Quarterly Reports - 2016 - Q4
On February 9, 2017, Cameco reported its consolidated financial and operating results for the fourth quarter and year ended December 31, 2016 in accordance with International Financial Reporting Standards (IFRS).
“The past year proved to be another difficult period for the uranium market,” said president and CEO, Tim Gitzel. “However, despite the uranium spot price hitting a 12-year low, the performance of our core business – uranium – was solid, and in line with our outlook.”
“Our uranium segment remained strong and drove over 90% of our 2016 gross profit, although our earnings reflect the consequences of a weak uranium market and our resolve to take the necessary steps to strengthen our core business. While we expect those steps to benefit our performance over time, they involved up-front costs, which impacted our results. In the current market environment, it can be difficult to see beyond the weakness that has persisted for almost six years. However, as we look to the future, we see continued growth in reactor construction and, consequently, increasing uranium demand. We believe that with our focus on value and our tier-one assets, we are well positioned to seize that demand.”
Summary of 2016 results and developments:
- Net loss of $62 million largely due to impairment charges of $362 million; adjusted net earnings $143 million. Strategic changes and market weakness impacted our 2016 financial results:
- We recognized an impairment charge for the full carrying value of Rabbit Lake ($124 million –second quarter) and the full carrying value of our interest in Kintyre ($238 million – fourth quarter).
- We incurred costs related to the suspension of production at our Rabbit Lake operation, curtailment of production at Cameco Resources’ US ISR operations and the corresponding reduction of the workforce at these sites and at our corporate office.
- Core uranium business continued to outperform market: We delivered on our annual outlook with an average realized price in our uranium segment that was 60% higher than the average spot price for the year.
- Contract portfolio optimization: We continue to work with certain customers to optimize the value of our existing contract portfolio, converting their future uncertainty to present value where it was beneficial to us, resulting in the cancellation of two contracts during the third quarter for financial gains of $59 million, reflected as other income.
- Tier-one focus: We continued to focus on lowering our costs and improving efficiency amid difficult uranium market conditions. Our 2016 cash cost per pound decreased and annual production totalled 27 million pounds—5% higher than our guidance as a result of Cigar Lake exceeding expectations.
- 2016 JV Inkai Restructuring Agreement: We signed an agreement with our partner Kazatomprom and JV Inkai to restructure and enhance JV Inkai. Upon closing, we expect the new agreement to strengthen and extend our partnership with another global leader in uranium mining.
Also of note:
- TEPCO contract termination: On February 1, 2017, we announced that on January 31, 2017, Tokyo Electric Power Company Holdings Inc. (TEPCO), alleging force majeure, confirmed that it would not withdraw a contract termination notice it provided to Cameco Inc. with respect to a uranium supply agreement, which affects approximately 9.3 million pounds of uranium deliveries through 2028, worth approximately $1.3 billion in revenue to Cameco.
- Further cost reductions: On January 17, 2017, we announced planned operational changes including a 10% reduction of the workforce at the McArthur River, Key Lake and Cigar Lake operations, changes to shift rotation schedules, and changes to the commuter flight services at the sites, which are all expected to further reduce costs and improve efficiency at our uranium mining operations.
- Changes to our disclosure: In our 2016 annual management's discussion and analysis (MD&A) we have modified and added to the disclosure of our outlook for 2017. The intention of the changes is to help investors better understand our business and improve the alignment of expectations.
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