The failure of the pit wall at Kumtor has brought about a significant
revision to the mining plan for 2002. Access to some of the higher-grade
ore had to be postponed due to the pit wall problem. As a result,
Kumtor is mining lower grades and achieving lower recovery rates
and 2002 production will be approximately 200,000 ounces less than
previously anticipated. The change in the mining plan caused a significant
increase in the unit cash cost and this will continue until the
higher-grade ore becomes accessible again, expected mid-2003.
Third Quarter. Revenue from the gold business decreased
by 50% to $15 million from $29 million in the third quarter of last
year due to a decrease in volume sold. Cameco's realized price for
gold increased to $295 (US) per ounce in 2002 from $280 (US) last
year.
Earnings in the gold business were also impacted by a mark-to-market
loss on hedge positions resulting from the lower than planned production.
In the quarter, Cameco recorded a charge of $3 million (Cdn).
Gold production at Kumtor was 51% less than in the third quarter
of 2001 due to a lower ore grade which averaged 3.0 grams per tonne
compared to 5.2 grams in 2001. The recovery rate also decreased
to 71% from 83% in 2001. As a result, Kumtor's cash cost per ounce
was $271 (US) compared to $148 (US) in 2001.
For the quarter, the loss before tax was $7 million and the gross
margin for gold was a loss of 13% compared to a profit of 26% in
2001.
Year-to-Date. Revenue from the gold business declined
by 24% to $65 million from $86 million in the same period last year,
reflecting a 30% decrease in sales volume which more than offset
an increase in the average realized selling price. Cameco's realized
price for gold was $295 (US) in 2002 compared to $285 (US) per ounce
in the first nine months of 2001.
Gold production at Kumtor was 33% lower than in the first nine
months of 2001 due mainly to lower grade ore which averaged 3.6
grams per tonne compared to 5.2 grams last year.
Production was also influenced by a lower recovery rate which decreased
to 77% from 84% in the prior year. Kumtor's cash cost per ounce
was $204 (US) in the first nine months of 2002 compared to $139
(US) in 2001.
The loss before tax was $1 million and the gross profit margin
for gold was 13% in the first nine months compared to 30% in 2001.
Corporate Expenses
During the first nine months of 2002, costs for administration
increased by $2 million compared to 2001. Exploration costs increased
by $3 million due to greater activity in both uranium and gold.
CASH FLOW
In the first nine months of 2002, Cameco generated cash from operations
of $237 million ($4.24 per share) compared to $54 million ($0.97
per share) in 2001. This increase of $183 million largely reflects
a normal course reduction of accounts receivable, higher sales volumes
and the reduction in uranium inventories. Cash from operations,
excluding the changes in other operating items such as accounts
receivable and payable, was $126 million compared to $101 million
in 2001. This improvement was due to the higher sales in the uranium
and conversion businesses.
Cash used in investing activities decreased to $32 million this
year from $105 million last year when the initial investment in
Bruce Power was made.
BALANCE SHEET
At September 30, 2002, total long-term debt decreased by $55 million
to $299 million from $354 million at December 31, 2001.
At September 30, 2002, Cameco's net debt to capitalization ratio
was 7%, down from 16% at the end of 2001. At September 30, 2002,
the current portion of long-term debt was $118 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 September 30, 2002,
the current portion of long- term debt included $99 million supported
by the revolving credit facility (see note 3 to the consolidated
financial statements). The company is actively arranging a new credit
facility to replace the one maturing.
The provision for reclamation has increased by $16 million mainly
due to the purchase of the Smith Ranch in situ leach mine in Wyoming.
The purchase price of $11 million (US) was satisfied by Cameco assuming
the decommissioning liabilities associated with the mine (see note
2 to the consolidated financial statements).
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 Hedging
Kumtor Gold Company's (KGC) hedge position at the end of September
was 1,039,900 ounces, one-third being Cameco's share. It is expected
that these hedges will yield average prices in the range of approximately
$304 (US) to $314 (US) per ounce. The mark-to-market unrealized
loss on Cameco's share of the hedge position was $6 million (US)
at September 30, 2002 based on a spot market gold price of $324
(US) per ounce.
During the third quarter of 2002, the average spot market gold
price was $314 (US) per ounce compared to $312 (US) in the second
quarter. Prices ended the quarter at $324 (US).
Foreign Exchange
Most of the company's revenue is in US dollars. At September 30,
2002, Cameco had a foreign currency hedge portfolio of $543 million
(US) with an average spot exchange rate of $1.5612. 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 third quarter, deferred charges remaining
to be amortized will have the effect of reducing the reported exchange
rate of the hedge portfolio by $0.04 over the five-year hedge designation
period.
During the quarter, the Canadian dollar weakened significantly
against the US dollar from $1.5187 at the end of June to $1.5858
as of September 30, 2002. Cameco's mark-to-market position on its
foreign currency hedge portfolio was an unrealized loss of $15 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 September 30, 2002 was $9.73
(US) per pound U3O8, compared to $9.90 (US) at June 30, 2002. The
industry average spot price at the end of the third quarter of 2001
was $9.37 (US).
The spot market volume for the quarter ended September 30, 2002
was about 2 million pounds U3O8, bringing
the year-to-date total to about 14 million pounds. This compares
to 4 million and 13 million pounds respectively in the corresponding
periods in 2001.
Spot demand slowed over the quarter and spot supply was sufficient
to meet demand, resulting in a slight weakening in price. This is
the usual situation over the summer months. Spot demand has increased
significantly in October, with about 2 million pounds currently
out for offers or under evaluation.
UF6 Conversion Spot Market
The industry average spot market price for uranium conversion services
decreased marginally to $5.03 (US) per kgU from $5.08 (US) at June
30, 2002. This compares to $5.25 (US) per kgU at the end of the
third quarter of 2001.
Uranium Long-term Market
The long-term market picked up in the third quarter, with total
long-term contracting to the end of the third quarter estimated
at about 60 million pounds U3O8. For the year,
long-term contracting is expected to range from 75 million to 80
million pounds.
The long-term price indicator, published by TradeTech, increased
from $10.40 (US) at the end of the second quarter to $10.75 (US)
per pound U3O8 at July 31, 2002, and remained
there through the balance of the third quarter. Long-term demand
is fairly strong, suggesting a possible further strengthening of
the long-term price in the near term.
Update on Uranium Market Trends and Developments
Nuclear Important Contributor to Kyoto Targets
As the Kyoto protocol approaches ratification, there is a growing
recognition that nuclear energy can and should be an important contributor
to the emission reduction goals of the protocol.
US Russian Expert Group Reports
The expert group set up by the US and Russian governments to explore
additional ways of eliminating high enriched uranium (HEU) and military
plutonium has indicated five options by which such material could
be disposed of over and above that covered by current agreements,
without negatively affecting the commercial markets. Only one option,
the use of low enriched uranium, down blended from Russian HEU,
to fuel western reactors, could impact the commercial market. The
US Department of Energy has stated that, if this initiative is pursued,
it would be very limited in scope.
Potential for New Reactors
During the quarter, a number of countries announced they are considering
new nuclear units to replace aging ones. These countries include
Armenia, Lithuania and Bulgaria. In addition, Brazil announced its
intention to finish its third nuclear reactor.
Russian Utility Pursues License Extension
The Russian utility Rosenergoatom has submitted an application to
extend the operating life of one reactor for five years, and is
preparing similar applications for three more reactors.
Operations Update
Uranium Mining
At McArthur River/Key Lake, very good production results were achieved
in the quarter with 3.7 million pounds U3O8
packaged (Cameco's share).
At Rabbit Lake, the restart of mining activity continues to be
challenging, as a result of the re-mobilizing of equipment stored
underground during the shutdown and poor ground conditions in the
vicinity of previous mine workings. The operations are expected
to be up to the planned daily production rate by year-end. Production
for 2002 is anticipated to be in the 1.3 million pound range, down
from the previous forecast of 2.5 million pounds.
At the US in situ leach operations, the Smith Ranch and Highland
operations in Wyoming were merged during the quarter, resulting
in a number of efficiencies. Currently, the Smith Ranch mill is
being used for processing. In addition, some staff reductions resulted
from consolidating the two work forces.
At the Inkai uranium test mine in Kazakhstan, shipments of pregnant
solution to a Kazakh processing plant began during the quarter.
Six of seven production wells are operating, with a wide range of
results to date. Work has begun on the preparation of a feasibility
study.
Fuel Services
With the completion of the summer shutdowns, production resumed
at the Blind River refinery and the Port Hope conversion plants.
The start ups proceeded efficiently and production is now slightly
ahead of plan.
Electricity Business
After announcing a very weakened financial position, British Energy
(BE), the majority partner in Bruce Power (BP), received a loan
from the British government for 410 million pounds sterling, to
be repaid by September 27, 2002. The British government and BE have
agreed to increase the amount of the loan to 650 million pounds
sterling and to extend the repayment date to November 29, 2002.
The loan is to provide working capital to meet immediate needs,
allow BE to stabilize its and Bruce Power's trading positions, and
permit a longer-term financial restructuring to be negotiated. As
a condition of the agreement to provide the loan, the British government
required and received guarantees from certain BE subsidiaries, including
Bruce Power.
BE's financial difficulties created uncertainty around BP's operating
license issued by the Canadian Nuclear Safety Commission, and its
long-term lease with Ontario Power Generation. This uncertainty,
coupled with BP guaranteeing BE's repayment of the British government
loan, has increased the risk associated with Cameco's investment.
To date, Cameco has invested $77 million. Under the existing commercial
agreement, Cameco is not obligated to invest more than $100 million
or provide financial guarantees in excess of $102 million. The company
anticipates it unlikely that payment under these guarantees would
be required.
Cameco is taking several actions to protect its interests in BP
including challenging the validity of the BP guarantee. There can
be no assurances that this situation can be managed by the successful
conclusion of negotiations with BE and/or other interested parties.
These negotiations may lead to Cameco increasing its stake in BP
as Cameco has a right of first offer should BE sell all or a portion
of its interest.
Gold Mining
In July 2002, a pit wall failure at the Kumtor mine resulted in
a rock slide of approximately 7.5 million tonnes. No reserves were
lost, however, one employee lost his life in the incident. Pit wall
rehabilitation is proceeding well and is expected to continue until
mid-2003. Stockpiled ore and mining of low-grade ore are supplying
feed to the mill.
AGR
Construction of the mill at the Boroo project in Mongolia continued
toward a start up in the third quarter next year. Project expenditures
to date amount to $11 million (US). In-fill drilling continued through
October with assay results expected by the end of the year.
AGR's hedge position at the end of the September was 200,000 ounces
(Cameco's share is 52%) which are expected to yield an average price
of about $319 (US) per ounce over the five year period. The mark-to-market
unrealized loss on Cameco's share of this position was $2 million
(US) based on the September 30 gold price of $324 (US) per ounce.
3. OUTLOOK FOR YEAR
Uranium Business
Cameco's uranium revenue in 2002 is expected to be about 8% greater
than in 2001 due to higher sales volumes. Although market prices
have risen over the past two years, 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 that reported
this year to date.
For the balance of 2002 deliveries, a $1.00 (US) change in the
U3O8 spot price from current levels would
change revenue by about $4 million (Cdn), net earnings by about
$2 million (Cdn) and cash flow by about $3 million (Cdn).
Uranium production for the year is now expected to be about 16
million pounds U3O8 down from the previous
forecast of 17.5 million pounds due to the slower-than-expected
restart of mining at Rabbit Lake.
Conversion Business
Cameco's conversion revenue in 2002 is expected to be 50% more than
the year-to-date amount. The gross profit margin is expected to
be similar to the nine month result to September 30, 2002.
Electricity Business
2002 has been a year of extensive planned maintenance programs
to prepare the reactor fleet for more efficient service over the
longer term. With the return to service of one of the four Bruce
"B" reactors late in the fourth quarter, following its planned maintenance
outage, all four "B" reactors are expected to be in operation for
the start of the new year.
The Bruce "B" reactors continue to perform safely and efficiently.
For 2002, an average capacity factor of 76% is expected. Cameco
estimates the 2002 earnings contribution from Bruce Power to be
similar to its 2001 contribution before tax of $12 million.
Good progress continues on the restart program for the two Bruce
"A" units. About $286 million of the total project costs, estimated
at about $400 million, 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 provided that the
uncertainty surrounding BE's financial difficulties is favorably
resolved.
Gold Business
Due to the pit wall failure, Cameco expects its 2002 gold after-tax
earnings to be reduced by about $30 million compared to its earlier
$35 million estimate. Most of this change is related to reduced
revenue as a result of lower production.
For 2002, production is expected to be approximately 500,000 ounces
(Cameco's share is one-third) at an average grade of 3.4 grams per
tonne and a recovery rate of 77%. The cash cost is projected to
be about $210 (US) per ounce, reflecting the lower grade of the
mill feed and the costs as incurred for removing the rock slide
material. It includes no allowance for any possible insurance recovery.
The gold segment is expected to show a $2 million loss for the year.
The company expects that normal operations will resume in mid-2003
when mining of the high-grade zone will resume.
Fourth Quarter of 2002
Consolidated revenue in the fourth quarter of 2002 is expected to
be about 60% higher than in the third quarter, reflecting higher
volumes in all segments. Revenue from the uranium and conversion
businesses is also expected to be positively influenced by higher
realized selling prices. Accordingly, earnings from each of these
segments are projected to improve in comparison to the third quarter.
Fourth quarter earnings from Bruce Power are forecasted to be lower
than the earnings reported in the third quarter of 2002. The gold
segment is expected to show a small loss in the fourth quarter due
to the revised production plan. The effective tax rate is expected
to be similar to that of the third quarter as the trend of proportionately
greater earnings from the uranium and conversion segments continues.
CONFERENCE CALL
Cameco invites you to join an investor relations conference call
on Friday, November 1, 2002 at 9:00 a.m. Eastern time (8:00 a.m.
Saskatoon time).
The call will be open to all members of the investment community.
Members of the media will be invited in listen-only mode. To join
the conference call on November 1, 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 call will be available
on Cameco's 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 replay of the conference call will be available on the web site
shortly after the call or by telephone until Friday evening, November
15, by dialing (416) 695-9731 or (888) 509-0082 (no code required).
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 investor inquiries, please contact: |
For media inquiries, 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 |
| |
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|
| 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) |
| |
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| Preferred Securities |
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| CCJPR |
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| New York Stock Exchange |
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