tennessee Valley Authority, the US utility, has received approval
from its board of directors for the restart of Browns Ferry 1. Its
current capacity is 1,065 MW and this is expected to be uprated
during the refurbishment program. The unit is expected to start
operating in May 2007.
Finland Approves New Reactor
On May 24, 2002, Finland's parliament approved plans for the construction
of the country's fifth nuclear power reactor. TVO, the Finnish utility
that applied to build the unit, plans to launch a tender in the
fall of 2002 and select a bidder by the end of 2003, after which
they will apply for a construction permit. The planned reactor will
have a capacity in excess of 1,000 MW and begin operation before
2010.
Little Market Impact Expected from International Agreements
Two global initiatives to reduce weapons of mass destruction were
undertaken in the quarter. In May, US President Bush and Russian
President Putin signed a nuclear arms reduction treaty which will
lead to the removal in each country of about 4,000 of the remaining
nuclear warheads from their delivery vehicles. Previously, similar
agreements also included a second step, that of dismantling the
warheads, but this accord did not go that far. The US has indicated
that it will stockpile its dismantled warheads, and in response,
Russia has indicated that it will do the same. Consequently, it
is believed that there will be no impact on the uranium market until
late in this decade.
In June, at the G8 summit held in Canada, it was generally agreed
to finance the construction of a mixed-oxide fuel fabrication plant
which would enable Russia to down blend a portion of its excess
military plutonium into reactor fuel. The exact timing and financing
commitments related to this initiative were not well defined. It
is expected that such a facility would not be in operation before
2008 and that annual production could displace the equivalent of
only about 1-2 million pounds U3O8. The fuel
produced could be used in Russian or western world reactors or some
combination of the two. It is expected that the market impact of
this initiative will not be felt until the end of this decade.
Operations Update
Uranium Mining
Mining resumed at Rabbit Lake in late June after activities to rehabilitate
the mine took longer than planned. Milling is expected to resume
in late August. Uranium production of 2.5 million pounds U3O8
is projected in 2002. It is anticipated that remaining reserves
will feed the mill for at least three years.
At McArthur River mine, underground operations were suspended in
late June for a few days as forest fires in the vicinity of the
mine resulted in heavy smoke. Both year-to-date and annual ore production
at the mine remain on schedule.
In June, the company purchased the Smith Ranch uranium in situ
leach (ISL) mine located in Wyoming near Cameco's Highland ISL mine.
In exchange for a modern mill and about 27 million pounds in proven
and probable reserves, the company agreed to assume decommissioning
liabilities associated with the mine, estimated at $11 million (US),
and to purchase about $6 million (US) in uranium inventory. During
the remainder of the year, production of 330,000 pounds U3O8
is estimated at Smith Ranch.
At the Inkai uranium test mine in Kazakhstan, four of the seven
test wells have performed satisfactorily to date and uranium recovery
is expected to begin in the third quarter.
Uranium Exploration
UEX Corporation, in which Cameco has a 35% interest, completed a
public offering of common shares and flow-through common shares
for gross proceeds of approximately $4.3 million. UEX began trading
on the Toronto Stock Exchange on July 17, 2002. Cameco has transferred
to UEX its Hidden Bay advanced exploration properties which are
located in Saskatchewan. UEX's operations will evaluate promising
properties in the Athabasca Basin in northern Saskatchewan.
AGR
During the first quarter, the company acquired a 52% interest in
AGR, an Australian gold company which owns the Boroo gold deposit
in Mongolia. This mine is currently under construction with production
expected to begin in late 2003 at an estimated annual production
rate of 175,000 ounces. AGR's hedge position at the end of June
was 200,000 ounces (Cameco's share is 52%) which are expected to
yield an average price of approximately $315 (US) per ounce. The
mark-to-market loss on Cameco's share of this position was $1 million
(US) based on the June 30 gold price of $319 (US) per ounce.
Fuel Services
At Blind River, the plant was shut down in mid-June for maintenance
and an extended summer vacation period. Restart is slated for late
August. Similarly at Port Hope, the UF6 and UO2
plants were shut down in late June. Staff will return in late July
to complete maintenance activities and then restart production.
Corporate Strategy Update
Despite the revised production plan at Kumtor, which is discussed
below, Cameco continues to focus on its gold strategy of creating
a mid-tier gold production company with the ultimate goal of a merger
or complete divestiture of its gold interests.
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 volumes. Although market prices
have risen over the past 18 months, 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 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 $10 million (Cdn), net earnings by about
$5 million (Cdn) and cash flow by about $7 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.
Gold Business
Kumtor's operating plan has been significantly revised after the
pit wall failure on July 8, 2002. The failure involved approximately
7.5 million tonnes of rock which is expected to be removed over
the next 12 months at an estimated cost of $1.00 (US) per tonne.
No gold reserves or significant assets have been lost as a result
of the incident. However, the timing of access to some high-grade
ore has been altered and, accordingly, production and earnings for
2002 will be lower than previously anticipated.
For 2002, the production plan has been revised to approximately
500,000 ounces (Cameco's share is one-third) at an average grade
of 3.5 grams per tonne and a recovery rate of 77%. The cash cost
is now projected to be about $210 (US) per ounce. This revised cash
cost reflects the lower grade of the mill feed and the costs for
removing the rock slide material. It includes no allowance for any
possible insurance recovery.
Prior to the pit wall incident, production was forecasted to be
700,000 ounces at 4.9 grams per tonne, a recovery rate of 81% and
a cash cost of $147 (US) per ounce. Mill feed remains unchanged
at 5.5 million tonnes. Prior to the incident, approximately 300,000
ounces had been poured in 2002.
The mining plan had anticipated that work in the high-grade zone
of the mine would begin in July 2002 and continue into 2003. As
this zone is now partly under, and exposed to, the rock slide, the
mill is expected to process lower grade material averaging 3.1 g/t
for the remainder of 2002. During this period, mill feed will be
supplied from the stockpile and from mine production which resumed
on July 15, 2002 in an area of the pit which has not been affected
by the rock slide. The company's preliminary estimate is that normal
operations will resume in mid-2003 with the mining of the high-grade
zone.
As a result of the reduced production, Cameco's net earnings for
2002 are expected to be approximately $35 million lower than previously
forecasted. For years beyond 2002, when the high-grade ore becomes
accessible, earnings are expected to be greater than previously
anticipated. It is not expected that the pit wall failure will have
a material financial impact over the remaining life of the mine.
Electricity Business
With the return to service of one of the four Bruce "B"
reactors in the third quarter, following its planned maintenance
outage, power generation is expected to increase. Another of the
four Bruce "B" reactors is scheduled for a maintenance outage before
year-end.
For 2002, an average capacity factor of 78% is expected.
Cameco estimates the 2002 earnings contribution from Bruce Power
to be approximately similar to the $12 million before tax achieved
last year.
Very good progress is being made toward the restart of two Bruce
"A" reactors, unit 3 and unit 4. The Canadian Nuclear Safety Commission
has now confirmed that hearings to consider Bruce Power's restart
case for these units can be achieved in December 2002 and February
2003. This should facilitate a restart of unit 4 as early as April
2003 and of unit 3 shortly thereafter, ahead of the previously announced
mid-2003 timing. This will enable the sale of additional power during
the summer months, the strongest period of seasonal demand. In July
2002, Ontario's electricity demand peaked at 25,330 MW, an all-time
Ontario record.
Bruce Power has reviewed its original cost estimates of the Bruce
"A" restarts. As a result of security enhancements following the
events of September 11, 2001 and of additional work to improve the
reliability of the units once they restart, projects costs are likely
to be in the $400 million range compared to the initial $340 million
estimate. Approximately $195 million of the total project costs
have been spent to date.
Following completion of the reactor refurbishment and restart programs,
the long-term sustainable capacity factor for the Bruce reactors
is expected to be about 90%.
Beginning in 2003, Bruce Power is expected to contribute significantly
to Cameco's earnings and cash flow.
Third Quarter of 2002
Consolidated revenue in the third quarter of 2002 is expected to
be about 18% less than in the second quarter reflecting the decline
in gold production at Kumtor. Revenue from the uranium and conversion
businesses are expected to be about 15% lower due primarily to decreased
volumes. Accordingly, earnings from each of these segments are projected
to decline compared to the second quarter. The gold segment is now
projected to show a small loss in the third quarter under the revised
production plan.
Earnings from Bruce Power are forecasted to be similar to the earnings
reported in the third quarter of 2001. All four of the Bruce "B"
units will be operating for most of the quarter during the peak
summer months.
Consolidated earnings for the third quarter are expected to be
approximately one-third of those recorded in the same quarter of
2001.
DIVIDEND ANNOUNCEMENT
Cameco announced today that the company's board of directors declared
its regular quarterly dividend of $0.125 per common share payable
on October 15, 2002 to shareholders of record at the close of business
on September 30, 2002.
CONFERENCE CALL
Cameco invites you to join an investor relations conference call
on Friday, August 2, 2002 from 10:00 a.m. to 11:00 a.m. Eastern
time (8:00 a.m. to 9:00 a.m. Saskatoon time).
The call will be open to all members of the investment community.
Members of the media will be invited to listen but not ask questions.
In order to join the conference call on Friday, August 2, please
dial (416) 695-5261 or (877) 888-4210 (Canada and
US). An operator will put your call through. 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.
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.
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
| Common Shares |
Investor Inquiries |
Transfer Agent |
| |
|
|
| CCO |
Cameco Corporation |
CIBC Mellon Trust Company |
| |
2121 - 11th Street West |
320 Bay Street, P.O. Box 1 |
| The Toronto Stock Exchange |
Saskatoon, Saskatchewan |
Toronto, Ontario |
| |
S7M 1J3 |
M5H 4A6 |
| |
| CCJ |
Phone: 306-956-6400 |
Phone: 800-387-0825 |
| |
Fax: 306-956-6318 |
(North America) |
| New York Stock Exchange |
Web: www.cameco.com |
Phone: 416-643-5500 |
| |
|
(outside North America) |
| |
|
|
| Preferred Securities |
|
|
| CCJPR |
|
|
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| New York Stock Exchange |
|
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