Exhibit 99.3
Cameco Corporation
2020 condensed consolidated interim financial statements
(unaudited)
November 3, 2020
Cameco Corporation
Consolidated statements of earnings
(Unaudited) | Three months ended | Nine months ended | ||||||||||||||||||
($Cdn thousands, except per share amounts) | Note | Sep 30/20 | Sep 30/19 | Sep 30/20 | Sep 30/19 | |||||||||||||||
Revenue from products and services | 9 | $ | 378,870 | $ | 303,180 | $ | 1,249,717 | $ | 988,482 | |||||||||||
Cost of products and services sold | 372,862 | 235,799 | 1,118,724 | 761,463 | ||||||||||||||||
Depreciation and amortization | 29,654 | 69,417 | 133,276 | 169,752 | ||||||||||||||||
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Cost of sales | 17 | 402,516 | 305,216 | 1,252,000 | 931,215 | |||||||||||||||
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Gross profit (loss) | (23,646 | ) | (2,036 | ) | (2,283 | ) | 57,267 | |||||||||||||
Administration | 30,414 | 24,403 | 100,073 | 90,442 | ||||||||||||||||
Exploration | 1,914 | 3,478 | 8,312 | 11,345 | ||||||||||||||||
Research and development | 493 | 1,524 | 1,668 | 4,246 | ||||||||||||||||
Other operating expense | 7 | 6,861 | 3,690 | 23,762 | 29,253 | |||||||||||||||
Loss on disposal of assets | 558 | 272 | 509 | 72 | ||||||||||||||||
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Loss from operations | (63,886 | ) | (35,403 | ) | (136,607 | ) | (78,091 | ) | ||||||||||||
Finance costs | 10 | (16,866 | ) | (25,542 | ) | (52,778 | ) | (81,730 | ) | |||||||||||
Gain (loss) on derivatives | 16 | 20,730 | (15,448 | ) | (4,880 | ) | 19,083 | |||||||||||||
Finance income | 1,327 | 10,375 | 9,479 | 25,486 | ||||||||||||||||
Share of earnings from equity-accounted investee | 5 | 3,196 | 1,909 | 17,815 | 26,441 | |||||||||||||||
Other income (expense) | 11 | (10,750 | ) | 60,922 | 20,878 | 46,873 | ||||||||||||||
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Loss before income taxes | (66,249 | ) | (3,187 | ) | (146,093 | ) | (41,938 | ) | ||||||||||||
Income tax expense (recovery) | 12 | (5,477 | ) | 10,295 | (13,077 | ) | 12,459 | |||||||||||||
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Net loss | (60,772 | ) | (13,482 | ) | (133,016 | ) | (54,397 | ) | ||||||||||||
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Net loss attributable to: | ||||||||||||||||||||
Equity holders | $ | (60,770 | ) | $ | (13,467 | ) | $ | (132,996 | ) | $ | (54,355 | ) | ||||||||
Non-controlling interest | (2 | ) | (15 | ) | (20 | ) | (42 | ) | ||||||||||||
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Net loss | $ | (60,772 | ) | $ | (13,482 | ) | $ | (133,016 | ) | $ | (54,397 | ) | ||||||||
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Loss per common share attributable to equity holders: | ||||||||||||||||||||
Basic | 13 | $ | (0.15 | ) | $ | (0.03 | ) | $ | (0.34 | ) | $ | (0.14 | ) | |||||||
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Diluted | 13 | $ | (0.15 | ) | $ | (0.03 | ) | $ | (0.34 | ) | $ | (0.14 | ) | |||||||
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See accompanying notes to condensed consolidated interim financial statements.
2
Cameco Corporation
Consolidated statements of comprehensive earnings
(Unaudited) | Three months ended | Nine months ended | ||||||||||||||||||
($Cdn thousands) | Sep 30/20 | Sep 30/19 | Sep 30/20 | Sep 30/19 | ||||||||||||||||
Net loss |
| $ | (60,772 | ) | $ | (13,482 | ) | $ | (133,016 | ) | $ | (54,397 | ) | |||||||
Other comprehensive income (loss), net of taxes | 12 | |||||||||||||||||||
Items that will not be reclassified to net earnings: | ||||||||||||||||||||
Equity investments at FVOCI - net change in fair value1 | 3,952 | (2,458 | ) | 2,537 | (1,524 | ) | ||||||||||||||
Equity investment at FVOCI - net change in fair value - equity-accounted investee | — | — | — | (309 | ) | |||||||||||||||
Items that are or may be reclassified to net earnings: | ||||||||||||||||||||
Exchange differences on translation of foreign operations | 11,803 | (17,553 | ) | 6,734 | (38,160 | ) | ||||||||||||||
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Other comprehensive income (loss), net of taxes | 15,755 | (20,011 | ) | 9,271 | (39,993 | ) | ||||||||||||||
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Total comprehensive loss | $ | (45,017 | ) | $ | (33,493 | ) | (123,745 | ) | (94,390 | ) | ||||||||||
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Other comprehensive income (loss) attributable to: | ||||||||||||||||||||
Equity holders | $ | 15,750 | $ | (20,014 | ) | $ | 9,266 | $ | (39,985 | ) | ||||||||||
Non-controlling interest | 5 | 3 | 5 | (8 | ) | |||||||||||||||
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Other comprehensive income (loss) | $ | 15,755 | $ | (20,011 | ) | $ | 9,271 | $ | (39,993 | ) | ||||||||||
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Total comprehensive income (loss) attributable to: | ||||||||||||||||||||
Equity holders | $ | (45,020 | ) | $ | (33,481 | ) | $ | (123,730 | ) | $ | (94,340 | ) | ||||||||
Non-controlling interest | 3 | (12 | ) | (15 | ) | (50 | ) | |||||||||||||
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Total comprehensive loss | $ | (45,017 | ) | $ | (33,493 | ) | $ | (123,745 | ) | $ | (94,390 | ) | ||||||||
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1 | Net of tax (Q3 2020 - $(638); Q3 2019 - $369; 2020 - $(441); 2019 - $168) |
See accompanying notes to condensed consolidated interim financial statements.
3
Cameco Corporation
Consolidated statements of financial position
(Unaudited) | As at | |||||||||||
($Cdn thousands) | Note | Sep 30/20 | Dec 31/19 | |||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 772,756 | $ | 1,062,431 | ||||||||
Short-term investments | 19,988 | — | ||||||||||
Accounts receivable | 297,968 | 328,044 | ||||||||||
Current tax assets | 2,880 | 3,667 | ||||||||||
Inventories | 3 | 709,698 | 320,770 | |||||||||
Supplies and prepaid expenses | 97,190 | 85,502 | ||||||||||
Current portion of long-term receivables, investments and other | 4 | 9,271 | 6,564 | |||||||||
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Total current assets | 1,909,751 | 1,806,978 | ||||||||||
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Property, plant and equipment | 3,790,869 | 3,720,672 | ||||||||||
Intangible assets | 56,631 | 60,410 | ||||||||||
Long-term receivables, investments and other | 4 | 627,496 | 630,131 | |||||||||
Investment in equity-accounted investee | 5 | 213,666 | 252,681 | |||||||||
Deferred tax assets | 968,338 | 956,376 | ||||||||||
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Total non-current assets | 5,657,000 | 5,620,270 | ||||||||||
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Total assets | $ | 7,566,751 | $ | 7,427,248 | ||||||||
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Liabilities and shareholders’ equity | ||||||||||||
Current liabilities | ||||||||||||
Accounts payable and accrued liabilities | 237,619 | 181,799 | ||||||||||
Current tax liabilities | 1,044 | 6,290 | ||||||||||
Current portion of other liabilities | 6 | 91,571 | 33,073 | |||||||||
Current portion of provisions | 7 | 69,202 | 56,248 | |||||||||
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Total current liabilities | 399,436 | 277,410 | ||||||||||
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Long-term debt | 997,222 | 996,718 | ||||||||||
Other liabilities | 6 | 161,960 | 153,927 | |||||||||
Provisions | 7 | 1,133,600 | 1,004,230 | |||||||||
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Total non-current liabilities | 2,292,782 | 2,154,875 | ||||||||||
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Shareholders’ equity | ||||||||||||
Share capital | 8 | 1,863,463 | 1,862,749 | |||||||||
Contributed surplus | 237,252 | 234,681 | ||||||||||
Retained earnings | 2,692,630 | 2,825,596 | ||||||||||
Other components of equity | 80,965 | 71,699 | ||||||||||
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Total shareholders’ equity attributable to equity holders | 4,874,310 | 4,994,725 | ||||||||||
Non-controlling interest | 223 | 238 | ||||||||||
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Total shareholders’ equity | 4,874,533 | 4,994,963 | ||||||||||
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Total liabilities and shareholders’ equity | $ | 7,566,751 | $ | 7,427,248 | ||||||||
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Commitments and contingencies [notes 7, 12]
See accompanying notes to condensed consolidated interim financial statements.
4
Cameco Corporation
Consolidated statements of changes in equity
Attributable to equity holders | ||||||||||||||||||||||||||||||||
(Unaudited) ($Cdn thousands) | Share capital | Contributed surplus | Retained earnings | Foreign currency translation | Equity investments at FVOCI | Total | Non- controlling interest | Total equity | ||||||||||||||||||||||||
Balance at January 1, 2020 | $ | 1,862,749 | $ | 234,681 | $ | 2,825,596 | $ | 77,114 | $ | (5,415 | ) | $ | 4,994,725 | $ | 238 | $ | 4,994,963 | |||||||||||||||
Net loss | — | — | (132,996 | ) | — | — | (132,996 | ) | (20 | ) | (133,016 | ) | ||||||||||||||||||||
Other comprehensive income | — | — | — | 6,729 | 2,537 | 9,266 | 5 | 9,271 | ||||||||||||||||||||||||
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Total comprehensive income (loss) for the period | — | — | (132,996 | ) | 6,729 | 2,537 | (123,730 | ) | (15 | ) | (123,745 | ) | ||||||||||||||||||||
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Share-based compensation | — | 5,037 | — | — | — | 5,037 | — | 5,037 | ||||||||||||||||||||||||
Stock options exercised | 714 | (165 | ) | — | — | — | 549 | — | 549 | |||||||||||||||||||||||
Restricted share units released | — | (2,301 | ) | — | — | — | (2,301 | ) | — | (2,301 | ) | |||||||||||||||||||||
Dividends | — | — | 30 | — | — | 30 | — | 30 | ||||||||||||||||||||||||
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Balance at September 30, 2020 | $ | 1,863,463 | $ | 237,252 | $ | 2,692,630 | $ | 83,843 | $ | (2,878 | ) | $ | 4,874,310 | $ | 223 | $ | 4,874,533 | |||||||||||||||
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Balance at January 1, 2019 | $ | 1,862,652 | $ | 234,982 | $ | 2,791,321 | $ | 104,989 | $ | (662 | ) | $ | 4,993,282 | $ | 310 | $ | 4,993,592 | |||||||||||||||
Net loss | — | — | (54,355 | ) | — | — | (54,355 | ) | (42 | ) | (54,397 | ) | ||||||||||||||||||||
Other comprehensive loss | — | — | — | (38,152 | ) | (1,833 | ) | (39,985 | ) | (8 | ) | (39,993 | ) | |||||||||||||||||||
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Total comprehensive loss for the period | — | — | (54,355 | ) | (38,152 | ) | (1,833 | ) | (94,340 | ) | (50 | ) | (94,390 | ) | ||||||||||||||||||
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Share-based compensation | — | 11,216 | — | — | — | 11,216 | — | 11,216 | ||||||||||||||||||||||||
Stock options exercised | 97 | (16 | ) | — | — | — | 81 | — | 81 | |||||||||||||||||||||||
Restricted and performance share units released | — | (6,258 | ) | — | — | — | (6,258 | ) | — | (6,258 | ) | |||||||||||||||||||||
Dividends | — | — | 51 | — | — | 51 | — | 51 | ||||||||||||||||||||||||
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Balance at September 30, 2019 | $ | 1,862,749 | $ | 239,924 | $ | 2,737,017 | $ | 66,837 | $ | (2,495 | ) | $ | 4,904,032 | $ | 260 | $ | 4,904,292 | |||||||||||||||
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See accompanying notes to condensed consolidated interim financial statements.
5
Cameco Corporation
Consolidated statements of cash flows
(Unaudited) | Three months ended | Nine months ended | ||||||||||||||||||
($Cdn thousands) | Note | Sep 30/20 | Sep 30/19 | Sep 30/20 | Sep 30/19 | |||||||||||||||
Operating activities | ||||||||||||||||||||
Net loss | $ | (60,772 | ) | $ | (13,482 | ) | $ | (133,016 | ) | $ | (54,397 | ) | ||||||||
Adjustments for: | ||||||||||||||||||||
Depreciation and amortization | 29,655 | 69,417 | 133,276 | 169,752 | ||||||||||||||||
Deferred charges | (1,155 | ) | (3,045 | ) | (2,112 | ) | 3,370 | |||||||||||||
Unrealized loss (gain) on derivatives | (30,642 | ) | 9,353 | (7,372 | ) | (32,478 | ) | |||||||||||||
Share-based compensation | 15 | 1,441 | 3,002 | 5,037 | 11,216 | |||||||||||||||
Loss on disposal of assets | 558 | 272 | 509 | 72 | ||||||||||||||||
Finance costs | 10 | 16,866 | 25,542 | 52,778 | 81,730 | |||||||||||||||
Finance income | (1,327 | ) | (10,374 | ) | (9,479 | ) | (25,486 | ) | ||||||||||||
Share of earnings in equity-accounted investee | (3,197 | ) | (1,909 | ) | (17,815 | ) | (26,441 | ) | ||||||||||||
Other operating expense | 7 | 6,862 | 3,690 | 23,762 | 29,253 | |||||||||||||||
Other expense (income) | 11 | 10,749 | (8,120 | ) | (20,675 | ) | 5,928 | |||||||||||||
Income tax expense (recovery) | 12 | (5,477 | ) | 10,295 | (13,077 | ) | 12,459 | |||||||||||||
Interest received | 1,128 | 12,660 | 8,858 | 26,771 | ||||||||||||||||
Income taxes received (paid) | 1,966 | (1,317 | ) | (3,699 | ) | (20,556 | ) | |||||||||||||
Dividends from equity-accounted investee | 14,124 | — | 43,961 | — | ||||||||||||||||
Other operating items | 14 | (46,908 | ) | 135,963 | (261,306 | ) | 71,628 | |||||||||||||
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Net cash provided by (used in) operations | (66,129 | ) | 231,947 | (200,370 | ) | 252,821 | ||||||||||||||
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Investing activities | ||||||||||||||||||||
Additions to property, plant and equipment | (16,384 | ) | (23,315 | ) | (49,461 | ) | (55,364 | ) | ||||||||||||
Decrease (increase) in short-term investments | (5,002 | ) | 406,910 | (19,988 | ) | 346,230 | ||||||||||||||
Decrease in long-term receivables, investments and other | 157 | 55,028 | 907 | 120,871 | ||||||||||||||||
Proceeds from sale of property, plant and equipment | 19 | 44 | 94 | 391 | ||||||||||||||||
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Net cash provided by (used in) investing | (21,210 | ) | 438,667 | (68,448 | ) | 412,128 | ||||||||||||||
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Financing activities | ||||||||||||||||||||
Decrease in debt | — | (500,000 | ) | — | (500,000 | ) | ||||||||||||||
Interest paid | (199 | ) | (14,245 | ) | (20,861 | ) | (50,275 | ) | ||||||||||||
Lease principal payments | (731 | ) | (523 | ) | (2,026 | ) | (1,958 | ) | ||||||||||||
Proceeds from issuance of shares, stock option plan | 254 | — | 549 | 16 | ||||||||||||||||
Dividends returned | — | — | 30 | 51 | ||||||||||||||||
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Net cash used in financing | (676 | ) | (514,768 | ) | (22,308 | ) | (552,166 | ) | ||||||||||||
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Increase (decrease) in cash and cash equivalents, during the period | (88,015 | ) | 155,846 | (291,126 | ) | 112,783 | ||||||||||||||
Exchange rate changes on foreign currency cash balances | (1,827 | ) | 1,213 | 1,451 | (4,681 | ) | ||||||||||||||
Cash and cash equivalents, beginning of period | 862,598 | 662,571 | 1,062,431 | 711,528 | ||||||||||||||||
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Cash and cash equivalents, end of period |
| $ | 772,756 | $ | 819,630 | $ | 772,756 | $ | 819,630 | |||||||||||
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Cash and cash equivalents is comprised of: | ||||||||||||||||||||
Cash | 457,772 | 321,311 | ||||||||||||||||||
Cash equivalents | 314,984 | 498,319 | ||||||||||||||||||
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Cash and cash equivalents | $ | 772,756 | $ | 819,630 | ||||||||||||||||
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See accompanying notes to condensed consolidated interim financial statements.
6
Cameco Corporation
Notes to condensed consolidated interim financial statements
(Unaudited)
(Cdn$ thousands, except per share amounts and as noted)
1. | Cameco Corporation |
Cameco Corporation is incorporated under the Canada Business Corporations Act. The address of its registered office is 2121 11th Street West, Saskatoon, Saskatchewan, S7M 1J3. The condensed consolidated interim financial statements as at and for the period ended September 30, 2020 comprise Cameco Corporation and its subsidiaries (collectively, the Company or Cameco) and the Company’s interests in associates and joint arrangements.
Cameco is one of the world’s largest providers of the uranium needed to generate clean, reliable baseload electricity around the globe. The Company currently has one mine operating in northern Saskatchewan, Cigar Lake, as well as a 40% interest in Joint Venture Inkai LLP (JV Inkai), a joint arrangement with Joint Stock Company National Atomic Company Kazatomprom (Kazatomprom), located in Kazakhstan. JV Inkai is accounted for on an equity basis (see note 5).
The Company also has two operations in Northern Saskatchewan which are in care and maintenance. Rabbit Lake was placed in care and maintenance in the second quarter of 2016 while operations at McArthur River/Key Lake were suspended indefinitely in the third quarter of 2018. Cameco’s operations in the United States, Crow Butte and Smith Ranch-Highland, are also not currently producing as the decision was made in 2016 to curtail production and defer all wellfield development. Cameco’s Cigar Lake uranium mine in northern Saskatchewan was in a temporary state of care and maintenance because of the global COVID-19 pandemic. This temporary production suspension was announced in March and production resumed in September. See note 17 for the financial statement impact.
The Company is also a leading provider of nuclear fuel processing services, supplying much of the world’s reactor fleet with the fuel to generate one of the cleanest sources of electricity available today. It operates the world’s largest commercial refinery in Blind River, Ontario, controls about 25% of the world UF6 primary conversion capacity in Port Hope, Ontario and is a leading manufacturer of fuel assemblies and reactor components for CANDU reactors at facilities in Port Hope and Cobourg, Ontario. Also a result of the COVID-19 pandemic, temporary operational changes at the fuel services division facilities in Ontario were in place for a portion of the second quarter of 2020 (see note 17 for financial statement impact).
2. | Significant accounting policies |
A. | Statement of compliance |
These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. The condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with Cameco’s annual consolidated financial statements as at and for the year ended December 31, 2019.
These condensed consolidated interim financial statements were authorized for issuance by the Company’s board of directors on November 3, 2020.
B. | Basis of presentation |
These condensed consolidated interim financial statements are presented in Canadian dollars, which is the Company’s functional currency. All financial information is presented in Canadian dollars, unless otherwise noted. Amounts presented in tabular format have been rounded to the nearest thousand except per share amounts and where otherwise noted.
7
The condensed consolidated interim financial statements have been prepared on the historical cost basis except for the following material items which are measured on an alternative basis at each reporting date:
Derivative financial instruments | Fair value through profit or loss (FVTPL) | |
Equity securities | Fair value through other comprehensive income (FVOCI) | |
Liabilities for cash-settled share-based payment arrangements | Fair value through profit or loss (FVTPL) | |
Net defined benefit liability | Fair value of plan assets less the present value of the defined benefit obligation |
The preparation of the condensed consolidated interim financial statements in conformity with International Financial Reporting Standards (IFRS) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenue and expenses. Actual results may vary from these estimates.
In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Company’s accounting policies and key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended December 31, 2019.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 5 of the December 31, 2019 consolidated financial statements.
3. | Inventories |
Sep 30/20 | Dec 31/19 | |||||||
Uranium | ||||||||
Concentrate | $ | 589,246 | $ | 204,123 | ||||
Broken ore | 47,489 | 51,094 | ||||||
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636,735 | 255,217 | |||||||
Fuel services | 70,039 | 62,701 | ||||||
Other | 2,924 | 2,852 | ||||||
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Total | $ | 709,698 | $ | 320,770 | ||||
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Cameco expensed $334,361,000 of inventory as cost of sales during the third quarter of 2020 (2019 - $255,800,000). For the nine months ended September 30, 2020, Cameco expensed $1,048,730,000 of inventory as cost of sales (2019 - $775,900,000).
8
4. | Long-term receivables, investments and other |
Sep 30/20 | Dec 31/19 | |||||||
Investments in equity securities [note 16](a) | $ | 27,402 | $ | 24,408 | ||||
Derivatives [note 16] | 27,389 | 10,504 | ||||||
Investment tax credits | 95,642 | 95,474 | ||||||
Amounts receivable related to tax dispute(b) | 303,222 | 303,222 | ||||||
Product loan(c) | 176,904 | 176,904 | ||||||
Other | 6,208 | 26,183 | ||||||
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636,767 | 636,695 | |||||||
Less current portion | (9,271 | ) | (6,564 | ) | ||||
|
|
|
| |||||
Net | $ | 627,496 | $ | 630,131 | ||||
|
|
|
|
(a) | Cameco has designated the investments shown below as equity securities at FVOCI because these equity securities represent investments that the Company intends to hold for the long term for strategic purposes. There were no dividends recognized on any of these investments during the year. |
Sep 30/20 | Dec 31/19 | |||||||
Investment in Denison Mines Corp. | $ | 13,784 | $ | 13,292 | ||||
Investment in UEX Corporation | 8,003 | 7,253 | ||||||
Investment in Iso Energy Ltd. | 3,591 | 1,481 | ||||||
Investment in GoviEx | 1,625 | 2,000 | ||||||
Other | 399 | 382 | ||||||
|
|
|
| |||||
$ | 27,402 | $ | 24,408 | |||||
|
|
|
|
(b) | Cameco was required to remit or otherwise secure 50% of the cash taxes and transfer pricing penalties, plus related interest and instalment penalties assessed, in relation to its dispute with Canada Revenue Agency (CRA) (see note 12). In light of our view of the likely outcome of the case, Cameco expects to recover the amounts remitted to CRA, including cash taxes, interest and penalties totalling $303,222,000 already paid as at September 30, 2020 (December 31, 2019 - $303,222,000) (note 12). |
(c) | Cameco loaned 5,400,000 pounds of uranium concentrate to its joint venture partner, Orano Canada Inc., (Orano). Orano is obligated to repay us in kind with uranium concentrate no later than December 31, 2023. The loan is recorded at Cameco’s weighted average cost of inventory. |
9
5. | Equity-accounted investee |
JV Inkai is the operator of the Inkai uranium deposit located in Kazakhstan. JV Inkai is a uranium mining and milling operation that utilizes in-situ recovery (ISR) technology to extract uranium. The participants in JV Inkai purchase uranium from Inkai and, in turn, derive revenue directly from the sale of such product to third-party customers (see note 18). Cameco holds a 40% interest in JV Inkai and Kazatomprom holds a 60% interest. Cameco does not have control over the joint venture so it accounts for the investment on an equity basis.
The following tables summarize the financial information of JV Inkai (100%):
Sep 30/20 | Dec 31/19 | |||||||
Cash and cash equivalents | $ | 16,171 | $ | 16,699 | ||||
Other current assets | 80,266 | 139,324 | ||||||
Non-current assets | 356,168 | 398,721 | ||||||
Current liabilities | (37,544 | ) | (71,162 | ) | ||||
Non-current liabilities | (48,196 | ) | (41,508 | ) | ||||
|
|
|
| |||||
Net assets | $ | 366,865 | $ | 442,074 | ||||
|
|
|
|
Three months ended | Nine months ended | |||||||||||||||
Sep 30/20 | Sep 30/19 | Sep 30/20 | Sep 30/19 | |||||||||||||
Revenue from products and services | $ | 30,979 | $ | 44,372 | $ | 98,461 | $ | 138,761 | ||||||||
Cost of products and services sold | (6,729 | ) | (9,361 | ) | (28,031 | ) | (28,942 | ) | ||||||||
Depreciation and amortization | (2,673 | ) | (4,643 | ) | (10,248 | ) | (14,755 | ) | ||||||||
Finance income | 136 | 190 | 324 | 515 | ||||||||||||
Finance costs | (273 | ) | (481 | ) | (849 | ) | (2,654 | ) | ||||||||
Other expense | (2,374 | ) | (14,287 | ) | (4,910 | ) | (20,647 | ) | ||||||||
Income tax expense | (3,375 | ) | (4,573 | ) | (23,785 | ) | (16,238 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net earnings from continuing operations | $ | 15,691 | $ | 11,217 | $ | 30,962 | $ | 56,040 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Other comprehensive loss | — | — | — | (772 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total comprehensive income | $ | 15,691 | $ | 11,217 | $ | 30,962 | $ | 55,268 | ||||||||
|
|
|
|
|
|
|
|
The following table reconciles the summarized financial information to the carrying amount of Cameco’s interest in JV Inkai:
Sep 30/20 | Dec 31/19 | |||||||
Opening net assets | $ | 442,074 | $ | 416,843 | ||||
Total comprehensive income | 30,962 | 111,094 | ||||||
Dividends declared | (64,457 | ) | (66,369 | ) | ||||
Impact of foreign exchange | (41,714 | ) | (19,494 | ) | ||||
|
|
|
| |||||
Closing net assets | 366,865 | 442,074 | ||||||
Cameco’s share of net assets | 146,746 | 176,830 | ||||||
Consolidating adjustments(a) | (26,056 | ) | (30,633 | ) | ||||
Fair value increment(b) | 90,722 | 91,697 | ||||||
Dividends declared but not received | 8,994 | 13,859 | ||||||
Dividends in excess of ownership percentage(c) | (9,669 | ) | — | |||||
Impact of foreign exchange | 2,929 | 928 | ||||||
|
|
|
| |||||
Carrying amount in the statement of financial position at September 30, 2020 | $ | 213,666 | $ | 252,681 | ||||
|
|
|
|
(a) | Cameco records certain consolidating adjustments to eliminate unrealized profit and amortize historical differences in accounting policies. This amount is amortized to earnings over units of production. |
10
(b) | Upon restructuring, Cameco assigned fair values to the assets and liabilities of JV Inkai. This increment is amortized to earnings over units of production. |
(c) | Cameco’s share of dividends follows its production purchase entitlements which is currently higher than its ownership interest. |
6. | Other liabilities |
Sep 30/20 | Dec 31/19 | |||||||
Deferred sales | $ | 15,200 | $ | 17,418 | ||||
Derivatives [note 16] | 22,037 | 12,524 | ||||||
Accrued pension and post-retirement benefit liability | 85,404 | 80,737 | ||||||
Lease obligation [note 16] | 10,192 | 12,869 | ||||||
Product loans(a) | 53,176 | — | ||||||
Other | 67,522 | 63,452 | ||||||
|
|
|
| |||||
253,531 | 187,000 | |||||||
Less current portion | (91,571 | ) | (33,073 | ) | ||||
|
|
|
| |||||
Net | $ | 161,960 | $ | 153,927 | ||||
|
|
|
|
(a) | Cameco has standby product loan facilities with various counterparties. The arrangements allow us to borrow up to 1,339,000 kgU of UF6 conversion services and 2,606,000 pounds of U3O8 over the period 2020 to 2023 with repayment in kind up to December 31, 2023. Under the facilities, standby fees of up to 1% are payable based on the market value of the facilities and interest is payable on the market value of any amounts drawn at rates ranging from 0.5% to 2.0%. During the year, Cameco borrowed 1,213,800 pounds of U3O8 and 464,600 kgU of UF6 conversion services. Repayment on a portion is due no later than December 31, 2022 with the remainder due no later than March 31, 2023. The loan is recorded at Cameco’s weighted average cost of inventory. |
7. | Provisions |
Reclamation | Waste disposal | Total | ||||||||||
Beginning of year | $ | 1,050,675 | $ | 9,803 | $ | 1,060,478 | ||||||
Changes in estimates and discount rates | ||||||||||||
Capitalized in property, plant, and equipment | 114,746 | — | 114,746 | |||||||||
Recognized in earnings | 23,762 | 639 | 24,401 | |||||||||
Provisions used during the period | (14,268 | ) | (290 | ) | (14,558 | ) | ||||||
Unwinding of discount | 10,462 | 60 | 10,522 | |||||||||
Impact of foreign exchange | 7,213 | — | 7,213 | |||||||||
|
|
|
|
|
| |||||||
End of period | $ | 1,192,590 | $ | 10,212 | $ | 1,202,802 | ||||||
|
|
|
|
|
| |||||||
Current | 66,455 | 2,747 | 69,202 | |||||||||
Non-current | 1,126,135 | 7,465 | 1,133,600 | |||||||||
|
|
|
|
|
| |||||||
$ | 1,192,590 | $ | 10,212 | $ | 1,202,802 | |||||||
|
|
|
|
|
|
8. | Share capital |
At September 30, 2020, there were 395,846,205 common shares outstanding. Options in respect of 6,581,105 shares are outstanding under the stock option plan and are exercisable up to 2027. For the quarter ended September 30, 2020, there were 22,440 options that were exercised resulting in the issuance of shares (2019 - nil). For the nine months ended September 30, 2020, there were 48,473 options exercised that resulted in the issuance of shares (2019 - 5,000).
11
9. | Revenue |
Cameco’s uranium and fuel services sales contracts with customers contain both fixed and market-related pricing. Fixed-price contracts are typically based on a term-price indicator at the time the contract is accepted and escalated over the term of the contract. Market-related contracts are based on either the spot price or long-term price, and the price is quoted at the time of delivery rather than at the time the contract is accepted. These contracts often include a floor and/or ceiling prices, which are usually escalated over the term of the contract. Escalation is generally based on a consumer price index. The Company’s contracts contain either one of these pricing mechanisms or a combination of the two. There is no variable consideration in the contracts and therefore no revenue is considered constrained at the time of delivery. Cameco expenses the incremental costs of obtaining a contract as incurred as the amortization period is less than a year.
The following tables summarize Cameco’s sales disaggregated by geographical region and contract type and includes a reconciliation to Cameco’s reportable segments (note 17):
For the three months ended September 30, 2020
Uranium | Fuel services | Other | Total | |||||||||||||
Customer geographical region | ||||||||||||||||
Americas | $ | 105,006 | $ | 47,078 | $ | — | $ | 152,084 | ||||||||
Europe | 49,751 | 21,137 | — | 70,888 | ||||||||||||
Asia | 147,425 | 8,473 | — | 155,898 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 302,182 | $ | 76,688 | $ | — | $ | 378,870 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Contract type | ||||||||||||||||
Fixed-price | $ | 35,726 | $ | 68,598 | $ | — | $ | 104,324 | ||||||||
Market-related | 266,456 | 8,090 | — | 274,546 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 302,182 | $ | 76,688 | $ | — | $ | 378,870 | |||||||||
|
|
|
|
|
|
|
|
For the three months ended September 30, 2019
Uranium | Fuel services | Other | Total | |||||||||||||
Customer geographical region | ||||||||||||||||
Americas | $ | 145,378 | $ | 44,044 | $ | — | $ | 189,422 | ||||||||
Europe | 53,960 | 517 | — | 54,477 | ||||||||||||
Asia | 48,281 | 11,000 | — | 59,281 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 247,619 | $ | 55,561 | $ | — | $ | 303,180 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Contract type | ||||||||||||||||
Fixed-price | $ | 35,678 | $ | 48,480 | $ | — | $ | 84,158 | ||||||||
Market-related | 211,941 | 7,081 | — | 219,022 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 247,619 | $ | 55,561 | $ | — | $ | 303,180 | |||||||||
|
|
|
|
|
|
|
|
12
For the nine months ended September 30, 2020
Uranium | Fuel services | Other | Total | |||||||||||||
Customer geographical region | ||||||||||||||||
Americas | $ | 408,921 | $ | 150,918 | $ | 7,676 | $ | 567,515 | ||||||||
Europe | 230,534 | 97,229 | 3,331 | 331,094 | ||||||||||||
Asia | 336,616 | 14,492 | — | 351,108 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 976,071 | $ | 262,639 | $ | 11,007 | $ | 1,249,717 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Contract type | ||||||||||||||||
Fixed-price | $ | 196,978 | $ | 252,843 | $ | 7,686 | $ | 457,507 | ||||||||
Market-related | 779,093 | 9,796 | 3,321 | 792,210 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 976,071 | $ | 262,639 | $ | 11,007 | $ | 1,249,717 | |||||||||
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2019
Uranium | Fuel services | Other | Total | |||||||||||||
Customer geographical region | ||||||||||||||||
Americas | $ | 410,276 | $ | 151,888 | $ | 2,667 | $ | 564,831 | ||||||||
Europe | 180,417 | 50,843 | 3,587 | 234,847 | ||||||||||||
Asia | 157,033 | 15,818 | 15,953 | 188,804 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 747,726 | $ | 218,549 | $ | 22,207 | $ | 988,482 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Contract type | ||||||||||||||||
Fixed-price | $ | 142,506 | $ | 205,044 | $ | 13,071 | $ | 360,621 | ||||||||
Market-related | 605,220 | 13,505 | 9,136 | 627,861 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 747,726 | $ | 218,549 | $ | 22,207 | $ | 988,482 | |||||||||
|
|
|
|
|
|
|
|
10. | Finance costs |
Three months ended | Nine months ended | |||||||||||||||
Sep 30/20 | Sep 30/19 | Sep 30/20 | Sep 30/19 | |||||||||||||
Interest on long-term debt | $ | 10,799 | $ | 15,628 | $ | 31,950 | $ | 52,581 | ||||||||
Unwinding of discount on provisions | 2,500 | 5,817 | 10,522 | 17,885 | ||||||||||||
Other charges | 3,567 | 4,097 | 10,306 | 11,264 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 16,866 | $ | 25,542 | $ | 52,778 | $ | 81,730 | ||||||||
|
|
|
|
|
|
|
|
11. | Other income (expense) |
Three months ended | Nine months ended | |||||||||||||||
Sep 30/20 | Sep 30/19 | Sep 30/20 | Sep 30/19 | |||||||||||||
Arbitration award | $ | — | $ | 52,801 | $ | — | $ | 52,801 | ||||||||
Foreign exchange gains (losses) | (10,750 | ) | 8,121 | 20,676 | (5,928 | ) | ||||||||||
Other | — | — | 202 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | (10,750 | ) | $ | 60,922 | $ | 20,878 | $ | 46,873 | |||||||
|
|
|
|
|
|
|
|
13
12. | Income taxes |
Three months ended | Nine months ended | |||||||||||||||
Sep 30/20 | Sep 30/19 | Sep 30/20 | Sep 30/19 | |||||||||||||
Earnings (loss) before income taxes | ||||||||||||||||
Canada | $ | (21,172 | ) | $ | 44,224 | $ | (51,116 | ) | $ | 64,113 | ||||||
Foreign | (45,077 | ) | (47,411 | ) | (94,977 | ) | (106,051 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
$ | (66,249 | ) | $ | (3,187 | ) | $ | (146,093 | ) | $ | (41,938 | ) | |||||
|
|
|
|
|
|
|
| |||||||||
Current income taxes (recovery) | ||||||||||||||||
Canada | $ | (73 | ) | $ | 806 | $ | (1,292 | ) | $ | 5,238 | ||||||
Foreign | 136 | (1,019 | ) | 659 | 741 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 63 | $ | (213 | ) | $ | (633 | ) | $ | 5,979 | |||||||
Deferred income taxes (recovery) | ||||||||||||||||
Canada | $ | (5,645 | ) | $ | 12,596 | $ | (15,934 | ) | $ | 13,220 | ||||||
Foreign | 105 | (2,088 | ) | 3,490 | (6,740 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | (5,540 | ) | $ | 10,508 | $ | (12,444 | ) | $ | 6,480 | |||||||
|
|
|
|
|
|
|
| |||||||||
Income tax expense (recovery) | $ | (5,477 | ) | $ | 10,295 | $ | (13,077 | ) | $ | 12,459 | ||||||
|
|
|
|
|
|
|
|
Cameco has recorded $968,338,000 of deferred tax assets (December 31, 2019 - $956,376,000). The realization of these deferred tax assets is dependent upon the generation of future taxable income in certain jurisdictions during the periods in which the Company’s temporary tax differences are available. The Company considers whether it is probable that all or a portion of the deferred tax assets will not be realized. In making this assessment, management considers all available evidence, including recent financial operations, projected future taxable income and tax planning strategies. Based on projections of future taxable income over the periods in which the deferred tax assets are available, realization of these deferred tax assets is probable and consequently the deferred tax assets have been recorded.
Canada
In 2008, as part of the ongoing annual audits of Cameco’s Canadian tax returns, Canada Revenue Agency (CRA) disputed the transfer pricing structure and methodology used by Cameco and its wholly owned Swiss subsidiary, Cameco Europe Ltd., in respect of sale and purchase agreements for uranium products. From December 2008 to date, CRA issued notices of reassessment for the taxation years 2003 through 2013, which in aggregate have increased Cameco’s income for Canadian tax purposes by approximately $5,700,000,000. CRA has also issued notices of reassessment for transfer pricing penalties for the years 2007 through 2011 in the amount of $371,000,000.
On June 26, 2020, the Federal Court of Appeal (Court of Appeal) released its decision in the Company’s dispute with CRA. The Court of Appeal decision upholds the September 26, 2018 decision of the Tax Court of Canada (Tax Court) which ruled in Cameco’s favour for the 2003, 2005 and 2006 tax years.
The Court of Appeal decision upheld the Tax Court ruling that the Company’s marketing and trading structure involving foreign subsidiaries and the related transfer pricing methodology used for certain intercompany uranium purchase and sale agreements were in full compliance with Canadian laws for the three tax years in question. Management believes the principles in the decision apply to all subsequent tax years.
On October 30, 2020, CRA made an application to the Supreme Court of Canada (Supreme Court) to seek leave to appeal the decision of the Court of Appeal. The Supreme Court will decide whether to hear the appeal or decline CRA’s request for leave. If the appeal proceeds, Cameco estimates that it could take until the second half of 2022 before a decision is rendered by the Supreme Court.
14
Despite the fact that Cameco believes there is no basis to do so and it is not the Company’s view of the likely outcome, until Cameco knows whether an appeal to the Supreme Court will be granted, and a resolution is reached for all tax years in question, CRA may continue to reassess Cameco using the methodology it reassessed the 2003 through 2013 tax years with. In that scenario, and including the $5,700,000,000 already reassessed, the Company could receive notices of reassessment for a total of approximately $8,700,000,000 of additional taxable income for the years 2003 through 2019, which would increase Cameco’s related tax expense by approximately $2,600,000,000. In addition to penalties already imposed, CRA may continue to apply penalties to taxation years subsequent to 2011. In that case, Cameco estimates that cash taxes and transfer pricing penalties would be between $1,950,000,000 and $2,150,000,000. In addition, CRA may seek to apply interest and instalment penalties that would be material to Cameco. While in dispute, Cameco would be required to remit or otherwise secure 50% of the cash taxes and transfer pricing penalties (between $970,000,000 and $1,070,000,000), plus related interest and instalment penalties assessed, which would be material to the Company. Cameco expects further actions regarding the tax years 2007 through 2013 will be suspended until the three years covered in the decision are finally resolved.
Management believes that the ultimate resolution will not be material to Cameco’s financial position, results of operations or liquidity in the year(s) of resolution. However, resolution of this matter as stipulated by CRA would be material to Cameco’s financial position, results of operations or liquidity in the year(s) of resolution and other unfavourable outcomes for the years 2003 to date could be material to Cameco’s financial position, results of operations and cash flows in the year(s) of resolution.
If CRA continues to pursue reassessments for tax years subsequent to 2006, Cameco will continue to utilize its appeal rights under Canadian federal and provincial tax rules.
13. | Per share amounts |
Per share amounts have been calculated based on the weighted average number of common shares outstanding during the period. The weighted average number of paid shares outstanding in 2020 was 395,817,431 (2019—395,796,322).
Three months ended | Nine months ended | |||||||||||||||
Sep 30/20 | Sep 30/19 | Sep 30/20 | Sep 30/19 | |||||||||||||
Basic loss per share computation | ||||||||||||||||
Net loss attributable to equity holders | $ | (60,770 | ) | $ | (13,467 | ) | $ | (132,996 | ) | $ | (54,355 | ) | ||||
Weighted average common shares outstanding | 395,841 | 395,798 | 395,817 | 395,796 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Basic loss per common share | $ | (0.15 | ) | $ | (0.03 | ) | $ | (0.34 | ) | $ | (0.14 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Diluted loss per share computation | ||||||||||||||||
Net loss attributable to equity holders | $ | (60,770 | ) | $ | (13,467 | ) | $ | (132,996 | ) | $ | (54,355 | ) | ||||
Weighted average common shares outstanding | 395,841 | 395,798 | 395,817 | 395,796 | ||||||||||||
Dilutive effect of stock options | 312 | — | 200 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average common shares outstanding, assuming dilution | 396,153 | 395,798 | 396,017 | 395,796 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted loss per common share | $ | (0.15 | ) | $ | (0.03 | ) | $ | (0.34 | ) | $ | (0.14 | ) | ||||
|
|
|
|
|
|
|
|
15
14. | Statements of cash flows |
Three months ended | Nine months ended | |||||||||||||||
Sep 30/20 | Sep 30/19 | Sep 30/20 | Sep 30/19 | |||||||||||||
Changes in non-cash working capital: | ||||||||||||||||
Accounts receivable | $ | (53,156 | ) | $ | 31,677 | $ | 54,165 | $ | 225,094 | |||||||
Inventories | 17,098 | 155,613 | (347,022 | ) | (52,529 | ) | ||||||||||
Supplies and prepaid expenses | (927 | ) | (882 | ) | (11,654 | ) | (10,076 | ) | ||||||||
Accounts payable and accrued liabilities | (7,357 | ) | (36,551 | ) | 58,783 | (75,688 | ) | |||||||||
Reclamation payments | (3,093 | ) | (6,966 | ) | (14,558 | ) | (20,513 | ) | ||||||||
Other | 527 | (6,928 | ) | (1,020 | ) | 5,340 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Other operating items | $ | (46,908 | ) | $ | 135,963 | $ | (261,306 | ) | $ | 71,628 | ||||||
|
|
|
|
|
|
|
|
15. | Share-based compensation plans |
A. | Stock option plan |
The Company has established a stock option plan under which options to purchase common shares may be granted to employees of Cameco. Options granted under the stock option plan have an exercise price of not less than the closing price quoted on the Toronto Stock Exchange (TSX) for the common shares of Cameco on the trading day prior to the date on which the option is granted. The options carry vesting periods of one to three years, and expire eight years from the date granted.
The aggregate number of common shares that may be issued pursuant to the Cameco stock option plan shall not exceed 43,017,198 of which 27,923,762 shares have been issued.
B. | Executive performance share unit (PSU) |
The Company has established a PSU plan whereby it provides each plan participant an annual grant of PSUs in an amount determined by the board. Each PSU represents one phantom common share that entitles the participant to a payment of one Cameco common share purchased on the open market, or cash with an equivalent market value, at the participant’s discretion provided they have met their ownership requirements, at the end of each three-year period if certain performance and vesting criteria have been met. The final value of the PSUs will be based on the value of Cameco common shares at the end of the three-year period and the number of PSUs that ultimately vest. During the vesting period, dividend equivalents accrue to the participants in the form of additional share units as of each normal cash dividend payment date of Cameco’s common shares. Vesting of PSUs at the end of the three-year period is based on Cameco’s ability to meet its annual operating targets and whether the participating executive remains employed by Cameco at the end of the three-year vesting period. Prior to 2020, total shareholder return over three years was also a vesting condition. This condition was removed during the first quarter for new grants. If the participant elects a cash payout, the redemption amount will be based on the volume-weighted average trading price of Cameo’s common shares on March 1 or, if March 1 is not a trading day, on the first trading day following March 1. As of September 30, 2020, the total number of PSUs held by the participants, after adjusting for forfeitures on retirement, was 1,712,558 (December 31, 2019 - 1,465,618).
16
C. | Restricted share unit (RSU) |
The Company has established an RSU plan whereby it provides each plan participant an annual grant of RSUs in an amount determined by the board. Each RSU represents one phantom common share that entitles the participant to a payment of one Cameco common share purchased on the open market, or cash with an equivalent market value, at the board’s discretion. The RSUs carry vesting periods of one to three years, and the final value of the units will be based on the value of Cameco common shares at the end of the vesting periods. In addition, certain eligible participants have a single vesting date on the third anniversary of the date of the grant. These same participants, if they have met or are not subject to share ownership requirements, may elect to have their award paid as a lump sum cash amount. During the vesting period, dividend equivalents accrue to the participants in the form of additional share units as of each normal cash dividend payment date of Cameco’s common shares. As of September 30, 2020, the total number of RSUs held by the participants was 927,598 (December 31, 2019 - 443,274).
Equity-settled plans
Cameco records compensation expense under its equity-settled plans with an offsetting credit to contributed surplus, to reflect the estimated fair value of units granted to employees. During the period, the Company recognized the following expenses under these plans:
Three months ended | Nine months ended | |||||||||||||||
Sep 30/20 | Sep 30/19 | Sep 30/20 | Sep 30/19 | |||||||||||||
Stock option plan | $ | 209 | $ | 463 | $ | 792 | $ | 3,940 | ||||||||
Performance share unit plan(a) | 504 | 1,839 | 2,124 | 5,333 | ||||||||||||
Restricted share unit plan | 728 | 700 | 2,121 | 1,943 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 1,441 | $ | 3,002 | $ | 5,037 | $ | 11,216 | |||||||||
|
|
|
|
|
|
|
|
(a) | In the fourth quarter of 2019, the PSU plan was amended to allow eligible participants to elect payout of their grants in cash or shares, provided they have met their share ownership requirements. As a result, this plan is now considered cash-settled for new grants. Expenses related to PSUs granted in previous years will continue to appear as equity-settled if certain assumptions related to the calculation of fair value are met. |
The fair value of RSUs granted was determined based on their intrinsic value on the date of grant.
The inputs used in the measurement of the fair value at grant date of the equity-settled share-based payment plan were as follows:
RSU | ||||
Number of options granted | 283,426 | |||
Average strike price | $ | 11.45 | ||
Expected forfeitures | 13 | % | ||
Weighted average grant date fair values | $ | 11.45 | ||
|
|
17
Cash-settled plans
During the period, the Company recognized the following expenses under these plans:
Three months ended | Nine months ended | |||||||||||||||
Sep 30/20 | Sep 30/19 | Sep 30/20 | Sep 30/19 | |||||||||||||
Performance share unit plan | $ | 2,836 | $ | — | $ | 11,389 | $ | — | ||||||||
Restricted share unit plan(a) | 419 | — | 1,003 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 3,255 | $ | — | $ | 12,392 | $ | — | |||||||||
|
|
|
|
|
|
|
|
(a) | Due to the inclusion of a new group of participants in the RSU plan that are able to elect cash settlement, grants to this group will appear as an expense of a cash-settled plan. Grants to the original group of participants are still disclosed as an expense of an equity-settled plan. |
The fair value of the units granted through the PSU plan was determined based on Monte Carlo simulation and the fair value of RSUs granted was determined based on their intrinsic value on the date of grant. Expected volatility was estimated by considering historic average share price volatility.
The inputs used in the measurement of the fair values of the cash-settled share-based payment plans at the grant and reporting dates were as follows:
PSU | RSU | |||||||||||||||
Grant date Mar 1/20 | Reporting date Sep 30/20 | Grant date Mar 1/20 | Reporting date Sep 30/20 | |||||||||||||
Number of units | 636,570 | 1,712,558 | 423,180 | 423,180 | ||||||||||||
Expected vesting | 102 | % | 122 | % | — | — | ||||||||||
Expected volatility(a) | — | 44 | % | — | — | |||||||||||
Risk-free interest rate(a) | — | 0.2 | % | — | — | |||||||||||
Expected life of option | 3.0 years | 1.3 years | 3.0 years | 2.4 years | ||||||||||||
Expected forfeitures | 12 | % | 11 | % | 12 | % | 12 | % | ||||||||
Weighted average measurement date fair values | $ | 11.45 | $ | 16.39 | $ | 11.45 | $ | 13.45 | ||||||||
|
|
|
|
|
|
|
|
(a) | During the first quarter of 2020, the vesting conditions of the PSU plan were amended such that total shareholder return is no longer included for new grants. Due to this change, expected volatility and the risk-free interest rate will no longer be considered in calculating the fair value of new grants. |
18
16. | Financial instruments and related risk management |
A. | Accounting classifications |
The following tables summarize the carrying amounts and accounting classifications of Cameco’s financial instruments at the reporting date:
At September 30, 2020
FVTPL | Amortized cost | FVOCI - designated | Total | |||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | — | $ | 772,756 | $ | — | $ | 772,756 | ||||||||
Short-term investments | — | 19,988 | — | 19,988 | ||||||||||||
Accounts receivable | — | 297,968 | — | 297,968 | ||||||||||||
Derivative assets [note 4] | ||||||||||||||||
Foreign currency contracts | 19,976 | — | — | 19,976 | ||||||||||||
Interest rate contracts | 7,413 | — | — | 7,413 | ||||||||||||
Investments in equity securities [note 4] | — | — | 27,402 | 27,402 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
27,389 | 1,090,712 | 27,402 | 1,145,503 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Financial liabilities | ||||||||||||||||
Accounts payable and accrued liabilities | — | 237,619 | — | 237,619 | ||||||||||||
Lease obligation [note 6] | — | 10,192 | — | 10,192 | ||||||||||||
Derivative liabilities [note 6] | ||||||||||||||||
Foreign currency contracts | 22,037 | — | — | 22,037 | ||||||||||||
Long-term debt | — | 997,222 | — | 997,222 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
22,037 | 1,245,033 | — | 1,267,070 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net | 5,352 | (154,321 | ) | 27,402 | (121,567 | ) | ||||||||||
|
|
|
|
|
|
|
|
19
At December 31, 2019
FVTPL | Amortized cost | FVOCI - designated | Total | |||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | — | $ | 1,062,431 | $ | — | $ | 1,062,431 | ||||||||
Accounts receivable | — | 328,044 | — | 328,044 | ||||||||||||
Derivative assets [note 4] | ||||||||||||||||
Foreign currency contracts | 8,191 | — | — | 8,191 | ||||||||||||
Interest rate contracts | 2,313 | — | — | 2,313 | ||||||||||||
Investments in equity securities [note 4] | — | — | 24,408 | 24,408 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 10,504 | $ | 1,390,475 | $ | 24,408 | $ | 1,425,387 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Financial liabilities | ||||||||||||||||
Accounts payable and accrued liabilities | $ | — | $ | 181,799 | $ | — | $ | 181,799 | ||||||||
Lease obligation [note 6] | — | 12,869 | — | 12,869 | ||||||||||||
Derivative liabilities [note 6] | ||||||||||||||||
Foreign currency contracts | 12,524 | — | — | 12,524 | ||||||||||||
Long-term debt | — | 996,718 | — | 996,718 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
12,524 | 1,191,386 | — | 1,203,910 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net | $ | (2,020 | ) | $ | 199,089 | $ | 24,408 | $ | 221,477 | |||||||
|
|
|
|
|
|
|
|
Cameco has pledged $195,138,000 of cash as security against certain of its letter of credit facilities. This cash is being used as collateral for an interest rate reduction on the letter of credit facilities. The collateral account has a term of five years effective July 1, 2018. Cameco retains full access to this cash.
B. | Fair value hierarchy |
The fair value of an asset or liability is generally estimated as the amount that would be received on sale of an asset, or paid to transfer a liability in an orderly transaction between market participants at the reporting date. Fair values of assets and liabilities traded in an active market are determined by reference to last quoted prices, in the principal market for the asset or liability. In the absence of an active market for an asset or liability, fair values are determined based on market quotes for assets or liabilities with similar characteristics and risk profiles, or through other valuation techniques. Fair values determined using valuation techniques require the use of inputs, which are obtained from external, readily observable market data when available. In some circumstances, inputs that are not based on observable data must be used. In these cases, the estimated fair values may be adjusted in order to account for valuation uncertainty, or to reflect the assumptions that market participants would use in pricing the asset or liability.
All fair value measurements are categorized into one of three hierarchy levels, described below, for disclosure purposes. Each level is based on the transparency of the inputs used to measure the fair values of assets and liabilities:
Level 1 – Values based on unadjusted quoted prices in active markets that are accessible at the reporting date for identical assets or liabilities.
Level 2 – Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.
Level 3 – Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
When the inputs used to measure fair value fall within more than one level of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety.
20
The following tables summarize the carrying amounts and fair values of Cameco’s financial instruments that are measured at fair value, including their levels in the fair value hierarchy:
As at September 30, 2020
Fair value | ||||||||||||||||
Carrying value | Level 1 | Level 2 | Total | |||||||||||||
Derivative assets [note 4] | ||||||||||||||||
Foreign currency contracts | $ | 19,976 | $ | — | $ | 19,976 | $ | 19,976 | ||||||||
Interest rate contracts | 7,413 | — | 7,413 | 7,413 | ||||||||||||
Investments in equity securities [note 4] | 27,402 | 27,402 | — | 27,402 | ||||||||||||
Current portion of long-term debt | — | — | — | — | ||||||||||||
Derivative liabilities [note 6] | ||||||||||||||||
Foreign currency contracts | (22,037 | ) | — | (22,037 | ) | (22,037 | ) | |||||||||
Long-term debt | (997,222 | ) | — | (1,157,723 | ) | (1,157,723 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net | $ | (964,468 | ) | $ | 27,402 | $ | (1,152,371 | ) | $ | (1,124,969 | ) | |||||
|
|
|
|
|
|
|
|
As at December 31, 2019
Fair value | ||||||||||||||||
Carrying value | Level 1 | Level 2 | Total | |||||||||||||
Derivative assets [note 4] | ||||||||||||||||
Foreign currency contracts | $ | 8,191 | $ | — | $ | 8,191 | $ | 8,191 | ||||||||
Interest rate contracts | 2,313 | — | 2,313 | 2,313 | ||||||||||||
Investments in equity securities [note 4] | 24,408 | 24,408 | — | 24,408 | ||||||||||||
Derivative liabilities [note 6] | ||||||||||||||||
Foreign currency contracts | (12,524 | ) | — | (12,524 | ) | (12,524 | ) | |||||||||
Long-term debt | (996,718 | ) | — | (1,111,923 | ) | (1,111,923 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net | $ | (974,330 | ) | $ | 24,408 | $ | (1,113,943 | ) | $ | (1,089,535 | ) | |||||
|
|
|
|
|
|
|
|
The preceding tables exclude fair value information for financial instruments whose carrying amounts are a reasonable approximation of fair value. The carrying value of Cameco’s cash and cash equivalents, short-term investments, accounts receivable, and accounts payable and accrued liabilities approximates its fair value as a result of the short-term nature of the instruments.
There were no transfers between level 1 and level 2 during the period. Cameco does not have any financial instruments that are classified as level 3 as of the reporting date.
C. | Financial instruments measured at fair value |
Cameco measures its derivative financial instruments, material investments in equity securities and long-term debt at fair value. Investments in publicly held equity securities are classified as a recurring level 1 fair value measurement while derivative financial instruments and current and long-term debt are classified as recurring level 2 fair value measurements.
The fair value of investments in equity securities is determined using quoted share prices observed in the principal market for the securities as of the reporting date. The fair value of Cameco’s long-term debt is determined using quoted market yields as of the reporting date, which ranged from 0.3% to 1.0% (2018 - 1.7% to 1.8%).
Foreign currency derivatives consist of foreign currency forward contracts, options and swaps. The fair value of foreign currency options is measured based on the Black Scholes option-pricing model. The fair value of foreign currency forward contracts and swaps is measured using a market approach, based on the difference between contracted foreign exchange rates and quoted forward exchange rates as of the reporting date.
21
Interest rate derivatives consist of interest rate swap contracts. The fair value of interest rate swaps is determined by discounting expected future cash flows from the contracts. The future cash flows are determined by measuring the difference between fixed interest payments to be received and floating interest payments to be made to the counterparty based on Canada Dealer Offer Rate forward interest rate curves.
Where applicable, the fair value of the derivatives reflects the credit risk of the instrument and includes adjustments to take into account the credit risk of the Company and counterparty. These adjustments are based on credit ratings and yield curves observed in active markets at the reporting date.
D. | Derivatives |
The following table summarizes the fair value of derivatives and classification on the consolidated statements of financial position:
Sep 30/20 | Dec 31/19 | |||||||
Non-hedge derivatives: | ||||||||
Foreign currency contracts | $ | (2,061 | ) | $ | (4,333 | ) | ||
Interest rate contracts | 7,413 | 2,313 | ||||||
|
|
|
| |||||
Net | $ | 5,352 | $ | (2,020 | ) | |||
|
|
|
| |||||
Classification: | ||||||||
Current portion of long-term receivables, investments and other [note 4] | $ | 7,059 | $ | 4,144 | ||||
Long-term receivables, investments and other [note 4] | 20,330 | 6,360 | ||||||
Current portion of other liabilities [note 6] | (12,709 | ) | (7,505 | ) | ||||
Other liabilities [note 6] | (9,328 | ) | (5,019 | ) | ||||
|
|
|
| |||||
Net | $ | 5,352 | $ | (2,020 | ) | |||
|
|
|
|
The following table summarizes the different components of the gain (loss) on derivatives included in net earnings (loss):
Three months ended | Nine months ended | |||||||||||||||
Sep 30/20 | Sep 30/19 | Sep 30/20 | Sep 30/19 | |||||||||||||
Non-hedge derivatives | ||||||||||||||||
Foreign currency contracts | $ | 20,506 | $ | (15,094 | ) | $ | (10,940 | ) | $ | 17,350 | ||||||
Interest rate contracts | 224 | (353 | ) | 6,060 | 3,211 | |||||||||||
Uranium contracts | — | (1 | ) | — | (1,478 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net | $ | 20,730 | $ | (15,448 | ) | $ | (4,880 | ) | $ | 19,083 | ||||||
|
|
|
|
|
|
|
|
17. | Segmented information |
Cameco has two reportable segments: uranium and fuel services. Cameco’s reportable segments are strategic business units with different products, processes and marketing strategies. The uranium segment involves the exploration for, mining, milling, purchase and sale of uranium concentrate. The fuel services segment involves the refining, conversion and fabrication of uranium concentrate and the purchase and sale of conversion services.
Cost of sales in the uranium segment includes care and maintenance costs for our operations that have had production suspensions. Cameco expensed $55,024,000 of care and maintenance costs during the third quarter of 2020 (2019 - $34,007,000). For the nine months ended September 30, 2020, Cameco expensed $155,073,000 (2019 - $112,668,000). Included in these amounts are $17,726,000 for the quarter and $45,988,000 for the nine months ended September 30, 2020 relating to care and maintenance costs for operations suspended as a result of COVID-19. Also included in cost of sales as a result of the Cigar Lake production suspension, is the impact of increased purchasing activity at a higher cost than produced pounds.
22
Cost of sales in the fuel services segment also includes care and maintenance costs for our operations that have had production suspensions as a result of COVID-19. Cameco expensed $8,992,000 in the second quarter of 2020.
Accounting policies used in each segment are consistent with the policies outlined in the summary of significant accounting policies. Segment revenues, expenses and results include transactions between segments incurred in the ordinary course of business. These transactions are priced on an arm’s length basis, are eliminated on consolidation and are reflected in the “other” column.
Business segments
For the three months ended September 30, 2020
Uranium | Fuel services | Other | Total | |||||||||||||
Revenue | $ | 302,182 | $ | 76,688 | $ | — | $ | 378,870 | ||||||||
Expenses | ||||||||||||||||
Cost of products and services sold | 318,162 | 54,690 | 10 | 372,862 | ||||||||||||
Depreciation and amortization | 18,010 | 10,235 | 1,409 | 29,654 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cost of sales | 336,172 | 64,925 | 1,419 | 402,516 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit (loss) | (33,990 | ) | 11,763 | (1,419 | ) | (23,646 | ) | |||||||||
Administration | — | — | 30,414 | 30,414 | ||||||||||||
Exploration | 1,914 | — | — | 1,914 | ||||||||||||
Research and development | — | — | 493 | 493 | ||||||||||||
Other operating expense | 6,861 | — | — | 6,861 | ||||||||||||
Loss on disposal of assets | 169 | 389 | — | 558 | ||||||||||||
Finance costs | — | — | 16,866 | 16,866 | ||||||||||||
Gain on derivatives | — | — | (20,730 | ) | (20,730 | ) | ||||||||||
Finance income | — | — | (1,327 | ) | (1,327 | ) | ||||||||||
Share of earnings from equity-accounted investee | (3,196 | ) | — | — | (3,196 | ) | ||||||||||
Other expense | — | — | 10,750 | 10,750 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Earnings (loss) before income taxes | (39,738 | ) | 11,374 | (37,885 | ) | (66,249 | ) | |||||||||
Income tax recovery | (5,477 | ) | ||||||||||||||
|
| |||||||||||||||
Net loss | $ | (60,772 | ) | |||||||||||||
|
|
23
For the three months ended September 30, 2019
Uranium | Fuel services | Other | Total | |||||||||||||
Revenue | $ | 247,619 | $ | 55,561 | $ | — | $ | 303,180 | ||||||||
Expenses | ||||||||||||||||
Cost of products and services sold | 192,571 | 43,198 | 30 | 235,799 | ||||||||||||
Depreciation and amortization | 58,122 | 8,368 | 2,927 | 69,417 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cost of sales | 250,693 | 51,566 | 2,957 | 305,216 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit (loss) | (3,074 | ) | 3,995 | (2,957 | ) | (2,036 | ) | |||||||||
Administration | — | — | 24,403 | 24,403 | ||||||||||||
Exploration | 3,478 | — | — | 3,478 | ||||||||||||
Research and development | — | — | 1,524 | 1,524 | ||||||||||||
Other operating expense | 3,690 | — | — | 3,690 | ||||||||||||
Loss on disposal of assets | 272 | — | — | 272 | ||||||||||||
Finance costs | — | — | 25,542 | 25,542 | ||||||||||||
Loss on derivatives | — | — | 15,448 | 15,448 | ||||||||||||
Finance income | — | — | (10,375 | ) | (10,375 | ) | ||||||||||
Share of earnings from equity-accounted investee | (1,909 | ) | — | — | (1,909 | ) | ||||||||||
Other income | (52,801 | ) | — | (8,121 | ) | (60,922 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Earnings (loss) before income taxes | 44,196 | 3,995 | (51,378 | ) | (3,187 | ) | ||||||||||
Income tax expense | 10,295 | |||||||||||||||
|
| |||||||||||||||
Net loss | $ | (13,482 | ) | |||||||||||||
|
|
For the nine months ended September 30, 2020
Uranium | Fuel services | Other | Total | |||||||||||||
Revenue | $ | 976,071 | $ | 262,639 | $ | 11,007 | $ | 1,249,717 | ||||||||
Expenses | ||||||||||||||||
Cost of products and services sold | 943,288 | 168,012 | 7,424 | 1,118,724 | ||||||||||||
Depreciation and amortization | 95,942 | 29,446 | 7,888 | 133,276 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cost of sales | 1,039,230 | 197,458 | 15,312 | 1,252,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit (loss) | (63,159 | ) | 65,181 | (4,305 | ) | (2,283 | ) | |||||||||
Administration | — | — | 100,073 | 100,073 | ||||||||||||
Exploration | 8,312 | — | — | 8,312 | ||||||||||||
Research and development | — | — | 1,668 | 1,668 | ||||||||||||
Other operating expense | 23,762 | — | — | 23,762 | ||||||||||||
Loss on disposal of assets | 126 | 383 | — | 509 | ||||||||||||
Finance costs | — | — | 52,778 | 52,778 | ||||||||||||
Loss on derivatives | — | — | 4,880 | 4,880 | ||||||||||||
Finance income | — | — | (9,479 | ) | (9,479 | ) | ||||||||||
Share of earnings from equity-accounted investee | (17,815 | ) | — | — | (17,815 | ) | ||||||||||
Other income | (201 | ) | — | (20,677 | ) | (20,878 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Earnings (loss) before income taxes | (77,343 | ) | 64,798 | (133,548 | ) | (146,093 | ) | |||||||||
Income tax recovery | (13,077 | ) | ||||||||||||||
|
| |||||||||||||||
Net loss | $ | (133,016 | ) | |||||||||||||
|
|
24
For the nine months ended September 30, 2019
Uranium | Fuel services | Other | Total | |||||||||||||
Revenue | $ | 747,726 | $ | 218,549 | $ | 22,207 | $ | 988,482 | ||||||||
Expenses | ||||||||||||||||
Cost of products and services sold | 598,910 | 146,384 | 16,169 | 761,463 | ||||||||||||
Depreciation and amortization | 131,620 | 28,381 | 9,751 | 169,752 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cost of sales | 730,530 | 174,765 | 25,920 | 931,215 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit (loss) | 17,196 | 43,784 | (3,713 | ) | 57,267 | |||||||||||
Administration | — | — | 90,442 | 90,442 | ||||||||||||
Exploration | 11,345 | — | — | 11,345 | ||||||||||||
Research and development | — | — | 4,246 | 4,246 | ||||||||||||
Other operating expense | 29,253 | — | — | 29,253 | ||||||||||||
Loss on disposal of assets | 72 | — | — | 72 | ||||||||||||
Finance costs | — | — | 81,730 | 81,730 | ||||||||||||
Gain on derivatives | — | — | (19,083 | ) | (19,083 | ) | ||||||||||
Finance income | — | — | (25,486 | ) | (25,486 | ) | ||||||||||
Share of earnings from equity-accounted investee | (26,441 | ) | — | — | (26,441 | ) | ||||||||||
Other expense (income) | (52,801 | ) | — | 5,928 | (46,873 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Earnings (loss) before income taxes | 55,768 | 43,784 | (141,490 | ) | (41,938 | ) | ||||||||||
Income tax expense | 12,459 | |||||||||||||||
|
| |||||||||||||||
Net loss | $ | (54,397 | ) | |||||||||||||
|
|
18. | Related parties |
Cameco funded JV Inkai’s project development costs through an unsecured shareholder loan. The limit of the loan facility was $175,000,000 (US) and advances under the facility bore interest at a rate of LIBOR plus 2%. At September 30, 2020, there was no principal outstanding as the loan was fully repaid in the third quarter of 2019. For the quarter ended September 30, 2019, Cameco recorded interest income of $231,000 relating to this balance. For the nine month period ended September 30, 2019, interest income was $1,878,000.
Cameco purchases uranium concentrate from JV Inkai. For the quarter ended September 30, 2020, Cameco had purchases from JV Inkai of $28,826,000 ($21,348,000 (US)) (2019 - $22,217,000 ($16,741,000 (US))). For the nine month period ended September 30, 2020, purchases were $48,025,000 ($35,914,000 (US)) (2019 - $68,783,000 ($51,415,000 (US))).
19. | Subsequent event |
On October 21, 2020, Cameco announced the completion of a private placement of senior unsecured debentures consisting of $400,000,000 of 2.95% Senior Unsecured Debentures, Series H maturing on October 21, 2027. These debentures bear interest at a rate of 2.95% per annum, payable semi-annually in arrears on April 21 and October 21 of each year, with the first interest payment on April 21, 2021.
Cameco will use the net proceeds of the placement to redeem all of its outstanding 3.75% Senior Unsecured Debentures, Series E that are due November 14, 2022. The redemption will be completed on or about November 20, 2020. Cameco expects to recognize approximately $24,450,000 of finance costs in relation to the early redemption in its results for the fourth quarter of 2020.
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