Cameco responds to 'discrepancy' in analyst expectations

18 January 2017

Cameco yesterday announced its earnings expectations forĀ the year ended 31 December 2016 and operational changes planned for 2017. "While it is not our usual practice to disclose earnings expectations, we are announcing our earnings expectations for 2016 in advance of our participation in upcoming investor conferences due to the significant discrepancy between analyst earnings estimates and our current expectations," the Saskatchewan, Canada-based uranium producer said.


"Our current earnings expectations are not reflective of the strength of our core uranium business, which saw us achieve our outlook for delivery volumes at a realized price 83% higher than the current spot price," said president and CEO, Tim Gitzel. "The current earnings expectations do however reflect the consequences of a continued weak uranium market and our resolve to make the necessary decisions to defend and preserve our core uranium business for the long-term benefit of our stakeholders."

As expected, Cameco delivered 31.5 million pounds of uranium at an average realized price of $54.46 per pound in 2016. Also, the company does not currently expect that any changes to the financial outlook for 2016 presented in its third-quarter Management's Discussion and Analysis will have a material impact on its actual 2016 earnings. However, subject to completion of the quarterly financial close process, annual audit and approval of the 2016 consolidated financial statements by its board of directors, Cameco expect to report an IFRS (International Financial Reporting Standards) net loss for 2016 due in part to asset impairments resulting from fair market value assessments at year end.

"We expect our adjusted net earnings for 2016 will be significantly lower than analysts' earnings estimates. In presenting our adjusted net earnings, we expect to make total adjustments to net earnings between approximately $180 million and $220 million after-tax ($0.45 to $0.56 per share)," the company said.

Cameco's full annual results will be released after markets close on 9 February.

Cameco implemented a number of strategic initiatives in 2016 intended to strengthen its core business and enhance financial performance over time. These initiatives include the suspension of production at the Rabbit Lake operation and curtailment of its US mining operations; signing of a collaboration agreement with the aboriginal communities located near its Saskatchewan operations; restructuring of its NUKEM segment and corporate office departments and consolidation of office space.

The company's legal costs related to its tax dispute with the Canada Revenue Agency also increased as it prepared its case to be heard in the Tax Court of Canada, which started in October. The total estimated cost for all these items is approximately $120 million in 2016. These costs were partially offset by the $59 million of additional income generated by the termination of two long-term supply contracts in the third quarter of 2016. Cameco also recorded an impairment charge for the Rabbit Lake mine and mill in conjunction with the suspension of production.

Operational changes

Cameco is planning a number of actions in 2017 intended to further reduce costs and improve efficiency at its uranium mining operations.

The workforce at the McArthur River, Key Lake and Cigar Lake operations is expected to be reduced by about 10% or 120 employees in total. The reduction is planned to be conducted in stages and expected to be completed by the end of May. Affected employees will be offered exit packages that include transition assistance.

Cameco also plans to implement changes to the air commuter service by which employees and contract workers get to and from the mine and mill sites in northern Saskatchewan, as well as work schedule changes to achieve additional cost savings. These changes will begin in April and are expected to be completed during 2018.

The workforce reduction and changes to air commuter service and work schedules planned at the Saskatchewan operations are not expected to impact production in 2017. However, due to cost cutting measures planned at Inkai, Cameco expects Inkai to produce almost 10% less in 2017 with Cameco's share being 3.1 million pounds. In 2016, Cameco's share of Inkai production was 3.3 million pounds.

Information regarding Cameco's uranium production plans for 2017 will be provided together with its full annual results for 2016.

"We regret the impact of these decisions on affected employees and other stakeholders," Gitzel said. "These are necessary actions to take in a uranium market that has remained weak and oversupplied for more than five years. While it is positive that we are starting to see other producers announce their intent to reduce supply, we have not yet seen an actual reduction in supply. Ultimately, it will be the return of both term demand and term contracting in a significant way that will signal that market fundamentals have turned more positive."

He added: "While we expect that this demand and term contracting will come to the market at some point, it has not yet happened. These operational changes are part of our strategy to help us effectively manage the company through these low times and remain competitive, while positioning the company to benefit as the market improves."

Cameco is one of the world's largest uranium producers, a significant supplier of conversion services and one of two Candu fuel manufacturers in Canada.

Researched and written
by World Nuclear News