In July, the failure of the pit wall at Kumtor brought about
a significant revision to the mining plan for 2002. Mining
of higher-grade ore was postponed due to the pit wall failure.
Since July, Kumtor has been milling lower grades and achieving
lower recovery rates. Production was reduced by about 172,000
ounces from the 2002 plan. The production decline also caused
a large increase in the unit cash cost1 which will
continue until mid-2003 when the higher-grade ore is expected
to become accessible.
Fourth Quarter. Revenue from the gold business
declined by 25% to $22 million from $29 million in the fourth
quarter of 2001 due mainly to a 24% decrease in volume sold.
Cameco's realized price for gold decreased to $304 (US) per
ounce in 2002 from $317 (US) in 2001, due to less favourable
hedge positions.
Gold production at Kumtor of 47,400 ounces (Cameco's share)
was 20% less than in the fourth quarter of 2001 due to a lower
ore grade which averaged 4.0 grams per tonne (g/t) compared
to 5.0 g/t in 2001. The recovery rate also decreased to 80%
from 82% in 2001. As a result, Kumtor's cash cost1
per ounce was $220 (US) compared to $153 (US) in 2001.
For the quarter, the loss before tax was $2 million and the
gross profit margin for gold was 2% compared to 28% in 2001.
Year. Revenue from the gold business declined
by 24% to $87 million from $115 million in the prior year,
reflecting a 28% decrease in sales volume which more than
offset an increase in the average realized selling price.
Cameco's realized price for gold was $300 (US) per ounce in
2002 compared to $292 (US) in 2001.
Gold production at Kumtor of 176,200 ounces (Cameco's share)
was 30% lower than in 2001 due mainly to lower grade ore which
averaged 3.7 g/t in 2002 compared to 5.1 g/t the year before.
Production was also influenced by a lower recovery rate which
decreased to 78% from 83% in the prior year. Kumtor's cash
cost1 per ounce was $216 (US) in 2002 compared
to $142 (US) in 2001.
The loss before tax was $3 million and the gross profit margin
for gold was 10% in 2002 compared to 29% in 2001.
1
As defined by the Gold Institute.
Corporate Expenses
During 2002, costs for administration increased by $5 million
compared to 2001 due primarily to the administration costs
of AGR Limited (AGR), control of which was acquired in March
of 2002. Cameco owns 56% of AGR and consolidates AGR's results
in its financial statements. Exploration costs increased by
$3 million as there was greater activity in both uranium and
gold.
CASH FLOW
In 2002, Cameco generated cash from operations of $251 million
($4.50 per share) compared to $116 million ($2.10 per share)
in 2001. This increase of $135 million largely reflects a
normal course reduction of accounts receivable, higher sales
volumes and the reduction in uranium inventories. (Due to
the high volume of uranium deliveries late in 2001, accounts
receivable were higher than usual at the end of that year.
These were collected early in 2002.)
Cash used in investing activities decreased to $74 million
in 2002 from $131 million in 2001. Significant investments
include the Boroo project ($24 million) in 2002 and the initial
investment in Bruce Power including inventory ($88 million)
in 2001.
BALANCE SHEET
During the quarter, the company finalized a new three-year
corporate lending facility with a group of major Canadian,
US and other foreign lending institutions. The facility consists
of a $200 million three-year unsecured revolving credit facility
and a $225 million 364-day unsecured revolving credit facility
with a two-year term-out option.
At December 31, 2002, total long-term debt decreased by $129
million to $225 million from $354 million at the end of 2001.
At December 31, 2002, Cameco's net debt to capitalization
ratio was 8%, down from 15% at the end of the prior year.
During 2002, Cameco's long-term receivables and investments
balance increased by $14 million due primarily to additional
contributions to Bruce Power. Cameco invested an additional
$33 million during the year bringing its total cash investment
in Bruce Power to $93 million. This supplemented Bruce Power's
cash resources for the Bruce A restart project.
The provision for reclamation has increased by $15 million
mainly due to the purchase of the Smith Ranch in situ leach
(ISL) mine in Wyoming by Cameco's subsidiary, Power Resources,
Inc. (PRI). The purchase price of $9 million (US) was satisfied
by PRI assuming, and Cameco guaranteeing, the decommissioning
liabilities associated with the mine.
Cameco's issue of preferred securities ($125 million (US))
is redeemable at par on or after October 14, 2003. At the
present time, the company has not determined whether the issue
will be redeemed in 2003.
Dividends
With an uninterrupted record of dividend payments since Cameco
was publicly listed in 1991, the board of directors approved
an increase in the dividend by 20% to $0.60 per common share
annually beginning with a $0.15 payment for the first quarter
of 2003.
Gold Hedging
The average spot market gold price during the fourth quarter
of 2002 was $322 (US) per ounce compared to $314 (US) in the
third quarter. Prices ended the year at $347 (US) per ounce.
Kumtor Gold Company (KGC) and AGR hedge the price risk for
future gold sales. At the end of 2002, KGC had in place forward
sales and option agreements on 769,400 ounces and AGR had
in place forward sales on 200,000 ounces. Combined, these
hedge positions represented about 22% of proven and probable
reserves. Cameco's share of these hedging agreements was 456,500
ounces consisting of 371,500 ounces in forward contracts,
and a net position of 85,000 ounces in collars (matched puts
and calls). These hedges are expected to yield average prices
in the range of $310 (US) to $317 (US) per ounce. The mark-to-market
loss on these hedge positions is fully guaranteed by Cameco
and was $38 million (US) at December 31, 2002.
As of December 31, 2002, Cameco agreed to provide credit
support to a maximum of $70 (US) per ounce to the counterparties
of KGC and AGR. Cameco's maximum financial exposure under
these arrangements based on outstanding commitments was $61
million (US).
Timing differences between the usage and designation of hedge
contracts may result in deferred revenue or deferred charges.
At the end of 2002, Cameco's share of deferred charges to
be recognized totalled $4 million (US).
Foreign Exchange
During the quarter, the Canadian dollar strengthened against
the US dollar from 1.5858 at the end of the third quarter
to 1.5796 as of December 31, 2002.
Most of the company's revenues are in US dollars. At December
31, 2002, Cameco had a foreign currency hedge portfolio of
$499 million (US). These hedges are expected to yield an average
exchange rate of 1.5870. The mark-to-market loss on these
hedge positions was $10 million at December 31, 2002.
Timing differences between the usage and designation of hedge
contracts may result in deferred revenue or deferred charges.
At the end of 2002, deferred charges to be recognized totalled
$12 million.
2. UPDATES ON MARKETS, OPERATIONS AND
STRATEGY
The most significant factors affecting the financial performance
of Cameco are:
- the market prices for U3O8, gold
and electricity,
- sales volumes for uranium and conversion services, gold
and electricity,
- foreign exchange rates between the Canadian and US dollars,
and
- the unit costs of production.
Updates from the recent quarter on these key financial drivers
are provided in the following discussions, and in some cases,
in other sections of this report.
Uranium Market Update
Uranium Spot Market
The spot market volume for the quarter ended December 31,
2002 was approximately 5 million pounds U3O8,
bringing the year-to-date total to about 19 million pounds.
This compares to 6 million pounds and 19 million pounds respectively
in the corresponding periods in 2001. Spot demand picked up
at the end of the fourth quarter resulting in an increase
in the spot price to $10.20 (US) per pound U3O8.
This was a 7% increase over the price at the end of 2001.
Uranium Long-term Market
The long-term market continued to be active in the fourth
quarter, with total long-term contracting for 2002 estimated
at about 70 million pounds U3O8. The
long-term price indicator, published by TradeTech, remained
at $10.75 (US) per pound U3O8 throughout
the third and fourth quarters.
UF6 Conversion Spot Market
The industry average spot market price for uranium conversion
services remained at $5.03 (US) per kgU throughout the quarter.
This compares to $5.25 (US) per kgU throughout the fourth
quarter of 2001.
Update on Uranium Market Trends and Developments
The Canadian government will grant a $328 million loan guarantee
to help finance the completion of construction of Romania's
Cernavoda 2, a 630 megawatt (MW) CANDU reactor. Construction
is about 40% complete and is expected to be finished in 2006,
with operation to begin in 2007.
A final decision on whether to proceed with restart of construction
on the 1,350 MW Angra 3 reactor in Brazil will be made by
the new government, which took office in January 2003. A decision
is expected following the submission of a report by Electronuclear
in May 2003. Construction on the unit was halted in the mid
1980's when it was 30% complete. If construction resumes,
the plant is expected to start up in 2008.
In Sweden, where the Barseback 2 unit is currently scheduled
to be shut down in 2003, two separate reports have indicated
that closure will result in higher electricity prices, possible
winter electricity shortages, and increased carbon dioxide
emissions. The government is expected to make a decision in
the spring of 2003 on a possible shutdown of the reactor by
the end of 2003.
In Japan, Tokyo Electric Power Company (Tepco) had the operating
license of one of its reactors suspended for a year as a penalty
for falsification of inspection data in the early 1990's.
In addition, Tepco had several other reactors shut down for
maintenance and inspection at the end of 2002. Tepco restarted
several mothballed fossil-fuelled electric power stations
to replace, in part, the capacity of the temporarily shutdown
reactors.
Operations Update
Uranium Mining
McArthur River/Key Lake achieved production of 3.4 million
pounds U3O8 (all volumes are Cameco's
share) in the quarter, reaching its target of 13.1 million
pounds for the year. There was record mill production at Key
Lake.
At Rabbit Lake, production in the fourth quarter was 0.9
million pounds U3O8. Despite difficult
ground conditions, production rates improved through the quarter.
For the year, mill production was 1.1 million pounds which
was less than the planned amount of 3 million pounds.
Fuel Services
Fourth quarter production of 3,754 tonnes of conversion services
slightly exceeded that of the same quarter in 2001. Annual
production was 12,428 tonnes, a 13% increase over 2001.
Electricity Business
In November, the Ontario government announced a price cap
of $43/MWh in the retail electricity market for smaller consumers.
This has had no direct impact on the price in the wholesale
electricity market into which Bruce Power sells its output.
The announcement has increased market uncertainty for generators
like Bruce Power.
On December 23, 2002, the company announced that, along with
partners, it had signed a binding agreement to purchase 79.8%
of Bruce Power Limited Partnership from British Energy plc
(British Energy) which currently holds an 82.4% interest.
The Power Workers' Union and The Society of Energy Professionals
will obtain the remaining 2.6%.
The agreement commits Cameco to purchase an additional 16.6%
interest in Bruce Power for about $198 million, subject to
minor closing adjustments, bringing its total interest to
31.6%. Cameco will also provide $75 million, representing
its one-third share of $225 million deferred rent payments
to OPG to be paid concurrent with the closing of the acquisition.
Upon closing, Cameco's total commitment in financial assurances
is estimated to be about $200 million, including its share
of financial assurance in relation to the operating license
from the Canadian Nuclear Safety Commission (CNSC), the lease
with OPG and the power purchase agreements with large industrial
customers.
Subject to a number of conditions, the closing of the agreement
is scheduled to occur by February 14, 2003. One condition
was satisfied with British Energy shareholders approving the
agreement on February 10, 2003. There can be no assurance
that other conditions to closing will be satisfied. For further
details, please see the news release posted December 23, 2002
at www.cameco.com.
Gold Business
At Kumtor, the removal of pit wall material which
collapsed in July continues on schedule toward a mid-2003
completion.
The company is seeking to consolidate its gold assets. Following
the recent rise in gold prices, the evaluation of available
options for asset consolidation has taken longer than previously
anticipated but significant progress is expected by mid-2003.
In the meantime, Cameco will continue to manage its gold assets
to increase their value to its shareholders.
Cameco's gold hedging strategy is being re-evaluated in the
context of the company's objectives for its gold assets and
current market events.
3. OUTLOOK FOR 2003
Uranium Production (Cameco's share)
| (000s lbs
U3O8) |
2003 Plan
|
2002 Actual
|
| McArthur River/Key
Lake |
13,000 |
13,095 |
| Rabbit Lake |
6,000 |
1,143 |
| Smith Ranch/Highland |
1,100 |
887 |
| Crow Butte |
800 |
768 |
| Total |
20,900 |
15,893 |
Total mine production is expected to rise to 20.9 million
pounds U3O8, up 5.0 million pounds over
2002 levels, due largely to a full year's operation at Rabbit
Lake.
At McArthur River/Key Lake, production of 13.0 million pounds
U3O8 is planned for 2003. McArthur River
high grade ore will continue to be blended with special waste
rock at Key Lake to achieve an average mill feed of approximately
4% U3O8.
At Rabbit Lake, the Eagle Point underground mine is expected
to produce 6.0 million pounds in 2003, from its remaining
reserves of about 17.6 million pounds U3O8
. Prospects for additional reserves are being explored both
from the surface as well as underground, where extensions
to known ore have been identified.
At the US in situ leach operations, the Smith Ranch and Highland
mines, which merged operations during 2002, have planned production
of 1.1 million pounds while Crow Butte is expected to package
0.8 million pounds in 2003. At the Inkai development project
in Kazakhstan, nominal production is expected as test mining
continues through 2003.
Uranium Market
Long-term contracting in 2002 is reported to be approximately
70 million pounds. In 2003, long-term market demand is expected
to be similar to 2002.
Uranium Revenue and Margins
In 2003, Cameco's uranium revenue is expected to rise nominally
over the 2002 level as the result of a modest improvement
in price. Although market prices have risen over the past
two years, Cameco expects its average realized price will
increase by only 2% in 2003. About 60% of Cameco's long-term
contracts contain pricing which references the spot price
at the time of delivery. The remaining 40% of the contracts
include base-escalated pricing; in 2003, the prices realized
from these contracts are expected to average lower than in
2002 due to the expiration of more favourably priced contracts.
At approximately 20% of western world requirements, Cameco's
sales volumes are projected to be similar to those for 2002.
As well, uranium margins are expected to be similar to 2002.
For 2003 deliveries, a $1.00 (US) change in the U3O8
spot price from current levels would change revenue by about
$27 million (Cdn), net earnings by about $15 million (Cdn)
and cash flow by about $21 million (Cdn).
Conversion Business
At Port Hope, conversion production is expected to be approximately
12,200 tonnes, similar to 2002 levels.
Revenue from the conversion business is likely to be slightly
lower than in 2002 as a change in the mix of contracts is
expected to result in a decline in realized price and lower
profit margins.
Electricity Business (Bruce Power)
Acquisition of Additional Interest
As discussed above, Cameco and its new partners are scheduled
to complete the acquisition of British Energy's interest in
Bruce Power by February 14, 2003.
Bruce A Restart
An important milestone in the Bruce A restart program was
achieved in early January 2003 when Bruce Power's environmental
assessment report was accepted by the CNSC. Also in January,
Bruce Power reported to the CNSC on the status of licensing
requirements for the Bruce A reactors. The final hearing on
the Bruce A restart program is scheduled for February 26,
after which it is expected that Bruce Power will receive approval
to operate units 3 and 4.
On January 14, 2003, Bruce Power received permission from
the CNSC to begin refuelling unit 4. The overall project remains
on schedule for the restart of unit 4 in April and unit 3
in June 2003.
Operations
For the year, an average site capacity factor of about 88%
is planned, slightly below the long-term target of over 90%.
Capital Expenditures
In 2003, Bruce Power's capital expenditure program, excluding
the Bruce A restart, is expected to total about $165 million.
In addition to sustaining capital expenditures of about $15
million annually per reactor, the main projects, which were
in Bruce Power's original business plan, include:
- a project to uprate the capacity of the B reactors (approximate
annual expenditures in millions for 2003 to 2005: $15, $185,
and $100), and
- the completion of the Bruce B environmental qualification
program (to be completed in 2003 at an estimated expenditure
of $30 million).
Over the next three years, annual capital expenditures, excluding
the Bruce A restart program, are expected to average about
$245 million.
Bruce Power's internal cash flow is expected to be sufficient
to fund its 2003 capital programs including the restart of
two Bruce A reactors.
Gold Business
For 2003, production at Kumtor is expected to be 670,000 ounces
(Cameco's share is one-third), with 35% anticipated to occur
in the first half of the year. This represents a 25% increase
over 2002 due to an increase in average ore grade to 5.4 grams
per tonne. The improvement in the grade is based upon regaining
access to the high-grade ore buried when the pit wall collapsed
in July 2002. The unit cash cost is expected to decline by
about 15% to $180 (US) per ounce due to the higher production
volume. A change of $10 (US) per ounce in the spot market
price for gold from the year-end price of $347 (US) would
change Cameco's revenue by about $2 million (Cdn).
At Boroo, mine construction is proceeding at a slower than
expected pace with some construction and procurement activities
behind schedule. Development costs to commercial production
are estimated to be $63 million (US), an increase from the
original estimate of $40 million (US). About half of the increase
relates to a change in the operating plan from a contractor-supplied
mine equipment fleet to one where AGR purchases the fleet.
Mine operating costs will therefore be lower. The remainder
of the increase is due to improvements in the processing facilities.
About 40% of the budget was spent to the end of January 2003.
The project schedule is under review and commercial production
may not be achieved until early 2004.
Capital Expenditures
Capital
Expenditures
(Cameco's share in $ millions) |
Planned
2003 |
Actual
2003 |
| Sustaining
Capital |
|
|
| |
McArthur River/Key
Lake |
$17 |
$10 |
| |
Smith/Highland/Crow
Butte |
16 |
9 |
| |
Fuel Services |
14 |
7 |
| |
Kumtor |
5 |
4 |
| |
Other |
13 |
10 |
| Total Sustaining |
$65 |
$40 |
| Development |
|
|
| |
Cigar Lake |
$9 |
$10 |
| |
Inkai |
3 |
4 |
| |
Boroo |
70 |
24 |
| |
Other |
4 |
- |
| |
Capitalized
interest |
11 |
12 |
| Total Development |
$97 |
$50 |
| Total |
$162 |
$90 |
In 2003, total capital expenditures, excluding the additional
investment in Bruce Power, are expected to amount to $162
million, an increase of $72 million over 2002. In 2003, most
site sustaining capital expenditures are higher than normal
due to mill modifications at Key Lake, the acquisition of
Smith Ranch, and the volume of projects at Fuel Services.
For development projects, Cameco's share of expenditures
at Cigar Lake is estimated at $9 million. In 2003, CNSC approval
of the construction license is not expected before October.
After receipt of the license, the partners are expected to
make a decision on when to proceed with mine development.
At Inkai, reserve data and analysis and test mining are expected
to continue through most of the year. A feasibility study
has begun and is expected to be completed by the end of 2003.
First Quarter of 2003
Consolidated revenue in the first quarter of 2003 is expected
to be lower than in the first quarter of 2002 reflecting reduced
deliveries in the uranium, conversion and gold segments. However,
earnings from the uranium and conversion segments are projected
to show an improvement over the first quarter of 2002 due
to higher realized prices. As well, earnings from Bruce Power,
based on Cameco's 15% interest, are expected to be higher
than in the first quarter of 2002 due to increased output
and improved prices. On the other hand, earnings from the
gold business are projected to decline, compared to the same
quarter in 2002, due to lower production. Consolidated earnings
for the first quarter of 2003 are expected to be higher than
those recorded in the same period last year.
DIVIDEND ANNOUNCEMENT
Cameco also announced today that its board of directors declared
a quarterly dividend of $0.15 (Cdn) per common share payable
on April 15, 2003 to shareholders of record at the close of
business on March 31, 2003. This is an increase of 2.5 cents
over the quarterly rate Cameco has paid since 1991, increasing
the annual rate from $0.50 to $0.60.
CONFERENCE CALL
Cameco invites you to join an investor relation's conference
call on Wednesday, February 12, 2003 at 10:00 a.m. Eastern
time (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 in listen-only mode.
To join the conference call on February 12, please dial (416)
695-5259 or (877) 888-3490 (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 and on post view until midnight
on Wednesday, February 26, 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 limited partnership which generates 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.
Although Cameco believes that the assumptions inherit in
the forward-looking statements are reasonable, undue reliance
should not be placed on these statements, which only apply
as of the date of this report. Cameco disclaims any intention
or obligation to update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
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