UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
Under the Securities Exchange Act of 1934
For the month of October, 2017
Cameco Corporation
(Commission file No. 1-14228)
2121-11th Street West
Saskatoon, Saskatchewan, Canada S7M 1J3
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ☐ Form 40-F ☒
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ☐ No ☒
If Yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):
Exhibit Index
Exhibit No. |
Description |
Page No. |
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99.1 | Press Release dated October 27, 2017 | |||||
99.2 | Managements Discussion & Analysis for the third quarter ending September 30, 2017 | |||||
99.3 | Condensed Consolidated Interim Unaudited Financial Statements for the third quarter ending September 30, 2017 | |||||
99.4 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated October 27, 2017 |
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99.5 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated October 27, 2017 |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: October 27, 2017 | Cameco Corporation | |||||
By: | Sean A. Quinn | |||||
Sean A. Quinn | ||||||
Senior Vice-President, Chief Legal Officer and Corporate Secretary |
Exhibit 99.1
TSX: CCO NYSE: CCJ |
website: cameco.com currency: Cdn (unless noted) |
2121 11th Street West, Saskatoon, Saskatchewan, S7M 1J3 Canada
Tel: (306) 956-6200 Fax: (306) 956-6201
Cameco reports third quarter results
Saskatoon, Saskatchewan, Canada, October 27, 2017 .. . . . . . . . . . .. . . . . . .
Cameco (TSX: CCO; NYSE: CCJ) today reported its consolidated financial and operating results for the third quarter ended September 30, 2017 in accordance with International Financial Reporting Standards (IFRS).
Our third quarter results were anticipated and in line with the outlook we provided in the second quarter, said president and CEO, Tim Gitzel. And, they reflect a very deliberate strategy to strengthen the company in the long term.
There has been little change to the market and we continue to face difficult conditions, with the average year-to-date uranium spot price down about 20% compared to the 2016 annual average. In line with the other disciplined actions we have taken to address these weaker prices, we made some changes during the quarter to the way our global marketing activities are organized. As a result, we incurred $5 million in one-time costs, but expect to reduce costs between $8 million and $10 million per year once fully implemented.
We have lowered our production outlook for the year to 24.0 million pounds from 25.2 million pounds. The reduction is due to production delays at Key Lake caused by work required on the existing calciner circuit and lower production than expected at Smith Ranch-Highland. Given our inventory position, we are willing to accept some variability in production this year, and expect there could be further variability in the future if current market conditions continue. However, we wont compromise safety, the environment, or the long-term health of the company.
As a result of our prudent actions, we continue to generate solid cash flows and this year we expect them to exceed the $312 million reported in 2016 despite weaker earnings.
We cant control the timing of a market recovery, so we continue to focus on our tier-one strategy; on being as streamlined and efficient as possible; responsibly managing our production, inventory and purchases; protecting and extending the value of our contract portfolio, and maximizing cash flow while maintaining our investment-grade rating. Ultimately, our goal is to remain competitive and position the company to ensure we have the ability to be among the first to respond when the market calls for more uranium.
Summary of third quarter results and developments:
| Net losses of $124 million; adjusted net losses of $50 million: As expected, pricing terms in contracts we delivered under during the quarter were lower resulting in a lower average realized price, and unit costs of production were higher due to the implementation of a mandatory summer vacation and planned maintenance shutdowns at our northern Saskatchewan operations. In addition, when comparing 2017 to 2016, our third quarter results were impacted by the loss of revenue under the disputed TEPCO contract, and the one-time costs incurred as a result of the change in the way our marketing activities are organized including the associated $111 million impairment of NUKEMs goodwill. |
| Updated annual outlook: We have made the following updates to our 2017 financial outlook table in our third quarter MD&A: in our uranium segment we expect production of 24.0 million pounds, delivery volumes between 32 million and 33 million pounds, an average realized price of $47.50/lb, and an average unit cost of sales between $35/lb and $36/lb. On a consolidated basis, we expect a tax expense of less than $10 million, and capital expenditures of $160 million. Based on the outlook provided in the table and the assumptions for uranium prices and foreign exchange rates used in and listed below the table, and as we reported in the second quarter, we continue to expect 2017 adjusted net earnings to be weaker than in 2016. However, we continue to expect cash from operations to be higher in 2017 than the $312 million reported in 2016. This is forward looking information that is based on the additional assumptions and subject to the material risks discussed under the heading Caution about forward looking information beginning on page 4. |
| CRA trial concluded: Final arguments concluded on September 13, 2017. We expect a decision from the judge could take six to 18 months. We remain confident in our position. |
-1-
| TEPCO arbitration schedule set: The three arbitrators have been appointed and based on the current schedule set by them, we expect the case will be heard in the first quarter of 2019. However, the timing for a final decision will be dependent on how long the arbitrators deliberate following the conclusion of the hearing. |
Consolidated financial results
THREE MONTHS | NINE MONTHS | |||||||||||||||||||||||
CONSOLIDATED HIGHLIGHTS | ENDED SEPTEMBER 30 | ENDED SEPTEMBER 30 | ||||||||||||||||||||||
($ MILLIONS EXCEPT WHERE INDICATED) |
2017 | 2016 | CHANGE | 2017 | 2016 | CHANGE | ||||||||||||||||||
Revenue |
486 | 670 | (27 | )% | 1,348 | 1,544 | (13 | )% | ||||||||||||||||
Gross profit |
51 | 146 | (65 | )% | 199 | 307 | (35 | )% | ||||||||||||||||
Net earnings (losses) attributable to equity holders |
(124 | ) | 142 | (187 | )% | (143 | ) | 83 | (272 | )% | ||||||||||||||
$ per common share (basic) |
(0.31 | ) | 0.36 | (186 | )% | (0.36 | ) | 0.21 | (271 | )% | ||||||||||||||
$ per common share (diluted) |
(0.31 | ) | 0.36 | (186 | )% | (0.36 | ) | 0.21 | (271 | )% | ||||||||||||||
Adjusted net losses (non-IFRS, see page 3) |
(50 | ) | 118 | (142 | )% | (122 | ) | 54 | (326 | )% | ||||||||||||||
$ per common share (adjusted and diluted) |
(0.13 | ) | 0.30 | (143 | )% | (0.31 | ) | 0.14 | (321 | )% | ||||||||||||||
Cash provided by operations (after working capital changes) |
154 | 385 | (60 | )% | 276 | 57 | >100 | % |
The financial information presented for the three months and nine months ended September 30, 2016 and September 30, 2017 is unaudited.
NET EARNINGS
The following table shows what contributed to the change in net earnings and adjusted net earnings (non-IFRS measure, see page 3) in the third quarter and first nine months of 2017, compared to the same periods in 2016.
THREE MONTHS ENDED | NINE MONTHS ENDED | |||||||||||||||||
CHANGES IN EARNINGS | SEPTEMBER 30 | SEPTEMBER 30 | ||||||||||||||||
($ MILLIONS) |
IFRS | ADJUSTED | IFRS | ADJUSTED | ||||||||||||||
Net earnings 2016 |
142 | 118 | 83 | 54 | ||||||||||||||
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Change in gross profit by segment |
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(We calculate gross profit by deducting from revenue the cost of products and services sold, and depreciation and amortization (D&A)) |
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Uranium |
Higher (lower) sales volume |
(2 | ) | (2 | ) | 17 | 17 | |||||||||||
Lower realized prices ($US) |
(131 | ) | (131 | ) | (243 | ) | (243 | ) | ||||||||||
Foreign exchange impact on realized prices |
(4 | ) | (4 | ) | (7 | ) | (7 | ) | ||||||||||
Lower costs |
35 | 35 | 111 | 111 | ||||||||||||||
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Change uranium |
(102 | ) | (102 | ) | (122 | ) | (122 | ) | ||||||||||
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Fuel services |
Lower sales volume |
(4 | ) | (4 | ) | (9 | ) | (9 | ) | |||||||||
Higher realized prices ($Cdn) |
13 | 13 | 34 | 34 | ||||||||||||||
Higher costs |
(18 | ) | (18 | ) | (27 | ) | (27 | ) | ||||||||||
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Change fuel services |
(9 | ) | (9 | ) | (2 | ) | (2 | ) | ||||||||||
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NUKEM |
Gross profit |
14 | 14 | 10 | 16 | |||||||||||||
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Change NUKEM |
14 | 14 | 10 | 16 | ||||||||||||||
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Lower (higher) administration expenditures |
(1 | ) | (1 | ) | 26 | 26 | ||||||||||||
Lower (higher) impairment charges |
(111 | ) | | 13 | | |||||||||||||
Lower exploration expenditures |
2 | 2 | 13 | 13 | ||||||||||||||
Rabbit Lake reclamation provision |
3 | | 9 | | ||||||||||||||
Loss (gain) on disposal of assets |
(1 | ) | (1 | ) | 3 | 3 | ||||||||||||
Lower loss (lower gain) on derivatives |
34 | 21 | (8 | ) | 39 | |||||||||||||
Higher foreign exchange losses |
(30 | ) | (30 | ) | (16 | ) | (16 | ) | ||||||||||
Gain on customer contract settlements in 2016 |
(59 | ) | (59 | ) | (59 | ) | (59 | ) | ||||||||||
Lower income tax recovery |
(7 | ) | (4 | ) | (97 | ) | (78 | ) | ||||||||||
Other |
1 | 1 | 4 | 4 | ||||||||||||||
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Net losses 2017 |
(124 | ) | (50 | ) | (143 | ) | (122 | ) | ||||||||||
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-2-
ADJUSTED NET EARNINGS (NON-IFRS MEASURE)
Adjusted net earnings is a measure that does not have a standardized meaning or a consistent basis of calculation under IFRS (non-IFRS measure). We use this measure as a more meaningful way to compare our financial performance from period to period. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate our performance. Adjusted net earnings is our net earnings attributable to equity holders, adjusted 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 in the applicable reporting period, and has also been adjusted for NUKEM purchase price inventory adjustments, impairment charges, Rabbit Lake reclamation provisions, and income taxes on adjustments.
Adjusted net earnings is non-standard supplemental information and should not be considered in isolation or as a substitute for financial information prepared according to accounting standards. Other companies may calculate this measure differently, so you may not be able to make a direct comparison to similar measures presented by other companies.
The following table reconciles 2017 adjusted net earnings for the third quarter and for the first nine months with our net earnings for the same periods.
THREE MONTHS | NINE MONTHS | |||||||||||||||
ENDED SEPTEMBER 30 | ENDED SEPTEMBER 30 | |||||||||||||||
($ MILLIONS) |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net earnings (losses) attributable to equity holders |
(124 | ) | 142 | (143 | ) | 83 | ||||||||||
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Adjustments |
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Adjustments on foreign exchange derivatives |
(40 | ) | (27 | ) | (106 | ) | (153 | ) | ||||||||
NUKEM purchase price inventory adjustment |
| | | (6 | ) | |||||||||||
Impairment charges |
111 | | 111 | 124 | ||||||||||||
Rabbit Lake reclamation provision |
(9 | ) | (6 | ) | (15 | ) | (6 | ) | ||||||||
Income taxes on adjustments |
12 | 9 | 31 | 12 | ||||||||||||
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Adjusted net earnings (losses) |
(50 | ) | 118 | (122 | ) | 54 | ||||||||||
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Selected segmented highlights
THREE MONTHS | NINE MONTHS | |||||||||||||||||||||||||||
ENDED SEPTEMBER 30 | ENDED SEPTEMBER 30 | |||||||||||||||||||||||||||
HIGHLIGHTS |
2017 | 2016 | CHANGE | 2017 | 2016 | CHANGE | ||||||||||||||||||||||
Uranium |
Production volume (million lbs) | 3.1 | 5.9 | (47 | )% | 16.9 | 19.9 | (15 | )% | |||||||||||||||||||
Sales volume (million lbs)1 | 9.2 | 9.3 | (1 | )% | 21.0 | 19.9 | 6 | % | ||||||||||||||||||||
Average realized price | ($US/lb) | 32.42 | 43.37 | (25 | )% | 34.15 | 42.92 | (20 | )% | |||||||||||||||||||
($Cdn/lb) | 41.66 | 56.34 | (26 | )% | 44.86 | 56.77 | (21 | )% | ||||||||||||||||||||
Revenue ($ millions)1 | 385 | 526 | (27 | )% | 943 | 1,129 | (16 | )% | ||||||||||||||||||||
Gross profit ($ millions) | 51 | 153 | (67 | )% | 179 | 301 | (41 | )% | ||||||||||||||||||||
Fuel services |
Production volume (million kgU) | 0.6 | 0.6 | | 5.4 | 6.5 | (17 | )% | ||||||||||||||||||||
Sales volume (million kgU)1 | 2.5 | 3.5 | (29 | )% | 6.9 | 8.7 | (21 | )% | ||||||||||||||||||||
Average realized price | ($Cdn/kgU) | 27.27 | 22.09 | 23 | % | 29.94 | 25.06 | 19 | % | |||||||||||||||||||
Revenue ($ millions)1 | 69 | 77 | (10 | )% | 206 | 217 | (5 | )% | ||||||||||||||||||||
Gross profit ($ millions) | 4 | 12 | (67 | )% | 42 | 44 | (5 | )% | ||||||||||||||||||||
NUKEM |
Uranium sales (million lbs)1 | 1.1 | 1.5 | (27 | )% | 6.0 | 4.0 | 50 | % | |||||||||||||||||||
Average realized price | ($Cdn/lb) | 28.72 | 43.52 | (34 | )% | 33.22 | 48.89 | (32 | )% | |||||||||||||||||||
Revenue ($ millions)1 | 32 | 67 | (52 | )% | 198 | 198 | | |||||||||||||||||||||
Gross loss ($ millions) | (1 | ) | (15 | ) | (93 | )% | (16 | ) | (26 | ) | (38 | )% |
1 | There were no significant intersegment transactions in the periods shown. Please see our third quarter MD&A for more information. |
-3-
Managements discussion and analysis and financial statements
The third quarter MD&A and unaudited condensed consolidated interim financial statements provide a detailed explanation of our operating results for the three and nine months ended September 30, 2017, as compared to the same periods last year. This news release should be read in conjunction with these documents, as well as our audited consolidated financial statements and notes for the year ended December 31, 2016, first quarter, second quarter and annual MD&A, and our most recent annual information form, all of which are available on our website at cameco.com, on SEDAR at sedar.com, and on EDGAR at sec.gov/edgar.shtml.
Qualified persons
The technical and scientific information discussed in this document for our material property McArthur River/Key Lake was approved by the following individuals who are qualified persons for the purposes of NI 43-101:
| Les Yesnik, general manager, McArthur River/Key Lake, Cameco |
| Greg Murdock, mine manager, McArthur River, Cameco |
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 January 15, 2018, to shareholders of record at the close of business on December 29, 2017.
Caution about forward-looking information
This news release includes statements and information about our expectations for the future, which we refer to as forward-looking information. Forward-looking information is based on our current views, which can change significantly, and actual results and events may be significantly different from what we currently expect. Examples of forward-looking information in this news release include: our expectations related to annual cost reductions resulting from the full implementation of changes to our global marketing activities; our 2017 adjusted net earnings and cash flow expectations; updates to our 2017 outlook table, including for our uranium segment: expected 2017 uranium production, delivery volumes, average realized price and average cost of sales, and on a consolidated basis 2017 expected tax expense and capital expenditures; our expectation that there could be further variability in uranium production in the future if current market conditions continue; and our expectations that a decision from the judge in the CRA trial could take six to 18 months and that the TEPCO arbitration case will be heard in the first quarter of 2019. Material risks that could lead to a different result include: unexpected changes in demand for uranium, our production, purchases, sales and costs, taxes, our mineral reserve and resource estimates, currency exchange rates and government regulations or policies; the risk that actual uranium prices, and our average realized price are lower than we expect; the risk of litigation or arbitration claims against us that have an adverse outcome; the risk that our contract counterparties may not satisfy their commitments; the risk that our cost reduction strategies are unsuccessful, or have unanticipated consequences; the risk that our 2017 adjusted net earnings estimate or cash flow estimate prove to be inaccurate; and the risk our estimates and forecasts prove to be inaccurate. In presenting the forward-looking information, we have made material assumptions which may prove incorrect about: uranium demand and prices; our production, purchases, sales, average realized price, capital expenditures, and costs; taxes and currency exchange rates; about market conditions and other factors upon which we have based our updated 2017 outlook as well as our 2017 adjusted net earnings and cash flow estimates; the accuracy of our 2017 adjusted net earnings and cash flow estimates and mineral reserve and other estimates; the absence of new and adverse government regulations or policies; the successful outcome of any litigation or arbitration claims against us; the timing of the judges decision in the CRA trial and the TEPCO arbitration hearing; our ability to complete contracts on the agreed-upon terms; and that our cost reduction strategies will successfully achieve their objectives. Please also review the discussion in our quarterly and annual MD&A and our most recent annual information form for other material risks that could cause actual results to differ significantly from our current expectations, and other material assumptions we have made. Forward-looking information is designed to help you understand managements current views of our near- and longer-term prospects, and it may not be appropriate for other purposes. We will not necessarily update this information unless we are required to by securities laws.
-4-
Conference call
We invite you to join our third quarter conference call on Friday, October 27, 2017, at 1:00 p.m. Eastern.
The call will be open to all investors and the media. To join the call, please dial (800) 319-4610 (Canada and US) or (604) 638-5340. An operator will put your call through. The slides and a live webcast 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, cameco.com, shortly after the call |
| on post view until midnight, Eastern, November 27, 2017, by calling (800) 319-6413 (Canada and US) or (604) 638-9010 (Passcode 1745) |
Fourth quarter and annual report release date
We plan to announce our fourth quarter and annual consolidated financial and operating results before markets open on February 9, 2018. Announcement dates are subject to change.
Profile
We are one of the worlds 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 worlds largest high-grade reserves and low-cost operations. Our uranium products are used to generate clean electricity in nuclear power plants around the world. 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, the Company and Cameco mean Cameco Corporation and its subsidiaries; including NUKEM Energy GmbH, unless otherwise indicated.
- End
Investor inquiries: Rachelle Girard (306) 956-6403
Media inquiries: Gord Struthers (306) 956-6593
-5-
Exhibit 99.2
Managements discussion and analysis
for the quarter ended September 30, 2017
4 | THIRD QUARTER MARKET UPDATE |
7 | CONSOLIDATED FINANCIAL RESULTS |
14 | OUTLOOK FOR 2017 |
16 | LIQUIDITY AND CAPITAL RESOURCES |
18 | FINANCIAL RESULTS BY SEGMENT |
22 | OUR OPERATIONS - THIRD QUARTER UPDATES |
23 | QUALIFIED PERSONS |
23 | ADDITIONAL INFORMATION |
This managements discussion and analysis (MD&A) includes information that will help you understand managements perspective of our unaudited condensed consolidated interim financial statements and notes for the quarter ended September 30, 2017 (interim financial statements). The information is based on what we knew as of October 26, 2017 and updates our first quarter, second quarter and annual MD&A included in our 2016 annual report.
As you review this MD&A, we encourage you to read our interim financial statements as well as our audited consolidated financial statements and notes for the year ended December 31, 2016 and annual MD&A. You can find more information about Cameco, including our audited consolidated financial statements and our most recent annual information form, on our website at cameco.com, on SEDAR at sedar.com or on EDGAR at sec.gov. You should also read our annual information form before making an investment decision about our securities.
The financial information in this MD&A and in our financial statements and notes are prepared according to International Financial Reporting Standards (IFRS), unless otherwise indicated.
Unless we have specified otherwise, all dollar amounts are in Canadian dollars.
Throughout this document, the terms we, us, our and Cameco mean Cameco Corporation and its subsidiaries, including NUKEM Energy Gmbh (NUKEM), unless otherwise indicated.
Caution about forward-looking information
Our MD&A includes statements and information about our expectations for the future. When we discuss our strategy, plans, 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 (US) securities laws. We refer to them in this MD&A as forward-looking information.
Key things to understand about the forward-looking information in this MD&A:
| It typically includes words and phrases about the future, such as: anticipate, believe, estimate, expect, plan, will, intend, goal, target, forecast, project, strategy and outlook (see examples below). |
| It represents our current views, and can change significantly. |
| It is based on a number of material assumptions, including those we have listed on page 3, which may prove to be incorrect. |
| Actual results and events may be significantly different from what we currently expect, due to the risks associated with our business. We list a number of these material risks below. We recommend you also review our annual information form, and first quarter, second quarter and annual MD&A, which includes a discussion of other material risks that could cause actual results to differ significantly from our current expectations. |
| Forward-looking information is designed to help you understand managements current views of our near and longer term prospects, and it may not be appropriate for other purposes. We will not necessarily update this information unless we are required to by securities laws. |
Examples of forward-looking information in this MD&A
Material risks
2 CAMECO CORPORATION
Material assumptions
2017 THIRD QUARTER REPORT 3
Our strategy
We are a pure-play nuclear fuel supplier, focused on taking advantage of the long-term growth we see coming in our industry, while maintaining the ability to respond to market conditions as they evolve. Our strategy is to focus on our tier-one assets and profitably produce at a pace aligned with market signals in order to increase long-term shareholder value, and to do that with an emphasis on safety, people and the environment.
In light of todays oversupplied market and the lingering uncertainty as to how long the weak market conditions will persist, we are focussing our resources on our lowest cost assets, on maintaining a strong balance sheet, and on efficiently managing the company in a low price environment. We believe this approach provides us with the opportunity to meet rising demand with increased production from our best margin assets, and helps to mitigate risk during a prolonged period of uncertainty.
We plan to:
| ensure continued safe, reliable, low-cost production from our tier-one assets McArthur River/Key Lake, Cigar Lake and Inkai |
| complete rampup of production at Cigar Lake |
| continue to evaluate all sources of supply and supply expansion opportunities in our portfolio, in order to retain the flexibility to respond to market signals and take advantage of value adding opportunities |
| focus on maximizing margins through cost management, productivity improvements, and supply discipline |
You can read more about our strategy in our 2016 annual MD&A.
Third quarter market update
There was little change in the market during the third quarter of 2017. During the largest annual industry symposium in September, discussions centred around the continued state of oversupply in the uranium market, risks to reactor construction programs, the potential impact of policy shifts by some governments, and risks to demand from non-nuclear electricity generating sources. Global demand expectations have come down, and the industry continues to work its way through supply that was incented during previous price spikes.
Longer term, uranium demand is backed by steady reactor growth with 56 reactors under construction. However, while under construction, these reactors are not yet consuming uranium. Therefore, there has not yet been a corresponding increase in uranium consumption.
With each new reactor, comes the long-term need for a safe and reliable source of uranium. And while the availability of pounds in the spot market has helped to satisfy the needs of utilities in the near term, the continued risk of production curtailments, financially distressed producers, lack of investment in new primary supply, declining secondary supplies, and growing uncovered requirements are expected to generate increasing pressure for fuel buyers to return to long-term contracting.
4 CAMECO CORPORATION
Industry consultants now estimate that utilities cumulative uncovered requirements total over 600 million pounds over the next decade. We believe the reduction from the previous estimate of 800 million pounds is due to some limited contracting activity, delays in construction programs, early reactor retirements and project cancellations. Some of these requirements should return as delayed reactor construction is completed, however it is beyond the 2026 timeframe. As annual supply adjusts and uncovered requirements grow, we believe the pounds available in the spot market wont be enough to satisfy the demand. The need to eventually contract for replacement volumes to fill these uncovered requirements will create opportunities for producers that can weather todays low prices and provide a recovering market with uncommitted uranium from long-lived, tier-one assets.
Caution about forward-looking information relating to the nuclear industry
This discussion of our expectations for the nuclear industry, including its growth profile, future global uranium supply, demand, reactor growth, pressure for long-term contracting and utilities uncovered requirements 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 beginning on page 2.
Industry prices at quarter end
SEP 30 2017 |
JUN 30 2017 |
MAR 31 2017 |
DEC 31 2016 |
SEP 30 2016 |
JUN 30 2016 |
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Uranium ($US/lb U3O8)1 |
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Average spot market price |
20.33 | 20.15 | 23.88 | 20.25 | 23.00 | 26.70 | ||||||||||||||||||
Average long-term price |
30.50 | 33.00 | 33.00 | 30.00 | 37.50 | 40.50 | ||||||||||||||||||
Fuel services ($US/kgU as UF6)1 |
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Average spot market price |
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North America |
4.55 | 5.13 | 5.93 | 5.93 | 5.93 | 6.75 | ||||||||||||||||||
Europe |
4.93 | 5.50 | 6.45 | 6.45 | 6.45 | 7.25 | ||||||||||||||||||
Average long-term price |
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North America |
14.50 | 14.50 | 13.50 | 12.50 | 12.25 | 12.75 | ||||||||||||||||||
Europe |
14.25 | 14.25 | 14.00 | 13.00 | 13.00 | 14.00 |
Note: the industry does not publish UO2 prices.
1 | Average of prices reported by TradeTech and Ux Consulting (UxC) |
On the spot market, where purchases call for delivery within one year, the volume reported by Ux Consulting (UxC) for the third quarter of 2017 was approximately 12 million pounds, which is on par with the third quarter of 2016. Year to date, approximately 34 million pounds has been transacted in the spot market, compared to 31 million pounds in the first three quarters of 2016. At the end of the quarter, the average reported spot price was $20.33 (US) per pound, up $0.18 (US) from the previous quarter.
Long-term contracts usually call for deliveries to begin more than two years after the contract is finalized, and use a number of pricing formulas, including fixed prices escalated over the term of the contract, and market referenced prices (spot and long-term indicators) quoted near the time of delivery. The volume of long-term contracting reported by UxC for the first nine months of 2017 was approximately 63 million pounds. Although higher than the 38 million pounds reported over the same period in 2016, the volumes were still less than the quantities consumed, and remained largely discretionary due to currently high inventory levels. The average reported long-term price at the end of the quarter was $30.50 (US) per pound, down $2.50 (US) from last quarter.
Spot UF6 conversion prices declined in both the North American and European markets, while long-term UF6 conversion prices were unchanged for the quarter.
2017 THIRD QUARTER REPORT 5
Also of note:
TEPCO DISPUTE
On the TEPCO dispute, the three arbitrators have been appointed and based on the current schedule set by them, we expect the case will be heard in the first quarter of 2019. However, the timing for a final decision will be dependent on how long the arbitrators deliberate following the conclusion of the hearing.
GLOBAL MARKETING CONSOLIDATION
In line with the other disciplined actions we have taken, we made some changes during the quarter to the way our global marketing activities are organized. All future Canadian and international marketing activities will be consolidated in Saskatoon. These actions are expected to reduce costs between $8 million and $10 million per year once fully implemented.
IMPAIRMENT
The changes to our global marketing organization significantly impacts the marketing activities historically performed by NUKEM. This required us to perform an impairment test on the NUKEM segment. As a result, we have recognized an impairment charge for the full carrying value of the goodwill of $111 million. See note 4 for more information.
6 CAMECO CORPORATION
Financial results
This section of our MD&A discusses our performance, financial condition and outlook for the future.
On February 1, 2017, we announced that on January 31, 2017, TEPCO, alleging force majeure, confirmed that it would not withdraw a contract termination notice it provided to Cameco Inc. with respect to a uranium supply agreement, which affects approximately 9.3 million pounds of uranium deliveries through 2028, worth approximately $1.3 billion in revenue to Cameco, including about $126 million in 2017. We see no basis for terminating the agreement. In this MD&A, our 2017 financial outlook and other disclosures relating to our contract portfolio are presented on a basis which excludes this agreement with TEPCO, which is under dispute.
Consolidated financial results
THREE MONTHS | NINE MONTHS | |||||||||||||||||||||||
CONSOLIDATED HIGHLIGHTS | ENDED SEPTEMBER 30 | ENDED SEPTEMBER 30 | ||||||||||||||||||||||
($ MILLIONS EXCEPT WHERE INDICATED) |
2017 | 2016 | CHANGE | 2017 | 2016 | CHANGE | ||||||||||||||||||
Revenue |
486 | 670 | (27 | )% | 1,348 | 1,544 | (13 | )% | ||||||||||||||||
Gross profit |
51 | 146 | (65 | )% | 199 | 307 | (35 | )% | ||||||||||||||||
Net earnings (losses) attributable to equity holders |
(124 | ) | 142 | >(100 | %) | (143 | ) | 83 | >(100 | %) | ||||||||||||||
$ per common share (basic) |
(0.31 | ) | 0.36 | >(100 | %) | (0.36 | ) | 0.21 | >(100 | %) | ||||||||||||||
$ per common share (diluted) |
(0.31 | ) | 0.36 | >(100 | %) | (0.36 | ) | 0.21 | >(100 | %) | ||||||||||||||
Adjusted net earnings (losses) (non-IFRS, see page 8) |
(50 | ) | 118 | >(100 | %) | (122 | ) | 54 | >(100 | %) | ||||||||||||||
$ per common share (adjusted and diluted) |
(0.13 | ) | 0.30 | >(100 | %) | (0.31 | ) | 0.14 | >(100 | %) | ||||||||||||||
Cash provided by operations (after working capital changes) |
154 | 385 | (60 | )% | 276 | 57 | >100 | % |
NET EARNINGS
The following table shows what contributed to the change in net earnings and adjusted net earnings (non-IFRS measure, see page 8) in the third quarter and the first nine months of 2017, compared to the same periods in 2016.
THREE MONTHS | NINE MONTHS | |||||||||||||||||
ENDED SEPTEMBER 30 | ENDED SEPTEMBER 30 | |||||||||||||||||
($ MILLIONS) |
IFRS | ADJUSTED | IFRS | ADJUSTED | ||||||||||||||
Net earnings 2016 |
142 | 118 | 83 | 54 | ||||||||||||||
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Change in gross profit by segment |
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(We calculate gross profit by deducting from revenue the cost of products and services sold, and depreciation and amortization (D&A)) |
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Uranium |
Higher (lower) sales volume |
(2 | ) | (2 | ) | 17 | 17 | |||||||||||
Lower realized prices ($US) |
(131 | ) | (131 | ) | (243 | ) | (243 | ) | ||||||||||
Foreign exchange impact on realized prices |
(4 | ) | (4 | ) | (7 | ) | (7 | ) | ||||||||||
Lower costs |
35 | 35 | 111 | 111 | ||||||||||||||
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Change uranium |
(102 | ) | (102 | ) | (122 | ) | (122 | ) | ||||||||||
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Fuel services |
Lower sales volume |
(4 | ) | (4 | ) | (9 | ) | (9 | ) | |||||||||
Higher realized prices ($Cdn) |
13 | 13 | 34 | 34 | ||||||||||||||
Higher costs |
(18 | ) | (18 | ) | (27 | ) | (27 | ) | ||||||||||
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Change fuel services |
(9 | ) | (9 | ) | (2 | ) | (2 | ) | ||||||||||
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NUKEM |
Gross profit |
14 | 14 | 10 | 16 | |||||||||||||
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Change NUKEM |
14 | 14 | 10 | 16 | ||||||||||||||
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Other changes |
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Lower (higher) administration expenditures |
(1 | ) | (1 | ) | 26 | 26 | ||||||||||||
Lower (higher) impairment charges |
(111 | ) | | 13 | | |||||||||||||
Lower exploration expenditures |
2 | 2 | 13 | 13 | ||||||||||||||
Rabbit Lake reclamation provision |
3 | | 9 | | ||||||||||||||
Loss (gain) on disposal of assets |
(1 | ) | (1 | ) | 3 | 3 | ||||||||||||
Lower loss (lower gain) on derivatives |
34 | 21 | (8 | ) | 39 | |||||||||||||
Higher foreign exchange losses |
(30 | ) | (30 | ) | (16 | ) | (16 | ) | ||||||||||
Gain on customer contract settlements in 2016 |
(59 | ) | (59 | ) | (59 | ) | (59 | ) | ||||||||||
Lower income tax recovery |
(7 | ) | (4 | ) | (97 | ) | (78 | ) | ||||||||||
Other |
1 | 1 | 4 | 4 | ||||||||||||||
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Net losses 2017 |
(124 | ) | (50 | ) | (143 | ) | (122 | ) | ||||||||||
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See Financial results by segment beginning on page 18 for more detailed discussion.
2017 THIRD QUARTER REPORT 7
ADJUSTED NET EARNINGS (NON-IFRS MEASURE)
Adjusted net earnings is a measure that does not have a standardized meaning or a consistent basis of calculation under IFRS (non-IFRS measure). We use this measure as a more meaningful way to compare our financial performance from period to period. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate our performance. Adjusted net earnings is our net earnings attributable to equity holders, adjusted 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 in the applicable reporting period, and has also been adjusted for NUKEM purchase price inventory adjustments, impairment charges, Rabbit Lake reclamation provisions, and income taxes on adjustments.
Adjusted net earnings is non-standard supplemental information and should not be considered in isolation or as a substitute for financial information prepared according to accounting standards. Other companies may calculate this measure differently, so you may not be able to make a direct comparison to similar measures presented by other companies.
The following table reconciles 2017 adjusted net earnings for the third quarter and for the first nine months with our net earnings for the same periods.
THREE MONTHS | NINE MONTHS | |||||||||||||||
ENDED SEPTEMBER 30 | ENDED SEPTEMBER 30 | |||||||||||||||
($ MILLIONS) |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net earnings (losses) attributable to equity holders |
(124 | ) | 142 | (143 | ) | 83 | ||||||||||
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Adjustments |
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Adjustments on foreign exchange derivatives |
(40 | ) | (27 | ) | (106 | ) | (153 | ) | ||||||||
NUKEM purchase price inventory adjustment |
| | | (6 | ) | |||||||||||
Impairment charges |
111 | | 111 | 124 | ||||||||||||
Rabbit Lake reclamation provision |
(9 | ) | (6 | ) | (15 | ) | (6 | ) | ||||||||
Income taxes on adjustments |
12 | 9 | 31 | 12 | ||||||||||||
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Adjusted net earnings (losses) |
(50 | ) | 118 | (122 | ) | 54 | ||||||||||
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Quarterly trends
HIGHLIGHTS | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||
($ MILLIONS EXCEPT PER SHARE AMOUNTS) |
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | ||||||||||||||||||||||||
Revenue |
486 | 470 | 393 | 887 | 670 | 466 | 408 | 975 | ||||||||||||||||||||||||
Net earnings (losses) attributable to equity holders |
(124 | ) | (2 | ) | (18 | ) | (144 | ) | 142 | (137 | ) | 78 | (10 | ) | ||||||||||||||||||
$ per common share (basic) |
(0.31 | ) | (0.00 | ) | (0.05 | ) | (0.36 | ) | 0.36 | (0.35 | ) | 0.20 | (0.03 | ) | ||||||||||||||||||
$ per common share (diluted) |
(0.31 | ) | (0.00 | ) | (0.05 | ) | (0.36 | ) | 0.36 | (0.35 | ) | 0.20 | (0.03 | ) | ||||||||||||||||||
Adjusted net earnings (losses) (non-IFRS, see page 8) |
(50 | ) | (44 | ) | (29 | ) | 90 | 118 | (57 | ) | (7 | ) | 151 | |||||||||||||||||||
$ per common share (adjusted and diluted) |
(0.13 | ) | (0.11 | ) | (0.07 | ) | 0.23 | 0.30 | (0.14 | ) | (0.02 | ) | 0.38 | |||||||||||||||||||
Cash provided by (used in) operations (after working capital changes) |
154 | 130 | (8 | ) | 255 | 385 | (51 | ) | (277 | ) | 503 |
Key things to note:
| our financial results are strongly influenced by the performance of our uranium segment, which accounted for 79% of consolidated revenues in the third quarter of 2017 |
| the timing of customer requirements, which tend to vary from quarter to quarter, drives revenue in the uranium and fuel services segments, meaning quarterly results are not necessarily a good indication of annual results due to seasonal variability |
| net earnings do not trend directly with revenue due to unusual items and transactions that occur from time to time. We use adjusted net earnings, a non-IFRS measure, as a more meaningful way to compare our results from period to period (see page 8 for more information). |
| cash from operations tends to fluctuate as a result of the timing of deliveries and product purchases in our uranium and fuel services segments |
8 CAMECO CORPORATION
The following table compares the net earnings and adjusted net earnings for the third quarter to the previous seven quarters.
HIGHLIGHTS | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||
($ MILLIONS EXCEPT PER SHARE AMOUNTS) |
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | ||||||||||||||||||||||||
Net earnings (losses) attributable to equity holders |
(124 | ) | (2 | ) | (18 | ) | (144 | ) | 142 | (137 | ) | 78 | (10 | ) | ||||||||||||||||||
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Adjustments |
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Adjustments on foreign exchange derivatives |
(40 | ) | (44 | ) | (22 | ) | 23 | (27 | ) | (10 | ) | (116 | ) | 10 | ||||||||||||||||||
NUKEM purchase price inventory adjustment |
| | | | | (6 | ) | | | |||||||||||||||||||||||
Impairment charges |
111 | | | 238 | | 124 | | 210 | ||||||||||||||||||||||||
Rabbit Lake reclamation provision |
(9 | ) | (12 | ) | 6 | (28 | ) | (6 | ) | | | | ||||||||||||||||||||
Income taxes on adjustments |
12 | 14 | 5 | 1 | 9 | (28 | ) | 31 | (59 | ) | ||||||||||||||||||||||
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Adjusted net earnings (losses) (non-IFRS, see page 8) |
(50 | ) | (44 | ) | (29 | ) | 90 | 118 | (57 | ) | (7 | ) | 151 | |||||||||||||||||||
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Corporate expenses
ADMINISTRATION
THREE MONTHS ENDED SEPTEMBER 30 |
NINE MONTHS ENDED SEPTEMBER 30 |
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($ MILLIONS) |
2017 | 2016 | CHANGE | 2017 | 2016 | CHANGE | ||||||||||||||||||
Direct administration |
38 | 39 | (3 | )% | 116 | 145 | (20 | )% | ||||||||||||||||
Stock-based compensation |
2 | | | 9 | 6 | 50 | % | |||||||||||||||||
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Total administration |
40 | 39 | 3 | % | 125 | 151 | (17 | )% | ||||||||||||||||
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Direct administration costs were $1 million lower for the third quarter of 2017 compared to the same period last year. Included in the current quarter are $5 million in one-time costs related to the changes made to the way our global marketing activities are organized. These actions are expected to reduce costs between $8 million and $10 million per year once fully implemented.
Direct administration costs were $29 million lower for the first nine months. The decrease was mainly due to higher costs in 2016 related to:
| one-time costs related to collaboration agreements |
| charges related to the consolidation of office space |
| legal costs as our CRA dispute progressed towards trial |
| restructuring of our NUKEM segment, |
In addition, some of the actions we took in 2016 to reduce our costs resulted in lower costs in the first nine months of 2017. The decrease was partially offset by the charges related to the reorganization of our global marketing activities.
EXPLORATION
In the third quarter, uranium exploration expenses were $8 million, a decrease of $2 million compared to the third quarter of 2016. Exploration expenses for the first nine months of the year decreased by $13 million compared to 2016, to $24 million, due to a planned reduction in expenditures.
INCOME TAXES
We recorded an income tax recovery of $3 million in the third quarter of 2017, compared to a recovery of $10 million in the third quarter of 2016.
On an adjusted basis, we recorded an income tax recovery of $15 million this quarter compared to a recovery of $19 million in the third quarter of 2016, primarily due to a change in the distribution of earnings among jurisdictions. In 2017, we recorded losses of $31 million in Canada compared to losses of $121 million in 2016, while we recorded losses of $34 million in foreign jurisdictions compared to earnings of $221 million last year.
In the first nine months of 2017, we recorded an income tax expense of $31 million compared to a recovery of $66 million in 2016.
2017 THIRD QUARTER REPORT 9
On an adjusted basis, we recorded an income tax recovery of $1 million for the first nine months compared to a recovery of $79 million in 2016 due to a change in the distribution of earnings among foreign jurisdictions in 2017 and a change in the Saskatchewan corporate tax rate. In 2017, we recorded losses of $27 million in Canada compared to losses of $371 million in 2016, while we recorded losses of $95 million in foreign jurisdictions compared to earnings of $349 million last year.
THREE MONTHS | NINE MONTHS | |||||||||||||||
ENDED SEPTEMBER 30 | ENDED SEPTEMBER 30 | |||||||||||||||
($ MILLIONS) |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Pre-tax adjusted earnings1 |
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Canada |
(31 | ) | (121 | ) | (27 | ) | (371 | ) | ||||||||
Foreign |
(34 | ) | 221 | (95 | ) | 349 | ||||||||||
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Total pre-tax adjusted earnings |
(65 | ) | 100 | (122 | ) | (22 | ) | |||||||||
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Adjusted income taxes1 |
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Canada |
(9 | ) | (28 | ) | 10 | (96 | ) | |||||||||
Foreign |
(6 | ) | 9 | (11 | ) | 17 | ||||||||||
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Adjusted income tax recovery |
(15 | ) | (19 | ) | (1 | ) | (79 | ) | ||||||||
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1 | Pre-tax adjusted earnings and adjusted income taxes are non-IFRS measures. Our IFRS-based measures have been adjusted by the amounts reflected in the table in adjusted net earnings (non-IFRS measure on page 8). |
TRANSFER PRICING DISPUTES
We have been reporting on our transfer pricing disputes with CRA since 2008, when it originated, and with the IRS since the first quarter of 2015. We have now settled our IRS dispute related to the 2009 through 2012 tax years, and in the third quarter we paid $198,000 (US) comprised of $122,000 (US) taxes owing plus interest.
Below, we discuss the general nature of transfer pricing disputes and, more specifically, the ongoing disputes we have.
Transfer pricing is a complex area of tax law, and it is difficult to predict the outcome of cases like ours. However, tax authorities generally test two things:
| the governance (structure) of the corporate entities involved in the transactions |
| the price at which goods and services are sold by one member of a corporate group to another |
We have a global customer base and we established a marketing and trading structure involving foreign subsidiaries, including Cameco Europe Limited (CEL), which entered into various intercompany arrangements, including purchase and sale agreements, as well as uranium purchase and sale agreements with third parties. Cameco and its subsidiaries made reasonable efforts to put arms-length transfer pricing arrangements in place, and these arrangements expose the parties to the risks and rewards accruing to them under these contracts. The intercompany contract prices are generally comparable to those established in comparable contracts between arms-length parties entered into at that time.
For the years 2003 to 2011, CRA has shifted CELs income (as recalculated by CRA) back to Canada and applied statutory tax rates, interest and instalment penalties, and, from 2007 to 2011, transfer pricing penalties. Taxes of approximately $350 million for the 2003 2016 years have already been paid in a jurisdiction outside Canada, and we are considering our options under bilateral international tax treaties to limit double taxation of this income. There is a risk that we will not be successful in eliminating all potential double taxation. The expected income adjustments under our CRA tax dispute are represented by the amounts claimed by CRA and are described below.
CRA dispute
Since 2008, CRA has disputed our corporate structure and the related transfer pricing methodology we used for certain intercompany uranium sale and purchase agreements. To date, we received notices of reassessment for our 2003 through 2011 tax returns. We have recorded a cumulative tax provision of $56 million, where an argument could be made that, based on our methodology, our transfer price may have fallen outside of an appropriate range of pricing in uranium contracts for the period from 2003 through September 30, 2017. We are confident that we will be successful in our case and continue to believe the ultimate resolution of this matter will not be material to our financial position, results of operations and cash flows in the year(s) of resolution.
10 CAMECO CORPORATION
For the years 2003 through 2011, CRA issued notices of reassessment for approximately $4.1 billion of additional income for Canadian tax purposes, which would result in a related tax expense of about $1.2 billion. CRA has also issued notices of reassessment for transfer pricing penalties for the years 2007 through 2011 in the amount of $371 million. The Canadian income tax rules include provisions that require larger companies like us to remit or otherwise secure 50% of the cash tax plus related interest and penalties at the time of reassessment. To date, under these provisions, after applying elective deductions, we have paid a net amount of $303 million in cash. In addition, we have provided $421 million in letters of credit (LC) to secure 50% of the cash taxes and related interest amounts reassessed after 2014. The amounts paid or secured are shown in the table below.
YEAR PAID ($ MILLIONS) |
CASH TAXES | INTEREST AND INSTALMENT PENALTIES |
TRANSFER PRICING PENALTIES |
TOTAL | CASH REMITTANCE |
SECURED BY LC |
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Prior to 2014 |
1 | 22 | 36 | 59 | 59 | | ||||||||||||||||||
2014 |
106 | 47 | | 153 | 153 | | ||||||||||||||||||
2015 |
202 | 71 | 79 | 352 | 20 | 332 | ||||||||||||||||||
2016 |
51 | 38 | 31 | 120 | 32 | 88 | ||||||||||||||||||
2017 |
| 1 | 39 | 40 | 39 | 1 | ||||||||||||||||||
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Total |
360 | 179 | 185 | 724 | 303 | 421 | ||||||||||||||||||
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Using the methodology we believe CRA will continue to apply, and including the $4.1 billion already reassessed, we expect to receive notices of reassessment for a total of approximately $8.1 billion of additional income taxable in Canada for the years 2003 through 2016, which would result in a related tax expense of approximately $2.4 billion. As well, CRA may continue to apply transfer pricing penalties to taxation years subsequent to 2011. As a result, we estimate that cash taxes and transfer pricing penalties for these years would be between $1.75 billion and $1.95 billion. In addition, we estimate there would be interest and instalment penalties applied that would be material to us. While in dispute, we would be responsible for remitting or otherwise providing security for 50% of the cash taxes and transfer pricing penalties (between $875 million and $975 million), plus related interest and instalment penalties assessed, which would be material to us.
Under the Canadian federal and provincial tax rules, the amount required to be paid or secured each year will depend on the amount of income reassessed in that year and the availability of elective deductions and tax loss carryovers. CRA has decided to disallow the use of any loss carry-backs for any transfer pricing adjustment, starting with the 2008 tax year. This does not impact the anticipated income tax expense for a particular year, but does impact the timing of any required security or payment. As noted above, beginning with the 2010 tax year, as an alternative to paying cash, we used letters of credit to satisfy our obligations related to the reassessed income tax and related interest amounts. We believe we will be able to continue to provide security in the form of letters of credit to satisfy these requirements. The estimated amounts summarized in the table below reflect actual amounts paid or secured and estimated future amounts owing based on the actual and expected reassessments for the years 2003 through 2016, and include the expected timing adjustment for the inability to use any loss carry-backs starting in 2008. We will update this table annually to include the estimated impact of reassessments expected for completed years subsequent to 2016.
$ MILLIONS |
2003-2016 | 2017-2018 | 2019-2023 | TOTAL | ||||||||||||
50% of cash taxes and transfer pricing penalties paid, secured or owing in the period |
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Cash payments |
187 | 65 -90 | 145 - 170 | 390 - 445 | ||||||||||||
Securedby letters of credit |
319 | 10 - 35 | 150 - 175 | 480 - 530 | ||||||||||||
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Total paid1 |
506 | 75 - 125 | 295 - 345 | 875 - 975 | ||||||||||||
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1 | These amounts do not include interest and instalment penalties, which totaled approximately $179 million to September 30, 2017. |
In light of our view of the likely outcome of the case as described above, we expect to recover the amounts remitted, including the $724 million already paid or otherwise secured to date.
We expect that the total cost of disputing the CRA reassessments and presenting our appeal in Tax Court will be about $57 million. This estimated amount includes legal fees, expert witness fees, consultant fees, filing expenses, and other costs related to the case, from the time we started specifically tracking such costs in 2009, through 2017, the largest expenditures having been incurred in 2016 as we prepared for trial and began the court proceedings. If the decision of the Tax Court is appealed, additional costs will be incurred.
2017 THIRD QUARTER REPORT 11
The trial for the 2003, 2005 and 2006 tax years concluded on September 13, 2017 and we expect to receive a Tax Court decision within six to 18 months. Once the decision is issued, the rules that apply to our case permit either party to appeal the Tax Court decision to the Federal Court of Appeal. The decision of the Federal Court of Appeal can be appealed to the Supreme Court of Canada, but only if the Supreme Court agrees to hear the appeal. An appeal of a Tax Court of Canada decision to the Federal Court of Appeal must be filed within 30 days after the issuance of a Tax Court decision (excluding the months of July and August). The request to appeal a decision of the Federal Court of Appeal to the Supreme Court of Canada must be made within 60 days of issuance of a Federal Court of Appeal decision.
In the event that either party appeals the Tax Court decision, we anticipate that it would take about two years from the date the Tax Court decision is issued to receive a decision from the Federal Court of Appeal. If a further appeal is pursued, it would likely take about two years from the date the Federal Court of Appeal decision is issued to receive a decision from the Supreme Court of Canada.
The total tax amount reassessed for the 2003, 2005 and 2006 tax years was $11 million, and we remitted 50% of such amount at the time the reassessments were issued. In certain circumstances, including where neither party pursues an appeal of the Tax Court decision, CRA would issue revised reassessments for the 2003, 2005 and 2006 tax years that comply with the Tax Court decision. Following those reassessments, the corresponding tax payments or refunds, as applicable, plus interest, would be made or received, as applicable, within a reasonable period. Where one or more appeals are pursued by either party, reassessments might not be issued until after the decision on the final appeal is received. If the Tax Court decision results in an aggregate tax amount in excess of what we have already remitted, and we pursue an appeal of that decision, we may be required to remit additional cash tax amounts not exceeding the remaining unpaid portion of the original $11 million (plus interest) while that appeal is underway. Where the Tax Court decision results in a refund of the remitted portion of the original $11 million (with interest), we may not receive that refund until and unless the Tax Court decision is confirmed after the final appeal.
Once the Tax Court has delivered a decision for the 2003, 2005 and 2006 tax years we will consider how the decision relates to other years in issue (being 2004 and years subsequent to 2006). While the decision would not be legally binding for any year other than the trial years, we expect the ultimate decision for the trial years to be an important factor in resolving the dispute for the other years in issue.
Caution about forward-looking information relating to our CRA tax dispute
This discussion of our expectations relating to our tax dispute with CRA and future tax reassessments by CRA 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 beginning on page 2 and also on the more specific assumptions and risks listed below. Actual outcomes may vary significantly.
12 CAMECO CORPORATION
FOREIGN EXCHANGE
The exchange rate between the Canadian dollar and US dollar affects the financial results of our uranium and fuel services segments. See Revenue, adjusted net earnings, and cash flow sensitivity analysis on page 15 for more information on how a change in the exchange rate will impact our revenue, cash flow, and adjusted net earnings (ANE) (see Non-IFRS measures on page 8).
We sell the majority of our uranium and fuel services products under long-term sales contracts, which are routinely denominated in US dollars, while our production costs are largely denominated in Canadian dollars. To provide cash flow predictability, we hedge a portion of our net US/Cdn exposure (e.g. total US dollar sales less US dollar expenditures and product purchases) to manage shorter term exchange rate volatility. Our results are therefore affected by the movements in the exchange rate on our hedge portfolio, and on the unhedged portion of our net exposure.
Impact of hedging on IFRS earnings
We do not use hedge accounting under IFRS and, therefore, we are required to report gains and losses on all hedging activity, both for contracts that close in the period and those that remain outstanding at the end of the period. For the contracts that remain outstanding, we must treat them as though they were settled at the end of the reporting period (mark-to-market).
However, we do not believe the gains and losses that we are required to report under IFRS appropriately reflect the intent of our hedging activities, so we make adjustments in calculating our ANE to better reflect the benefits of our hedging program in the applicable reporting period.
Impact of hedging on ANE
The table below provides a summary of our hedge portfolio at September 30, 2017. You can use this information to estimate the expected gains or losses on derivatives for the remainder of 2017 on an ANE basis. However, if we add contracts to the portfolio that are designated for use in 2017 or if there are changes in the US/Cdn exchange rates in the year, those expected gains or losses could change.
You can read more about our hedging program in our 2016 annual MD&A.
HEDGE PORTFOLIO SUMMARY
SEPTEMBER 30, 2017 ($ MILLIONS) |
20171 | 2018 | 2019 | AFTER 2019 |
TOTAL | |||||||||||||||||
US dollar forward contracts |
150 | 320 | 70 | 40 | 580 | |||||||||||||||||
Average contract rate 2 |
(US/Cdn dollar) | 1.28 | 1.31 | 1.31 | 1.27 | 1.30 | ||||||||||||||||
US dollar option contracts |
30 | 105 | 120 | 10 | 265 | |||||||||||||||||
Average contract rate range2 |
(US/Cdn dollar) | 1.33 to 1.37 | 1.29 to 1.33 | 1.27 to 1.33 | 1.31 to 1.35 | 1.28 to 1.33 | ||||||||||||||||
Total US dollar hedge contracts |
180 | 425 | 190 | 50 | 845 | |||||||||||||||||
Effective hedge rate range3 |
(US/Cdn dollar) | 1.26 to 1.27 | 1.23 to 1.24 | 1.25 to 1.29 | 1.28 to 1.29 | 1.24 to 1.26 | ||||||||||||||||
Hedge ratio4 |
51 | % | 41 | % | 17 | % | 4 | % | 16 | % |
1 | Represents hedge contracts for the remainder of the year. See 2017 Financial Outlook for the full-year expected gain/loss on derivatives on an adjusted net earnings basis. |
2 | The average contract rate is the average of the rates stipulated in the outstanding contracts. |
3 | The effective hedge rate is the exchange rate on the original hedge contract at the time it was established and designated for use. Therefore the effective hedge rate range shown reflects an average of contract exchange rates at the time of designation. |
4 | Hedge ratio is calculated by dividing the amount (in foreign currency) of outstanding derivative contracts by estimated future net exposures. |
At September 30, 2017:
| The value of the US dollar relative to the Canadian dollar was $1.00 (US) for $1.25 (Cdn), down from $1.00 (US) for $1.30 (Cdn) at June 30, 2017. The exchange rate averaged $1.00 (US) for $1.25 (Cdn) over the quarter. |
| The mark-to-market gain on all foreign exchange contracts was $43 million compared to an $18 million gain at June 30, 2017. |
For information on the impact of foreign exchange on our intercompany balances, see note 16 to the financial statements.
2017 THIRD QUARTER REPORT 13
Outlook for 2017
Our outlook for 2017 reflects the expenditures necessary to help us achieve our strategy and is based on the assumptions found below the table, including a given uranium spot price, uranium term price, and foreign exchange rate. For more information on how changes in the exchange rate or uranium prices can impact our outlook see Revenue, adjusted net earnings, and cash flow sensitivity analysis on page 15, and Foreign exchange on page 13. Our 2017 financial outlook, and other disclosures relating to our contract portfolio, have been presented on a basis that excludes our contract with TEPCO, which is under dispute.
Our outlook for uranium production, uranium sales volume, uranium revenue, uranium average realized price, uranium average unit cost of sales, consolidated tax expense, and capital expenditures has changed. We do not provide an outlook for the items in the table that are marked with a dash.
See 2017 Financial results by segment on page 18 for details.
2017 FINANCIAL OUTLOOK
CONSOLIDATED | URANIUM | FUEL SERVICES | NUKEM | |||||||||||||
EXPECTED CONTRIBUTION TO GROSS PROFIT |
100% | 85% | 14% | 1% | ||||||||||||
Production |
| |
24.0 million lbs |
|
|
8 to 9 million kgU |
|
| ||||||||
Sales/delivery volume1 |
| |
32 to 33 million lbs |
2 |
|
11 to 12 million kgU |
|
|
8 to 9 million lbs U3O8 |
| ||||||
Revenue ($ million)1 |
2,100 to 2,270 | 1,520 to 1,570 | 3 | 300 to 330 | | |||||||||||
Average realized price3 |
| $ | 47.50/lb | 2 | | | ||||||||||
Average unit cost of sales (including D&A) |
| $ | 35.00-36.00/lb | 4 | $ | 21.60-22.60/kgU | | |||||||||
Gross profit5 |
| | | 3% to 4 | % | |||||||||||
Direct administration costs6 |
$ | 150-160 million | | | | |||||||||||
Exploration costs |
| $ | 30 million | | | |||||||||||
Expected loss on derivatives - ANE basis3 |
$ | 45-50 million | | | | |||||||||||
Tax expense - ANE basis7 |
< $ | 10 million | | | | |||||||||||
Capital expenditures8 |
$ | 160 million | | | |
1 | Our 2017 outlook for sales/delivery volume and revenue does not include sales between our uranium, fuel services and NUKEM segments. |
2 | Our uranium sales/delivery volume is based on the volumes we currently have commitments to deliver under contract in 2017. |
3 | Based on a uranium spot price of $20.25 (US) per pound (the UxC spot price as of September 30, 2017), a long-term price indicator of $31.00 (US) per pound (the UxC long-term indicator on September 30, 2017) and an exchange rate of $1.00 (US) for $1.25 (Cdn). |
4 | Based on the expected unit cost of sale for produced material and committed long-term purchases. If we make discretionary purchases in the remainder of 2017, then we expect the overall unit cost of sales may be affected. |
5 | Gross profit excludes inventory write-downs to reflect net realizable value. |
6 | Direct administration costs do not include stock-based compensation expenses. See page 9 for more information. |
7 | Our outlook for the tax expense is based on adjusted net earnings and the other assumptions listed in the table. If other assumptions change then the expected expense may be affected. |
8 | Capital expenditures do not include adjustments for revenue from sales of pre-commercial production. |
Based on the outlook provided in the table and the assumptions for uranium prices and foreign exchange rates used in and listed below the table, and as we reported in the second quarter, we continue to expect 2017 adjusted net earnings to be weaker than in 2016. However, we continue to expect cash from operations to be higher in 2017 than the $312 million reported in 2016. This is forward looking information that is based on the additional assumptions and subject to the material risks discussed under the heading Caution about forward looking information beginning on page 2.
14 CAMECO CORPORATION
Our outlook range for uranium revenue has been updated to $1,520 million to $1,570 million (previously $1,470 million to $1,570 million) as a result of additional certainty on deliveries and increased sales volumes. Sales volumes for uranium are now expected to be 32 million to 33 million lbs (previously 30 million to 32 million lbs) as a consequence of some contract optimization opportunities, whereby we accelerated some deliveries into 2017.
We now expect an annual average realized price of $47.50 per pound (previously $49.00 per pound) in our uranium segment for 2017, as a result of the revised US dollar exchange rate assumption of 1.25 (previously 1.30). Our Canadian dollar realized prices for the first nine months of 2017 were $44.86 per pound, which translates to an expectation of higher prices on deliveries in the fourth quarter.
Average unit cost of sales (including D&A) in our uranium segment is now expected to be $35.00 to $36.00 per pound (previously $36.00 to $38.00 per pound). The reduction is a result of purchase deferrals in 2017 and the impact of the revised US dollar exchange rate assumption of 1.25 (previously 1.30), partially offset by increased unit production costs due to a decrease in expected uranium production.
Uranium production is now expected to be 24 million pounds (previously 25.2 million pounds) due to production delays at Key Lake caused by work required on the existing calciner circuit and lower production than expected at Smith Ranch-Highland. Given our inventory position, we are willing to accept some variability in 2017 production, and expect there could be further variability in the future if current market conditions continue. However, we wont compromise safety, the environment, or the long-term health of the company.
We now expect a tax expense on an adjusted net earnings basis of less than $10 million (previously $10 million to $20 million) due to a changes in our outlook noted above. However, on October 25, 2017, in its throne speech, the Saskatchewan government announced that it would reverse a previously enacted corporate tax decrease. If this change is substantively enacted before the end of 2017, we will reverse the corresponding reduction to the deferred tax asset we recorded in the second quarter of this year with the expected effect of decreasing our 2017 tax expense by $24 million.
Our outlook for capital expenditures has decreased to $160 million (previously $175 million) due to a further reduction in spending at both McArthur River and Cigar Lake.
In our uranium and fuel services segments, our customers choose when in the year to receive deliveries, so our quarterly delivery patterns, sales/delivery volumes and revenue can vary significantly. We are on track for our uranium sales/delivery targets in 2017 and, therefore expect to deliver between 11 million and 12 million pounds in the fourth quarter.
REVENUE, ADJUSTED NET EARNINGS, AND CASH FLOW SENSITIVITY ANALYSIS
FOR 2017 ($ MILLIONS) |
IMPACT ON: | |||||||||||||
CHANGE |
REVENUE | ANE | CASH FLOW | |||||||||||
Uranium spot and term price1 |
$5(US)/lb increase | 2 | 1 | 1 | ||||||||||
$5(US)/lb decrease | | | | |||||||||||
Value of Canadian dollar vs US dollar |
One cent decrease in CAD | 6 | 3 | 3 | ||||||||||
One cent increase in CAD | (6 | ) | (3 | ) | (3 | ) |
1 | Assuming change in both UxC spot price ($20.25 (US) per pound on September 30, 2017) and the UxC long-term price indicator ($31.00 (US) per pound on September 30, 2017) |
PRICE SENSITIVITY ANALYSIS: URANIUM SEGMENT
The following table is not a forecast of prices we expect to receive. The prices we actually realize will be different from the prices shown in the table. It is designed to indicate how the portfolio of long-term contracts we had in place on September 30, 2017 would respond to different spot prices. In other words, we would realize these prices only if the contract portfolio remained the same as it was on September 30, 2017 and none of the assumptions we list below change.
We intend to update this table each quarter in our MD&A to reflect changes to our contract portfolio. As a result, we expect the table to change from quarter to quarter.
2017 THIRD QUARTER REPORT 15
Expected realized uranium price sensitivity under various spot price assumptions
(rounded to the nearest $1.00)
|
| |||||||||||||||||||||||||||
SPOT PRICES | ||||||||||||||||||||||||||||
($US/lb U3O8) |
$20 | $40 | $60 | $80 | $100 | $120 | $140 | |||||||||||||||||||||
2017 |
Provided in financial outlook table and in revenue, adjusted net earnings, and cash flow sensitivity analysis | |||||||||||||||||||||||||||
2018 |
36 | 44 | 55 | 65 | 75 | 84 | 91 | |||||||||||||||||||||
2019 |
32 | 42 | 55 | 65 | 74 | 81 | 87 | |||||||||||||||||||||
2020 |
32 | 42 | 55 | 65 | 74 | 81 | 87 | |||||||||||||||||||||
2021 |
30 | 42 | 57 | 67 | 76 | 84 | 92 |
The table illustrates the mix of long -term contracts in our September 30, 2017 portfolio, and is consistent with our marketing strategy. It has been updated to reflect contracts entered into up to September 30, 2017, and it excludes our contract under dispute with TEPCO.
Our portfolio includes a mix of fixed -price and market-related contracts, which we target at a 40:60 ratio. Those that are fixed at higher prices or have high floor prices will yield prices that are higher than current market prices.
Our portfolio is affected by more than just the spot price. We made the following assumptions (which are not forecasts) to create the table:
Liquidity and capital resources
Our financial objective is to ensure we have the cash and debt capacity to fund our operating activities, investments and growth.
We have large, creditworthy customers that continue to need uranium even during weak economic conditions, and we expect the uranium contract portfolio we have built to provide a solid revenue stream for years to come.
We expect to continue investing in maintaining our tier-one production capacity and flexibility over the next several years. We have a number of alternatives to fund future capital requirements, including using our operating cash flow, drawing on our existing credit facilities, entering new credit facilities, and raising additional capital through debt or equity financings. We are always considering our financing options so we can take advantage of favourable market conditions when they arise. We expect our cash balances and operating cash flows to meet our capital requirements during 2017.
We have an ongoing transfer pricing dispute with CRA. See page 10 for more information. Until this dispute is resolved, we expect to pay cash or provide security in the form of letters of credit for future amounts owing to the Government of Canada for 50% of the cash taxes payable and the related interest and penalties. We have provided an estimate of the amount and timing of the expected cash taxes and transfer pricing penalties paid, secured or owing in the table on page 11.
CASH FROM/USED IN OPERATIONS
Cash provided by operations was $231 million lower this quarter than in the third quarter of 2016. Contributing to this change were lower gross profits in our operating segments and an increase in income taxes paid. In addition, there was an increase in working capital requirements, which provided $45 million less in 2017 than in 2016. Not including working capital requirements, our operating cash flows this quarter were lower by $186 million.
16 CAMECO CORPORATION
Cash provided by operations was $219 million higher in the first nine months of 2017 than for the same period in 2016 due largely to a decrease in working capital requirements. This was a result of a decrease in inventory compared to an increase in 2016. Working capital required $224 million less in 2017. In addition, while we had lower gross profits in our operating segments, less cash was required by our hedge portfolio as derivative contracts matured and cost reduction measures resulted in a lower use of cash. Not including working capital requirements, our operating cash flows in the first nine months were lower by $5 million.
FINANCING ACTIVITIES
We use debt to provide additional liquidity. We have sufficient borrowing capacity with unsecured lines of credit totalling about $2.9 billion at September 30, 2017, down from $3.0 billion at June 30, 2017. At September 30, 2017, we had approximately $1.5 billion outstanding in letters of credit, unchanged from December 31, 2016. At September 30, 2017, we had no short-term debt outstanding on our $1.25 billion unsecured revolving credit facility, unchanged from December 31, 2016, and during the quarter, we extended the maturity date of the facility from November 1, 2020 to November 1, 2021. During the quarter, NUKEMs 75 million () multicurrency revolving loan facility was cancelled.
Long-term contractual obligations
Since December 31, 2016, there have been no material changes to our long-term contractual obligations. Please see our 2016 annual MD&A for more information.
Debt covenants
We are bound by certain covenants in our unsecured revolving credit facility. The financially related covenants place restrictions on total debt, including guarantees. As at September 30, 2017, we met these financial covenants and do not expect our operating and investment activities for the remainder of 2017 to be constrained by them.
NUKEM financing arrangements
NUKEM enters into financing arrangements with third parties where future receivables arising from certain sales contracts are sold to financial institutions in exchange for cash. These arrangements require NUKEM to satisfy its delivery obligations under the sales contracts, which are recognized as deferred sales (see notes 4 and 6 to the financial statements for more information). In addition, NUKEM is required to pledge the underlying inventory as security against these performance obligations. As of September 30, 2017, we had $4.5 million ($3.6 million (US)) of inventory pledged as security under financing arrangements, compared with $4.9 million ($3.6 million (US)) at December 31, 2016.
OFF-BALANCE SHEET ARRANGEMENTS
We had three kinds of off-balance sheet arrangements at September 30, 2017:
| purchase commitments |
| financial assurances |
| other arrangements |
Purchase commitments
The following table is based on our purchase commitments in our uranium, fuel services, and NUKEM segments at September 30, 2017. These commitments include a mix of fixed-price and market-related contracts. Actual payments will be different as a result of changes to our purchase commitments and, in the case of contracts with market-related pricing, the market prices in effect at the time of delivery. We will update this table as required in our MD&A to reflect material changes to our purchase commitments and changes in the prices used to estimate our commitments under market-related contracts.
2018 AND | 2020 AND | 2022 AND | ||||||||||||||||||
SEPTEMBER 30 ($ MILLIONS) |
2017 | 2019 | 2021 | BEYOND | TOTAL | |||||||||||||||
Purchase commitments1 |
270 | 474 | 124 | 49 | 917 |
1 | Denominated in US dollars, converted to Canadian dollars as of September 30, 2017 at the rate of $1.25. |
As of September 30, 2017, we had commitments of about $917 million for the following:
| approximately 23 million pounds of U3O8 equivalent from 2017 to 2028 |
| approximately 2 million kgU as UF6 in conversion services from 2017 to 2019 |
| about 0.3 million Separative Work Units (SWU) of enrichment services to meet existing forward sales commitments under agreements with a non-Western supplier |
2017 THIRD QUARTER REPORT 17
The suppliers do not have the right to terminate agreements other than pursuant to customary events of default provisions.
Financial assurances
At September 30, 2017, our financial assurances totalled $1.5 billion, unchanged from December 31, 2016.
Other arrangements
We continue to use factoring and other third party arrangements to manage short-term cash flow fluctuations. You can read more about these arrangements in our 2016 annual MD&A.
BALANCE SHEET
($ MILLIONS) |
SEP 30, 2017 | DEC 31, 2016 | CHANGE | |||||||||
Cash and cash equivalents |
352 | 320 | 10 | % | ||||||||
Total debt |
1,494 | 1,493 | | |||||||||
Inventory |
1,119 | 1,288 | (13 | )% |
Total cash and cash equivalents at September 30, 2017 were $352 million, or 10% higher than at December 31, 2016, primarily due to cash from operations of $276 million, partially offset by capital expenditures of $89 million, dividend payments of $119 million, and interest payments of $49 million. Net debt at September 30, 2017 was $1,142 million.
Total product inventories decreased to $1,119 million, including NUKEMs inventories ($115 million). Inventories decreased as sales were higher than production and purchases in the first nine months of the year and the average cost for uranium has decreased to $31.56 per pound compared to $34.69 per pound at December 31, 2016. As of September 30, 2017, we held an inventory of 27.6 million pounds of U3O8 equivalent in our uranium segment (excluding broken ore).
Financial results by segment
Uranium
THREE MONTHS | NINE MONTHS | |||||||||||||||||||||||||
ENDED SEPTEMBER 30 | ENDED SEPTEMBER 30 | |||||||||||||||||||||||||
HIGHLIGHTS |
2017 | 2016 | CHANGE | 2017 | 2016 | CHANGE | ||||||||||||||||||||
Production volume (million lbs) |
3.1 | 5.9 | (47 | )% | 16.9 | 19.9 | (15 | )% | ||||||||||||||||||
Sales volume (million lbs)1 |
9.2 | 9.3 | (1 | )% | 21.0 | 19.9 | 6 | % | ||||||||||||||||||
Average spot price |
($US/lb) | 20.22 | 24.57 | (18 | )% | 21.60 | 27.86 | (22 | )% | |||||||||||||||||
Average long-term price |
($US/lb) | 31.33 | 37.83 | (17 | )% | 32.33 | 41.06 | (21 | )% | |||||||||||||||||
Average realized price |
($US/lb) | 32.42 | 43.37 | (25 | )% | 34.15 | 42.92 | (20 | )% | |||||||||||||||||
($Cdn/lb) | 41.66 | 56.34 | (26 | )% | 44.86 | 56.77 | (21 | )% | ||||||||||||||||||
Average unit cost of sales (including D&A) |
($Cdn/lb) | 36.12 | 39.97 | (10 | )% | 36.32 | 41.63 | (13 | )% | |||||||||||||||||
Revenue ($ millions)1 |
385 | 526 | (27 | )% | 943 | 1,129 | (16 | )% | ||||||||||||||||||
Gross profit ($ millions) |
51 | 153 | (67 | )% | 179 | 301 | (41 | )% | ||||||||||||||||||
Gross profit (%) |
13 | 29 | (55 | )% | 19 | 27 | (30 | )% |
1 | There were no significant intersegment transactions in the periods shown. |
THIRD QUARTER
Production volumes this quarter were 47% lower compared to the third quarter of 2016, mainly due to lower production from McArthur River/Key Lake and Cigar Lake due to the timing of planned maintenance and vacation shut downs. See Uranium 2017 Q3 updates starting on page 22 for more information.
Uranium revenues this quarter were down 27% compared to 2016 due to a decrease of 26% in the Canadian dollar average realized price and a decrease in sales volumes of 1%. The spot price for uranium averaged $20.22 (US) per pound in the third quarter of 2017, a decline of 18% compared to the 2016 third quarter average price of $24.57 (US) per pound. While our average realized price outperformed the market, it decreased by 26% compared to last year mainly due to the impact of the disputed TEPCO agreement and lower prices for uranium delivered under both fixed and market-related contracts.
18 CAMECO CORPORATION
Total cost of sales (including D&A) decreased by 10% ($334 million compared to $373 million in 2016) as a result of unit cost of sales that was 10% lower than the same period last year and a 1% decrease in sales volume. The decline in the unit cost of sales was due mainly to higher costs in 2016 at Rabbit Lake and in the US associated with curtailing production. In addition, the rampup of production at Cigar Lake, and the other measures we have taken to reduce costs, have resulted in lower production costs. The cost of our purchases have decreased as well.
The net effect was a $102 million decrease in gross profit for the quarter.
FIRST NINE MONTHS
Production volumes for the first nine months of the year were 15% lower than in the previous year mainly due to planned lower production from Inkai and our US operations, a lack of production from the suspended Rabbit Lake operation, and lower production from McArthur River/Key Lake due to the extended summer shut-down during the third quarter partially offset by higher production from Cigar Lake as a result of the scheduled rampup of the operation. See Uranium 2017 Q3 updates starting on page 22 for more information.
Uranium revenues decreased 16% compared to the first nine months of 2016 due to a 21% decrease in the Canadian dollar average realized price, partially offset by a 6% increase in sales volumes.
Our Canadian dollar realized prices for the first nine months of 2017 were lower than 2016, primarily as a result of the decrease in the US dollar average realized price. Pricing under our contract portfolio has been impacted by the disputed TEPCO agreement and weaker uranium prices than a year ago.
Total cost of sales (including D&A) decreased by 8% ($764 million compared to $828 million in 2016) mainly due to a 13% decrease in the unit cost of sales partially offset by a 6% increase in sales volume for the first nine months. The decrease in the unit cost of sales compared to last year was mainly due to higher costs in 2016 at Rabbit Lake and in the US associated with curtailing production. In addition, the rampup of production at Cigar Lake, and the other measures we have taken to reduce costs, have resulted in lower production costs this year. The cost of our purchases have decreased as well.
The net effect was a $122 million decrease in gross profit for the first nine months.
The table below shows the costs of produced and purchased uranium incurred in the reporting periods (which are non-IFRS measures, see the paragraphs below the table). These costs do not include care and maintenance costs, selling costs such as royalties, transportation and commissions, nor do they reflect the impact of opening inventories on our reported cost of sales.
THREE MONTHS | NINE MONTHS | |||||||||||||||||||||||
ENDED SEPTEMBER 30 | ENDED SEPTEMBER 30 | |||||||||||||||||||||||
($CDN/LB) |
2017 | 2016 | CHANGE | 2017 | 2016 | CHANGE | ||||||||||||||||||
Produced |
||||||||||||||||||||||||
Cash cost |
24.40 | 16.31 | 50 | % | 15.90 | 17.72 | (10 | )% | ||||||||||||||||
Non-cash cost |
16.33 | 13.07 | 25 | % | 11.53 | 12.18 | (5 | )% | ||||||||||||||||
Total production cost |
40.73 | 29.38 | 39 | % | 27.43 | 29.90 | (8 | )% | ||||||||||||||||
Quantity produced (million lbs) |
3.1 | 5.9 | (47 | )% | 16.9 | 19.9 | (15 | )% | ||||||||||||||||
Purchased |
||||||||||||||||||||||||
Cash cost |
36.83 | 39.91 | (8 | )% | 39.75 | 48.91 | (19 | )% | ||||||||||||||||
Quantity purchased (million lbs) |
0.5 | 0.5 | 0 | % | 3.0 | 6.2 | (52 | )% | ||||||||||||||||
Totals |
||||||||||||||||||||||||
Produced and purchased costs |
40.19 | 30.20 | 33 | % | 29.29 | 34.42 | (15 | )% | ||||||||||||||||
Quantities produced and purchased (million lbs) |
3.6 | 6.4 | (44 | )% | 19.9 | 26.1 | (24 | )% |
The average cash cost of production was 50% higher for the quarter and 10% lower in the first nine months than in comparable periods in 2016. Cash cost in the quarter was impacted by lower production resulting from the planned shutdowns at McArthur River/Key Lake and Cigar Lake. The decrease for the year was primarily due to the rampup of low-cost production from Cigar Lake, and the impact of our actions in 2016 to curtail production from Rabbit Lake and our US operations, where production costs were higher.
2017 THIRD QUARTER REPORT 19
Although purchased pounds are transacted in US dollars, we account for the purchases in Canadian dollars. In the third quarter, the average cash cost of purchased material was $36.83 (Cdn) per pound, or $29.20 (US) per pound in US dollar terms, compared to $30.75 (US) per pound in the third quarter of 2016. For the first nine months, the average cash cost of purchased material was $39.75 (Cdn), or $30.19 (US) per pound, compared to $35.70 (US) per pound in the same period in 2016.
Cash cost per pound, non-cash cost per pound and total cost per pound for produced and purchased uranium presented in the above table are non-IFRS measures. These measures do not have a standardized meaning or a consistent basis of calculation under IFRS. We use these measures in our assessment of the performance of our uranium business. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate our performance and ability to generate cash flow.
These measures are non-standard supplemental information and should not be considered in isolation or as a substitute for measures of performance prepared according to accounting standards. These measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently, so you may not be able to make a direct comparison to similar measures presented by other companies.
To facilitate a better understanding of these measures, the following table presents a reconciliation of these measures to our unit cost of sales for the third quarter and the first nine months of 2017 and 2016.
Cash and total cost per pound reconciliation
THREE MONTHS | NINE MONTHS | |||||||||||||||
ENDED SEPTEMBER 30 | ENDED SEPTEMBER 30 | |||||||||||||||
($ MILLIONS) |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Cost of product sold |
250.5 | 285.7 | 591.4 | 654.6 | ||||||||||||
Add / (subtract) |
||||||||||||||||
Royalties |
(23.0 | ) | (37.4 | ) | (46.2 | ) | (77.3 | ) | ||||||||
Care and maintenance costs |
(8.0 | ) | (20.1 | ) | (28.9 | ) | (58.8 | ) | ||||||||
Other selling costs |
(2.8 | ) | (5.6 | ) | (5.7 | ) | (8.5 | ) | ||||||||
Change in inventories |
(122.6 | ) | (106.4 | ) | (122.6 | ) | 145.9 | |||||||||
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|
|||||||||
Cash operating costs (a) |
94.1 | 116.2 | 388.0 | 655.9 | ||||||||||||
Add / (subtract) |
||||||||||||||||
Depreciation and amortization |
83.2 | 87.6 | 172.2 | 173.1 | ||||||||||||
Change in inventories |
(32.6 | ) | (10.5 | ) | 22.6 | 69.3 | ||||||||||
|
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|
|
|||||||||
Total operating costs (b) |
144.7 | 193.3 | 582.8 | 898.3 | ||||||||||||
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|
|||||||||
Uranium produced & purchased (million lbs) (c) |
3.6 | 6.4 | 19.9 | 26.1 | ||||||||||||
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|
|||||||||
Cash costs per pound (a ÷ c) |
26.14 | 18.16 | 19.50 | 25.13 | ||||||||||||
Total costs per pound (b ÷ c) |
40.19 | 30.20 | 29.29 | 34.42 | ||||||||||||
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Fuel services
(includes results for UF6, UO2 and fuel fabrication)
THREE MONTHS | NINE MONTHS | |||||||||||||||||||||||||||
ENDED SEPTEMBER 30 | ENDED SEPTEMBER 30 | |||||||||||||||||||||||||||
HIGHLIGHTS |
2017 | 2016 | CHANGE | 2017 | 2016 | CHANGE | ||||||||||||||||||||||
Production volume (million kgU) |
0.6 | 0.6 | | 5.4 | 6.5 | (17 | )% | |||||||||||||||||||||
Sales volume (million kgU)1 |
2.5 | 3.5 | (29 | )% | 6.9 | 8.7 | (21 | )% | ||||||||||||||||||||
Average realized price |
($ | Cdn/kgU | ) | 27.27 | 22.09 | 23 | % | 29.94 | 25.06 | 19 | % | |||||||||||||||||
Average unit cost of sales (including D&A) |
($ | Cdn/kgU | ) | 25.84 | 18.62 | 39 | % | 23.83 | 19.98 | 19 | % | |||||||||||||||||
Revenue ($ millions)1 |
69 | 77 | (10 | )% | 206 | 217 | (5 | )% | ||||||||||||||||||||
Gross profit ($ millions) |
4 | 12 | (67 | )% | 42 | 44 | (5 | )% | ||||||||||||||||||||
Gross profit (%) |
6 | 16 | (63 | )% | 20 | 20 | |
1 | There were no significant intersegment transactions in the periods shown. |
20 CAMECO CORPORATION
THIRD QUARTER
Total revenue for the third quarter of 2017 decreased to $69 million from $77 million for the same period last year. This was primarily due to a 29% decrease in sales volumes partially offset by a 23% increase in average realized price compared to 2016.
Despite the decrease in sales volume, the total cost of products and services sold (including D&A) remained unchanged at $65 million compared to the third quarter of 2016 due to an increase in the average unit cost of sales.
The net effect was an $8 million decrease in gross profit.
FIRST NINE MONTHS
In the first nine months of the year, total revenue decreased by 5% due to a 21% decrease in sales volumes, partially offset by a 19% increase in realized price that was the result of increased prices on the sale of UF6 and fabrication, and the mix of products sold.
The total cost of products and services sold (including D&A) decreased 5% ($164 million compared to $173 million in 2016) due to the 21% decrease in sales volume, partially offset by a 19% increase in the average unit cost of sales.
The net effect was a $2 million decrease in gross profit.
NUKEM
(financial results include U3O8, UF6, and SWU)
THREE MONTHS ENDED SEPTEMBER 30 |
NINE MONTHS ENDED SEPTEMBER 30 |
|||||||||||||||||||||||||||
HIGHLIGHTS |
2017 | 2016 | CHANGE | 2017 | 2016 | CHANGE | ||||||||||||||||||||||
Uranium sales (million lbs)1 |
1.1 | 1.5 | (27 | )% | 6.0 | 4.0 | 50 | % | ||||||||||||||||||||
Average realized price |
($ | Cdn/lb | ) | 28.72 | 43.52 | (34 | )% | 33.22 | 48.89 | (32 | )% | |||||||||||||||||
Cost of product sold (including D&A) |
33 | 82 | (60 | )% | 214 | 224 | (4 | )% | ||||||||||||||||||||
Revenue ($ millions)1 |
32 | 67 | (52 | )% | 198 | 198 | | |||||||||||||||||||||
Gross loss ($ millions) |
(1 | ) | (15 | ) | (93 | )% | (16 | ) | (26 | ) | (38 | )% | ||||||||||||||||
Gross loss (%) |
(3 | ) | (22 | ) | (86 | )% | (8 | ) | (13 | ) | (38 | )% |
1 | There were no significant intersegment transactions in the periods shown. |
THIRD QUARTER
During the third quarter of 2017, NUKEM delivered 1.1 million pounds of uranium, a decrease of 27% from the same period last year due largely to a lack of acceptable spot sale opportunities relative to the same period in 2016. Total revenues decreased 52% due to the decrease in sales volume and a 34% decrease in average realized price. The decrease in realized price was mainly the result of a lower uranium spot price compared to the third quarter of 2016.
NUKEM recorded a gross loss of $1 million in the third quarter of 2017 compared to $15 million in 2016. In 2016, a net write-down of inventory of $12 million was recorded which was the result of a decline in the spot price. The net write-down in 2017 was nil.
FIRST NINE MONTHS
During the nine months ended September 30, 2017, NUKEM delivered 6 million pounds of uranium, an increase of 50%, due to the timing of customer requirements and a greater number of acceptable spot sale opportunities relative to the same period in 2016. Total revenues were unchanged due to the increase in sales volumes being offset by a 32% decrease in average realized price. The decrease in realized price was mainly the result of a lower uranium spot price compared to the first nine months of 2016.
NUKEM recorded a gross loss of $16 million in the first nine months of 2017 compared to a $26 million loss in the same period in 2016. Included in the 2017 margin was a $12 million net write-down of inventory while the 2016 margin included a $26 million net write-down.
2017 THIRD QUARTER REPORT 21
Our operations
Uranium production overview
Production in our uranium segment this quarter was 47% lower than the third quarter of 2016. See below for more information.
URANIUM PRODUCTION
THREE MONTHS ENDED SEPTEMBER 30 |
NINE MONTHS ENDED SEPTEMBER 30 |
|||||||||||||||||||||||||||
OUR SHARE (MILLION LBS) |
2017 | 2016 | CHANGE | 2017 | 2016 | CHANGE | 2017 PLAN | |||||||||||||||||||||
McArthur River/Key Lake |
0.6 | 3.1 | (81 | )% | 7.8 | 8.8 | (11 | )% | 11.5 | 1 | ||||||||||||||||||
Cigar Lake |
1.7 | 1.9 | (11 | )% | 6.5 | 6.2 | 5 | % | 9.0 | |||||||||||||||||||
Inkai |
0.8 | 0.6 | 33 | % | 2.3 | 2.8 | (18 | )% | 3.1 | |||||||||||||||||||
Rabbit Lake |
| | | | 1.1 | (100 | )% | | ||||||||||||||||||||
Smith Ranch-Highland |
| 0.2 | (100 | )% | 0.2 | 0.8 | (75 | )% | 0.3 | 1 | ||||||||||||||||||
Crow Butte |
| 0.1 | (100 | )% | 0.1 | 0.2 | (50 | )% | 0.1 | |||||||||||||||||||
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|||||||||||||||
Total |
3.1 | 5.9 | (47 | )% | 16.9 | 19.9 | (15 | )% | 24.0 | 1 | ||||||||||||||||||
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1 | We have reduced our 2017 production plan to 24.0 million pounds (from 25.2 million pounds) due to reductions at McArthur River/Key Lake and Smith Ranch-Highland. Please see Uranium 2017 Q3 updates for more information. |
Uranium 2017 Q3 updates
PRODUCTION UPDATE
McArthur River/Key Lake
Production was 81% lower for the third quarter, and 11% lower for the first nine months compared to the same periods in 2016. This year, in alignment with our continued efforts to reduce costs, our production plan included an extended summer shut-down during the third quarter. The shut-down consisted of a four-week vacation period in July, followed by a two-week maintenance period at McArthur River and a four-week maintenance period at Key Lake. Planned work on the existing calciner circuit at Key Lake, combined with the timing of the planned annual maintenance shutdown, resulted in reduced production during the third quarter compared to 2017. Production was expected to restart at the end of August, however, the calciner work took longer than expected.
Additional work was required on the calciner in October, resulting in an unplanned outage at Key Lake. As a result, we have lowered our 2017 production target to 11.5 million pounds (Camecos share) from 12.6 million pounds (Camecos share).
Initial discussions to set the collective bargaining schedule with the United Steelworkers local 8914 have begun. We plan to begin contract negotiations prior to the current agreement expiring in December of this year.
Cigar Lake
Total packaged production from Cigar Lake was 11% lower in the third quarter, and 5% higher in the first nine months compared to the same periods last year. Packaged production was lower in the third quarter due primarily to the planned summer shutdown for maintenance and vacation. The shutdown went as planned with the mine and mill returning to full production as scheduled at the end of August. The year-over-year increase is the result of the scheduled rampup of the operation.
Inkai
Production was 33% higher for the quarter and 18% lower for the first nine months compared to the same periods last year due to the timing of new wellfield development and the planned 10% decrease in production for 2017.
PRODUCTION CURTAILMENT
Smith Ranch-Highland/Crow Butte
Total production was nominal for the quarter and 70% lower for the first nine months compared to the same periods in 2016, as a result of the decision to curtail production and defer all wellfield development at our US operations.
As expected, production continues to trend down as the head grade decreases. Given production volumes to the end of September, we have lowered our 2017 production plan by 0.1 million pounds to 0.3 million pounds.
22 CAMECO CORPORATION
Rabbit Lake
The Rabbit Lake operation is in a safe state of care and maintenance; there was no production in the third quarter of 2017. We are continually weighing the value of maintaining the operation in standby, against the cost of doing so. However, as long as production is suspended, we expect care and maintenance costs to range between $35 million and $40 million annually for the first few years.
Fuel services 2017 Q3 updates
PORT HOPE CONVERSION SERVICES
CAMECO FUEL MANUFACTURING INC. (CFM)
Production update
Fuel services produced 0.6 million kgU in the third quarter, unchanged from the same period last year. Production in the first nine months was 17% lower than the same period in 2016.
Qualified persons
The technical and scientific information discussed in this document for our material properties (McArthur River/Key Lake, Inkai and Cigar Lake) was approved by the following individuals who are qualified persons for the purposes of NI 43-101:
MCARTHUR RIVER/KEY LAKE | INKAI | |
Les Yesnik, general manager, McArthur River/Key Lake, Cameco
Greg Murdock, mine manager, McArthur River, Cameco
CIGAR LAKE
Jeremy Breker, general manager, Cigar Lake, Cameco |
Darryl Clark, president, Cameco Kazakhstan LLP |
Additional information
Critical accounting estimates
Due to the nature of our business, we are required to make estimates that affect the amount of assets and liabilities, revenues and expenses, commitments and contingencies we report. We base our estimates on our experience, our best judgment, guidelines established by the Canadian Institute of Mining, Metallurgy and Petroleum and on assumptions we believe are reasonable.
Controls and procedures
As of September 30, 2017, we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer (CEO) and chief financial officer (CFO), of the effectiveness of our disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based upon that evaluation and as of September 30, 2017, the CEO and CFO concluded that:
| the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under applicable securities laws is recorded, processed, summarized and reported as and when required |
| such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure |
There has been no change in our internal control over financial reporting during the quarter ended September 30, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
2017 THIRD QUARTER REPORT 23
Exhibit 99.3
Cameco Corporation
2017 condensed consolidated interim financial statements
(unaudited)
October 26, 2017
Cameco Corporation
Consolidated statements of earnings
(Unaudited) | Three months ended | Nine months ended | ||||||||||||||||
($Cdn thousands, except per share amounts) |
Note | Sep 30/17 | Sep 30/16 | Sep 30/17 | Sep 30/16 | |||||||||||||
Revenue from products and services |
$ | 485,594 | $ | 669,654 | $ | 1,347,880 | $ | 1,544,301 | ||||||||||
Cost of products and services sold |
337,941 | 411,704 | 931,090 | 963,930 | ||||||||||||||
Depreciation and amortization |
96,626 | 111,811 | 217,527 | 273,427 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Cost of sales |
434,567 | 523,515 | 1,148,617 | 1,237,357 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
51,027 | 146,139 | 199,263 | 306,944 | ||||||||||||||
Administration |
40,132 | 38,689 | 124,562 | 151,461 | ||||||||||||||
Impairment charges |
4 | 111,399 | | 111,399 | 124,368 | |||||||||||||
Exploration |
8,080 | 9,643 | 24,478 | 36,543 | ||||||||||||||
Research and development |
943 | 1,347 | 5,310 | 4,108 | ||||||||||||||
Other operating income |
8 | (9,338 | ) | (6,319 | ) | (15,178 | ) | (6,319 | ) | |||||||||
Loss on disposal of assets |
1,207 | 439 | 5,780 | 9,033 | ||||||||||||||
|
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|
|
|
|
|
|
|||||||||||
Earnings (loss) from operations |
(101,396 | ) | 102,340 | (57,088 | ) | (12,250 | ) | |||||||||||
Finance costs |
10 | (27,217 | ) | (26,513 | ) | (82,964 | ) | (85,406 | ) | |||||||||
Gain (loss) on derivatives |
16 | 21,727 | (12,361 | ) | 55,807 | 63,768 | ||||||||||||
Finance income |
1,341 | 669 | 3,516 | 3,176 | ||||||||||||||
Other income (expense) |
11 | (20,848 | ) | 68,148 | (32,020 | ) | 49,614 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Earnings (loss) before income taxes |
(126,393 | ) | 132,283 | (112,749 | ) | 18,902 | ||||||||||||
Income tax expense (recovery) |
12 | (2,636 | ) | (10,407 | ) | 30,740 | (66,303 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net earnings (loss) |
(123,757 | ) | 142,690 | (143,489 | ) | 85,205 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||||
Net earnings (loss) attributable to: |
||||||||||||||||||
Equity holders |
$ | (123,712 | ) | $ | 142,145 | $ | (143,316 | ) | $ | 82,801 | ||||||||
Non-controlling interest |
(45 | ) | 545 | (173 | ) | 2,404 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net earnings (loss) |
$ | (123,757 | ) | $ | 142,690 | $ | (143,489 | ) | $ | 85,205 | ||||||||
|
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|
|
|
|
|
|||||||||||
Earnings (loss) per common share attributable to equity holders: |
||||||||||||||||||
Basic |
13 | $ | (0.31 | ) | $ | 0.36 | $ | (0.36 | ) | $ | 0.21 | |||||||
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|
|||||||||||
Diluted |
13 | $ | (0.31 | ) | $ | 0.36 | $ | (0.36 | ) | $ | 0.21 | |||||||
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated interim financial statements.
2
Cameco Corporation
Consolidated statements of comprehensive income
(Unaudited) | Three months ended | Nine months ended | ||||||||||||||
($Cdn thousands) |
Sep 30/17 | Sep 30/16 | Sep 30/17 | Sep 30/16 | ||||||||||||
Net earnings (loss) |
$ | (123,757 | ) | $ | 142,690 | $ | (143,489 | ) | $ | 85,205 | ||||||
Other comprehensive income (loss), net of taxes |
||||||||||||||||
Items that are or may be reclassified to net earnings: |
||||||||||||||||
Exchange differences on translation of foreign operations |
(38,396 | ) | 26,904 | (52,963 | ) | (69,547 | ) | |||||||||
Unrealized gains (losses) on available-for-sale assets1 |
| 754 | (1,102 | ) | 2,489 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive income (loss), net of taxes |
(38,396 | ) | 27,658 | (54,065 | ) | (67,058 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total comprehensive income (loss) |
$ | (162,153 | ) | $ | 170,348 | (197,554 | ) | 18,147 | ||||||||
|
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|
|
|
|
|
|||||||||
Other comprehensive income (loss) attributable to: |
||||||||||||||||
Equity holders |
$ | (38,396 | ) | $ | 27,653 | $ | (54,063 | ) | $ | (67,222 | ) | |||||
Non-controlling interest |
| 5 | (2 | ) | 164 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive income (loss) |
$ | (38,396 | ) | $ | 27,658 | $ | (54,065 | ) | $ | (67,058 | ) | |||||
|
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|
|
|
|
|
|
|||||||||
Total comprehensive income (loss) attributable to: |
||||||||||||||||
Equity holders |
$ | (162,108 | ) | $ | 169,798 | $ | (197,379 | ) | $ | 15,579 | ||||||
Non-controlling interest |
(45 | ) | 550 | (175 | ) | 2,568 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total comprehensive income (loss) |
$ | (162,153 | ) | $ | 170,348 | $ | (197,554 | ) | $ | 18,147 | ||||||
|
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|
|
|
|
|
1 | Net of tax (Q3 2017 - $nil; Q3 2016 - $(67); 2017 - $399; 2016 - $(199)) |
See accompanying notes to condensed consolidated interim financial statements.
3
Cameco Corporation
Consolidated statements of financial position
(Unaudited) | As at | |||||||||
($Cdn thousands) |
Note | Sep 30/17 | Dec 31/16 | |||||||
Assets |
||||||||||
Current assets |
||||||||||
Cash and cash equivalents |
$ | 351,844 | $ | 320,278 | ||||||
Accounts receivable |
184,600 | 242,482 | ||||||||
Current tax assets |
24,745 | 11,552 | ||||||||
Inventories |
5 | 1,119,480 | 1,287,939 | |||||||
Supplies and prepaid expenses |
159,495 | 169,084 | ||||||||
Current portion of long-term receivables, investments and other |
6 | 26,603 | 10,498 | |||||||
|
|
|
|
|||||||
Total current assets |
1,866,767 | 2,041,833 | ||||||||
|
|
|
|
|||||||
Property, plant and equipment |
4,413,192 | 4,655,586 | ||||||||
Goodwill and intangible assets |
4 | 78,711 | 203,310 | |||||||
Long-term receivables, investments and other |
6 | 540,726 | 512,484 | |||||||
Deferred tax assets |
811,149 | 835,985 | ||||||||
|
|
|
|
|||||||
Total non-current assets |
5,843,778 | 6,207,365 | ||||||||
|
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|
|
|||||||
Total assets |
$ | 7,710,545 | $ | 8,249,198 | ||||||
|
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|
|
|||||||
Liabilities and shareholders equity |
||||||||||
Current liabilities |
||||||||||
Accounts payable and accrued liabilities |
209,150 | 312,900 | ||||||||
Current tax liabilities |
6,339 | 36,413 | ||||||||
Dividends payable |
39,579 | 39,579 | ||||||||
Current portion of other liabilities |
7 | 44,495 | 60,744 | |||||||
Current portion of provisions |
8 | 46,267 | 19,619 | |||||||
|
|
|
|
|||||||
Total current liabilities |
345,830 | 469,255 | ||||||||
|
|
|
|
|||||||
Long-term debt |
1,494,175 | 1,493,327 | ||||||||
Other liabilities |
7 | 138,450 | 122,988 | |||||||
Provisions |
8 | 768,084 | 889,163 | |||||||
Deferred tax liabilities |
15,892 | 15,937 | ||||||||
|
|
|
|
|||||||
Total non-current liabilities |
2,416,601 | 2,521,415 | ||||||||
|
|
|
|
|||||||
Shareholders equity |
||||||||||
Share capital |
9 | 1,862,652 | 1,862,646 | |||||||
Contributed surplus |
222,065 | 216,213 | ||||||||
Retained earnings |
2,757,838 | 3,019,872 | ||||||||
Other components of equity |
105,577 | 159,640 | ||||||||
|
|
|
|
|||||||
Total shareholders equity attributable to equity holders |
4,948,132 | 5,258,371 | ||||||||
Non-controlling interest |
(18 | ) | 157 | |||||||
|
|
|
|
|||||||
Total shareholders equity |
4,948,114 | 5,258,528 | ||||||||
|
|
|
|
|||||||
Total liabilities and shareholders equity |
$ | 7,710,545 | $ | 8,249,198 | ||||||
|
|
|
|
Commitments and contingencies [notes 8, 12]
See accompanying notes to condensed consolidated interim financial statements.
4
Cameco Corporation
Consolidated statements of changes in equity
Attributable to equity holders | ||||||||||||||||||||||||||||||||
(Unaudited) ($Cdn thousands) |
Share capital |
Contributed surplus |
Retained earnings |
Foreign currency translation |
Available- for-sale assets |
Total | Non- controlling interest |
Total equity |
||||||||||||||||||||||||
Balance at January 1, 2017 |
$ | 1,862,646 | $ | 216,213 | $ | 3,019,872 | $ | 156,411 | $ | 3,229 | $ | 5,258,371 | $ | 157 | $ | 5,258,528 | ||||||||||||||||
Net loss |
| | (143,316 | ) | | | (143,316 | ) | (173 | ) | (143,489 | ) | ||||||||||||||||||||
Total comprehensive loss |
| | | (52,961 | ) | (1,102 | ) | (54,063 | ) | (2 | ) | (54,065 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total comprehensive loss for the period |
| | (143,316 | ) | (52,961 | ) | (1,102 | ) | (197,379 | ) | (175 | ) | (197,554 | ) | ||||||||||||||||||
|
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|
|||||||||||||||||
Share-based compensation |
| 11,213 | | | | 11,213 | | 11,213 | ||||||||||||||||||||||||
Stock options exercised |
6 | (1 | ) | | | | 5 | | 5 | |||||||||||||||||||||||
Restricted and performance share units released |
| (5,360 | ) | | | | (5,360 | ) | | (5,360 | ) | |||||||||||||||||||||
Dividends |
| | (118,718 | ) | | | (118,718 | ) | | (118,718 | ) | |||||||||||||||||||||
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|
|
|||||||||||||||||
Balance at September 30, 2017 |
$ | 1,862,652 | $ | 222,065 | $ | 2,757,838 | $ | 103,450 | $ | 2,127 | $ | 4,948,132 | $ | (18 | ) | $ | 4,948,114 | |||||||||||||||
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|
|
|
|
|||||||||||||||||
Balance at January 1, 2016 |
$ | 1,862,646 | $ | 209,115 | $ | 3,241,902 | $ | 233,918 | $ | (561 | ) | $ | 5,547,020 | $ | (1,741 | ) | $ | 5,545,279 | ||||||||||||||
Net earnings |
| | 82,801 | | | 82,801 | 2,404 | 85,205 | ||||||||||||||||||||||||
Other comprehensive income |
||||||||||||||||||||||||||||||||
(loss) for the period |
| | | (69,711 | ) | 2,489 | (67,222 | ) | 164 | (67,058 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total comprehensive income (loss) for the period |
| | 82,801 | (69,711 | ) | 2,489 | 15,579 | 2,568 | 18,147 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Share-based compensation |
| 10,746 | | | | 10,746 | | 10,746 | ||||||||||||||||||||||||
Restricted and performance share units released |
| (7,002 | ) | | | | (7,002 | ) | | (7,002 | ) | |||||||||||||||||||||
Dividends |
| | (118,730 | ) | | | (118,730 | ) | | (118,730 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at September 30, 2016 |
$ | 1,862,646 | $ | 212,859 | $ | 3,205,973 | $ | 164,207 | $ | 1,928 | $ | 5,447,613 | $ | 827 | $ | 5,448,440 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated interim financial statements.
5
Cameco Corporation
Consolidated statements of cash flows
(Unaudited) | Three months ended | Nine months ended | ||||||||||||||||||
($Cdn thousands) |
Note | Sep 30/17 | Sep 30/16 | Sep 30/17 | Sep 30/16 | |||||||||||||||
Operating activities |
||||||||||||||||||||
Net earnings (loss) |
$ | (123,757 | ) | $ | 142,690 | $ | (143,489 | ) | $ | 85,205 | ||||||||||
Adjustments for: |
||||||||||||||||||||
Depreciation and amortization |
96,626 | 111,811 | 217,527 | 273,427 | ||||||||||||||||
Deferred charges |
1,376 | (6,777 | ) | 868 | (99,385 | ) | ||||||||||||||
Unrealized loss (gain) on derivatives |
(22,840 | ) | 2,736 | (60,683 | ) | (126,455 | ) | |||||||||||||
Share-based compensation |
15 | 2,924 | 2,514 | 11,213 | 10,746 | |||||||||||||||
Loss on disposal of assets |
1,207 | 439 | 5,780 | 9,033 | ||||||||||||||||
Finance costs |
10 | 27,217 | 26,513 | 82,964 | 85,406 | |||||||||||||||
Finance income |
(1,341 | ) | (669 | ) | (3,516 | ) | (3,176 | ) | ||||||||||||
Impairment charges |
4 | 111,399 | | 111,399 | 124,368 | |||||||||||||||
Other operating income |
8 | (9,338 | ) | (6,319 | ) | (15,178 | ) | (6,319 | ) | |||||||||||
Other expense (income) |
11 | 20,849 | (9,117 | ) | 32,008 | 9,433 | ||||||||||||||
Income tax expense (recovery) |
12 | (2,636 | ) | (10,407 | ) | 30,740 | (66,303 | ) | ||||||||||||
Interest received |
2,081 | 32 | 10,293 | 1,340 | ||||||||||||||||
Income taxes paid |
(42,667 | ) | (6,325 | ) | (84,925 | ) | (97,091 | ) | ||||||||||||
Other operating items |
14 | 92,691 | 137,822 | 81,062 | (142,942 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by operations |
153,791 | 384,943 | 276,063 | 57,287 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Investing activities |
||||||||||||||||||||
Additions to property, plant and equipment |
(35,346 | ) | (54,253 | ) | (88,665 | ) | (167,497 | ) | ||||||||||||
Decrease (increase) in long-term receivables, investments and other |
4,937 | (836 | ) | 13,406 | (2,111 | ) | ||||||||||||||
Proceeds from sale of property, plant and equipment |
254 | 33 | 970 | 1,877 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing |
(30,155 | ) | (55,056 | ) | (74,289 | ) | (167,731 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Financing activities |
||||||||||||||||||||
Increase (decrease) in debt |
| (208,757 | ) | | 25,988 | |||||||||||||||
Interest paid |
(14,254 | ) | (14,198 | ) | (48,949 | ) | (49,805 | ) | ||||||||||||
Proceeds from issuance of shares, stock option plan |
| | 4 | | ||||||||||||||||
Dividends paid |
(39,580 | ) | (39,579 | ) | (118,718 | ) | (118,730 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in financing |
(53,834 | ) | (262,534 | ) | (167,663 | ) | (142,547 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Increase (decrease) in cash and cash equivalents, during the period |
69,802 | 67,353 | 34,111 | (252,991 | ) | |||||||||||||||
Exchange rate changes on foreign currency cash balances |
(651 | ) | 480 | (2,545 | ) | (6,253 | ) | |||||||||||||
Cash and cash equivalents, beginning of period |
282,693 | 131,527 | 320,278 | 458,604 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | 351,844 | $ | 199,360 | $ | 351,844 | $ | 199,360 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents is comprised of: |
||||||||||||||||||||
Cash |
60,292 | 63,741 | ||||||||||||||||||
Cash equivalents |
291,552 | 135,619 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||
Cash and cash equivalents |
$ | 351,844 | $ | 199,360 | ||||||||||||||||
|
|
|
|
See accompanying notes to condensed consolidated interim financial statements.
6
Cameco Corporation
Notes to condensed consolidated interim financial statements
(Unaudited)
(Cdn$ thousands, except per share amounts and as noted)
1. | Cameco Corporation |
Cameco Corporation is incorporated under the Canada Business Corporations Act. The address of its registered office is 2121 11th Street West, Saskatoon, Saskatchewan, S7M 1J3. The condensed consolidated interim financial statements as at and for the period ended September 30, 2017 comprise Cameco Corporation and its subsidiaries (collectively, the Company or Cameco) and the Companys interests in associates and joint arrangements. The Company is primarily engaged in the exploration for and the development, mining, refining, conversion, fabrication and trading of uranium for sale as fuel for generating electricity in nuclear power reactors in Canada and other countries.
2. | Significant accounting policies |
A. | Statement of compliance |
These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. The condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with Camecos annual consolidated financial statements as at and for the year ended December 31, 2016.
These condensed consolidated interim financial statements were authorized for issuance by the Companys board of directors on October 26, 2017.
B. | Basis of presentation |
These condensed consolidated interim financial statements are presented in Canadian dollars, which is the Companys functional currency. All financial information is presented in Canadian dollars, unless otherwise noted. Amounts presented in tabular format have been rounded to the nearest thousand except per share amounts and where otherwise noted.
The condensed consolidated interim financial statements have been prepared on the historical cost basis except for the following material items which are measured on an alternative basis at each reporting date:
Derivative financial instruments | Fair value | |
Available-for-sale financial assets | Fair value | |
Liabilities for cash-settled share-based payment arrangements | Fair value | |
Net defined benefit liability | Fair value of plan assets less the present value of the |
The preparation of the condensed consolidated interim financial statements in conformity with International Financial Reporting Standards (IFRS) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenue and expenses. Actual results may vary from these estimates.
In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Companys accounting policies and key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended December 31, 2016.
7
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 5 of the December 31, 2016 consolidated financial statements.
3. | Accounting standards |
New standards and interpretations not yet adopted
A number of new standards and amendments to existing standards are not yet effective for the period ended September 30, 2017 and have not been applied in preparing these condensed consolidated interim financial statements. Cameco does not intend to early adopt any of the following standards or amendments to existing standards, unless otherwise noted.
i. | Revenue |
In May 2014, the International Accounting Standards Board (IASB) issued IFRS 15, Revenue from Contracts with Customers (IFRS 15). IFRS 15 is effective for periods beginning on or after January 1, 2018 and is to be applied retrospectively. IFRS 15 clarifies the principles for recognizing revenue from contracts with customers. Cameco continues to assess the impact the application of IFRS 15 will have on its consolidated financial statements. The assessment to date has primarily involved reviewing our sales contracts to determine if any performance obligations exist that will need to be separately identified that may affect the timing of when revenue will be recognized under IFRS 15. Based on our assessments completed to date, Cameco has not identified any material impacts on our existing revenue recognition practices from the adoption of the new standard.
ii. | Financial instruments |
In July 2014, the IASB issued IFRS 9, Financial Instruments (IFRS 9). IFRS 9 replaces the existing guidance in IAS 39, Financial Instruments: Recognition and Measurement (IAS 39). IFRS 9 includes revised guidance on the classification and measurement of financial assets, a new expected credit loss model for calculating impairment on financial assets and new hedge accounting requirements. It also carries forward, from IAS 39, guidance on recognition and derecognition of financial instruments.
IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early adoption of the new standard permitted. Cameco does not apply hedge accounting and does not currently intend to apply hedge accounting upon adoption of IFRS 9. Based on our assessment completed to date, we do not expect adoption of the standard to have a material impact on the financial statements, however we do expect to have additional disclosures.
iii. | Leases |
In January 2016, the IASB issued IFRS 16, Leases (IFRS 16). IFRS 16 is effective for periods beginning on or after January 1, 2019, with early adoption permitted. IFRS 16 eliminates the current dual model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. The extent of the impact of adoption of IFRS 16 has not yet been determined.
8
4. | Impairment |
(a) During the quarter, Cameco restructured its global marketing organization in response to the changing business environment. The restructuring significantly impacts the marketing activities historically performed by NUKEM. In accordance with the provisions of IAS 36, Impairment of Assets, Cameco considered this to be an indicator that the assets of the cash generating unit could potentially be impaired and accordingly, we were required to estimate the recoverable amount of these assets.
The recoverable amount of NUKEM was estimated based on a fair value less costs to sell calculation and was concluded to be equal to the carrying value of its inventory and existing contracts. A change in the previous assumption, that there would be cash flows generated beyond a five-year period, resulted in the elimination of the terminal value. Accordingly, an impairment charge of $111,399,000 ($88,377,000 (US)) was recorded, representing the full carrying value of NUKEM goodwill.
(b) In the second quarter of 2016, production was suspended at our Rabbit Lake operation. An impairment charge of $124,368,000 was recognized relating to our Rabbit Lake operation in northern Saskatchewan, which is part of the uranium segment. The charge was for the full carrying value of this cash generating unit. The recoverable amount of the mine and mill was based on a fair value less costs to sell model, which incorporated the future cash flows, including care and maintenance costs, expected to be derived from the operation. It was categorized as a non-recurring level 3 fair value measurement.
The discount rate used in the fair value less costs to sell calculation was 8% and was determined based on a market participants incremental borrowing cost, adjusted for the marginal return that the participant would expect to use on an investment in the mine and mill. Other key assumptions included uranium price forecasts and operating and capital cost forecasts. Uranium prices applied in the calculation were based on approved internal price forecasts, which reflect managements expectation of prices that a market participant would use. Operating and capital cost forecasts were determined based on managements internal cost estimates.
5. | Inventories |
Sep 30/17 | Dec 31/16 | |||||||
Uranium |
||||||||
Concentrate |
$ | 871,801 | $ | 989,202 | ||||
Broken ore |
35,245 | 45,581 | ||||||
|
|
|
|
|||||
907,046 | 1,034,783 | |||||||
NUKEM |
115,481 | 141,040 | ||||||
Fuel services |
96,953 | 112,116 | ||||||
|
|
|
|
|||||
Total |
$ | 1,119,480 | $ | 1,287,939 | ||||
|
|
|
|
Cameco expensed $400,962,000 of inventory as cost of sales during the third quarter of 2017 (2016 - $458,864,000). For the nine months ended September 30, 2017, Cameco expensed $1,059,824,000 of inventory as cost of sales (2016 - $1,072,309,000). Included in cost of sales for the period ended September 30, 2017, is an $11,809,000 net write-down of NUKEM inventory to reflect net realizable value due to reduced market prices (September 30, 2016 - $25,752,000).
NUKEM enters into financing arrangements where future receivables arising from certain sales contracts are sold to financial institutions in exchange for cash. These arrangements require NUKEM to satisfy its delivery obligations under the sales contracts, which are recognized as deferred sales (note 7). In addition, NUKEM is required to pledge the underlying inventory as security against these performance obligations. As of September 30, 2017, NUKEM had $4,540,000 ($3,637,000 (US)) of inventory pledged as security under financing arrangements (December 31, 2016 - $4,884,000 ($3,637,000 (US))).
9
6. | Long-term receivables, investments and other |
Sep 30/17 | Dec 31/16 | |||||||
Investments in equity securities [note 16] |
$ | 13,315 | $ | 14,807 | ||||
Derivatives [note 16] |
47,815 | 10,612 | ||||||
Advances receivable from JV Inkai LLP [note 18] |
61,968 | 90,095 | ||||||
Investment tax credits |
92,846 | 93,920 | ||||||
Amounts receivable related to tax dispute [note 12] |
303,222 | 264,042 | ||||||
Other |
48,163 | 49,506 | ||||||
|
|
|
|
|||||
567,329 | 522,982 | |||||||
Less current portion |
(26,603 | ) | (10,498 | ) | ||||
|
|
|
|
|||||
Net |
$ | 540,726 | $ | 512,484 | ||||
|
|
|
|
7. | Other liabilities |
Sep 30/17 | Dec 31/16 | |||||||
Deferred sales |
$ | 30,248 | $ | 29,423 | ||||
Derivatives [note 16] |
32,822 | 58,885 | ||||||
Accrued pension and post-retirement benefit liability |
66,477 | 69,699 | ||||||
Other |
53,398 | 25,725 | ||||||
|
|
|
|
|||||
182,945 | 183,732 | |||||||
Less current portion |
(44,495 | ) | (60,744 | ) | ||||
|
|
|
|
|||||
Net |
$ | 138,450 | $ | 122,988 | ||||
|
|
|
|
Deferred sales includes $5,710,000 ($4,575,000 (US)) of performance obligations relating to financing arrangements entered into by NUKEM (December 31, 2016 - $6,143,000 ($4,575,000 (US))) (note 5).
8. | Provisions |
Reclamation | Waste disposal | Total | ||||||||||
Beginning of year |
$ | 893,617 | $ | 15,165 | $ | 908,782 | ||||||
Changes in estimates and discount rates |
||||||||||||
Capitalized in property, plant, and equipment |
(60,903 | ) | | (60,903 | ) | |||||||
Recognized in earnings |
(15,178 | ) | (1,901 | ) | (17,079 | ) | ||||||
Provisions used during the period |
(10,392 | ) | (1,102 | ) | (11,494 | ) | ||||||
Unwinding of discount |
16,581 | 104 | 16,685 | |||||||||
Impact of foreign exchange |
(21,640 | ) | | (21,640 | ) | |||||||
|
|
|
|
|
|
|||||||
End of period |
$ | 802,085 | $ | 12,266 | $ | 814,351 | ||||||
|
|
|
|
|
|
|||||||
Current |
44,605 | 1,662 | 46,267 | |||||||||
Non-current |
757,480 | 10,604 | 768,084 | |||||||||
|
|
|
|
|
|
|||||||
$ | 802,085 | $ | 12,266 | $ | 814,351 | |||||||
|
|
|
|
|
|
10
9. | Share capital |
At September 30, 2017, there were 395,792,732 common shares outstanding. Options in respect of 8,415,524 shares are outstanding under the stock option plan and are exercisable up to 2025. For the quarter ended September 30, 2017, there were no options that were exercised resulting in the issuance of shares (2016 - nil). For the nine months ended September 30, 2017, 210 options were exercised that resulted in the issuance of shares (2016 - nil).
10. | Finance costs |
Three months ended | Nine months ended | |||||||||||||||
Sep 30/17 | Sep 30/16 | Sep 30/17 | Sep 30/16 | |||||||||||||
Interest on long-term debt |
$ | 18,365 | $ | 17,671 | $ | 54,761 | $ | 55,658 | ||||||||
Unwinding of discount on provisions |
5,026 | 4,715 | 16,685 | 15,866 | ||||||||||||
Other charges |
3,826 | 3,769 | 11,518 | 13,003 | ||||||||||||
Interest on short-term debt |
| 358 | | 879 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 27,217 | $ | 26,513 | $ | 82,964 | $ | 85,406 | ||||||||
11. Other income (expense) |
||||||||||||||||
Three months ended | Nine months ended | |||||||||||||||
Sep 30/17 | Sep 30/16 | Sep 30/17 | Sep 30/16 | |||||||||||||
Foreign exchange gains (losses) |
$ | (20,850 | ) | $ | 9,119 | $ | (32,009 | ) | $ | (16,465 | ) | |||||
Contract settlements |
| 59,027 | | 59,027 | ||||||||||||
Gain on change in investment accounting |
| | | 7,032 | ||||||||||||
Other |
2 | 2 | (11 | ) | 20 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | (20,848 | ) | $ | 68,148 | $ | (32,020 | ) | $ | 49,614 | ||||||
|
|
|
|
|
|
|
|
In the third quarter of 2016, Cameco agreed to terminate two long-term supply contracts with two of its utility customers that were effective for the years 2016 through 2020 and 2016 through 2021. The resulting gain on contract settlements was $59,027,000.
In the first quarter of 2016, Camecos share in one of its associates decreased such that equity accounting was no longer appropriate. As a result, the difference between its carrying value and fair value was recognized in other income. As an available-for-sale investment, future changes in fair value are being recognized in other comprehensive income.
11
12. | Income taxes |
Three months ended | Nine months ended | |||||||||||||||
Sep 30/17 | Sep 30/16 | Sep 30/17 | Sep 30/16 | |||||||||||||
Earnings (loss) before income taxes |
||||||||||||||||
Canada |
$ | 18,401 | $ | (88,224 | ) | $ | 93,587 | $ | (335,675 | ) | ||||||
Foreign |
(144,794 | ) | 220,507 | (206,336 | ) | 354,577 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | (126,393 | ) | $ | 132,283 | $ | (112,749 | ) | $ | 18,902 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Current income taxes (recovery) |
||||||||||||||||
Canada |
$ | 1,445 | $ | 160 | $ | 3,545 | $ | 2,134 | ||||||||
Foreign |
(9,471 | ) | 20,236 | (4,585 | ) | 33,373 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | (8,026 | ) | $ | 20,396 | $ | (1,040 | ) | $ | 35,507 | |||||||
Deferred income taxes (recovery) |
||||||||||||||||
Canada |
$ | 2,007 | $ | (19,226 | ) | $ | 37,811 | $ | (87,024 | ) | ||||||
Foreign |
3,383 | (11,577 | ) | (6,031 | ) | (14,786 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 5,390 | $ | (30,803 | ) | $ | 31,780 | $ | (101,810 | ) | |||||||
|
|
|
|
|
|
|
|
|||||||||
Income tax expense (recovery) |
$ | (2,636 | ) | $ | (10,407 | ) | $ | 30,740 | $ | (66,303 | ) | |||||
|
|
|
|
|
|
|
|
Cameco has recorded $811,149,000 of deferred tax assets (December 31, 2016 - $835,985,000). The realization of these deferred tax assets is dependent upon the generation of future taxable income in certain jurisdictions during the periods in which the Companys temporary tax differences are available. The Company considers whether it is probable that all or a portion of the deferred tax assets will not be realized. In making this assessment, management considers all available evidence, including recent financial operations, projected future taxable income and tax planning strategies. Based on projections of future taxable income over the periods in which the deferred tax assets are available, realization of these deferred tax assets is probable and consequently the deferred tax assets have been recorded.
Canada
In 2008, as part of the ongoing annual audits of Camecos Canadian tax returns, Canada Revenue Agency (CRA) disputed the transfer pricing structure and methodology used by Cameco and its wholly owned Swiss subsidiary, Cameco Europe Ltd., in respect of sale and purchase agreements for uranium products. From December 2008 to date, CRA issued notices of reassessment for the taxation years 2003 through 2011, which in aggregate have increased Camecos income for Canadian tax purposes by approximately $4,100,000,000. CRA has also issued notices of reassessment for transfer pricing penalties for the years 2007 through 2011 in the amount of $370,700,000. Cameco believes it is likely that CRA will reassess Camecos tax returns for subsequent years on a similar basis and that these will require Cameco to make future remittances or provide security on receipt of the reassessments.
Using the methodology we believe that CRA will continue to apply and including the $4,100,000,000 already reassessed, we expect to receive notices of reassessment for a total of approximately $8,100,000,000 for the years 2003 through 2016, which would increase Camecos income for Canadian tax purposes and result in a related tax expense of approximately $2,400,000,000. In addition to penalties already imposed, CRA may continue to apply penalties to taxation years subsequent to 2011. As a result, we estimate that cash taxes and transfer pricing penalties would be between $1,750,000,000 and $1,950,000,000. In addition, we estimate there would be interest and instalment penalties applied that would be material to Cameco. While in dispute, we would be responsible for remitting or otherwise securing 50% of the cash taxes and transfer pricing penalties (between $875,000,000 and $975,000,000), plus related interest and instalment penalties assessed, which would be material to Cameco.
12
Under Canadian federal and provincial tax rules, the amount required to be remitted each year will depend on the amount of income reassessed in that year and the availability of elective deductions. Recently, the CRA disallowed the use of any loss carry-backs to be applied to any transfer pricing adjustment, starting with the 2008 tax year. In light of our view of the likely outcome of the case, we expect to recover the amounts remitted to CRA, including cash taxes, interest and penalties totalling $303,222,000 already paid as at September 30, 2017 (December 31, 2016 - $264,042,000) (note 6). In addition to the cash remitted, we have provided $421,000,000 in letters of credit to secure 50% of the cash taxes and related interest.
The trial for the 2003, 2005 and 2006 reassessments concluded on September 13, 2017. We expect to have a Tax Court decision within six to 18 months.
Having regard to advice from its external advisors, Camecos opinion is that CRAs position is incorrect and Cameco is contesting CRAs position and expects to recover any amounts remitted or secured as a result of the reassessments. However, to reflect the uncertainties of CRAs appeals process and litigation, Cameco has recorded a cumulative tax provision related to this matter for the years 2003 through the current period in the amount of $56,000,000. While the resolution of this matter may result in liabilities that are higher or lower than the reserve, management believes that the ultimate resolution will not be material to Camecos financial position, results of operations or liquidity in the year(s) of resolution. Resolution of this matter as stipulated by CRA would be material to Camecos financial position, results of operations or liquidity in the year(s) of resolution and other unfavourable outcomes for the years 2003 to date could be material to Camecos financial position, results of operations and cash flows in the year(s) of resolution.
Further to Camecos decision to contest CRAs reassessments, Cameco is pursuing its appeal rights under Canadian federal and provincial tax rules.
United States
We have now settled our IRS dispute related to the 2009 through 2012 tax years, and in the third quarter we paid $198,000 (US) comprised of $122,000 (US) taxes owing plus interest.
13. | Per share amounts |
Per share amounts have been calculated based on the weighted average number of common shares outstanding during the period. The weighted average number of paid shares outstanding in 2017 was 395,792,670 (2016 - 395,792,522).
Three months ended | Nine months ended | |||||||||||||||
Sep 30/17 | Sep 30/16 | Sep 30/17 | Sep 30/16 | |||||||||||||
Basic earnings (loss) per share computation |
||||||||||||||||
Net earnings (loss) attributable to equity holders |
$ | (123,712 | ) | $ | 142,145 | $ | (143,316 | ) | $ | 82,801 | ||||||
Weighted average common shares outstanding |
395,793 | 395,793 | 395,793 | 395,793 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic earnings (loss) per common share |
$ | (0.31 | ) | $ | 0.36 | $ | (0.36 | ) | $ | 0.21 | ||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted earnings (loss) per share computation |
||||||||||||||||
Net earnings (loss) attributable to equity holders |
$ | (123,712 | ) | $ | 142,145 | $ | (143,316 | ) | $ | 82,801 | ||||||
Weighted average common shares outstanding |
395,793 | 395,793 | 395,793 | 395,793 | ||||||||||||
Dilutive effect of stock options |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average common shares outstanding, assuming dilution |
395,793 | 395,793 | 395,793 | 395,793 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted earnings (loss) per common share |
$ | (0.31 | ) | $ | 0.36 | $ | (0.36 | ) | $ | 0.21 | ||||||
|
|
|
|
|
|
|
|
13
14. | Statements of cash flows |
Three months ended | Nine months ended | |||||||||||||||
Sep 30/17 | Sep 30/16 | Sep 30/17 | Sep 30/16 | |||||||||||||
Changes in non-cash working capital: |
||||||||||||||||
Accounts receivable |
$ | (75,753 | ) | $ | 8,479 | $ | 51,748 | $ | 127,701 | |||||||
Inventories |
150,297 | 144,213 | 136,222 | (150,140 | ) | |||||||||||
Supplies and prepaid expenses |
2,662 | 11,250 | 5,463 | (4,179 | ) | |||||||||||
Accounts payable and accrued liabilities |
4,619 | (31,012 | ) | (115,660 | ) | (113,175 | ) | |||||||||
Reclamation payments |
(5,646 | ) | (4,407 | ) | (11,494 | ) | (8,326 | ) | ||||||||
Other |
16,512 | 9,299 | 14,783 | 5,177 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other operating items |
$ | 92,691 | $ | 137,822 | $ | 81,062 | $ | (142,942 | ) | |||||||
|
|
|
|
|
|
|
|
15. | Share-based compensation plans |
A. | Stock option plan |
The Company has established a stock option plan under which options to purchase common shares may be granted to employees of Cameco. Options granted under the stock option plan have an exercise price of not less than the closing price quoted on the Toronto Stock Exchange (TSX) for the common shares of Cameco on the trading day prior to the date on which the option is granted. The options carry vesting periods of one to three years, and expire eight years from the date granted.
The aggregate number of common shares that may be issued pursuant to the Cameco stock option plan shall not exceed 43,017,198 of which 27,870,289 shares have been issued.
B. | Executive performance share unit (PSU) |
The Company has established a PSU plan whereby it provides each plan participant an annual grant of PSUs in an amount determined by the board. Each PSU represents one phantom common share that entitles the participant to a payment of one Cameco common share purchased on the open market or cash with an equivalent market value, at the boards discretion, at the end of each three-year period if certain performance and vesting criteria have been met. The final value of the PSUs will be based on the value of Cameco common shares at the end of the three-year period and the number of PSUs that ultimately vest. Vesting of PSUs at the end of the three-year period will be based on total shareholder return over the three years, Camecos ability to meet its annual operating targets and whether the participating executive remains employed by Cameco at the end of the three-year vesting period. As of September 30, 2017, the total number of PSUs held by the participants, after adjusting for forfeitures on retirement, was 1,070,997 (December 31, 2016 - 892,895).
C. | Restricted share unit (RSU) |
The Company has established an RSU plan whereby it provides each plan participant an annual grant of RSUs in an amount determined by the board. Each RSU represents one phantom common share that entitles the participant to a payment of one Cameco common share purchased on the open market or cash with an equivalent market value, at the boards discretion. The RSUs carry vesting periods of one to three years, and the final value of the units will be based on the value of Cameco common shares at the end of the vesting periods. As of September 30, 2017, the total number of RSUs held by the participants was 480,573 (December 31, 2016 - 557,957).
14
Cameco records compensation expense under its equity-settled plans with an offsetting credit to contributed surplus, to reflect the estimated fair value of units granted to employees. During the period, the Company recognized the following expenses under these plans:
Three months ended | Nine months ended | |||||||||||||||
Sep 30/17 | Sep 30/16 | Sep 30/17 | Sep 30/16 | |||||||||||||
Stock option plan |
$ | 393 | $ | 288 | $ | 4,545 | $ | 3,741 | ||||||||
Performance share unit plan |
1,730 | 1,623 | 4,634 | 4,017 | ||||||||||||
Restricted share unit plan |
801 | 603 | 2,034 | 2,988 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 2,924 | $ | 2,514 | $ | 11,213 | $ | 10,746 | |||||||||
|
|
|
|
|
|
|
|
Fair value measurement of equity-settled plans
The fair value of the units granted through the PSU plan was determined based on Monte Carlo simulation and the fair value of options granted under the stock option plan was measured based on the Black-Scholes option-pricing model. The fair value of RSUs granted was determined based on their intrinsic value on the date of grant. Expected volatility was estimated by considering historic average share price volatility.
The inputs used in the measurement of the fair values at grant date of the equity-settled share-based payment plans were as follows:
Stock | ||||||||||||
option plan | PSU | RSU | ||||||||||
Number of options granted |
1,373,040 | 470,120 | 279,892 | |||||||||
Average strike price |
$ | 14.70 | | $ | 14.71 | |||||||
Expected dividend |
$ | 0.40 | | | ||||||||
Expected volatility |
34 | % | 36 | % | | |||||||
Risk-free interest rate |
1.1 | % | 0.9 | % | | |||||||
Expected life of option |
4.7 years | 3 years | | |||||||||
Expected forfeitures |
7 | % | 9 | % | 13 | % | ||||||
Weighted average grant date fair values |
$ | 3.34 | $ | 14.72 | $ | 14.71 |
In addition to these inputs, other features of the PSU grant were incorporated into the measurement of fair value. The market condition based on total shareholder return was incorporated by utilizing a Monte Carlo simulation. The non-market criteria relating to realized selling prices and operating targets have been incorporated into the valuation at grant date by reviewing prior history and corporate budgets.
16. | Financial instruments and related risk management |
A. | Fair value hierarchy |
The fair value of an asset or liability is generally estimated as the amount that would be received on sale of an asset, or paid to transfer a liability in an orderly transaction between market participants at the reporting date. Fair values of assets and liabilities traded in an active market are determined by reference to last quoted prices, in the principal market for the asset or liability. In the absence of an active market for an asset or liability, fair values are determined based on market quotes for assets or liabilities with similar characteristics and risk profiles, or through other valuation techniques. Fair values determined using valuation techniques require the use of inputs, which are obtained from external, readily observable market data when available. In some circumstances, inputs that are not based on observable data must be used. In these cases, the estimated fair values may be adjusted in order to account for valuation uncertainty, or to reflect the assumptions that market participants would use in pricing the asset or liability.
15
All fair value measurements are categorized into one of three hierarchy levels, described below, for disclosure purposes. Each level is based on the transparency of the inputs used to measure the fair values of assets and liabilities:
Level 1 Values based on unadjusted quoted prices in active markets that are accessible at the reporting date for identical assets or liabilities.
Level 2 Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.
Level 3 Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
When the inputs used to measure fair value fall within more than one level of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety.
The following tables summarize the carrying amounts and fair values of Camecos financial instruments that are measured at fair value, including their levels in the fair value hierarchy:
As at September 30, 2017
Fair value | ||||||||||||||||
Carrying value | Level 1 | Level 2 | Total | |||||||||||||
Derivative assets [note 6] |
||||||||||||||||
Foreign currency contracts |
$ | 47,217 | $ | | $ | 47,217 | $ | 47,217 | ||||||||
Interest rate contracts |
598 | | 598 | 598 | ||||||||||||
Investments in equity securities [note 6] |
13,315 | 13,315 | | 13,315 | ||||||||||||
Derivative liabilities [note 7] |
||||||||||||||||
Foreign currency contracts |
(4,502 | ) | | (4,502 | ) | (4,502 | ) | |||||||||
Interest rate contracts |
(348 | ) | | (348 | ) | (348 | ) | |||||||||
Uranium contracts |
(27,972 | ) | | (27,972 | ) | (27,972 | ) | |||||||||
Long-term debt |
(1,494,175 | ) | | (1,660,202 | ) | (1,660,202 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net |
$ | (1,465,867 | ) | $ | 13,315 | $ | (1,645,209 | ) | $ | (1,631,894 | ) | |||||
|
|
|
|
|
|
|
|
As at December 31, 2016
Fair value | ||||||||||||||||
Carrying value | Level 1 | Level 2 | Total | |||||||||||||
Derivative assets [note 6] |
||||||||||||||||
Foreign currency contracts |
$ | 4,065 | $ | | $ | 4,065 | $ | 4,065 | ||||||||
Interest rate contracts |
6,547 | | 6,547 | 6,547 | ||||||||||||
Investments in equity securities [note 6] |
14,807 | 14,807 | | 14,807 | ||||||||||||
Derivative liabilities [note 7] |
||||||||||||||||
Foreign currency contracts |
(29,231 | ) | | (29,231 | ) | (29,231 | ) | |||||||||
Uranium contracts |
(29,654 | ) | | (29,654 | ) | (29,654 | ) | |||||||||
Long-term debt |
(1,493,327 | ) | | (1,721,805 | ) | (1,721,805 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net |
$ | (1,526,793 | ) | $ | 14,807 | $ | (1,770,078 | ) | $ | (1,755,271 | ) | |||||
|
|
|
|
|
|
|
|
The preceding tables exclude fair value information for financial instruments whose carrying amounts are a reasonable approximation of fair value.
There were no transfers between level 1 and level 2 during the period. Cameco does not have any financial instruments that are classified as level 3 as of the reporting date.
16
B. | Financial instruments measured at fair value |
Cameco measures its derivative financial instruments, material investments in equity securities and long-term debt at fair value. Investments in publicly held equity securities are classified as a recurring level 1 fair value measurement while derivative financial instruments and long-term debt are classified as recurring level 2 fair value measurements.
The fair value of investments in equity securities is determined using quoted share prices observed in the principal market for the securities as of the reporting date. The fair value of Camecos long-term debt is determined using quoted market yields as of the reporting date, which ranged from 1.5% to 2.5% (2016 - 0.8% to 2.3%).
Foreign currency derivatives consist of foreign currency forward contracts, options and swaps. The fair value of foreign currency options is measured based on the Black Scholes option-pricing model. The fair value of foreign currency forward contracts and swaps is measured using a market approach, based on the difference between contracted foreign exchange rates and quoted forward exchange rates as of the reporting date.
Interest rate derivatives consist of interest rate swap contracts. The fair value of interest rate swaps is determined by discounting expected future cash flows from the contracts. The future cash flows are determined by measuring the difference between fixed interest payments to be received and floating interest payments to be made to the counterparty based on Canada Dealer Offer Rate forward interest rate curves.
Uranium contract derivatives consist of written options and price swaps. The fair value of uranium options is measured based on the Black Scholes option-pricing model. The fair value of uranium price swaps is determined by discounting expected future cash flows from the contracts. The future cash flows are determined by measuring the difference between fixed purchases or sales under contracted prices, and floating purchases or sales based on Numerco forward uranium price curves.
Where applicable, the fair value of the derivatives reflects the credit risk of the instrument and includes adjustments to take into account the credit risk of the Company and counterparty. These adjustments are based on credit ratings and yield curves observed in active markets at the reporting date.
C. | Other financial instruments |
The carrying value of Camecos cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximates its fair value as a result of the short-term nature of the instruments.
17
D. | Derivatives |
The following table summarizes the fair value of derivatives and classification on the consolidated statements of financial position:
Sep 30/17 | Dec 31/16 | |||||||
Non-hedge derivatives: |
||||||||
Foreign currency contracts |
$ | 42,715 | $ | (25,166 | ) | |||
Interest rate contracts |
250 | 6,547 | ||||||
Uranium contracts |
(27,972 | ) | (29,654 | ) | ||||
|
|
|
|
|||||
Net |
$ | 14,993 | $ | (48,273 | ) | |||
|
|
|
|
|||||
Classification: |
||||||||
Current portion of long-term receivables, investments and other [note 6] |
$ | 26,320 | $ | 4,119 | ||||
Long-term receivables, investments and other [note 6] |
21,495 | 6,493 | ||||||
Current portion of other liabilities [note 7] |
(8,712 | ) | (24,966 | ) | ||||
Other liabilities [note 7] |
(24,110 | ) | (33,919 | ) | ||||
|
|
|
|
|||||
Net |
$ | 14,993 | $ | (48,273 | ) | |||
|
|
|
|
The following table summarizes the different components of the gain (loss) on derivatives included in net earnings (loss):
Three months ended | Nine months ended | |||||||||||||||
Sep 30/17 | Sep 30/16 | Sep 30/17 | Sep 30/16 | |||||||||||||
Non-hedge derivatives |
||||||||||||||||
Foreign currency contracts |
$ | 24,383 | $ | (8,945 | ) | $ | 61,649 | $ | 87,106 | |||||||
Interest rate contracts |
(2,361 | ) | (108 | ) | (3,613 | ) | 1,724 | |||||||||
Uranium contracts |
(295 | ) | (3,308 | ) | (2,229 | ) | (25,062 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net |
$ | 21,727 | $ | (12,361 | ) | $ | 55,807 | $ | 63,768 | |||||||
|
|
|
|
|
|
|
|
17. | Segmented information |
Cameco has three reportable segments: uranium, fuel services and NUKEM. The uranium segment involves the exploration for, mining, milling, purchase and sale of uranium concentrate. The fuel services segment involves the refining, conversion and fabrication of uranium concentrate and the purchase and sale of conversion services. The NUKEM segment acts as a market intermediary between uranium producers and nuclear-electric utilities.
Camecos reportable segments are strategic business units with different products, processes and marketing strategies.
Accounting policies used in each segment are consistent with the policies outlined in the summary of significant accounting policies. Segment revenues, expenses and results include transactions between segments incurred in the ordinary course of business. These transactions are priced on an arms length basis, are eliminated on consolidation and are reflected in the other column.
18
Business segments
For the three months ended September 30, 2017
Uranium | Fuel services | NUKEM | Other | Total | ||||||||||||||||
Revenue |
$ | 384,759 | $ | 69,039 | $ | 31,587 | $ | 209 | $ | 485,594 | ||||||||||
Expenses |
||||||||||||||||||||
Cost of products and services sold |
250,508 | 55,039 | 32,457 | (63 | ) | 337,941 | ||||||||||||||
Depreciation and amortization |
83,161 | 10,387 | 442 | 2,636 | 96,626 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cost of sales |
333,669 | 65,426 | 32,899 | 2,573 | 434,567 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit (loss) |
51,090 | 3,613 | (1,312 | ) | (2,364 | ) | 51,027 | |||||||||||||
Administration |
| | 5,626 | 34,506 | 40,132 | |||||||||||||||
Impairment charge |
| | 111,399 | | 111,399 | |||||||||||||||
Exploration |
8,080 | | | | 8,080 | |||||||||||||||
Research and development |
| | | 943 | 943 | |||||||||||||||
Other operating income |
(9,338 | ) | | | | (9,338 | ) | |||||||||||||
Loss on disposal of assets |
1,135 | 67 | 5 | | 1,207 | |||||||||||||||
Finance costs |
| | 478 | 26,739 | 27,217 | |||||||||||||||
Loss (gain) on derivatives |
| | 314 | (22,041 | ) | (21,727 | ) | |||||||||||||
Finance income |
| | | (1,341 | ) | (1,341 | ) | |||||||||||||
Other expense (income) |
| | (105 | ) | 20,953 | 20,848 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Earnings (loss) before income taxes |
51,213 | 3,546 | (119,029 | ) | (62,123 | ) | (126,393 | ) | ||||||||||||
Income tax recovery |
(2,636 | ) | ||||||||||||||||||
|
|
|||||||||||||||||||
Net loss |
$ | (123,757 | ) | |||||||||||||||||
|
|
For the three months ended September 30, 2016
Uranium | Fuel services | NUKEM | Other | Total | ||||||||||||||||
Revenue |
$ | 526,230 | $ | 77,289 | $ | 66,569 | $ | (434 | ) | $ | 669,654 | |||||||||
Expenses |
||||||||||||||||||||
Cost of products and services sold |
285,724 | 56,255 | 70,525 | (800 | ) | 411,704 | ||||||||||||||
Depreciation and amortization |
87,612 | 8,889 | 11,735 | 3,575 | 111,811 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cost of sales |
373,336 | 65,144 | 82,260 | 2,775 | 523,515 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit (loss) |
152,894 | 12,145 | (15,691 | ) | (3,209 | ) | 146,139 | |||||||||||||
Administration |
| | 2,774 | 35,915 | 38,689 | |||||||||||||||
Exploration |
9,643 | | | | 9,643 | |||||||||||||||
Research and development |
| | | 1,347 | 1,347 | |||||||||||||||
Other operating income |
(6,319 | ) | | | | (6,319 | ) | |||||||||||||
Loss on disposal of assets |
439 | | | | 439 | |||||||||||||||
Finance costs |
| | (68 | ) | 26,581 | 26,513 | ||||||||||||||
Loss (gain) on derivatives |
| | (3,113 | ) | 15,474 | 12,361 | ||||||||||||||
Finance income |
| | 101 | (770 | ) | (669 | ) | |||||||||||||
Other expense (income) |
(48,655 | ) | (10,372 | ) | 386 | (9,507 | ) | (68,148 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Earnings (loss) before income taxes |
197,786 | 22,517 | (15,771 | ) | (72,249 | ) | 132,283 | |||||||||||||
Income tax recovery |
(10,407 | ) | ||||||||||||||||||
|
|
|||||||||||||||||||
Net earnings |
$ | 142,690 | ||||||||||||||||||
|
|
19
For the nine months ended September 30, 2017
Uranium | Fuel services | NUKEM | Other | Total | ||||||||||||||||
Revenue |
$ | 943,096 | $ | 205,935 | $ | 197,673 | $ | 1,176 | $ | 1,347,880 | ||||||||||
Expenses |
||||||||||||||||||||
Cost of products and services sold |
591,449 | 138,138 | 202,219 | (716 | ) | 931,090 | ||||||||||||||
Depreciation and amortization |
172,159 | 25,764 | 11,302 | 8,302 | 217,527 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cost of sales |
763,608 | 163,902 | 213,521 | 7,586 | 1,148,617 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit (loss) |
179,488 | 42,033 | (15,848 | ) | (6,410 | ) | 199,263 | |||||||||||||
Administration |
| | 11,588 | 112,974 | 124,562 | |||||||||||||||
Impairment charge |
| | 111,399 | | 111,399 | |||||||||||||||
Exploration |
24,478 | | | | 24,478 | |||||||||||||||
Research and development |
| | | 5,310 | 5,310 | |||||||||||||||
Other operating income |
(15,178 | ) | | | | (15,178 | ) | |||||||||||||
Loss on disposal of assets |
5,700 | 71 | 9 | | 5,780 | |||||||||||||||
Finance costs |
| | 1,172 | 81,792 | 82,964 | |||||||||||||||
Loss (gain) on derivatives |
| | 1,187 | (56,994 | ) | (55,807 | ) | |||||||||||||
Finance income |
| | (23 | ) | (3,493 | ) | (3,516 | ) | ||||||||||||
Other expense (income) |
(8 | ) | | 1,778 | 30,250 | 32,020 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Earnings (loss) before income taxes |
164,496 | 41,962 | (142,958 | ) | (176,249 | ) | (112,749 | ) | ||||||||||||
Income tax expense |
30,740 | |||||||||||||||||||
|
|
|||||||||||||||||||
Net loss |
$ | (143,489 | ) | |||||||||||||||||
For the nine months ended September 30, 2016 | ||||||||||||||||||||
Uranium | Fuel services | NUKEM | Other | Total | ||||||||||||||||
Revenue |
$ | 1,128,898 | $ | 217,384 | $ | 197,518 | $ | 501 | $ | 1,544,301 | ||||||||||
Expenses |
||||||||||||||||||||
Cost of products and services sold |
654,592 | 150,599 | 158,984 | (245 | ) | 963,930 | ||||||||||||||
Depreciation and amortization |
173,096 | 22,759 | 64,609 | 12,963 | 273,427 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cost of sales |
827,688 | 173,358 | 223,593 | 12,718 | 1,237,357 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit (loss) |
301,210 | 44,026 | (26,075 | ) | (12,217 | ) | 306,944 | |||||||||||||
Administration |
| | 16,099 | 135,362 | 151,461 | |||||||||||||||
Impairment charge |
124,368 | | | | 124,368 | |||||||||||||||
Exploration |
36,543 | | | | 36,543 | |||||||||||||||
Research and development |
| | | 4,108 | 4,108 | |||||||||||||||
Other operating income |
(6,319 | ) | | | | (6,319 | ) | |||||||||||||
Loss on disposal of assets |
9,005 | | 28 | | 9,033 | |||||||||||||||
Finance costs |
| | 3,911 | 81,495 | 85,406 | |||||||||||||||
Gain on derivatives |
| | (3,725 | ) | (60,043 | ) | (63,768 | ) | ||||||||||||
Finance income |
| | (228 | ) | (2,948 | ) | (3,176 | ) | ||||||||||||
Other expense (income) |
(55,687 | ) | (10,372 | ) | 915 | 15,530 | (49,614 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Earnings (loss) before income taxes |
193,300 | 54,398 | (43,075 | ) | (185,721 | ) | 18,902 | |||||||||||||
Income tax recovery |
(66,303 | ) | ||||||||||||||||||
|
|
|||||||||||||||||||
Net earnings |
$ | 85,205 | ||||||||||||||||||
|
|
20
18. | Related parties |
The shares of Cameco are widely held and no shareholder, resident in Canada, is allowed to own more than 25% of the Companys outstanding common shares, either individually or together with associates. A non-resident of Canada is not allowed to own more than 15%.
Related party transactions
Through an unsecured shareholder loan, Cameco has agreed to fund Inkais costs related to the evaluation and development of block 3. The limit of the loan facility is $175,000,000 (US) and advances under this facility bear interest at a rate of LIBOR plus 2%. At September 30, 2017, $124,134,000 (US) of principal and interest was outstanding (December 31, 2016 - $167,750,000 (US)).
Camecos share of the outstanding principal and interest was $61,968,000 at September 30, 2017 (December 31, 2016 - $90,095,000) (note 6). For the quarter ended September 30, 2017, Cameco recorded interest income of $554,000 relating to this balance (2016 - $524,000). For the nine month period ended September 30, 2017, interest income was $1,685,000 (2016 - $1,569,000).
21
Exhibit 99.4
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Tim Gitzel, president and chief executive officer of Cameco Corporation, certify that:
1. | I have reviewed this quarterly report on Form 6-K of Cameco Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
Page 2
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: October 27, 2017
Tim Gitzel |
Tim Gitzel |
President and Chief Executive Officer |
Exhibit 99.5
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Grant Isaac, senior vice-president and chief financial officer, of Cameco Corporation, certify that:
1. | I have reviewed this quarterly report on Form 6-K of Cameco Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
Page 2
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: October 27, 2017
Grant Isaac |
Grant Isaac |
Senior Vice-President and Chief Financial Officer |
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