Cameco notes market improvements

Monday, 5 November 2018

The company has updated its outlook for 2018 and 2019, with changes in exchange rates, higher uranium prices and additional sales opportunities leading to increases in volumes, revenue and average realised uranium price for 2018, Gitzel said in the company's quarterly conference call.

Additional market demand has seen the company's delivery volumes for 2018 increase to 35-36 million pounds U3O8 (13,463-13,847 tU), up from the 34-35 million pounds given in the company's second quarter outlook, and 2019 sales commitments have increased to 27-29 million pounds (previously 25 million-27 million pounds).

Cameco remains on track to produce about 9 million pounds U3O8 this year, Gitzel said. The company expects it may need to purchase an additional 1-3 million pounds in 2018 and 10-12 million pounds in 2019, to meet its increased delivery commitments and maintain its inventory. This is in addition to committed purchases and material already secured in the spot market.

Gitzel said the Canadian company's results reflect the impact of its decision to extend the shutdown of its McArthur River and Key Lake operations, which it announced in July along with its half-yearly results.

"There is no question that the uranium spot market is showing a significant improvement compared to a year ago, but make no mistake it has a long way to go," Gitzel said. Production cuts, reductions in producer inventories and an increase in spot market uranium demand from producers and financial players have helped to remove excess material from the spot market, he said. The current spot market price is up almost 40% from a year ago and the long-term price up about 6%, he noted.

"We at Cameco have played a big role in the spot market cleanup," Gitzel said.

On the demand side, annual basis consumption has returned to pre-2011 levels, but Gitzel said market conditions, including price and long-term contracting opportunities, were not yet right to support a restart at McArthur River and Key Lake. "While we are seeing some positive developments, we have not yet seen the type of response needed from the uranium market. Unfortunately, today's prices are still nowhere near, not even close to the levels needed," he said.

Tax decision

The Tax Court of Canada in September issued an unequivocal ruling in favour of Cameco in a tax dispute with the Canada Revenue Agency (CRA) for 2003, 2005 and 2006. As a result, the company has reversed a CAD61 million (USD46.6 million) provision on its balance sheet and also expects to receive a refund of CAD5.5 million plus interest. The CRA has appealed the decision, but Gitzel said Cameco expects the court's decision to be upheld. The company also believes the decision should apply in principle to subsequent tax years, he said.