SASKATOON, SASKATCHEWAN — (Marketwire) — 08/04/11 — ALL AMOUNTS ARE STATED IN CDN $ (UNLESS NOTED)
Cameco (TSX: CCO) (NYSE: CCJ) today reported its consolidated financial and operating results for the second quarter ended June 30, 2011 in accordance with International Financial Reporting Standards (IFRS).
„Through the second quarter of 2011 our operations demonstrated reliable production, keeping us on track for the year. At Cigar Lake, we continue to make significant progress,“ said president and CEO Tim Gitzel. „We also made changes to Cameco-s management team to ensure we have the right mix of experience and energy to execute on our strategy to double annual uranium production by 2018.
„As we anticipated, this quarter-s financial results were lower due to variability in the timing of uranium deliveries. We expect our sales will be heavily weighted to the second half of the year and anticipate stronger results in the third and fourth quarters.
„With our extensive portfolio of long-term sales contracts, we are in the enviable position of being heavily committed until 2016, which provides us with financial stability as we pursue our corporate growth strategy.
„Over the longer term, we remain confident in the strong fundamentals of the uranium market. World demand for safe, clean, reliable, affordable energy continues to grow and the need for nuclear as part of the world-s energy mix remains as compelling as ever.“
Transition to IFRS
Effective January 1, 2011, we adopted IFRS for Canadian publicly accountable enterprises. Our unaudited condensed consolidated interim financial statements for the period ended June 30, 2011 (interim financial statements) have been prepared using IFRS. Amounts relating to the year ended December 31, 2010 in this document, our interim financial statements and related second quarter management-s discussion and analysis (second quarter MD&A) have been recast to reflect our adoption of IFRS. Details of the more significant accounting differences can be found in note 3 to our interim financial statements.
Second quarter
As anticipated, our results for the second quarter and the first six months of 2011 were impacted by lower uranium sales volumes. We continue to expect sales to be heavily weighted toward the second half of the year. Net earnings attributable to our shareholders (net earnings) this quarter were $54 million ($0.14 per share diluted) compared to $70 million ($0.18 per share diluted) in the second quarter of 2010. Net earnings were down this quarter due to the items noted below, partially offset by higher gains on foreign exchange derivatives. The Canadian dollar strengthened in the second quarter of 2011 whereas it weakened relative to the US dollar in the second quarter of 2010.
On an adjusted basis, our earnings this quarter were $70 million ($0.18 per share diluted) compared to $116 million ($0.29 per share diluted) (non-IFRS/GAAP measure, see below) in the second quarter of 2010. The decline was due to:
See Financial results by segment for more detailed discussion.
First six months
Net earnings in the first six months of the year were $145 million ($0.37 per share diluted) compared to $213 million ($0.54 per share diluted) in the first six months of 2010. Net earnings were lower than in 2010 due to the items noted below, partially offset by higher gains on foreign exchange derivatives.
On an adjusted basis, our earnings for the first six months of this year were $154 million ($0.39 per share diluted) compared to $228 million ($0.58 per share diluted) (non-IFRS/GAAP measure, see below). The decline was due to:
Outlook for 2011
Over the next several years, we expect to invest significantly in expanding production at existing mines and advancing projects as we pursue our growth strategy. The projects are at various stages of development, from exploration and evaluation to construction.
We expect our existing cash balances and operating cash flows will meet our anticipated requirements over the next several years, without the need for significant additional funding. Cash balances will decline gradually as we use the funds in our business and pursue our growth plans.
Our outlook for 2011 reflects the expenditures necessary to help us achieve our strategy. Our outlook for fuel services unit cost of produced product sold, electricity capacity and capital expenditures has changed from the outlook included in our first quarter MD&A. We explain the changes below. All other items in the table are unchanged. We do not include an outlook for the items in the table that are marked with a dash.
See Financial results by segment for details.
Our customers choose when in the year to receive deliveries of uranium and fuel services products, so our quarterly delivery patterns, and therefore our sales volumes and revenue, can vary significantly. This year, we expect deliveries will be heavily weighted to the second half of the year. We expect deliveries in the fourth quarter to account for about one-third of our 2011 sales volumes.
We now expect unit cost of produced product sold for fuel services to increase by 5% to 10% over 2010 (previously a 2% to 5% increase) primarily due to increased sales in the fuel manufacturing division.
Electricity capacity factor in 2011 is expected to decrease to 87% compared to 89% as previously reported. The change in outlook is largely the result of increased planned outage days when compared to 2010.
We expect capital expenditures to be about $590 million in 2011 compared to our previous estimate of $620 million due to changes in the scheduling of some projects. We do not expect this reduction in capital expenditures in 2011 will impact our plans to double annual uranium production by 2018.
Sensitivity analysis
For the rest of 2011:
Adjusted net earnings (non-IFRS/GAAP measures)
Adjusted net earnings is a measure with no standardized meaning under IFRS (non-IFRS measure). We use this measure as a more meaningful way to compare our financial performance from period to period. Adjusted net earnings is our net earnings adjusted for unrealized gains and losses on our financial instruments to better reflect the underlying financial performance for the reporting period. The adjusted earnings measure reflects the matching of the net benefits of our hedging program with the inflows of foreign currencies. We also used this measure prior to adoption of IFRS (non-GAAP measure).
Adjusted net earnings is non-standard supplemental information, and not a substitute for financial information prepared according to accounting standards. Other companies may calculate this measure differently. The table below reconciles adjusted net earnings with our net earnings.
(1) In 2008, we opted to discontinue hedge accounting for our portfolio of foreign currency forward sales contracts. Since then, we have adjusted our gains or losses on derivatives as reported under IFRS to reflect what our earnings would have been had we continued to apply hedge accounting.
Uranium market update
It has been almost five months since the Fukushima-Daiichi nuclear power plant was damaged by the devastating earthquake and tsunami in Japan. As Japan continues to manage the effects of these events on its nuclear reactor fleet, the future role of nuclear energy in that country is also being discussed. While there are reports of strong support for nuclear from various industry groups in Japan, public sentiment is reportedly more cautious.
Other countries around the world have now had time to do a preliminary review of their nuclear programs. With very few exceptions, we see these countries continuing their commitment to nuclear energy. India, China, France, Russia, South Korea, the United Kingdom, Canada, the United States, and almost every other country with a nuclear program are maintaining nuclear as a part of their energy mix.
There are a few exceptions, Germany being the most notable. Germany, which has 17 nuclear reactors, representing 5% of the global generating capacity, has decided to revert to its previous phase out policy. Currently, eight of its reactors (about 2% of global generating capacity) are shutdown; we do not expect these reactors to restart. Germany has indicated it plans to shut down the remaining nine reactors by 2022.
Despite these changes, the nuclear industry is growing. Other previously non-nuclear countries are considering adding nuclear to their energy programs in the future. Saudi Arabia, for example, recently announced its plan to build 16 reactors by 2030. Its plan includes building the first two reactors over the next 10 years and adding two new reactors every year thereafter. The Saudis are targeting nuclear power to provide 20% of their electricity needs in the future. Saudi Arabia has signed nuclear co-operation agreements with France and Argentina, and has announced plans to sign agreements with China and South Korea in the near future. We have not incorporated this announcement from Saudi Arabia into our supply and demand outlook below.
We have reviewed our supply and demand outlook from the first quarter and revised our estimates to reflect Germany-s decision to move away from nuclear and the current status of Japan-s nuclear fleet. As a result, we expect:
Despite the expected decreases in our estimates noted above, we continue to expect annual global consumption to exceed annual global mine production by a significant margin over the next 10 years, a situation that has existed since about 1986. We expect the new supply required to meet global uranium demand to be about 270 million pounds over the next 10 years (our previous estimate was 320 million pounds).
About 70% of global uranium supply over the next 10 years is expected to come from mines currently in commercial operation, less than 20% is expected to come from existing secondary supply sources and the remainder is expected to come from new sources of supply (unchanged from our previous estimate).
With our extensive portfolio of long-term sales contracts, we are in the enviable position of being heavily committed until 2016. As a result, we expect the impact of changes in the global supply and demand outlook on us to be significantly less.
We will continue to monitor announcements and developments in the nuclear industry. When we believe we have adequate information, we will report the expected impact on our uranium supply and demand outlook.
Our industry continues to respond in a responsible manner to the events in Japan. We, and others in our industry, are reviewing the lessons learned from this event and, where applicable, incorporating them to ensure the health and safety of employees, communities and the environment. Governments, regulators and the general public are looking for assurances that every segment of the industry has learned and applied the lessons resulting from Fukushima. Our industry is applying the lessons learned and will continue to take every possible step to identify and mitigate risks.
Caution about forward-looking information relating to Fukushima
This discussion of the expected impact of the situation at the Fukushima nuclear power plant in Japan, including its potential impact on future global uranium demand and the number of operating reactors, is forward-looking information that is based upon the assumptions and subject to the material risks discussed under the heading Caution about forward-looking information below.
More specifically, it is based on the assumptions that:
It is subject to the risks that:
2011 financial results by segment
Uranium
Production volumes this quarter were 16% higher compared to the second quarter of 2010 primarily due to higher production at McArthur River/Key Lake. See Operating properties for more information.
Uranium revenues this quarter were down 29% compared to 2010, due to a 31% decline in sales volumes partially offset by a 3% increase in the $Cdn realized selling price.
Our realized prices this quarter were higher than the second quarter of 2010 mainly due to higher $US prices under market-related contracts, partially offset by a less favourable exchange rate. In the second quarter of 2011, our realized foreign exchange rate was $0.97 compared to $1.04 in the prior year.
Total cash cost of sales (excluding DDR) decreased by 25% ($148 million compared to $197 million in 2010). This was mainly the result of the following:
The net effect was a $41 million decrease in gross profit for the quarter.
The following table shows our cash cost of sales per unit (excluding DDR) for produced and purchased material, including royalty charges on produced material, and the quantity of produced and purchased uranium sold.
Production volumes for the first six months of the year were 4% lower than in the previous year due to planned variations in mill production at Rabbit Lake. See Operating properties for more information.
For the first six months of 2011, uranium revenues were down 16% compared to 2010, due to a 20% decline in sales volumes partially offset by a 5% increase in the $Cdn realized selling price. As we anticipated, deliveries in the second quarter were low.
Our realized prices were higher than the first six months of 2010 mainly due to higher $US prices under market-related contracts, partially offset by a less favourable exchange rate. In the first six months of 2011, our realized foreign exchange rate was $0.99 compared to $1.06 in the prior year.
Total cash cost of sales (excluding DDR) decreased by 11% ($323 million compared to $363 million in 2010). This was mainly the result of the following:
The net effect was a $48 million decrease in gross profit for the first six months.
Please see our second quarter MD&A for updates to our uranium price sensitivity analysis.
Fuel services
(includes results for UF6, UO2 and fuel fabrication)
Total revenue was $3 million lower than in 2010 as an 8% increase in the average realized price for our fuel services products was offset by an 13% decrease in sales volumes.
Our $Cdn realized price for fuel services was affected by the mix of products delivered in the quarter. In 2011, a higher proportion of fuel services sales were for fuel fabrication, which typically yields a much higher price than the other fuel services products.
The total cost of products and services sold (including DDR) increased by 4% ($57 million compared to $55 million in the second quarter of 2010) due to the mix of products delivered in the quarter which caused the average unit cost of sales to be 18% higher.
The net effect was a $5 million decrease in gross profit.
In the first six months of the year, total revenue decreased by 9% due to a 6% decrease in sales volumes and a 4% decline in the realized selling price.
The total cost of products and services sold (including DDR) increased by 11% ($100 million compared to $90 million in 2010) due to the increase in the unit cost of product sold. The average unit cost of sales was 17% higher due to lower production levels in the first six months of 2011 and the recognition of higher cost recoveries in 2010.
The net effect was a $22 million decrease in gross profit.
Electricity results
Total electricity revenue decreased 13% this quarter compared to the second quarter of 2010 due to lower output and lower realized prices. Realized prices reflect spot sales, revenue recognized under BPLP-s agreement with the OPA and financial contract revenue. BPLP recognized revenue of $123 million this quarter under its agreement with the OPA, compared to $80 million in the second quarter of 2010. About 60% of BPLP-s output was sold under financial contracts this quarter, compared to 39% in the second quarter of 2010. Pricing under these contracts was lower than in 2010. From time to time BPLP enters the market to lock in the gains under these contracts.
The capacity factor was 78% this quarter, down from 86% in the second quarter of 2010 due to a higher volume of outage days during this year-s planned outage compared to last year-s planned outage. Operating costs were $270 million compared to $247 million in 2010 due to higher maintenance costs incurred during outage periods and increased staff costs.
The result was a 69% decrease in our share of earnings before taxes.
BPLP distributed $55 million to the partners in the second quarter. Our share was $17 million. The partners have agreed that BPLP will distribute excess cash monthly, and will make separate cash calls for major capital projects.
During the third quarter, there is a planned maintenance outage at one unit.
Total electricity revenue for the first six months decreased 13% compared to 2010 due to lower output and lower realized prices. Realized prices reflect spot sales, revenue recognized under BPLP-s agreement with the OPA and financial contract revenue. BPLP recognized revenue of $232 million in the first six months of 2011 under its agreement with the OPA, compared to $183 million in the first six months of 2010. The equivalent of about 48% of BPLP-s output was sold under financial contracts in the first six months of this year, compared to 39% in 2010. Pricing under these contracts was lower than in 2010. From time to time BPLP enters the market to lock in the gains under these contracts.
The capacity factor was 85% for the first six months of this year, down from 92% in 2010 due to a higher volume of outage days during this year-s planned outage compared to last year-s planned outage. Operating costs were $503 million compared to $456 million in 2010 due to higher maintenance costs incurred during outage periods and increased staff costs.
The result was a 54% decrease in our share of earnings before taxes.
BPLP distributed $125 million to the partners in the first six months of 2011. Our share was $40 million.
Operations and development project updates
Uranium – production overview
McArthur River/Key Lake
At McArthur River/Key Lake, production in the second quarter was 48% higher than the same period last year. To optimize production for the year, we rescheduled the maintenance outage at the Key Lake mill from the second quarter to the first quarter.
At Key Lake, we continued work on the new oxygen, acid and steam plants. We expect to complete and commission the plants this year.
Inkai
Production is on track for the year.
During the first six months, Inkai experienced brief interruptions to its sulphuric acid supply. This quarter, the supply shortage had a small impact on production. Sulphuric acid supply is tight in Kazakhstan due to competing demand from the fertilizer industry. We are exploring alternative sources of sulphuric acid; if availability continues to be an issue, production may be impacted for the year.
We continue to proceed with delineation drilling and the engineering of infrastructure and the test leach facility at block 3.
Cigar Lake
During the quarter, we established the freeze wall for shaft 2 and resumed shaft sinking. We expect to reach the main mine workings on the 480 metre level before the end of the year. The final depth of the shaft will be 500 metres.
As part of our surface freeze strategy, we began drilling freezeholes from surface.
We received regulatory approvals for our mine plan and to begin work on our Seru Bay project. This project involves establishing the infrastructure to allow the release of treated water directly to Seru Bay of Waterbury Lake.
For the remainder of the year, we will focus on carrying out our plans and implementing the strategies we outlined in our annual MD&A.
In our first quarter MD&A we indicated our plan to file an updated technical report in the third quarter, updating our estimates, including our capital cost estimate, production rampup schedule, operating cost estimate and mineral reserve and resource estimates. We are currently evaluating a number of strategic initiatives which may favourably impact some of these estimates. This work may not be completed in the third quarter. Once we have completed our evaluation, decided on the best course of action and incorporated the results into our mine plan, we plan to file an updated technical report.
We continue to target initial production in mid-2013.
Cigar Lake is a key part of our plan to double annual uranium production to 40 million pounds by 2018, and we are committed to bringing this valuable asset safely into production.
Fuel services production totalled 4.5 million kgU this quarter, the same as in the second quarter of 2010.
Production for the first six months of the year was 8.8 million kgU compared to 9.3 million kgU in the first six months of 2010. We experienced operational issues in the first quarter at the Port Hope conversion facility which were resolved following a two week shutdown. In the second quarter, we had a planned shutdown of the U02 plant to reduce inventory levels.
We expect total production to be between 15 million and 16 million kgU in 2011.
Qualified persons
The technical and scientific information discussed in this document for our material properties (McArthur River/Key Lake, Inkai and Cigar Lake) was prepared under the supervision of the following individuals who are qualified persons for the purposes of NI 43-101:
Caution about forward-looking information
This document includes statements and information about our expectations for the future. When we discuss our strategy, plans and future financial and operating performance, or other things that have not yet taken place, we are making statements considered to be forward-looking information or forward-looking statements under Canadian and United States securities laws. We refer to them in this document as forward-looking information.
Key things to understand about the forward-looking information in this document:
Examples of forward-looking information in this document
Material risks
Material assumptions
Quarterly dividend notice
We announced today that our board of directors approved a quarterly dividend of $0.10 per share on the outstanding common shares of the corporation that is payable on October 14, 2011, to shareholders of record at the close of business on September 30, 2011.
Conference call
We invite you to join our second quarter conference call on Thursday, August 4, 2011 at 1:00 p.m. Eastern.
The call will be open to all investors and the media. To join the call, please dial (800) 769-8320 (Canada and US) or (416) 695-6622. An operator will put your call through. A live audio feed of the conference call will be available from a link at cameco.com. See the link on our home page on the day of the call.
A recorded version of the proceedings will be available on our website, shortly after the call, and on post view until midnight, Eastern, September 4, 2011, by calling (800) 408-3053 (Canada and US) or (905) 694-9451 (Passcode 4225264 #).
Additional information
You can find a copy of our second quarter MD&A and interim financial statements on our website at cameco.com, on SEDAR at sedar.com and on EDGAR at sec.gov/edgar.shtml.
Additional information, including our 2010 annual management-s discussion and analysis, annual audited financial statements and annual information form, is available on SEDAR at sedar.com, on EDGAR at sec.gov/edgar.shtml and on our website at cameco.com.
Profile
We are one of the world-s largest uranium producers, a significant supplier of conversion services and one of two Candu fuel manufacturers in Canada. Our competitive position is based on our controlling ownership of the world-s largest high-grade reserves and low-cost operations. Our uranium products are used to generate clean electricity in nuclear power plants around the world, including Ontario where we are a limited partner in North America-s largest nuclear electricity generating facility. We also explore for uranium in the Americas, Australia and Asia. Our shares trade on the Toronto and New York stock exchanges. Our head office is in Saskatoon, Saskatchewan.
As used in this news release, the terms we, us, our and Cameco mean Cameco Corporation and its subsidiaries and affiliates unless stated otherwise.
Contacts: Cameco Investor inquiries Rachelle Girard (306) 956-6403
Media inquiries Murray Lyons (306) 956-8064
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