CCJ

Cameco Corporation Q1 2004 Financial Summary

Business Context and Reporting Period

This Form 6-K filing reports the unaudited financial results for Cameco Corporation for the three months ended March 31, 2004. Cameco is the world's largest uranium producer and a significant supplier of conversion services, with additional operations in nuclear electricity generation (Bruce Power) and gold mining (Kumtor and Boroo). The reporting period covers the first quarter of fiscal 2004.

Key Financial Metrics

Note: All dollar amounts are in Canadian dollars unless otherwise specified. Long-term debt decreased due to a change in accounting policy classifying preferred securities as debt rather than equity, alongside actual debt repayments.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenue increased 28% driven by a 50% increase in uranium sales volume and higher gold production, despite lower realized prices in uranium and electricity segments.
• Uranium Segment: Revenue rose 33% to $73 million due to volume, but gross profit margin fell to 12% from 26% due to lower realized prices from fixed-price contracts and unfavorable foreign exchange rates, offsetting a 63% rise in spot uranium prices.
• Gold Segment: Earnings improved significantly. The Boroo mine achieved commercial production on March 1, 2004. Kumtor production increased 18% due to higher ore grades, and realized gold prices rose.
• Electricity (Bruce Power): Earnings before taxes declined to $131 million from $188 million due to lower realized electricity prices ($49/MWh vs $57/MWh) and higher operating costs associated with restarting Unit A3 and A4.
• Cash Flow: Operating cash flow decreased slightly ($3 million) primarily due to increased inventory levels as production exceeded sales.

Guidance, Outlook, and Risks

• 2004 Outlook: Consolidated revenue is expected to rise ~4%. Gross profit margin is projected to increase to 23%. Uranium revenue is expected to decrease ~4% due to lower deliveries, while gold revenue is expected to increase.
• Q2 2004 Outlook: Revenue is expected to be ~75% higher than Q1 due to higher volumes in uranium, conversion, and gold. Uranium realized prices are expected to improve by ~15%.
• New Business Development: Cameco announced a bid to purchase a 25.2% interest in the South Texas Project (STP) for $333 million (US). The transaction is subject to a right of first refusal and expected to close in H2 2004.
• Gold IPO: Cameco is packaging its gold assets (Kumtor and Boroo) into Centerra Gold Inc., with an IPO planned for Q2 2004.
• Risks and Contingencies:
  • Foreign Exchange: A 1-cent change in the US/Canadian exchange rate impacts net earnings by ~$3 million (Cdn).
  • Commodity Prices: Uranium and gold prices remain volatile; long-term contracts limit immediate benefit from spot price increases.
  • Operational: McArthur River mine water inflow is being managed; Bruce Power faces planned outages in Q2.
  • Regulatory: Cigar Lake project awaits CNSC hearings in June/July 2004.

Investor Verification Checklist

• South Texas Project (STP) Acquisition: Verify the status of the right of first refusal and financing plans for the $333 million (US) purchase.
• Uranium Pricing Mix: Assess the duration of fixed-price contracts limiting revenue realization despite rising spot prices.
• Centerra Gold IPO: Monitor the timeline and valuation for the proposed spin-off of gold assets.
• Bruce Power Outages: Review the impact of the Q2 maintenance outage on Unit A4 on quarterly cash flow and earnings.
• Debt Classification: Confirm the impact of the accounting policy change (CICA 3860) on debt-to-equity ratios and interest expense.