Liquidity and capital resources
At the end of 2011, we had cash and short-term investments of $1.2 billion in a mix of short-term deposits and treasury bills, while our total debt amounted to $1.0 billion. We were in a similar position at the end of 2010.
We have large, creditworthy customers that continue to need uranium even during weak economic conditions, and we expect the uranium contract portfolio we have built to provide a solid revenue stream for years to come.
Our financial objective is to make sure we have the cash and debt capacity to fund our operating activities, investments and growth. We have several alternatives to fund future capital needs, including our significant cash position, credit facilities, future operating cash flow and debt or equity financing, and are continually evaluating these options to make sure we have the best mix of capital resources to meet our needs.
Financial condition
| 2011 | 2010 | |
|---|---|---|
|
||
| Cash position ($ millions) (cash, cash equivalents, short-term investments) |
1,203 | 1,260 |
| Cash provided by operations ($ millions) (net cash flow generated by our operating activities after changes in working capital) |
732 | 521 |
| Cash provided by operations/net debt (net debt is total consolidated debt, less cash and cash equivalents) |
n/a1 | n/a1 |
| Net debt/total capitalization (total capitalization is total long-term debt and equity) |
n/a1 | n/a1 |
Credit ratings
The credit ratings assigned to our securities by external ratings agencies are important to our ability to raise capital at competitive pricing to support our business operations. Our investment grade credit ratings reflect the current financial strength of our company.
Third-party ratings for our commercial paper and senior debt as of December 31, 2011:
| Security | DBRS | S&P |
|---|---|---|
|
||
| Commercial paper | R-1 (low) | A-1 (low)1 |
| Senior unsecured debentures | A (low) | BBB+ |
The rating agencies may revise or withdraw these ratings if they believe circumstances warrant. A change in our credit ratings could affect our cost of funding and our access to capital through the capital markets.
Liquidity
| ($ millions) | 2011 | 2010 |
|---|---|---|
| Cash and cash equivalents at beginning of year | 1,260 | 1,304 |
| Cash from operations | 732 | 521 |
| Investment activities | ||
| Additions to property, plant and equipment | (647) | (431) |
| Other investing activities | 40 | 12 |
| Financing activities | ||
| Change in debt | (3) | (10) |
| Interest paid | (61) | (54) |
| Issue of shares | 7 | 18 |
| Dividends | (146) | (106) |
| Other financing activities | 13 | 10 |
| Exchange rate on changes on foreign currency cash balances | 8 | (4) |
| Cash and short-term investments at end of year | 1,203 | 1,260 |
On transition to IFRS, we elected to classify interest payments as a financing activity rather than an operating activity in our statement of cash flows. This change will increase our reported cash flows from operating activities with a corresponding decrease in cash flows from financing activities. There is no net impact on consolidated cash flows as a result of this change in presentation. Prior period amounts for 2010 have been revised to reflect this classification.
Cash from operations
Cash from operations was 40% higher than in 2010 mainly due to higher profits in the uranium business and lower working capital requirements relating to decreased inventory levels. Not including working capital requirements, our operating cash flows in the year were up $60 million. See note 26 to the financial statements.
Investing activities
Cash used in investing includes acquisitions and capital spending.
Acquisitions and divestitures
In 2010 and 2011, we concluded no significant acquisitions or divestitures.
Talvivaara Agreement
On February 7, 2011, we signed two agreements with Talvivaara Mining Company Plc (Talvivaara) to buy uranium produced at the Sotkamo nickel-zinc mine in eastern Finland. Under the first agreement with Talvivaara, we will provide an up-front payment, to a maximum of $60 million (US), to cover certain construction costs. 2011 expenditures were $19 million (US) and we expect to fund an additional $41 million (US) in 2012. This amount will be repaid through the initial deliveries of uranium concentrates. Once the full amount has been repaid, we will continue to purchase the uranium concentrates produced at the Sotkamo mine through a second agreement, which provides for the purchase of uranium using a pricing formula that references market prices at the time of delivery. The second agreement expires on December 31, 2027.
Capital spending
We classify capital spending as growth or sustaining. Growth capital is money we invest to generate incremental production, and for business development. Sustaining capital is the money we spend to keep our operations at current production levels.
| (Cameco's share in $ millions) | 2011 plan | 2011 actual | 2012 plan |
|---|---|---|---|
|
|||
| Growth capital | |||
| Cigar Lake | 176 | 172 | 215 |
| Inkai | 9 | 1 | 10 |
| McArthur River | 14 | 24 | 35 |
| Millennium | 6 | 4 | 5 |
| US ISR | 13 | 15 | 30 |
| Total growth capital | 218 | 216 | 295 |
| Sustaining capital | |||
| McArthur River/Key Lake | 169 | 168 | 145 |
| US ISR | 38 | 39 | 50 |
| Rabbit Lake | 85 | 77 | 75 |
| Inkai | 19 | 15 | 30 |
| Fuel services | 32 | 18 | 20 |
| Other | 14 | 20 | 5 |
| Total sustaining capital | 357 | 337 | 325 |
| Total uranium & fuel services | 5751 | 553 | 620 |
| Electricity (our 31.6% share of BPLP) | 80 | 77 | 80 |
Capital expenditures were 4% below the guidance we provided in our third quarter MD&A, mainly due to variances at Inkai and in the fuel services division. We do not expect this reduction in capital expenditures in 2011 will impact our plans to increase annual uranium production by 2018. The variance at fuel services was mainly due to cancellation of certain projects and revisions to project schedules. The variance at Inkai was mainly due to the deferral of upgrades to infrastructure and slower than expected progress on approvals for block 3.
Outlook for investing activities
We expect total capital expenditures for uranium and fuel services to be about 12% higher in 2012 as a result of higher spending for:
- growth capital at Cigar Lake
- growth and sustaining capital at US ISR
- sustaining capital at Inkai
Major sustaining expenditures in 2012 include:
- McArthur River/Key Lake – At McArthur River, the largest component is mine development at about $50 million. Other projects include site facility expansion and equipment purchases. At Key Lake, various projects to revitalize the mill will be undertaken at about $35 million, as well as work on the tailings facilities.
- US in situ recovery (ISR) – Wellfield construction and well installation is the largest project at approximately $30 million. We also plan to work on the development of the Gas Hills and North Butte projects as well as revitalization of the Highland processing plant.
- Rabbit Lake – At Eagle Point, the largest project includes mine development at about $15 million. Other projects include work on electrical systems, various mill equipment replacements and continued work on mine dewatering systems and tailings facilities.
In addition, we expect capital expenditures for 2013 and 2014 to be as follows:
| ($ millions) | 2013 | 2014 |
|---|---|---|
| Growth capital | 325 – 350 | 250 – 275 |
| Sustaining capital | 325 – 350 | 350 – 375 |
| Total uranium & fuel services | 650 – 700 | 600 – 650 |
These growth capital expenditures are related to our Double U strategy. Many of these are early stage projects, however, and the mix of projects and their underlying capital estimates could change significantly. This is a preliminary estimate that we expect to fund using existing cash balances and operating cash flows.
This information regarding currently expected capital expenditures for future periods is forward-looking information, and is based upon the assumptions and subject to the material risks discussed here. Our actual capital expenditures for future periods may be significantly different.
Financing activities
Cash from financing includes borrowing and repaying debt, and other financial transactions including paying dividends and providing financial assurance.
As a result of our significant cash balance, there was little in the way of financing activities in 2011.
| December 31, 2011 ($ millions) |
2012 | 2013 and 2014 |
2015 and 2016 |
2017 and beyond |
Total |
|---|---|---|---|---|---|
| Long-term debt | 15 | 41 | 342 | 549 | 947 |
| Interest on long-term debt | 53 | 102 | 78 | 80 | 313 |
| Provision for reclamation | 10 | 40 | 47 | 480 | 577 |
| Provision for waste disposal | 4 | 7 | 11 | – | 22 |
| Other liabilities | – | – | – | 507 | 507 |
| Total | 82 | 190 | 478 | 1,616 | 2,366 |
In the fourth quarter, we cancelled our $100 million revolving credit facility that was maturing in February 2012. We also amended and extended our $500 million unsecured revolving credit facility that was maturing in November 2012. We now have unsecured lines of credit of about $1.9 billion, which include the following:
- A $1.25 billion unsecured revolving credit facility that matures November 1, 2016. Each year on the anniversary date, and upon mutual agreement, the facility can be extended for an additional year. In addition to borrowing directly from this facility, we can use up to $100 million of it to issue letters of credit and we may use it to provide liquidity for our commercial paper program, as necessary. From time to time we may increase the revolving credit facility above $1.25 billion, by increments of no less than $50 million, up to a total of $1.75 billion. The facility ranks equally with all of our other senior debt. At December 31, 2011, there was nothing outstanding under this facility.
- Approximately $700 million in short-term borrowing and letters of credit provided by various financial institutions. We use these facilities mainly to provide financial assurance for future decommissioning and reclamation of our operating sites, and as overdraft protection. At December 31, 2011, we had approximately $665 million outstanding in letters of credit.
We have $800 million in senior unsecured debentures:
- $300 million bearing interest at 4.7% per year, maturing on September 16, 2015
- $500 million bearing interest at 5.67% per year, maturing on September 2, 2019
We have issued a $73 million (US) promissory note to GLE to support future development of its business. In November 2011, GLE requested a drawing of $8 million (US) which included $7 million of accrued interest. The balance remaining on the note is $72 million (US).
Debt covenants
Our revolving credit facility includes the following financial covenants:
- our funded debt to tangible net worth ratio must be 1:1 or less
- other customary covenants and events of default
Funded debt is total consolidated debt less the following: non-recourse debt, $100 million in letters of credit, cash and short-term investments.
Not complying with any of these covenants could result in accelerated payment and termination of our revolving credit facility. At December 31, 2011, we complied with all covenants, and we expect to continue to comply in 2012.
Off-balance sheet arrangements
We had two kinds of off-balance sheet arrangements at the end of 2011:
- purchase commitments
- financial assurances
| December 31, 2011 ($ millions) |
2012 | 2013 and 2014 |
2015 and 2016 |
2017 and beyond |
Total |
|---|---|---|---|---|---|
|
|||||
| Purchase commitments1 | 308 | 581 | 128 | 440 | 1,457 |
Most of these are commitments to buy uranium and fuel services products under long-term, fixed-price arrangements.
At the end of 2011, we had committed to $1.5 billion (Cdn) for the following:
- About 35 million pounds of U3O8 equivalent from 2012 to 2027. Of these, about 17 million pounds are from our agreement with Techsnabexport Joint Stock Company (Tenex) to buy uranium from dismantled Russian weapons (the Russian HEU commercial agreement) through 2013.
- Over 30 million kgU as UF6 in conversion services from 2012 to 2016 primarily under our agreements with Springfields Fuels Ltd. (SFL) and Tenex.
- Over 0.9 million Separative Work Units (SWU) of enrichment services to meet existing forward sales commitments under agreements with a non-western supplier.
Non-delivery by Tenex or SFL under their agreements could have a material adverse effect on our financial condition, liquidity and results of operations.
Tenex, SFL and the SWU supplier do not have the right to terminate their agreements other than pursuant to customary event of default provisions.
| December 31 ($ millions) |
2011 | 2010 | change |
|---|---|---|---|
| Standby letters of credit | 670 | 550 | 22% |
| BPLP guarantees | 69 | 82 | (16)% |
| Total | 739 | 632 | 17% |
Standby letters of credit mainly provide financial assurance for the decommissioning and reclamation of our mining and conversion facilities. We are required to provide letters of credit to various regulatory agencies until decommissioning and reclamation activities are complete. Letters of credit are issued by financial institutions for a one-year term.
Our total commitment for financial guarantees on behalf of BPLP was an estimated $77 million at the end of the year. See note 31 to the financial statements.
Balance sheet
| December 31 ($ millions except per share amounts) |
2011 | 2010 | Canadian GAAP 2009 |
change from 2010 to 2011 |
|---|---|---|---|---|
| Inventory | 494 | 533 | 453 | (7)% |
| Total assets | 7,802 | 7,203 | 7,394 | 8% |
| Long-term financial liabilities | 1,743 | 1,530 | 1,437 | 14% |
| Dividends per common share | 0.40 | 0.28 | 0.24 | 43% |
Total product inventories decreased by 7% to $494 million this year due to lower levels of inventory for uranium, where the quantities sold exceeded quantities produced and purchased for the year. The average cost of uranium was higher as a result of the increasing costs of produced and purchased material. At December 31, 2011, our average cost for uranium was $25.11 per pound, up from $24.01 per pound at December 31, 2010. In 2010, total product inventories increased by 18% due to higher levels of uranium, where the quantities produced and purchased exceeded sales for the year. The average cost of uranium was lower as a result of fewer purchases at near-market prices.
At the end of 2011, our total assets amounted to $7.8 billion, an increase of $0.6 billion compared to 2010 due primarily to a higher rate of investment in property, plant and equipment. In 2010, the total asset balance decreased by $0.2 billion; on transition to IFRS, we expensed all borrowing costs that had been previously capitalized under Canadian GAAP.
The major components of long-term financial liabilities are long-term debt, finance lease obligations, the provision for reclamation and financial derivatives. In 2011, our balance increased by $0.2 billion. In 2010, our balance increased by $0.1 billion primarily due to adjustments as a result of the transition to IFRS. See note 3 to the financial statements.