Sagging spot prices for uranium eroded
For the year, Cameco’s suffered a net loss, after special items, of $87 million (or $1.57 per share) on revenue of $689 million, compared with 1999 earnings of $71 million ($1.24) on revenue of $742 million.
Operations provided cash flow of $224 million ($4.04 per share) in 2000, down from $249 million ($4.35 per share) in 1999.
Cameco’s special items in 2000 consisted of a $128-million writedown of its U.S. in situ leach assets and a $20-million provision for managing low-level radioactive waste in Ontario. Before special items, Cameco had net earnings of $45 million in 2000 and $42 million in 1999.
Attributable uranium production in 2000 slipped to 16.6 million lbs. of U3O8 in concentrate (16.8 million lbs. in 1999) and 9,327 tonnes of uranium conversion (11,231 tonnes). The average spot price for uranium in 2000 nosedived to US$8.21 per lb. from US$10.23 per lb. in 1999.
“The results are very disappointing,” says Chief Financial Officer David Petroff. “The unacceptably low prices for uranium, in large part, drove the financials, and from the historically low level at which the spot price of uranium began this year, it will take a large and swift price recovery for improved nuclear results in 2001.”
Chairman and President Bernard Michel was more upbeat about uranium’s longer-term prospects and predicted that new mine development will be needed to meet anticipated demand.
“In response to sharply higher fossil-fuel prices and the recent electricity shortages in California, there is, for the first time in years, a renewed and significant interest in expanding nuclear capacity in the United States,” he says.
“World uranium production continues to be about half of requirements, a situation which is not sustainable over the long term. As more long-term contracts expire and must be replaced, demand in the spot and long-term markets is likely to grow. This should apply some upward pressure on prices unless an unanticipated source of secondary supply is identified to help satisfy this demand.”
The company notes that, in 2001, a US$1 change in the uranium spot price would increase revenue by about C$16 million, net earnings by C$8 million and cash flow by C$14 million.
The company also cautions that the financial difficulties of two customers in California, if left unresolved, could affect revenue and earnings in 2001.
Between 1999 and 2000, Cameco’s capital expenditures declined by $117 million, to $95 million, owing mainly to the completion of the high-grade McArthur River uranium mine in Saskatchewan. The mine is expected to reach full production capacity of 18 million lbs. U3O8 per year sometime in 2001.
Five mines
This year, Cameco expects to produce 16.4 million lbs. U3O8 from five mines: McArthur River (10.5 million lbs.), Key Lake in Saskatchewan (400,000 lbs.), Rabbit Lake in Saskatchewan (4 million lbs.), Crow Butte in Nebraska (800,000 lbs.) and Highland in Wyoming (700,000 lbs.). At the Port Hope plant in Ontario, Cameco anticipates uranium-conversion production of 9,900 tonnes in 2001.
The Rabbit Lake mill is scheduled to close in the second quarter of 2001 and may resume operations in 2002, depending on market conditions.
At the Cigar Lake project, in Saskatchewan, production is unlikely before 2005, owing to the time required for licensing and construction. Cameco will apply for a construction licence this year, with construction planned for 2002 (provided market conditions are favourable). At full production, Cigar Lake is expected to produce 18 million lbs. U3O8 annually.
In 2001, Cameco plans to spend $105 million for capital and development expenses, including $65 million for the Bruce Power project, announced last fall.
By spending up to $100 million over two years, Cameco can earn a 15% in the Bruce Power Partnership, which has signed an agreement to lease and operate the Bruce A and B nuclear power plants and related facilities from Ontario Power Generation.
Bruce Power will be 80%-owned by
Some $6 million of Cameco’s budget is earmarked for exploration work at the Inkai in situ uranium prospect in Kazakhstan.
Cameco’s gold business contributed $109 million to revenue in 2000, a 2% rise from 1999, while gross profits from gold rose 71% to $29 million.
Kumtor
Attributable gold production from Cameco’s 33%-owned Kumtor mine, in Kyrgyzstan, reached 223,339 oz. in 2000, up from 203,508 oz. in 1999.
While the company’s realized gold price fell to US$314 per oz. in 2000 from US$338 per oz. a year earlier, operating costs declined to US$153 per oz. from US$179 per oz., mainly because of higher throughput, improved recoveries and a slightly higher ore grade of 4.65 grams gold per tonne.
Total gold production from Kumtor in 2001 is expected to rise to 680,000 oz., owing to continued increases in grade and throughput. However, the average realized gold price is expected to decline further to US$285 per oz.
Petroff points out that in 2000, for the first time, the mine repaid a portion of the loans advanced by Cameco, so that he now considers the financial risks of the project to be “quite low.” He adds that the Kumtor senior debt, which Cameco fully guarantees, can be comfortably repaid at current gold prices.
There were changes in Cameco’s shareholdings in 2000, with the company buying back 2.9 million shares at an average price of $20.39 per share.
Also, the Canadian government introduced legislation allowing more foreign ownership of Cameco’s shares. These proposed changes would allow individual non-residents to hold a maximum of 15%, up from 5%, and non-residents in total to vote up to 25%, up from 20%. The ownership limit for an individual Canadian shareholder remains unchanged at 25%.
Cameco’s total outstanding debt declined by $65 million to $294 million on Dec. 31, 2000, and its total debt-to-capitalization ratio fell 2% to 14%.
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