Cameco Reports 2023 Second Quarter Results
Cameco announces second quarter results; gross profit benefitting from transition to tier-one run rate; full-year revenue outlook increased driven by improving market fundamentals; uranium market is moving toward replacement-rate contracting
Saskatoon, Saskatchewan, Canada, August 2, 2023
Cameco (TSX: CCO; NYSE: CCJ) today reported its consolidated financial and operating results for the second quarter ended June 30, 2023, in accordance with International Financial Reporting Standards (IFRS).
“Our financial performance, which reflects the expected quarterly variation in our contract deliveries this year, is benefitting from our strategic decisions, with gross profit improving as we transition to our tier-one run rate. The significant momentum seen in the nuclear energy industry and the heightened supply risk caused by geopolitical developments are translating into increased opportunities for Cameco. As a result, for 2023, we have increased our consolidated revenue outlook, which is primarily driven by higher expected average realized prices under our contract portfolio and increased deliveries in our uranium segment,” said Tim Gitzel, Cameco’s president and CEO.
“All over the world, government policies and corporate decisions are being followed up with proposals, commitments, and actions to support the nuclear fuel cycle and re-energize nuclear power as a fundamental source of clean, secure and low-cost energy. We are seeing improving market fundamentals with prices for uranium rising, and UF6 conversion prices hitting new record-highs.
“With over 118 million pounds of long-term contracting industry wide so far this year, we are happy to say that we believe there is clear evidence that the broader uranium market is moving toward replacement-rate contracting. Based on the rate of contracting seen year-to-date, we expect industry long-term contracting volumes in 2023 to exceed those in each of the last 10 years. We believe this is a good indication that a new long-term contracting cycle is underway.
“The improving fundamentals are creating increased interest from the investment community. In addition to seeing interest from our traditional resource investors, Cameco is seeing interest from energy investors, clean energy investors, infrastructure investors and generalists. We believe this increased interest reflects the recognition that Cameco is a proven reliable nuclear fuel supplier that supplements tier-one mining assets with critical fuel service capabilities, and it is an endorsement of our strategy to capture full-cycle value.
“We continue to be disciplined in our production decisions, selectively committing our unencumbered, in-ground uranium inventory and UF6 conversion capacity under long-term contracts to help maintain additional exposure to future improvements in the market. If we took advantage of all our tier-one expansion opportunities, our annual share of tier-one uranium supply could be about 32 million pounds.
“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 are looking forward to closing the Westinghouse acquisition with our partner Brookfield Renewable Partners, which we expect will occur later this year. 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.”
- Q2 net earnings of $14 million; adjusted net losses of $3 million: Results reflect normal quarterly variations in contract deliveries, which were expected to be lower than in the second quarter of 2022. Despite lower deliveries and higher unit costs in our uranium segment, gross profit improved due to a higher average realized price as our market-related contracts benefitted from increases in the uranium spot price relative to a year ago. However, unrealized losses on our US dollar cash balances, reflected in the $44 million of reported foreign exchange losses for the quarter, contributed to lower net earnings and adjusted net earnings compared to in the same period of 2022. 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 losses in the quarter were primarily due to higher-than-normal US dollar cash balances, being held for the pending acquisition of Westinghouse, and a strengthened Canadian dollar relative to at the end of the first quarter. We do not adjust net earnings for these losses. 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 six 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 15.2 million pounds, in line with the delivery pattern disclosed in our annual MD&A, at an average realized price 11% higher than in the same period last year. In our fuel services segment, sales were 12% higher than in the first six months of 2022 and at an average realized price 5% higher. With improving market fundamentals, for 2023 we have increased our consolidated revenue outlook to between $2.4 billion and $2.5 billion (previously $2.2 billion and $2.4 billion), which is primarily driven by higher expected average realized prices under our contract portfolio and increased deliveries in our uranium segment. In addition, we have updated our outlook for direct administrative costs, uranium purchases and average unit cost of sales. See Outlook for 2023 in our second quarter MD&A for more information.
- Long-term contracting success continues while maintaining exposure to higher prices: As of June 30, 2023, we had long-term contracting commitments requiring annual delivery of an average of 28 million pounds over the next five years compared to 26 million at the end of March due to the inclusion of volumes under contracts previously accepted that are now finalized. 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.
- JV Inkai shipments: The first shipment of our share of Inkai's 2023 production, which has been delayed, is expected to begin transit in the third quarter. The geopolitical situation continues to cause transportation risks in the region. 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 the shipment 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 March, CRA issued revised reassessments for the 2007 through 2013 tax years, which resulted in a refund of $297 million of the $780 million in cash and letters of credit held by CRA at the time. The refund consisted of cash in the amount of $86 million and letters of credit in the amount of $211 million, which were returned in the second quarter. See Transfer pricing dispute in our second quarter MD&A for more information.
- Strong balance sheet: As of June 30, 2023, we had $ 2.5 billion in cash and cash equivalents and short-term investments and $1.0 billion in total debt. In addition, we have a $1.0 billion undrawn credit facility which matures October 1, 2026.