Cameco uranium sales down 13%; spot prices blamed

14 February 2011

Cameco has reported its consolidated financial and operating results for the fourth quarter ended December 31, 2010 and for the year.

“Cameco had an excellent year in 2010,” said CEO Jerry Grandey. “We increased production, lowered uranium unit costs, and substantially raised our dividend. We also achieved the best safety record in our history.

“The market ended the year very strongly, as China signed significant long-term uranium purchasing agreements and several countries indicated their intentions to build more nuclear reactors. Our company is well-positioned to prosper from the growing need for clean energy now and in the future. We remain committed to our strategy of doubling production to 40 million pounds by 2018.”

Uranium production

Production volumes in 2010 were 10% higher than in 2009 due to higher production at McArthur River/Key Lake and the continued rampup of production at Inkai.

Uranium revenues this year were down 11% compared to 2009, due to a 13% decline in sales volumes.

Sales volumes in 2010 were 13% lower than 2009 due to some customers deferring deliveries under contracts until 2011. In addition, given the discretionary nature of spot market demand and the low level of spot market prices during the first three quarters of 2010, we intentionally reduced our spot market sales for the year.

Our realized prices this year in US dollars were 14% higher than 2009 mainly due to higher prices under fixed–price sales contracts. Our Canadian dollar selling price, however, was only slightly higher than 2009 as it was impacted by a less favourable exchange rate. Our exchange rate averaged $1.05 compared to $1.18 in 2009.

Total cash cost of sales (excluding DDR) decreased by 23% this year, to $699 million ($23.32 per pound U3O8). This was mainly the result of the following:

* the 13% decline in sales volume

* average unit costs for produced uranium were 6% lower

* average unit costs for purchased uranium were 17% lower due to fewer purchases at spot prices

* a lower proportion of sales of purchased uranium, which carries a higher cash cost

The net effect was a $15 million increase in gross profit for the year.

Fuel services

The Port Hope UF6 conversion plant operated for a full year in 2010, increasing production volumes by 25% over 2009. In 2009, the facility was shutdown for the first five months of the year.

Total revenue increased by 9% due to a 14% increase in sales volumes.

Below are excerpts of the interim annual report:

Our Canadian dollar realized price for UF6 was affected by a less favourable exchange rate. Our exchange rate averaged $1.05 in 2010 compared to $1.18 in 2009.

The total cost of products and services sold (including DDR) increased by 6% ($241 million compared to $226 million in 2009) due to the increase in sales volume. The average unit cost of sales was 7% lower due to lower costs for purchased material and the return to operational status of the UF6 facility.

The net effect was a $10 million increase in gross profit.

Uranium outlook

We expect to produce 21.9 million pounds of U3O8 in 2011.

Based on the contracts we have in place, we expect to sell between 31 million and 33 million pounds of U3O8 in 2011. We expect the unit cost of sales to be 0% to 5% higher than in 2010. This increase is based on the unit cost of sale for produced material. If we decide to make discretionary purchases in 2011 then we expect the overall unit cost of product sold to increase further.

Based on current spot prices, revenue should be about 15% to 20% higher than it was in 2010 as a result of increases in expected realized prices and sales volumes in 2011.

Our customers choose when in the year to receive deliveries of uranium and fuel services products, so our quarterly delivery patterns, and therefore our sales volumes and revenue, can vary significantly. We expect the trend in delivery patterns in 2011 to be somewhat different than in 2010, with deliveries heavily weighted to the second half of the year. We expect the fourth quarter to account for about one third of our 2011 sales volumes.

Our strategy is to double our annual production to 40 million pounds by 2018, which we expect will come from our operating properties, development projects and projects under evaluation.




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