Quarterly Report - 2023 - Q3
On October 31, 2023, Cameco reported its consolidated financial and operating results for the third quarter ended September 30, 2023, in accordance with International Financial Reporting Standards (IFRS).
“Our third quarter financial performance continues to demonstrate the benefits of our strategic decisions and the significant, positive momentum we are experiencing in the nuclear energy industry. We have again increased our consolidated revenue outlook for 2023, which is driven by higher average realized prices as a result of substantial uranium spot price improvements. Gross profits have also improved as our uranium average unit cost of sales decreased from last year as we continue the transition back to our tier-one production cost structure,” said Tim Gitzel, Cameco’s president and CEO.
“I am pleased to announce that effective November 1, Dominic Kieran is joining Cameco’s executive group as Global Managing Director of our subsidiary in the United Kingdom. Dominic brings extensive international executive experience in the nuclear fuel, chemical and broader technology industries, which will enhance the skillset of our strong and experienced leadership group. His wide-ranging expertise will help facilitate Cameco’s growth across the nuclear value chain.
“The world’s desire for clean, secure and low-cost energy is creating a foundation of support for nuclear energy from across the public and political spectrum. This increase in support, coupled with the geopolitical uncertainty brought on by Russia’s invasion of Ukraine and a coup in Niger, has intensified supply concerns as future uranium supply and downstream processing is needed to balance the market. In the short term, supply chain issues and inflation risks are causing production challenges for current operators. Compared to previous price cycles, the market does not have the inventory or secondary supplies to absorb market shocks.
“We are seeing durable, full-cycle demand growth across the nuclear energy industry. These factors lead us to believe that we are experiencing the industry’s best ever market fundamentals. These dynamics have also led the World Nuclear Association (WNA) to increase its demand forecast in their latest Nuclear Fuel Report to an average annual growth rate of 3.6%, compared to 2.6% in the 2021 report. Furthermore, the WNA has issued a call to action to triple nuclear capacity by 2050 to help the global drive to net-zero greenhouse gas emissions.
“Our customers understand that we are a proven, reliable supplier operating across the nuclear fuel cycle and recognize our deep understanding of how nuclear fuel markets work. The important role we play in our industry is also being recognized on the international stage. In September, I had the honour of meeting Ukrainian President Zelenskyy and Prime Minister Trudeau in Toronto where the President thanked us for helping Ukraine in its efforts to regain energy independence and we renewed Cameco’s commitment to working with them. In October, reinforcing our commitment to Energoatom, I joined a Cameco delegation to visit our partners at their head offices in Ukraine.
“Also in September, Cameco was invited to participate in the OECD’s inaugural Roadmaps to New Nuclear conference. This conference of government and industry leaders met with the intention of building leadership and cooperation in nuclear energy. In November, we are participating in the International Atomic Energy Agency's Standing Advisory Group on Nuclear Energy to advise the agency's long-term nuclear power and nuclear fuel cycle activities. These are proud moments for us at Cameco that highlight the impact that our work is having around the world.
“We are a responsible, commercial supplier with a strong balance sheet, long-lived, tier-one assets, and a proven operating track record, and are returning to our tier-one cost structure. We are invested across the nuclear fuel cycle and continue to work toward closing the Westinghouse acquisition with our partner Brookfield and its publicly listed affiliate Brookfield Renewable Partners and its institutional partners by the end of this year, at which time we look forward to being able to discuss the exciting prospects we see for that business. We will continue to do what we said we would do, executing on our strategy, and, consistent with our values, we will do so in a manner we believe will make our business sustainable over the long-term.”
- Q3 net earnings of $148 million; adjusted net earnings of $137 million: Results reflect normal quarterly variations in contract deliveries. Gross profit improved due to lower unit costs in our uranium segment and a higher average realized price as our market-related contracts benefitted from increases in the uranium spot price relative to a year ago. We had unrealized foreign exchange gains of $54 million on our US dollar cash balances in the quarter. We must treat our foreign currency cash balances as though they are converted to Canadian dollars at the exchange rate at the end of the quarter. The unrealized gains in the quarter were primarily due to higher-than-normal US dollar cash balances, being held for the pending acquisition of Westinghouse, and a weakened Canadian dollar relative to at the end of the second quarter. We do not adjust net earnings for these gains. Adjusted net earnings is a non-IFRS measure, see page 4.
- Strong performance in the uranium and fuel services segments and improving 2023 consolidated revenue outlook: Results for the first nine months of the year reflect the impact of higher sales volumes and average realized prices in both the uranium and fuel services segments under our long-term contract portfolio. In our uranium segment we have delivered 22.2 million pounds, in line with the delivery pattern disclosed in our annual MD&A, at an average realized price 13% higher than in the same period last year. In our fuel services segment, sales were 7% higher than in the first nine months of 2022 and at an average realized price 9% higher. With improving market fundamentals, for 2023 we have increased our consolidated revenue outlook to between $2.43 billion and $2.58 billion (previously $2.38 billion and $2.53 billion), which is primarily driven by higher expected average realized prices under our contract portfolio. In addition, we have updated our average unit cost of sales. See Outlook for 2023 in our third quarter MD&A for more information.
- Long-term contracting success continues while maintaining exposure to higher prices: As of September 30, 2023, we had commitments requiring delivery of an average of about 29 million pounds per year from 2023 through 2027, an increase from an average of about 28 million pounds per year at the end of June. We also have contracts in our uranium and fuel services segments that span more than decade, and in our uranium segment, many of those contracts benefit from market-related pricing mechanisms. In addition, we have a large and growing pipeline of business under discussion, which we expect will help further build our long-term contract portfolio. Total industry long-term contracting volumes to date in 2023 have already exceeded the volume of each of the last 10 years, a strong indication that a new long-term contracting cycle is underway.
- JV Inkai shipments: The first shipment containing approximately two thirds of our share of Inkai's 2023 production is currently in transit. We expect the shipment to arrive before the end of 2023. The second shipment with the remaining volume of our share of 2023 production is expected to depart before the end of the year and arrive in early 2024. We continue to work closely with JV Inkai and our joint venture partner, Kazatomprom, to receive our share of production via the Trans-Caspian International Transport Route, which does not rely on Russian rail lines or ports. We could experience further delays to our expected Inkai deliveries this year if transportation using this shipping route takes longer than anticipated. To mitigate the risk of delays, we have inventory, long-term purchase agreements and loan arrangements in place we can draw on. Depending on when we receive shipments of our share of Inkai’s production, our 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.
- Canada Revenue Agency (CRA) tax dispute: In October, we received $12 million from CRA for disbursements related to the September 2018 Tax Court decision and cost award, which is in addition to the $10 million we received from CRA in April 2021 as reimbursement for legal fees. See Transfer pricing dispute in our third quarter MD&A for more information.
- Licence renewals in Northern Saskatchewan: In October, the Canadian Nuclear Safety Commission renewed the licences for McArthur River, Key Lake and Rabbit Lake. We are pleased to receive 20-year licences for McArthur River and Key Lake and a 15-year licence for Rabbit Lake. We believe that our commitment to protecting the health and safety of our employees, the public and the environment is reflected in the extended duration of the licences.
- Strong balance sheet: As of September 30, 2023, we had $2.7 billion in cash and cash equivalents and $1.0 billion in total debt. In addition, we have a $1.0 billion undrawn credit facility which matures October 1, 2027.
- Dividend: Our board of directors declared a 2023 annual dividend of $0.12 per common share, payable on December 15, 2023, to shareholders of record on November 30, 2023. The decision to declare an annual dividend is reviewed regularly by our board in the context of our cash flow, financial position, strategy and other relevant factors, including appropriate alignment with the cyclical nature of our earnings. In 2022, the board increased the dividend by 50% to reflect the expected improvement in our financial performance as we began the transition to our tier-one run rate. Until such time as we return to our tier-one cost structure, the objective of our capital allocation will be to ensure we have the financial capacity to execute on our strategy, including achieving production at McArthur River/Key Lake in accordance with our plan and closing the pending acquisition of Westinghouse. We will continue to navigate by our investment-grade rating through close management of our balance sheet metrics, maintaining sufficient liquidity to meet our risk-mitigated working cash target and that allows us to pursue other value-adding opportunities.
- Addition to executive group: Effective November 1, 2023, Dominic Kieran has been appointed Global Managing Director for Cameco UK Ltd., a wholly owned subsidiary of Cameco. Dominic brings over 20 years of leadership experience to Cameco. Most recently he served as Chief Executive Officer with Babcock Nuclear, a wholly owned subsidiary of Babcock International. Previously, he was with Urenco for 15 years in increasingly senior leadership roles, including Chief Commercial Officer, and gained a wealth of experience from his diverse responsibilities. He holds an MBA from the Henley Business School and master’s in engineering from the University of London. He is a Chartered Engineer and a Fellow of the UK Institute of Chemical Engineers and the UK Nuclear Institute. “I am looking forward to working with an excellent team to advance Cameco’s vision of energizing a clean-air world. The transition to a clean and secure energy world is our imperative and I look forward to helping this transition with Cameco,” said Dominic Kieran.
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