Quarterly Reports - 2017 - Q2
On July 27, 2017 Cameco reported its consolidated financial and operating results for the second quarter ended June 30, 2017 in accordance with International Financial Reporting Standards (IFRS).
“I am very pleased to announce that we have settled our tax dispute with the United States Internal Revenue Service (IRS) for the years 2009 through 2012,” said president and CEO, Tim Gitzel. “We are required to pay about $122,000 (US), compared to the originally proposed tax expense of $122 million (US). We are encouraged by this outcome as we believe it confirms, from an IRS perspective, our view that our structure and transfer pricing arrangements are appropriate.
“We continue to face difficult market conditions, with the average year-to-date uranium spot price down 13% compared to the 2016 average. Our weaker outlook for 2017 compared to 2016 reflects the low uranium prices and the effects of the actions we have taken to address them. These actions are part of a very deliberate and disciplined strategy to strengthen the company in the long term. In the current environment, we have reduced supply, avoided selling into a weak spot market, resisted locking-in long-term commitments at today’s low prices, and of course, we have significantly reduced costs. For the first six months of the year, the average unit cost of sales (including depreciation and amortization) in our uranium segment was down 15%, our cash production costs were down 23%, exploration costs were down 41%, and direct administration costs were down 28%. Our planned capital expenditures for 2017 are also 20% lower than in 2016. We can’t control the market, so our focus is on our tier-one strategy. That strategy sets Cameco apart as both a financially stable operator generating solid cash flows in a discretionary market, and as an experienced producer positioned to grow as the market improves, delivering increased shareholder value in the long-term.”
Summary of second quarter results and developments:
- United States Internal Revenue Service (IRS) settlement: In July, our Cameco US subsidiary reached a settlement with the IRS regarding their audit of the 2009 through 2012 taxation years, which will result in a cash tax payment of $122,000 (US) in the third quarter.
- Net losses of $2 million; adjusted net losses of $44 million: While our core business remains strong, when comparing 2017 to 2016, our second quarter results were impacted by the loss of the TEPCO contract, a change in the Saskatchewan corporate tax rate that reduced our deferred tax asset, a lower average realized price in our uranium segment, and a write-down of the value of NUKEM’s inventory, partially offset by higher uranium delivery volumes and the weakening of the Canadian dollar.
- Updated annual guidance: Our 2017 outlook for NUKEM sales volume has increased, resulting in higher expected consolidated revenue, and the change in the Saskatchewan corporate tax rate impacted our deferred tax asset, resulting in a change in our consolidated tax outlook from a recovery, to an expense. Additionally, our outlook for capital expenditures has decreased due to lower expected spending at McArthur River and Cigar Lake. Although we’ve modified these specific aspects of our 2017 financial outlook, overall, our annual outlook, as presented in our 2016 annual MD&A and 2017 first quarter MD&A, continues to point to weaker adjusted net earnings results than in 2016. However, cash from operations is expected to be higher than the $312 million reported in 2016.
- Average realized price remains weighted to fourth quarter: Due to the contracts we expect to deliver under in the third quarter, we expect pricing on deliveries in our uranium segment to yield the weakest quarterly result in 2017, with a higher average realized price expected on deliveries in the fourth quarter. Our expected 2017 annual average realized price remains unchanged at $49.00 per pound.
- Costs continue to trend lower: We continued to see significant cost reductions in our core business over the first six months of the year. However, the long-term cost reduction strategies we have implemented are expected to have a short-term impact on our production costs. The mandatory summer vacation periods and planned maintenance shutdowns at our northern Saskatchewan operations are now underway, and will result in lower third quarter production from our Saskatchewan operations. As a result, we expect unit costs of production to be significantly higher in the third quarter than in the first two quarters. Despite this quarterly fluctuation, we continue to expect the 2017 annual average unit cost of sales (including depreciation and amortization) to be between $36.00 and $38.00 per pound, a decrease of about 5% to 10% compared to 2016.
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