Cameco releases neutral results for 2016

Altynay IbraimovaFebruary 13, 2017

The Company’s revenues amounted to $2 431 mln, showing a decline by 12% yoy due to the reduction in revenues from the sale of uranium by 8% yoy and a decrease in income in NUKEM segment (buying and selling of uranium on spot market) by 29% yoy. During the reporting period, there is a decrease of uranium sales volumes and average realized prices, except for fuel services segment, where revenues increased by 1% due to the increase in the average realized price by 8%.

During the reporting period, the Company incurred additional costs reflecting asset impairment charges of $362 mln, which resulted in the operating loss of $142 mln.  Impairment expenses have formed after writing off the book value of Rabbit Lake project in Canada and Kintyre project in Australia. Net loss for 2016 amounted to $59.9 mln compared with profit of $ 63.4 million a year earlier. We note that the major factor of the cost growth was a considerable increase in depreciation in the Uranium and NUKEM segments.

Figure 1. Revenues by segment

Segment

unit

2016

2015

yoy

Uranium

 

 

 

 

Production

mln lbs

       27  

       28  

-5%

Sales

mln lbs

       32  

       32  

-3%

Average realized price

Cdn/lb

       54  

       58  

-5%

Revenue

$Cdn mln

  1 718  

  1 866  

-8%

Fuel services

 

 

 

 

Production

mln kgU

        8  

       10  

-13%

Sales

mln kgU

       13  

       14  

-7%

Average realized price

Cdn/kgU

       25  

       23  

8%

Revenue

$Cdn mln

     321  

     319  

1%

NUKEM

 

 

 

 

Sales

mln lbs

        7  

       11  

-31%

Average realized price

Cdn/lbs

       48  

       49  

-2%

Revenue

$Cdn mln

     391  

     554  

-29%

Other

$Cdn mln

          1  

        15  

-94%

Sources: Company data

The Company also confirmed the preservation of the intention of TEPCO (Tokyo Electric Power Company) to terminate the contract for the supply of uranium by Cameco. The possible termination will affect the supply of 9.3 mln pounds of uranium by 2028, worth about $1.3 bln.

Figure 2. Selected financials

$Cdn mln

2016

2015

yoy

Revenue

         2 431  

2 754  

-12%

Costs, including depreciation

         1 968  

  2 057  

-4%

Operational income/(loss)

-           142  

     246  

-158%

Income/(loss) before taxes

-           154  

-     79  

95%

Income before taxes  excluding impairment costs

            208  

 -

 

Source: Company Data, forecasts of HF

Our view

Revenues of Cameco exceeded our expectations by 18%, with higher than expected cost offsetting the positive effect.  At the same time, the Company recorded a fairly large sum for impairment of assets, about 15% of annual revenue. Excluding the impairment charges, net income was $208 mln, which is below our expectations by 15%. We note that a major part of costs, which exceeded our expectations, consists from non-cash items. Adjusted results, excluding non-cash costs, largely match our expectations, and thus our models remains unchanged.

In our opinion, the uranium market has reached the bottom in 2016, and we have evaluated the Company’s adaptability to the low prices of uranium as high. Risks connected to termination of contract with TEPCO, in our opinion, are already in the price.

We maintain our “Buy” recommendation for Cameco shares.