Cameco Corporation: Q3 2007 Financial Summary
Business Context and Reporting Period
This Form 6-K filing reports Cameco Corporation's unaudited consolidated financial results for the three and nine months ended September 30, 2007. Cameco is the world's largest uranium producer and a significant supplier of conversion services, nuclear electricity generation (via Bruce Power Limited Partnership), and gold (via Centerra Gold Inc.). All financial figures are presented in Canadian dollars unless otherwise noted.
Key Financial Metrics
| Metric | Q3 2007 | Q3 2006 | YTD 2007 | YTD 2006 |
|---|---|---|---|---|
| Revenue ($ millions) | 681 | 360 | 1,816 | 1,320 |
| Net Earnings ($ millions) | 91 | 73 | 355 | 335 |
| Adjusted Net Earnings ($ millions) | 275 | 44 | 539 | 233 |
| Earnings Per Share (Diluted) ($) | 0.25 | 0.20 | 0.96 | 0.91 |
| Adjusted EPS (Diluted) ($) | 0.74 | 0.12 | 1.45 | 0.64 |
| Cash Provided by Operations ($ millions) | 450 | 79 | 744 | 405 |
| Long-Term Debt ($ millions) | 694 | 704 | 694 | 704 |
| Net Debt to Capitalization | 9% | 12% | 9% | 12% |
| Cash Balance ($ millions) | 403 | 473 | 403 | 473 |
Material Changes vs. Prior Period
- Revenue Growth: Q3 revenue increased 89% year-over-year, driven by a 136% increase in the realized uranium selling price (reaching a record $56.78 Cdn/lb) and a 31% increase in sales volumes. YTD revenue grew 38%.
- Profitability: Adjusted net earnings surged 525% in Q3 and 131% YTD compared to 2006. The uranium segment gross profit margin expanded to 67% in Q3 from 20% in the prior year.
- Cash Flow: Operating cash flow increased significantly to $450 million in Q3 (up 470% YoY) due to higher realized prices and a decrease in working capital (specifically receivables).
- Unusual Items: GAAP net earnings were impacted by a $125 million after-tax loss related to the Kyrgyz Republic agreement and a $59 million after-tax expense from amending the stock option plan to allow cash settlement.
Guidance, Outlook, and Risks
- Q4 2007 Outlook: Consolidated revenue is expected to be approximately 10% lower than Q3 due to lower anticipated sales volumes and a decrease in the average realized uranium price. Operating cash flow is expected to decrease significantly due to a rise in accounts receivable as sales are weighted toward December.
- Full Year 2007 Outlook: Consolidated revenue growth is revised to approximately 30% (down from a previous 40% forecast) based on a uranium spot price assumption of $80.00 (US)/lb. Uranium revenue is expected to increase by 65%.
- Operational Risks & Contingencies:
- Cigar Lake: Production startup is delayed to 2011 at the earliest following a 2006 flood. Remediation activities, including dewatering, are ongoing.
- Port Hope Facility: UF6 production was suspended in July 2007 due to soil contamination. Production is expected to resume in Q1 2008 pending regulatory approval.
- Kyrgyz Republic: Political instability and the dissolution of Parliament have delayed the closing of agreements regarding the Kumtor mine. A $125 million after-tax charge was recorded.
- Inukai Project: Acid supply shortages in Kazakhstan may impact production in Q4 2007 and 2008.
- Share Repurchase: Cameco has repurchased 6.8 million shares for $308 million under a program authorized to buy up to 17.7 million shares.
Investor Verification Checklist
- Verify the impact of the $125 million Kyrgyz Republic charge and the $59 million stock option amendment on GAAP vs. Adjusted earnings.
- Monitor the timeline for the resumption of UF6 production at the Port Hope facility and associated remediation costs.
- Track the progress of Cigar Lake dewatering and the likelihood of the 2011 production start date.
- Assess the sensitivity of 2007 results to uranium spot prices, which have declined from Q2 highs to $80.00 (US)/lb.
- Review the status of the Kyrgyz Parliament elections and the potential for agreement closure by the February 15, 2008 deadline.