Quarterly Report - 2024 - Q1

On April 30, 2024, Cameco reported its consolidated financial and operating results for the first quarter ended March 31, 2024, in accordance with International Financial Reporting Standards (IFRS).

“In the first quarter operational performance was strong across our uranium, fuel services and Westinghouse segments. Financial results are in line with the 2024 outlook we provided, which has not changed, and are as expected, reflecting normal quarterly variability and the required purchase accounting and other non-operational acquisition-related costs for Westinghouse,” said Tim Gitzel, Cameco’s president and CEO.

“Our strategy continues to demonstrate the benefits of aligning our operational, marketing, and financially focused decisions in a market where we are seeing sustained, positive momentum for nuclear energy like never before. We remain in the enviable position of having what we believe are the world’s premier, tier-one assets operating in stable geopolitical regions, along with our investments across the fuel cycle and reactor life cycle. That includes our investment in Westinghouse, where we are seeing its long-term business prospects continue to improve. With our position as a proven, reliable supplier operating across the nuclear fuel cycle, our customers recognize our deep understanding of how nuclear fuel markets work, and global policymakers are turning to us as thought leaders in the industry.

“Operationally, production results in the first quarter were strong and are on track with our 2024 plans, with production rates and total production costs in our uranium segment continuing to reflect the transition back to our tier-one cost structure. In the market, we continued to be selective in committing our unencumbered, tier-one, in-ground uranium inventory and UF6 conversion capacity, building on a contract portfolio that spans more than a decade by successfully layering in additional long-term contracts, increasing our annual commitments to an average of about 28 million pounds per year from 2024 through 2028. Every contract we add reflects the sentiment and dynamics in the market at the time it is negotiated, allowing us to capture greater upside and creating value over the lifetime of the contract. From a risk-managed financial perspective, our resulting expectation of strong cash flow generation is guiding our conservative capital allocation priorities in 2024, with focused debt reduction and prudent refinancing plans.

“Full-cycle support for nuclear energy and the required uranium fuel continues to grow, with increasing public support, positive policy decisions, and market-based solutions underpinning the positive fundamentals and durable long-term demand story for nuclear. The inaugural Nuclear Energy Summit took place in Brussels in March, with representatives from 32 countries joining forces to back supportive measures in areas including financing, regulatory cooperation, technological innovation, and workforce training, enabling the expansion of nuclear power to help address climate change and boost energy security.

“The benefits of nuclear energy as a critical tool in the fight against climate change and the advantage nuclear provides in the context of energy security are not only being recognized and highlighted by governments around the world, but by energy-intensive industries that are advancing faster than policymakers to effectively transition to energy sources that provide clean, constant and reliable power. An increase in public support from tech sector leaders and announcements like the recent acquisition of a 960 MW data centre campus by Amazon Web Services, with a related long-term agreement to secure reliable power from Talen’s Energy Corporation’s Susquehanna nuclear power plant, are indicative of that industrial focus.

“The geopolitical events that have been amplifying global supply chain and transportation risks are continuing to have a significant impact on nuclear fuel customer procurement strategies. Utilities are adjusting their supply chains to ensure reliable supply, with increasing competition to secure long-term contracts for uranium products and services. We expect that Cameco and Westinghouse, as proven producers of uranium products and services and having demonstrated strong and sustainable performance, can be expected to benefit from the significant tailwinds associated with having licensed and permitted operations in geopolitically stable jurisdictions.

“We are a responsible, commercial supplier with a strong balance sheet, long-lived, tier-one assets, and a proven operating track record. We are invested across the nuclear fuel cycle and believe we have the right strategy to achieve our vision of ‘energizing a clean-air world’ and do so in a manner that reflects our values. Embedded in our decisions is a commitment to address the risks and opportunities that we believe will make our business sustainable over the long term.”

  • 2024 outlook remains solid: We are tracking well towards achieving the 2024 outlook provided in our 2023 annual MD&A. We continue to expect strong cash flow generation, with estimated consolidated revenue of between about $2.9 billion and $3.0 billion. We maintain the outlook for our share of Westinghouse’s 2024 adjusted EBITDA of between $445 million and $510 million. See Outlook for 2024 in our first quarter MD&A for more information. Adjusted EBITDA attributable to Westinghouse is a non-IFRS measure, see page 5.
  • Q1 net losses of $7 million; adjusted net earnings of $56 million; adjusted EBITDA $345 million: Results are driven by normal quarterly variations in contract deliveries in our uranium and fuel services segments, and the addition of Westinghouse. Performance in our core uranium segment was strong with net earnings up by 34% and adjusted EBITDA up by 16% compared to the same period in 2023 largely due to an increase of 27% in the Canadian dollar average realized price partially offset by the expected lower deliveries and higher cost of sales. See Financial results by segment – Uranium in our first quarter MD&A for more information. However, as indicated in our 2023 annual MD&A, Westinghouse is expected to generate a net loss of between $170 million and $230 million in 2024 due to the impact of the purchase accounting, which requires the revaluation of Westinghouse’s inventory and other assets at the time of acquisition, and the expensing of some non-operating acquisition-related transition costs. Of the expected net loss for Westinghouse in 2024, $123 million was incurred in the first quarter due to normal variability in the timing of its customer requirements and delivery and outage schedules. Westinghouse’s first quarter is typically its weakest, with stronger expected performance in the second half of the year, and higher expected cash flows in the fourth quarter. We do not believe the impact of the revaluation of Westinghouse’s inventory and assets, or the non-operating acquisition-related transition costs reflect its underlying performance for the reporting period, therefore, we use adjusted EBITDA as a performance measure for Westinghouse, which was $77 million for the first quarter. See Our earnings from Westinghouse in our first quarter MD&A for more information. Adjusted net earnings and adjusted EBITDA are non-IFRS measures, see information starting on page 5.
  • Strong production performance in the uranium segment: In our uranium segment we produced 5.8 million pounds (our share) during the quarter, an increase from the 4.5 million pounds (our share) of production in the same period of 2023. As a result of increased production, the unit cash cost of production was $19.52 per pound, a 16% reduction compared to the same period in 2023. The unit cost of sales was up 15% primarily due to the impact of higher cost purchases on the inventory value, including Inkai purchases. The cash impact of higher cost Inkai purchases on average unit cost of sales is partially offset by the dividends we receive from Joint Venture Inkai (JV Inkai). With our mining operations performing well and Key Lake running at planned production rates, we continue to expect 18 million pounds of production (100% basis) at each of McArthur River/Key Lake and Cigar Lake operations in 2024. See Our operations – uranium production overview in our first quarter MD&A for more information. We continue to plan our production to align with our contract portfolio and customer needs, as well as evaluate the optimal mix of production, inventory and purchases in order to retain the flexibility to deliver long-term value. Cash cost per pound is a non-IFRS measure, see page 5.
  • Disciplined long-term contracting continues, maintaining exposure to higher prices: As of March 31, 2024, we had commitments requiring delivery of an average of about 28 million pounds per year from 2024 through 2028, with commitment levels in 2024 and 2025 higher than the average and in 2026 through 2028 lower than the average. As the market further improves, we expect to continue to layer in volumes capturing greater upside using market-related pricing mechanisms. We also have contracts in our uranium and fuel services segments that span more than a 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.
  • Maintaining financial discipline and balanced liquidity to execute on strategy:
    • Strong balance sheet: As of March 31, 2024, we had $323 million in cash and cash equivalents and $1.5 billion in total debt. In addition, we have a $1.0 billion undrawn credit facility which matures October 1, 2027. With improving prices under our long-term contract portfolio, the progress we are making in our uranium segment towards the return to our tier-one cost structure, and an expected increase in our UF6 conversion production, we expect to see strong cash flow generation in 2024.
    • Focused debt reduction: Thanks to our risk-managed financial discipline, and strong cash position, in the first quarter we prioritized the reduction of the $600 million (US) floating-rate term loan used to finance the Westinghouse acquisition, repaying $200 million (US) of the principal. We plan to continue to prioritize repayment of the remaining $400 million (US) outstanding principal on the term loan while balancing our liquidity and cash position.
    • Prudent refinancing plans: Consistent with the conservative financial management we have demonstrated and our 2024 capital allocation priorities, in the second quarter, we expect to refinance the $500 million senior unsecured debenture we have maturing on June 24, 2024, prior to maturity or when it comes due.
  • Received dividends from JV Inkai in April: Following the quarter end, we received a cash dividend of $129 million (US), net of withholdings, from JV Inkai based on its 2023 financial performance. From a cash flow perspective, we expect to realize the benefit from JV Inkai’s 2024 financial performance in 2025 once the dividend for 2024 is declared and paid.
  • JV Inkai shipments: The second shipment containing the remainder of our share of Inkai's 2023 production arrived in February 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 delays to our expected Inkai deliveries this year if transportation using this shipping route takes longer than anticipated. Inkai production was 1.6 million pounds (100% basis) for the quarter, compared to 1.9 million pounds (100% basis) in the same period last year. Presently, JV Inkai is experiencing procurement and supply chain issues, most notably, related to the availability of sulfuric acid. JV Inkai’s current production target for 2024 is 8.3 million pounds of U3O8 (100% basis). However, this target is tentative and contingent upon receipt of sufficient volumes of sulfuric acid. Our allocation of the planned production from JV Inkai is currently under discussion. To mitigate the risk of transportation delays or production shortfalls, we have inventory, long-term purchase agreements and loan arrangements in place we can draw on.

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