The long-term outlook for growth in the nuclear industry remains very strong, with 64 reactors under construction at the beginning of 2013, and an average annual increase in uranium demand expected to be around 3% over the next decade. However, the near-term challenges have persisted for longer than anticipated due to the lingering effects of the events in Japan, as well as global economic slowdown. As a result, in 2012, we re-examined our growth plans and adjusted them to better match current market conditions. We decided to focus primarily on advancing those projects with the most near-term certainty, while pursuing our other projects at a measured pace in order to maintain the ability to respond should market conditions improve. We expect this approach will result in our achieving 36 million pounds of annual supply by 2018, and allow us to spread our capital spend over a longer period of time, improving our near-term financial performance.
In spite of the challenging market environment, we demonstrated our strengths again in 2012, exceeding our production target and delivering on our financial guidance.
Strong financial performance
Our financial results remained strong in 2012:
- annual revenue of $2.3 billion
- annual gross profit of $723 million from our nuclear business
- annual revenue of $1.5 billion from our uranium segment
- annual average realized price of $47.61 per pound ($47.62 US per pound) in our uranium segment
Net earnings attributable to our equity holders (net earnings) in 2012 were $266 million compared to $450 million in 2011. This $184 million decline in net earnings was the result of:
- a $168 million write-down of our investment in the Kintyre deposit, required due to the weakening of the uranium market since the asset was purchased in 2008, no increase in mineral resources in 2012 and the decision not to proceed with the feasibility study in 2012
- lower earnings in our uranium business
- stronger results in our electricity segment
December 31 ($ millions except where indicated)
|Net earnings attributable to equity holders||266||450||(41)%|
|$ per common share (diluted)||0.67||1.14||(41)%|
|Adjusted net earnings (non-IFRS)||447||509||(12)%|
|$ per common share (adjusted and diluted)||1.13||1.29||(12)%|
|Cash provided by operations (after working capital changes)||644||745||(14)%|
|Average realized prices||Uranium||$US/lb||47.62||49.17||(3)%|
Solid progress in our uranium segment this year
In our uranium segment this year, production was 1% higher than the guidance we provided in our 2012 third quarter MD&A. We had a number of successes at our mining operations, development projects and projects under evaluation. Key highlights:
- realized benefits of production flexibility provisions in our McArthur River/Key Lake licences, exceeding our production target by 1%
- completed a technical report for McArthur River which included a 19% increase in mineral reserves
- completed remediation of the underground mine and sinking of shaft 2 at Cigar Lake
- assembled the first jet boring system unit underground at Cigar Lake and began preliminary commissioning and testing
- purchased AREVA Resources Canada Inc.’s 27.94% interest in the Millennium project to acquire majority ownership interest of 69.9%
- the Finnish government granted Talvivaara, a company from which we have the right to buy uranium produced as a by-product, a licence to extract uranium as a by-product from the Sotkamo nickel mine
- acquired the Yeelirrie uranium project in Western Australia from BHP Billiton Yeelirrie Development Company Pty Ltd.
- signed a mine development agreement with the Martu concerning our Kintyre project
- entered into a binding memorandum of agreement with our joint venture partner Kazatomprom, setting out the framework to increase annual production at Inkai to 10.4 million pounds (100% basis), to extend the term of Inkai's resource use contract through 2045, and to co-operate on the development of uranium conversion capacity, with the primary focus on uranium refining rather than uranium conversion
We also continued to advance our exploration activities, spending $10 million on four brownfield exploration projects, and $24 million for project evaluation at Kintyre and Cigar Lake. We spent about $45 million on regional exploration programs, mostly in Saskatchewan, followed by Australia, northern Canada, Asia and South America.
Updates on our other segments
In our fuel services segment, we decreased production due to unfavourable market conditions for UF6. We signed a new three-year collective agreement with about 120 unionized employees at our fuel manufacturing operations in Port Hope and Cobourg, Ontario.
In our electricity segment, Bruce Power Limited Partnership (BPLP) generated 26.8 terawatt hours (TWh) of electricity, at a capacity factor of 94%. Our share of earnings before taxes was $175 million, a 90% increase compared to 2011.
We entered into an agreement with Advent International to purchase NUKEM Energy GmbH, one of the world’s leading traders and brokers of nuclear fuel products and services, which was completed in January, 2013.
Our investment in Global Laser Enrichment (GLE) continues to progress. GLE is continuing its testing activities and engineering design work for a commercial facility. The US Nuclear Regulatory Commission approved GLE’s application for a commercial facility construction and operating licence.
|Uranium||Production volume (million lbs)||21.9||22.4||(2)%|
|Sales volume (million lbs)||32.5||32.9||(1)%|
|Revenue ($ millions)||1,546||1,616||(4)%|
|Gross profit ($ millions)||504||632||(20)%|
|Fuel services||Production volume (million kgU)||14.2||14.7||(3)%|
|Sales volume (million kgU)||16.1||18.3||(12)%|
|Revenue ($ millions)||277||305||(9)%|
|Gross profit ($ millions)||42||54||(22)%|
|Electricity||Output (100%) (TWh)||26.8||24.9||8%|
|Our share of earnings before taxes ($ millions)||175||92||90%|
Shares and stock options outstanding
At February 7, 2013, we had:
- 395,351,354 common shares and one Class B share outstanding
- 9,505,753 stock options outstanding, with exercise prices ranging from $15.79 to $54.38
Our board of directors has established a policy of paying a quarterly dividend of $0.10 ($0.40 per year) per common share. This policy will be reviewed from time to time based on our cash flow, earnings, financial position, strategy and other relevant factors.