Cameco Corp. (NYSE: CCJ) reported Q4 EPS of $0.12, $0.13 better than the analyst estimate of ($0.01). Revenue for the quarter came in at $550 million versus the consensus estimate of $252.94 million.

Summary of Q4 and 2020 results and developments:

• Fourth quarter net earnings of $80 million; adjusted net earnings of $48 million: Fourth quarter results demonstrated the positive financial impact of the return of low-cost tier-one production from Cigar Lake after the first production suspension and the elimination of care and maintenance costs associated with that suspension.
• Annual net loss of $53 million; adjusted net loss of $66 million: Annual results were driven by the continued execution of our strategy and the proactive measures taken due to the COVID-19 pandemic. Adjusted net earnings is a non-IFRS measure, see below.
• Our response to the COVID-19 pandemic: The health and safety of our workers, their families and communities is our top priority. We proactively temporarily suspended production at several of our operations, both uranium and fuel services; withdrew our 2020 outlook; introduced additional safety protocols; and provided well-paying jobs and financial support during a time of significant economic uncertainty for many. See Our response to the COVID-19 pandemic in our 2020 annual MD&A for more details.
• Impact of the COVID-19 pandemic on our business: As a result of the precautionary production suspensions at our operations, in our uranium segment we produced only 5 million pounds in 2020. To manage risk, we purchased 11.5 million pounds more than the top end of the 2020 outlook disclosed in our 2019 annual MD&A at an average annual cost of about $40.41 per pound, totaling about $465 million, compared to the Cigar Lake expected life-of mine cash operating costs of between $15 to $16 per pound. Additionally, we incurred $55 million more in care and maintenance costs than those we had planned for. Even while production was suspended, we kept and continued to pay all our employees. Partially offsetting these costs was the receipt of about $37 million under the Canada Emergency Wage Subsidy program and volatility in foreign exchange rates that resulted in foreign exchange gains.
• Cigar Lake production remains suspended due to COVID-19 pandemic: In December 2020, production at the Cigar Lake mine was temporarily suspended for a second time as a precautionary measure due to the increased uncertainty about access to qualified operational personnel caused by the COVID-19 pandemic. Production at the Cigar Lake mine remains suspended and, as a result, our production plan for 2021 is uncertain. A restart of the operation will be dependent on our ability to maintain safe and stable operating protocols along with a number of other factors, including how the COVID-19 pandemic is impacting the availability of the required workforce, how cases are trending in Saskatchewan, in particular in northern communities, and the views of the public health authorities. While production is suspended, we expect to incur $8 million to $10 million per month in care and maintenance costs.
• Robust fuel services contracting: In our fuel services segment, we replaced the UF6 volumes delivered under contract and added another 17.1 million kilograms to our long-term contract portfolio that reflect the price transition that began in 2017 in the conversion market, and that we expect will allow us to continue to profitably operate and consistently support the long-term fuel services needs of our customers.
• Strategic patience in our uranium marketing activity: Long-term uranium contracting was delayed in 2020 due to ongoing market-access and trade policy issues and the impacts of the COVID-19 pandemic on our customers’ operations. We added 12.5 million pounds to our portolio of long-term uranium contracts. Market signals will take time to impact contracting in our business as we have seen with the transition in our fuel services segment. With our pipeline of uranium business continuing to grow and being larger than we have seen since 2011, we are being patient to capture as much value as possible in our contract portfolio.
• Strengthened balance sheet: Consistent with our conservative financial management, and to take advantage of the low interest rate environment resulting from the COVID-19 pandemic, we issued debentures in the amount of $400 million, bearing interest of 2.95% per annum and maturing in 2027, and used the proceeds to redeem our outstanding $400 million debenture bearing interest of 3.75% maturing in 2022, which resulted in an early redemption fee of $24 million. Our next maturity is in 2024. As of December 31, 2020, we had $943 million in cash and short-term investments and $1.0 billion in long-term debt. In addition, we have a $1 billion undrawn credit facility.
• Received dividends totaling $40.6 million (US) from JV Inkai: In 2020, we received dividend payments from JV Inkai totaling $40.6 million (US). JV Inkai distributes excess cash, net of working capital requirements, to the partners as dividends. Our share of dividends follows our production purchase entitlements. See Uranium – Tier-one operations – Inkai in our 2020 annual MD&A.
• Greater focus on technology and its applications: We are implementing an initiative intended to improve efficiency and reduce costs across the organization, with a particular focus on innovation and accelerating the adoption of advanced digital and automation technologies. In 2020, we began a program to advance the assessment of innovation opportunities at the McArthur River mine and Key Lake mill. We established a team of internal experts who have been tasked with assessing, designing and implementing opportunities to improve operating efficiency. During the year, the team advanced a portfolio of 43 projects focused on improvement of the mine and mill through application of automation, digitization and optimization. The initial assessment of the majority of the projects was completed, which will allow us to complete the pre-feasibility work and to define the business case. We expect projects that meet our investment criteria will be advanced to implementation in 2021.
• Increased ownership in Global Laser Enrichment LLC (GLE): Ownership restructuring has been approved and completed. With the restructuring, our interest in GLE increases from 24% to 49%, with Silex acquiring the remaining 51%. GLE is the exclusive licensee of the proprietary SILEX laser enrichment technology, third-generation uranium enrichment technology that is in the development phase. Having operational control of uranium production, conversion, and enrichment facilities would offer operational synergies that could enhance future profit margins, especially with the world’s increased focus on decarbonization.

“As we head into 2021, we remain positive about the long-term fundamentals for the uranium market,” said Tim Gitzel, Cameco’s president and CEO. “Around the globe, we are seeing an increasing focus on electrification for various reasons. There are those that are installing baseload power, those who are looking for a reliable replacement to fossil fuel sources, and finally, there is new demand for things like the electrification of transportation. This is occurring precisely at the same time countries and companies around the world are making net-zero commitments, including in the US where the new administration has expressed support for maintaining the existing domestic nuclear power fleet and the construction of advanced reactors, it has recommitted the US to the global Paris Agreement and has ambitions to re-establish the country’s position as a global leader in the development of commercial nuclear technologies. From a policy point of view, there is recognition that nuclear will be needed in the toolbox to sustainably achieve both electrification and decarbonization.

“So, demand for nuclear power is growing and not just the traditional uses of nuclear power. There is a real focus on, and significant investments being made in the development of non-traditional uses, like small modular reactors. Growing demand for nuclear power means growing demand for uranium. However, on the supply side there are some big question marks about where uranium will come from to fuel the world’s growing demand for nuclear power due to years of persistently low prices that have led to planned production curtailments, lack of investment, the end of reserve life for some mines, shrinking secondary supplies, and trade policy issues, which are currently being amplified by unplanned disruptions due to the COVID-19 pandemic.

“These are the fundamentals that give us growing confidence the uranium market will undergo a transition similar to the conversion and enrichment markets. It is why we remain committed to our vision of energizing a clean air world, which recognizes that we have an important role to play in enabling the vast reductions in greenhouse gas emissions required to achieve a resilient, net-zero carbon economy. As we seek to achieve our vision, we are committed to doing it in a manner that reflects our values. Those values have not changed, they have always guided our actions.

“We believe that our tier-one strategy that includes production discipline, marketing discipline and conservative balance sheet management, is the right strategy to achieve our vision. You can see the resiliency our conservative financial management provides us in our balance sheet. Despite the unprecedentedly challenging year globally, and the significant costs we incurred as a result of the disruptions to our business caused by the COVID-19 pandemic, we finished the year with more than $940 million in cash and a $1 billion undrawn credit facility.

“As a pure-play supplier of the uranium fuel needed to produce clean, carbon-free, baseload electricity, we are excited about the future for our industry and our company as we execute on our strategy and pursue our role in supporting the transition to a net-zero carbon economy through both traditional and non-traditional uses of nuclear power.”

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