Inkai

Total 2017 production from Inkai was 5.5 million pounds; our share was 3.2 million pounds, a decrease from 2016, in accordance with Kazatomprom’s planned 10% production decrease for 2017. The subsoil use law in Kazakhstan allows producers to produce within 20% (above or below) of their licensed capacity in a year.

Inkai Production

Cameco's Share (million lbs)

We have an outstanding loan for Inkai’s work on block 3 prior to restructuring and, as of December 31, 2017, the principal and interest amounted to $117 million (US). Under the restructuring agreement, the partners have agreed that JV Inkai will distribute excess cash first as priority repayment of this loan. On January 12, 2018, a payment of $6 million (US) was received.

In 2016, we signed an agreement with our partner Kazatomprom and JV Inkai to restructure and enhance JV Inkai. The restructuring closed in December 2017 and took effect January 1, 2018. This restructuring was subject to obtaining all required government approvals including an amendment to JV Inkai’s Resource Use Contract, which were obtained. The restructuring consists of the following:

• JV Inkai has the right to produce 10.4 million pounds of U₃O₈ per year (our share 4.2 million pounds), an increase from the prior licensed annual production of 5.2 million pounds (our share 3.0 million pounds)
• JV Inkai has the right to produce until 2045 (previously, the licence terms, based on the boundaries prior to the restructuring, were to 2024 and 2030)
• our ownership interest in JV Inkai is 40%, and Kazatomprom’s share is 60%. However, during production rampup, our share of annual production remains at 57.5% on the first 5.2 million pounds. As annual production increases above 5.2 million pounds, we are entitled to 22.5% of any incremental production, to the maximum annual share of 4.2 million pounds. Once the rampup to 10.4 million pounds annually is complete, our share in all production will be 40%, matching our ownership interest.
• a governance framework that provides protection for us as a minority owner
• the boundaries of the mining area match the agreed production profile for JV Inkai to 2045
• the loan that our subsidiary made to JV Inkai to fund exploration and evaluation of the historically defined block 3 area provides for priority repayment

We along with Kazatomprom have also completed and reviewed a feasibility study for the purpose of evaluating the design, construction and operation of a uranium refinery in Kazakhstan. In accordance with the agreement, a decision has been made not to proceed with construction of the uranium refinery, as contemplated in the feasibility study. Kazatomprom has, pursuant to its option under the agreement, requested to licence our proprietary conversion technology for the purposes of investigating the feasibility of constructing and operating a UF₆ conversion facility in Kazakhstan.

Our 2018 financial outlook is presented on the basis of equity accounting for our minority ownership interest in JV Inkai. Under equity accounting, our share of the profits earned by JV Inkai on the sale of its production will be included in “income from equity-accounted investees” on our consolidated statement of earnings. Our share of production will be purchased at a discount to the spot price and included at this value in inventory. In addition, JV Inkai capital is not included in our outlook for capital expenditures. See Planning for the future below for more details.

In 2017, Inkai completed the test leach on block 3, which resulted in drummed production of 207,065 pounds (not included in Inkai’s annual production). With the restructuring, a portion of block 3 was included in JV Inkai’s new mining area. JV Inkai has the right to mine this new area until mid-2045.

Production

We expect total production from Inkai to be 6.9 million pounds in 2018. Due to the transition to equity accounting, our share of production, 3.4 million pounds, will be shown as a purchase at a discount to the spot price and included in inventory at this value at the time of delivery. Our share of the profits earned by JV Inkai on the sale of its production will be included in “income from equity-accounted investees” on our consolidated statement of earnings.