Quarterly Report - 2023 - Q1
Cameco (TSX: CCO; NYSE: CCJ) today reported its consolidated financial and operating results for the first quarter ended March 31, 2023, in accordance with International Financial Reporting Standards (IFRS).
“Our results demonstrate the strength and purpose of the strategic decisions we have made over the last several years, and the continued support we see developing for nuclear power around the world. In fact, I am not sure there’s ever been a better time to be a pure-play investment in the growing demand for nuclear energy. We remain in the enviable position of having what we believe are the world’s premier, tier-one assets operating in a stable geopolitical region, and as McArthur River and Key Lake continue to ramp up to planned production, we are returning to our tier-one cost structure,” said Tim Gitzel, Cameco’s president and CEO.
“The world is recognizing the benefits of clean-air nuclear energy and the critical tool it can be in the fight against climate change and in providing energy security. For example, we welcomed the joint statement from Natural Resources Canada and the US Department of Energy at the end of March, announcing enhanced collaboration between our two nations with the goal of diversifying the nuclear fuel supply chain. It addressed the need to work together globally as the world grapples with providing safe, clean, reliable, affordable and secure energy. Furthermore, five of the G7 nations, including Canada, United States, United Kingdom, Japan and France, have created an alliance to leverage their respective civil nuclear sectors. This agreement will support the stable supply of nuclear fuels, as well as to support the nuclear fuel needs of future advanced reactors. Whether its improving public support for nuclear power, policy decisions in support of nuclear being enacted, or market-based solutions being pursued, there is increasing evidence to support full-cycle demand growth for nuclear power and the uranium required to run reactors. The positive fundamentals we have talked about for nearly a decade are no longer just a long-term story, they are right in front of us.
“Amid the heightened supply risk caused by geopolitical developments, utilities continue to evaluate their nuclear fuel supply chains and are looking to diversify the origin of their supply. We are seeing increased competition among these utilities to secure long-term contracts for uranium products and services with proven producers, who operate in geopolitically stable jurisdictions, and who demonstrate strong environmental, social and governance performance. Companies like Cameco. Our recent contracting success to supply new markets in Eastern Europe clearly demonstrates the desire of our customers to diversify. These are markets where we were previously unable to compete. With these arrangements, we now have contract commitments of approximately 215 million pounds of uranium and more than 70 million kgU of UF6 conversion services with deliveries spanning more than a decade. Many of these contracts contain market-related pricing mechanisms, providing us with exposure to an improving market. We also have a large and growing pipeline of business under discussion. As a result, we remain very selective in committing our unencumbered, tier-one, in-ground inventory and UF6 conversion capacity under long-term contracts, allowing us to maintain further market exposure.
“We believe we have the right strategy to achieve our vision of ‘energizing a clean-air world’ and we will do so in a manner that reflects our values. Embedded in all our decisions is a commitment to addressing the environmental, social and governance risks and opportunities that we believe will make our business sustainable over the long term.”
- Transitioning to tier-one cost structure – net earnings of $119 million; adjusted net earnings of $115 million: first quarter results are a result of higher deliveries and higher average realized prices in both the uranium and fuel services segments as we continue the transition to our tier-one cost structure. In our uranium segment, our average realized price was 11% higher than the same period last year, and in our fuel services segment average realized prices were 9% higher. As expected, with 9.7 million pounds delivered, the first quarter represents almost a third of the total expected 2023 deliveries in our uranium segment, which is a departure from the pattern experienced in a low-price environment when deliveries were heavily weighted to the fourth quarter. Adjusted net earnings is a non-IFRS measure, see page 4.
- Strong production performance: In our uranium segment we produced 4.5 million pounds (our share) during the quarter. We continue to expect 20.3 million pounds of production in 2023 (our share). The production ramp up at McArthur River/Key Lake is progressing well with 3.4 million pounds (2.4 million pounds our share) produced in the first quarter. We continue to plan our production to align with our contract portfolio and customer needs.
- Long-term contracting – success in new markets: We now have total volumes under long-term contracts of approximately 215 million pounds of uranium and more than 70 million kgU of UF6 conversion services with deliveries spanning more than a decade, many of which have market-related pricing mechanisms. And, we continue to have a large and growing pipeline of contract discussions underway. The recently announced long-term UF6 supply arrangements will see us supply new markets well into the next decade.
- JV Inkai shipments: – In April, the second shipment containing 1.3 million pounds, representing the majority of our share of Inkai’s remaining 2022 production, arrived at a Canadian port. We continue to work closely with JV Inkai and our joint venture partner, Kazatomprom, to continue receiving our production share via the Trans-Caspian International Transport Route, which does not rely on Russian rail lines or ports. In the event that it takes longer than anticipated using this shipping route, we could experience delays in our expected Inkai deliveries this year. To mitigate this risk, we have inventory, long-term purchase agreements and loan arrangements in place we can draw on. Depending on when we receive the shipment of our share of Inkai’s 2023 production, our 2023 share of earnings from this equity accounted investee and the timing of the receipt of our share of dividends from the joint venture may be impacted. See Uranium 2023 Q1 updates in our first quarter MD&A for more information.
- 2023 guidance updated: We have updated our outlook for consolidated revenue, and uranium revenue, average realized price and average unit cost of sales. See Outlook for 2023 in our first quarter MD&A for more information.
- Strong balance sheet: As of March 31, 2022, we had $2.5 billion in cash and cash equivalents and short-term investments and $1.0 billion in long-term debt. The final financing for the Westinghouse acquisition will be determined based on our cash balance, future expected cash flow generation, and market conditions at the time of close. We expect a permanent financing mix of capital sources, including cash, debt and equity, designed to preserve our balance sheet and ratings strength, while maintaining healthy liquidity. In addition, we have a $1 billion undrawn credit facility.
- Canada Revenue Agency (CRA) tax dispute: March 27, 2023, we announced that CRA issued revised reassessments for the 2007 through 2013 tax years that it indicated would result in a refund of approximately $300 million of the $780 million in cash and letters of credit being held by CRA. CRA advised that the refund would consist of $89 million in cash and the return of $211 million in letters of credit. However, following the receipt of cash in the amount of $86 million on April 12, 2023, CRA informed us that its previous calculation of $89 million was incorrect. We continue to expect the return of letters of credit in the amount of $211 million, which, if received and CRA’s calculations were correct, would bring the total refund to $297 million. The timing of receipt of the letters of credit is yet to be determined.
- Received dividends from JV Inkai in April: On April 26, we received a dividend payment from JV Inkai totaling $79 million (US). JV Inkai distributes excess cash, net of working capital requirements, to the partners as dividends.
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