Liquidity & Capital Resources
At the end of 2012, we had cash and short-term investments of $799 million in a mix of short-term deposits and treasury bills, while our total debt amounted to $1.5 billion.
We have large, creditworthy customers that continue to need uranium even during weak economic conditions, and we expect the uranium contract portfolio we have built to provide a solid revenue stream for years to come.
We expect to continue investing in expanding our production capacity over the next several years. We have a number of alternatives to fund this continued growth including using our current cash balances, drawing on our existing credit facilities, entering new credit facilities, using our operating cash flow, and raising additional capital through debt or equity financings. We are always considering our financing options so that we can take advantage of favourable market conditions when they arise.
Financial Condition
| 2012 | 2011 | |
|---|---|---|
|
||
| Cash position ($ millions) (cash, cash equivalents, short-term investments) |
799 | 1,202 |
| Cash provided by operations ($ millions) (net cash flow generated by our operating activities after changes in working capital) |
644 | 745 |
| Cash provided by operations/net debt (net debt is total consolidated debt, less cash position) |
88% | n/a1 |
| Net debt/total capitalization (total capitalization is total long-term debt and equity) |
12% | 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, 2012:
| 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) | 2012 | 2011 |
|---|---|---|
| Cash, cash equivalents and short term investments at beginning of year | 1202 | 1,258 |
| Cash from operations | 644 | 745 |
| Investment activities | ||
| Additions to property, plant and equipment and acquisitions | (1,310) | (647) |
| Other investing activities | (23) | 40 |
| Financing activities | ||
| Change in debt | 492 | (3) |
| Interest paid | (54) | (61) |
| Issue of shares | 7 | 7 |
| Dividends | (158) | (146) |
| Exchange rate on changes on foreign currency cash balances | (1) | 9 |
| Cash, cash equivalents and short term investments at end of year | 799 | 1,202 |
Cash from operations
Cash from operations was 14% lower than in 2011 mainly due to lower profits in the uranium business and higher working capital requirements relating to increased inventory levels. Not including working capital requirements, our operating cash flows in the year were down $143 million. See note 26 to the financial statements.
Investing activities
Cash used in investing includes acquisitions and capital spending.
Acquisitions and Divestitures
In 2012, we concluded the acquisition of the Yeelirrie deposit in Western Australia for a total cost of $454 million (US) (including $1.5 million in acquisition costs). In the second quarter, we acquired an additional interest in the Millennium project at a cost of $150 million. On January 9, 2013, we completed the acquisition of NUKEM by paying a total of $140 million (US) and assuming its net debt of $111 million (US). In 2011, we concluded no significant acquisitions or divestitures.
Capital Spending
Starting in 2013, we are classifying capital spending as sustaining, capacity replacement or growth. As a mining company, sustaining capital is the money we spend to keep our facilities running in their present state, which would follow a gradually decreasing production curve, while capacity replacement capital is spent to maintain current production levels at those operations. Growth capital is money we invest to generate incremental production, and for business development. Previously, we categorized our capital spending as either sustaining (which included capacity replacement projects) or growth.
| (Cameco’s share in $ millions) | 2012 Plan | 2012 Actual |
|---|---|---|
|
||
| Growth capital | ||
| Cigar Lake | 215 | 231 |
| Inkai | 10 | 9 |
| McArthur River | 35 | 32 |
| Millennium | 5 | 9 |
| US ISR | 30 | 48 |
| Total growth capital | 295 | 329 |
| Sustaining capital | ||
| McArthur River/Key Lake | 145 | 154 |
| US ISR | 50 | 26 |
| Rabbit Lake | 75 | 77 |
| Inkai | 30 | 15 |
| Fuel services | 20 | 15 |
| Other | 5 | 15 |
| Total sustaining capital | 325 | 302 |
| Talvivaara | – | 41 |
| Total uranium & fuel services | 6201 | 672 |
| Electricity (our 31.6% share of BPLP) | 80 | 62 |
Capital expenditures were 5% above our 2012 plan, mainly due to variances at Cigar Lake caused by a change in the timing of expenditures and increased costs.
Outlook For Investing Activities
| (Cameco’s share in $ millions) | 2013 Plan | 2014 Plan | 2015 Plan |
|---|---|---|---|
| Total uranium & fuel services | 650 | 600-650 | 550-600 |
| Sustaining capital | 200 | 300-320 | 290-310 |
| Growth capital | 310 | 175-190 | 140-155 |
| Capacity replacement capital | 140 | 125-140 | 120-135 |
| Talvivaara | 5 | ||
| Total uranium & fuel services | 655 | ||
| Electricity (our 31.6% share of BPLP) | 93 |
We expect total capital expenditures for uranium and fuel services to decrease by about 1% in 2013.
Major sustaining, capacity replacement and growth expenditures in 2013 include:
- McArthur River/Key Lake – At McArthur River, the largest component is mine development at about $50 million. Other projects include upgrade of electrical infrastructure at about $40 million, as well as other site facility expansion and equipment purchases. At Key Lake, various projects to revitalize the mill will be undertaken at about $30 million, as well as upgrades to site electrical services and work on the tailings facilities.
- US in situ recovery (ISR) – Wellfield construction and well installation is the largest project at approximately $40 million. We also plan to continue work on the development of the North Butte project and revitalization of the 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.
- Cigar Lake – In order to bring Cigar Lake into production in 2013, we estimate our share of capital expenditures will be about $182 million, including $27 million on modifications to the McClean Lake mill.
Our growth capital expenditures are related to our strategy to increase annual supply to 36 million pounds by 2018 and maintain the ability to respond quickly to changing market signals. The mix of projects and their underlying capital estimates could change significantly.
This information regarding currently expected capital expenditures for future periods is forward-looking information, and is based upon the assumptions and subject to the material risks discussed here. Our actual capital expenditures for future periods may be significantly different.
Financing activities
Cash from financing includes borrowing and repaying debt, and other financial transactions including paying dividends and providing financial assurance.
Long-Term Contractual Obligations
| December 31, 2012 ($ millions) | 2013 | 2014 And 2015 |
2016 And 2017 |
2018 And Beyond |
Total |
|---|---|---|---|---|---|
| Long-term debt | 16 | 339 | 48 | 1,028 | 1,431 |
| Interest on long-term debt | 71 | 140 | 105 | 260 | 576 |
| Provision for reclamation | 16 | 32 | 54 | 596 | 698 |
| Provision for waste disposal | 3 | 6 | 8 | – | 17 |
| Other liabilities | – | – | – | 586 | 586 |
| Total | 106 | 517 | 215 | 2,470 | 3,308 |
We 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, 2017. 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. 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, 2012, 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, 2012, we had approximately $672 million outstanding in letters of credit.
In the fourth quarter, we issued $400 million in Series E Debentures bearing interest at 3.75% per year, maturing on November 14, 2022 as well as $100 million in Series F Debentures bearing interest at 5.09% per year, maturing on November 14, 2042.
In total, we have $1.3 billion in senior unsecured debentures outstanding:
- $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
- $400 million bearing interest at 3.75% per year, maturing on November 14, 2022
- $100 million bearing interest at 5.09% per year, maturing on November 14, 2042
We have issued a $73 million (US) promissory note to GLE to support future development of its business. As of December 31, 2012, GLE requested drawings of $31 million (US) in principal and $7.7 million (US) in interest. The balance remaining on the note is $42 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, $100 million in letters of credit, cash and short-term investments.
Not complying with any of these covenants could result in accelerated payment and termination of our revolving credit facility. At December 31, 2012, we complied with all covenants, and we expect to continue to comply in 2013.
Off-balance sheet arrangements
We had two kinds of off-balance sheet arrangements at the end of 2012:
- purchase commitments
- financial assurances
Purchase Commitments
| December 31, 2012 ($ millions) | 2013 | 2014 And 2015 |
2016 And 2017 |
2018 And Beyond |
Total |
|---|---|---|---|---|---|
|
|||||
| Purchase commitments1 | 436 | 216 | 92 | 476 | 1,220 |
Most of these are commitments to buy uranium and fuel services products under long-term, fixed-price arrangements.
At the end of 2012, we had committed to $1.2 billion (Cdn) for the following:
- Approximately 25 million pounds of U3O8 equivalent from 2013 to 2027. Of these, about 10 million pounds are from our agreement with Techsnabexport Joint Stock Company (Tenex) to buy uranium from dismantled Russian weapons (the Russian HEU commercial agreement) through 2013.
- Approximately 23 million kgU as UF6 in conversion services from 2013 to 2016 primarily under our agreements with Springfields Fuels Ltd. (SFL) and Tenex.
- Over 0.7 million Separative Work Units (SWU) of enrichment services to meet existing forward sales commitments under agreements with a non-western supplier.
Non-delivery by Tenex or SFL under their agreements could have a material adverse effect on our financial condition, liquidity and results of operations.
Tenex, SFL and the SWU supplier do not have the right to terminate their agreements other than pursuant to customary event of default provisions.
Financial Assurances
| December 31 ($ millions) | 2012 | 2011 | Change |
|---|---|---|---|
| Standby letters of credit | 672 | 665 | 1% |
| BPLP guarantees | 59 | 69 | (14)% |
| Total | 731 | 734 | – |
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 $63 million at the end of the year. See note 31 to the financial statements.
Balance sheet
| December 31 ($ millions except per share amounts) |
2012 | 2011 | 2010 | Change From 2011 To 2012 |
|---|---|---|---|---|
| Inventory | 564 | 494 | 533 | 14% |
| Total assets | 8,215 | 7,616 | 7,021 | 8% |
| Long-term financial liabilities | 2,249 | 1,736 | 1,524 | 30% |
| Dividends per common share | 0.40 | 0.40 | 0.28 | – |
Total product inventories increased by 14% to $564 million in 2012 due to higher levels of inventory for uranium and fuel services, where the quantities sold were lower than the 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, 2012, our average cost for uranium was $27.35 per pound, up from $25.11 per pound at December 31, 2011. In 2011, total product inventories decreased by 7% due to lower levels of uranium, where the quantities sold exceeded quantities produced and purchased for the year.
At the end of 2012, our total assets amounted to $8.2 billion, an increase of $0.6 billion compared to 2011 due primarily to acquisitions of uranium properties in the year. In 2011, the total asset balance increased by $0.6 billion due primarily to a higher rate of investment in property, plant and equipment.
The major components of long-term financial liabilities are long-term debt, finance lease obligations, the provision for reclamation and financial derivatives. In 2012, our balance increased by $0.5 billion. In 2011, our balance increased by $0.2 billion.