Quarterly Reports - 2018 - Q2
On July 25, 2018, Cameco reported its consolidated financial and operating results for the second quarter ended June 30, 2018 in accordance with International Financial Reporting Standards (IFRS).
“Our results reflect the impact of a weak uranium market and the deliberate actions we have taken driven by the goal of increasing long-term shareholder value,” said Tim Gitzel, Cameco’s president and CEO. “We continue to expect to generate strong cash flow this year as we draw down inventory and focus on operating efficiently. However, we have not seen the improvement needed in the uranium market to restart McArthur River and Key Lake.
“This means we will extend the suspension of production at McArthur River and Key Lake for an indeterminate duration. It was a difficult decision to make, because of the impact it will have on our employees, their families, and other stakeholders, but we must take this action to ensure the long-term sustainability of the company. We thank our workforce for their hard work and dedication.
“We believe our assets are among the best in the world, and we will continue to show the type of leadership needed to position the company to add significant value over the long-term. We will not produce from our tier-one assets to deliver into an oversupplied spot market. Until we are able to commit our production under long-term contracts that provide an acceptable rate of return for our owners, we do not plan to restart.
“As 2018 unfolds, we will continue to evaluate the market signals. However, we remain resolved in our efforts to maximize cash flow, while maintaining our investment-grade rating so we can self-manage risk and preserve the value of our tier-one assets.”
Summary of second quarter results and developments:
- Net losses of $76 million; adjusted net losses of $28 million: Results were impacted by lower gross profit in our uranium and fuel services segments. A persistently weak market continues to impact our business and contributed to weaker realized uranium prices in the quarter compared to the second quarter last year. In addition, as expected, the average unit cost of sales in our uranium segment was higher compared to the second quarter of 2017 as a result of the care and maintenance costs we are incurring at McArthur River and Key Lake while production is suspended. Also as expected, our production, direct administration costs, and exploration costs were all down due to the measures we have taken to deal with the weakness in our market. A $41 million expense related to an update to the reclamation provision for Rabbit Lake and higher losses as a result of changes in foreign exchange rates resulted in greater net losses this quarter compared to in 2017. On an adjusted basis we exclude these expenses as they do not impact cash and we do not consider them reflective of our underlying financial performance. Adjusted net losses are a non-IFRS measure, see page 3.
- McArthur River/Key Lake suspension extended for indeterminate duration: This action will result in the permanent layoff of approximately 550 site employees, including those currently on temporary layoff since January of this year. A reduced workforce of approximately 200 employees will remain at the McArthur River and Key Lake sites to keep the facilities in a state of safe care and maintenance. We expect our share of the costs to maintain both sites to range between $5 million and $6 million per month once these layoffs take effect. In addition, to further decrease costs, the workforce at Cameco’s corporate office will be reduced by approximately 150 positions including employees and vacancies. As a result of the layoffs at the two sites and corporate office, we expect to incur between $40 million and $45 million in severance costs in the third quarter. Our joint venture partner, Orano, has agreed to extend the suspension, and we have agreed to extend its repayment of up to 5.4 million pounds of uranium concentrates. Orano is now obligated to repay us, in kind, no later than December 31, 2023.
- Updated annual outlook: We have made the following updates to our 2018 financial outlook table in our second quarter MD&A: our consolidated revenue is expected to be between $1,890 million and $2,140 million; in our uranium segment we expect our delivery volumes to be between 34 million and 35 million pounds, revenue of between $1,550 million and $1,640 million, an average realized price of $46.10 per pound, and our average unit cost of sales between $40 per pound and $42 per pound. In addition to our committed purchases, we expect to purchase an additional 2 million to 4 million pounds of uranium to meet our delivery commitments and maintain our target inventory; we expect capital expenditures of $80 million; we expect the contribution to gross profit to be 81% from our uranium segment and 19% from our fuel services segment; and cash provided by operations for 2018 is now expected to be between 20% and 30% higher than in 2017. For more information on the changes, see Outlook for 2018 in our second quarter MD&A.
- 2019 outlook for production, delivery volumes and purchases: In 2019, in our uranium segment, we expect to produce 9 million pounds, and have commitments to purchase between 5 million and 6 million pounds and deliver between 25 million and 27 million pounds. In addition to our committed purchases, we expect to purchase an additional 9 million to 11 million pounds of uranium to meet our delivery commitments and maintain our target inventory.
Caution about Forward-Looking Information
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