Revenue of Cameco in 3Q2017 continued to decline

Altynay IbraimovaOctober 30, 2017

Cameco published its 9M2017 results and lowered production forecasts.

The production of uranium for 9M2017 decreased by 15% yoy to 16.9mn mainly due to a decrease in production at McArthur River / Key Lake (-11%) and a planned reduction at Inkai (-18%). The production at McArthur River / Key Lake was reduced due to a longer waiting time for production due to the need for additional work. In this regard, the Company lowered the target of production for 2017 from 12.6 mn lbs to 11.5 mn lbs. The decline in production at Inkai resulted from the planned reduction in uranium production in Kazakhstan by 10%. In addition, this year production at Rabbit Lake is suspended, which also affects the production figures.

Meanwhile, production at Cigar Lake increased by 5% yoy, to 6.5mn lbs (38% of total production).

The average price for the sale of uranium for 9M2017 dropped 21% to CAD44.86/lb and uranium sales decreased by 16% in the same period, to CAD943/lb (70% of total revenue).

In the "Fuel Services" segment there is also a decline, caused by a decrease in sales volumes of 21% yoy, partially offset by an increase in the average selling price of 19% yoy. Income from rendering of fuel services for 9М2017 amounted to CAD206mn, which is lower than a year ago by 5%.

Segment of NUKEM for 9M2017 showed no changes, the low average selling price (-32% yoy) was completely offset by higher sales (+ 50%).

Fig. 1. Segment results

Uranium

unit

9M2016

9M2017

yoy

Production

mn lb

19.9

16.9

-15%

Sales

mn lb

19.9

21

6%

Average sales price

CAD/lb

56.77

44.86

-21%

Revenue

CAD mn

1129

943

-16%

 

 

 

 

 

Fuel services

unit

9M2016

9M2017

yoy

Production

mn kgU

6.5

5.4

-17%

Sales

mn kgU

8.7

6.9

-21%

Average sales price

CAD/kgU

25.06

29.94

19%

Revenue

CAD mn

217

206

-5%

 

 

 

 

 

NUKEM

unit

9M2016

9M2017

yoy

Sales

mn lb

4

6

50%

Average sales price

CAD/kgU

48.89

33.22

-32%

Revenue

CAD mn

198

198

0%

Source: Company data

The Company reduced its cost by 7% due to a significant reduction in costs in the Uranium segment (-11%) due to a 13% decrease in unit costs.

The Company's operating loss for the period increased five-fold to $57mn. for 9M2017. The Company received a foreign exchange loss of $32 mn and a net loss of Cameco was $143 mn against profit a year earlier of $85 mn.

The Company lowered its forecast for revenues from uranium production from $1,570 mn to $1,520 mn.The production of uranium is expected of 24 mn lbs (previously 25.2 mn lbs) due to production delays at Key Lake and lower productivity in Smith Ranch-Highland.

As a result of the revision of the CADUSD exchange rate assumption, expectations for average annual sales prices were also revised from $ 49.0/lb to $47.5 / lb.

The average unit cost of sales (including depreciation) in the uranium segment is expected from $35 to $36 per lb (previously $36 to $38 per lb).

Our view

According to our forecasts, Cameco's revenue for the current year will be $ 1,849mn. For 9M2017 the Company was able to get 75% of expected revenues ($ 1 348mln). At the same time, the margin of gross profit (14.78%) is below our forecasts (16.44%) due to higher costs ($36/lb instead of the expected $30/lb) in comparison with our expectations. In addition, other operating losses and foreign exchange losses were higher than our expectations. In connection with the change in the Company's forecast for key indicators, we see the need to revise our target price.