Cameco Corporation: Q4 and Full Year 2004 Financial Summary
Business Context and Reporting Period
This Form 6-K filing, dated January 27, 2005, reports the unaudited financial results for Cameco Corporation for the fourth quarter and full year ended December 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 (via Centerra Gold Inc.). All figures are in Canadian dollars unless otherwise noted.
Key Financial Metrics
| Metric | Q4 2004 | Q4 2003 | Full Year 2004 | Full Year 2003 |
|---|---|---|---|---|
| Revenue ($ millions) | 361 | 272 | 1,048 | 827 |
| Net Earnings ($ millions) | 37 | 34 | 279 | 208 |
| Earnings Per Share (Basic) | $0.21 | $0.20 | $1.63 | $1.24 |
| Cash from Operations ($ millions) | 59 | 79 | 228 | 250 |
| Net Debt to Capitalization | 13% (Dec 31, 2004) vs 22% (Dec 31, 2003) | |||
| Long-Term Debt ($ millions) |
Note: Per share amounts reflect a three-for-one stock split completed in December 2004.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenue increased 33% in Q4 and 27% for the full year, driven by higher realized prices in uranium and gold, and increased gold production.
- Accounting Change: A significant non-cash accounting adjustment regarding the restructuring of Centerra Gold Inc. increased 2004 net earnings by $86 million. This involved recording $214 million in goodwill and a $113 million dilution gain. Prior period financial statements (Q2 and Q3 2004) have been restated to reflect this change.
- Segment Performance:
- Uranium: Revenue rose 9% in Q4 due to a 14% increase in average realized price ($19.09/lb CDN). Spot prices reached a 20-year high of $20.60 (US)/lb.
- Gold: Revenue nearly tripled in Q4 to $110 million due to full consolidation of Centerra's Kumtor mine and production from the Boroo mine.
- Conversion: Earnings declined due to a seven-week labor disruption in the summer, which reduced production and increased unit costs.
- Bruce Power: Pre-tax earnings attributable to Cameco were $2 million in Q4, down from $6 million, due to maintenance outages and higher costs.
- Costs: Administration costs rose $5 million in Q4 (Centerra operations, stock compensation), and exploration expenses increased $7 million.
Guidance, Outlook, and Risks
- 2005 Outlook: Consolidated revenue is expected to grow approximately 10%. Gross profit margins are projected to improve from the 23% reported in 2004.
- Uranium: Revenue expected to be significantly higher due to price and volume increases.
- Gold: Revenue expected to be higher, but results may decline due to lower ore grades at Kumtor.
- Bruce Power: Results anticipated to decline modestly due to higher depreciation and outage costs.
- Capital Expenditures: Total capital expenditures for uranium and conversion are expected to more than double to $300 million in 2005. This includes $167 million for growth projects (Cigar Lake, Inkai, SEU facility).
- Q1 2005 Outlook: Revenue expected to be 60% higher than Q1 2004, but consolidated earnings are expected to be moderately lower due to planned outages at Bruce Power.
- Risks and Contingencies:
- Regulatory: Expansion projects (McArthur River, SEU facility, Inkai) are subject to regulatory approvals.
- Market: Sensitivity to uranium, gold, and electricity spot prices. Approximately 91% of 2005 uranium sales are price-insensitive to increases above current levels.
- Operational: Risks related to labor relations, geological conditions, and unplanned outages.
Key Facts for Investor Verification
- Accounting Restatement: Verify the impact of the $86 million non-cash gain from the Centerra restructuring on reported earnings versus adjusted earnings ($185 million adjusted net earnings for 2004).
- Uranium Pricing Mix: Assess the proportion of fixed-price contracts versus market-sensitive contracts for 2005-2008, as 91% of 2005 sales are currently insensitive to spot price increases above $20.60/lb.
- Capital Intensity: Confirm the funding sources for the projected $300 million capital expenditure program, particularly the $225 million share for the Cigar Lake mine construction.
- Gold Production Costs: Monitor total cash costs per ounce at Kumtor, which rose to $268 (US) in Q4 2004 due to lower ore grades, and are forecast to remain elevated in 2005.
- Debt Structure: Note the redemption of $125 million (US) in 8.75% preferred securities in December 2004, funded by lower-cost commercial paper, improving the net debt-to-capitalization ratio to 13%.