Exhibit 99.5

 

Energizing a clean-air world Cameco 2021 Annual Report

The nuclear fuel cycle 1 Mining Once an orebody is discovered and defined by exploration, there are three common ways to mine uranium, depending on the depth of the orebody and the deposit’s geological characteristics: Open pit mining is used if the ore is near the surface. The ore is usually mined using drilling and blasting. Underground mining is used if the ore is too deep to make open pit mining economical. Tunnels and shafts provide access to the ore. In situ recovery (ISR) does not require large scale excavation. Instead, holes are drilled into the ore and a solution is used to dissolve the uranium. The solution is pumped to the surface where the uranium is recovered. 1 Milling Ore from open pit and underground mines is processed to extract the uranium and package it as a powder typically referred to as uranium concentrates (U3O8) or yellowcake. The leftover processed rock and other solid waste (tailings) is placed in an engineered tailings facility. 2 Refining Refining removes the impurities from the uranium concentrate and changes its chemical form to uranium trioxide (UO3). 3 Conversion For light water reactors, the UO3 is converted to uranium hexafluoride (UF6) gas to prepare it for enrichment. For heavy water reactors like the Candu reactor, the UO3 is converted into powdered uranium dioxide (UO2). 4 Enrichment Uranium is made up of two main isotopes: U-238 and U-235. Only U-235 atoms, which make up 0.7% of natural uranium, are involved in the nuclear reaction (fission). Most of the world’s commercial nuclear reactors require uranium that has an enriched level of U-235 atoms. The enrichment process increases the concentration of U-235 to between 3% and 5% by separating U-235 atoms from the U-238. Enriched UF6 gas is then converted to powdered UO2. 5 Fuel manufacturing Natural or enriched UO2 is pressed into pellets, which are baked at a high temperature. These are packed into zircaloy or stainless steel tubes, sealed and then assembled into fuel bundles. 6 Generation Nuclear reactors are used to generate electricity. U-235 atoms in the reactor fuel fission, creating heat that generates steam to drive turbines. The fuel bundles in the reactor need to be replaced as the U-235 atoms are depleted, typically after one or two years depending upon the reactor type. The used – or spent – fuel is stored or reprocessed. Spent fuel management The majority of spent fuel is safely stored at the reactor site. A small amount of spent fuel is reprocessed. The reprocessed fuel is used in some European and Japanese reactors.

Management’s discussion and analysis

February 9, 2022

 

8		2021 PERFORMANCE HIGHLIGHTS
13		MARKET OVERVIEW AND DEVELOPMENTS
19		OUR STRATEGY
27		OUR ESG PRINCIPLES AND PRACTICES
30		MEASURING OUR RESULTS
31		FINANCIAL RESULTS
57		OPERATIONS AND PROJECTS
82		MINERAL RESERVES AND RESOURCES
87		ADDITIONAL INFORMATION

This management’s discussion and analysis (MD&A) includes information that will help you understand management’s perspective of our audited consolidated financial statements (financial statements) and notes for the year ended December 31, 2021. The information is based on what we knew as of February 8, 2022.

We encourage you to read our audited consolidated financial statements and notes as you review this MD&A. You can find more information about Cameco, including our financial statements and our most recent annual information form, on our website at cameco.com, on SEDAR at sedar.com or on EDGAR at sec.gov. You should also read our annual information form before making an investment decision about our securities.

The financial information in this MD&A and in our financial statements and notes are prepared according to International Financial Reporting Standards (IFRS), unless otherwise indicated.

Unless we have specified otherwise, all dollar amounts are in Canadian dollars.

Throughout this document, the terms we, us, our, the Company and Cameco mean Cameco Corporation and its subsidiaries, unless otherwise indicated.

Caution about forward-looking information

Our MD&A includes statements and information about our expectations for the future. When we discuss our strategy, plans, future financial and operating performance, or other things that have not yet taken place, we are making statements considered to be forward-looking information or forward-looking statements under Canadian and United States (US) securities laws. We refer to them in this MD&A as forward-looking information.

Key things to understand about the forward-looking information in this MD&A:

 

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It typically includes words and phrases about the future, such as: anticipate, believe, estimate, expect, plan, will, intend, goal, target, forecast, project, strategy and outlook (see examples below).

 

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It represents our current views and can change significantly.

 

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It is based on a number of material assumptions, including those we have listed on page 4, which may prove to be incorrect.

 

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Actual results and events may be significantly different from what we currently expect, due to the risks associated with our business. We list a number of these material risks on page 3. We recommend you also review our most recent annual information form, which includes a discussion of other material risks that could cause actual results to differ significantly from our current expectations.

 

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Forward-looking information is designed to help you understand management’s current views of our near- and longer-term prospects, and it may not be appropriate for other purposes. We will not necessarily update this information unless we are required to by securities laws.

Examples of forward-looking information in this MD&A

 

 

2    CAMECO CORPORATION

Material risks

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    3

 

Material assumptions

 

 

4    CAMECO CORPORATION

[This page is intentionally left blank.]

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    5

 

6    CAMECO CORPORATION

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    7

2021 performance highlights

Despite additional disruptions to our business in 2021, we continued to do what we said we would do, protecting the health and safety of our employees and executing on all strategic fronts; operational, marketing and financial. In our uranium segment, since the beginning of 2021, and including the volumes reported in our third quarter MD&A, we have been successful in adding 70 million pounds to our portfolio of long-term uranium contracts, bringing the total volumes added since 2016 to about 185 million pounds. Nevertheless, we maintain leverage to higher prices with significant unencumbered future productive capacity and a large and growing pipeline of uranium business under discussion. We are being strategically patient in our discussions to capture as much value as possible in our contract portfolio. In addition to the off-market contracting interest, there has been a re-emergence of on-market requests for proposals from utilities looking to secure their future requirements.

In 2021, we were operating at about 75% below the productive capacity (100% basis) due to our planned supply discipline in our uranium segment and the unplanned production suspension at Cigar Lake. Productive capacity includes licensed capacity at Cigar Lake and McArthur River/Key Lake, and it includes planned production volumes at Rabbit Lake and our US operations prior to curtailment in 2016. We proactively suspended production at Cigar Lake for a second time for about four months starting in December 2020 due to the increased risks posed by the Coronavirus (COVID-19) pandemic at the time. As well, through our investment in Inkai, we were impacted by the 20% supply reduction enacted by Kazatomprom (KAP) across all uranium mines in Kazakhstan.

In addition to the proactive suspension of production at Cigar Lake, the COVID-19 safety protocols and measures we put in place in 2020, and following the precautions and restrictions enacted by all levels of government where we operate we proactively implemented additional measures and made a number of decisions to ensure a continued safe working environment for all our workers, in 2021, we:

 

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introduced a requirement that all employees, contractors and visitors be vaccinated across all our operations and offices

 

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developed a hybrid work model for employees working from home that balances time in the office and remote working in accordance with business needs

The proactive decisions we have made, and continue to make, to protect our workers and to help slow down the spread of the COVID-19 virus are consistent with our values. Even while production was suspended, we kept and continued to pay all our employees. The health and safety of our workers, their families and their communities continues to be the priority in all our plans, which will align with the guidance of the relevant health authorities where we operate.

We delivered over 24 million pounds of uranium to our customers in alignment with our contract portfolio and profitable opportunities in the market. We generated $458 million in cash from operations, with higher average realized prices in our fuel services segment than in 2020. However, as a result of the unplanned precautionary production suspension at Cigar Lake due to the COVID-19 pandemic, we incurred $40 million in care and maintenance costs for the operation and produced only 6.1 million pounds in our uranium segment, well below our committed sales. To manage risk we purchased 11.1 million pounds at a unit cost significantly higher than the average production costs at Cigar Lake for 2021 and 2020. See 2021 financial results by segment – Uranium starting on page 49 for more information. Partially offsetting these additional costs was the receipt of about $21 million under the Canada Emergency Wage Subsidy program and volatility in foreign exchange rates that resulted in foreign exchange gains.

Thanks to the disciplined execution of our strategy, our balance sheet is strong, and we expect it will enable us to see out our strategy as well as self-manage risk, including from global macro-economic uncertainty and volatility. As of December 31, 2021, we had $1.3 billion in cash and cash equivalents and short-term investments with only $996 million in long-term debt. In addition, we have a $1.0 billion undrawn credit facility.

 

8    CAMECO CORPORATION

In our transfer pricing dispute with Canada Revenue Agency (CRA), the Supreme Court of Canada (Supreme Court) dismissed CRA’s application for leave to appeal the decision of the Federal Court of Appeal (Court of Appeal). As a result, the dispute for the 2003 through 2006 tax years is fully and finally resolved in our favour. Furthermore, we are confident the courts would reject any attempt by CRA to utilize the same or similar positions and arguments for the other tax years currently in dispute (2007 through 2014) and believe CRA should return the $777 million in cash and letters of credit we have been required to pay or otherwise secure for those years. As such, we have filed a notice of appeal with the Tax Court of Canada (Tax Court), however timing of any further payments is uncertain. See Transfer pricing dispute on page 37 for more information.

In 2021, the benefits of nuclear energy came clearly into focus with a durability that we believe has not previously been seen. This durability is being driven by the accountability for achieving the net-zero carbon targets being set by countries and companies around the world. There is increasing recognition that nuclear power, with its clean emissions profile, reliable and secure baseload characteristics and low, levelized cost has a key role to play in achieving decarbonization goals. This is leading to both traditional and non-traditional demand growth for nuclear power and resulting in increased demand for uranium.

This increase in demand is occurring at a time when there is increasing uncertainty about uranium supply. The COVID-19 pandemic continued to disrupt global uranium production and introduced new risks including disruptions to global supply chains and rising costs for some products and services, adding to the supply curtailments that have occurred in the uranium industry for many years. The duration and extent of these disruptions are still not fully known. And, with the entrance of the Sprott Asset Management LP (Sprott) Physical Uranium Trust additional significant demand for spot material has impacted uranium prices. The uranium spot price increased significantly following the initial purchase activity in August, reaching a nine-year high of about $50 (US) per pound. The average uranium spot price ended the year at $42.05 per pound (US) nearly 40% higher than the average uranium spot price at the end of 2020. The thinning of material available in the spot market and the resulting higher spot prices have also pressured long-term prices with an increase in on-market requests for proposals (RFPs) and off-market negotiations. The long-term price was up 22% this year, ending the year at $42.75 per pound (US).

In the current environment, we believe the risk to uranium supply is greater than the risk to uranium demand and expect it will create a renewed focus on ensuring availability of long-term supply to fuel nuclear reactors. With the improvements in the market and the new long-term contracts we have put in place, it is time for us to proceed with the next phase of our supply discipline strategy, which also includes a planned supply reduction at Cigar Lake. Starting in 2024, we plan for our share of production to be about 45% below our productive capacity. In addition, at Inkai we will continue to follow the 20% reduction until the end of 2023 as announced by KAP. This will remain our production plan until we see further improvements in the uranium market and have made further progress in securing the appropriate homes for our unencumbered, in-ground inventory under long-term contracts, once again demonstrating that we are a responsible supplier of uranium fuel. See Our strategy starting on page 19 for more information.

We expect the investments we are making in digital and automation technologies will allow us to operate our assets with more flexibility. This is key to our ability to continue to align our production decisions with our contract portfolio commitments and opportunities. With a solid base of contracts to underpin our productive capacity, we will begin the process of preparing the McArthur River mine and Key Lake mill for production to allow us to achieve our 2024 production plan. This plan will significantly improve our financial performance by allowing us to source more of our committed sales from lower-cost produced pounds and we will no longer be required to expense care and maintenance costs directly to cost of sales. However, until we achieve a reasonable production rate, we expect to incur between $15 million to $17 million per month in operational readiness costs, which will be expensed directly to cost of sales. Operational readiness costs include all of the costs associated with care and maintenance in addition to the costs to complete critical projects, perform maintenance readiness checks, and recruit and train sufficient mine and mill personnel before beginning operations. Throughout, we will continue to focus on delivering our products safely and responsibly and addressing the environmental, social and governance (ESG) risks and opportunities that we believe will make our business sustainable and will build long-term value.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    9

Financial performance

 

HIGHLIGHTS DECEMBER 31 ($ MILLIONS EXCEPT WHERE INDICATED)		2021				2020				CHANGE
Revenue			1,475				1,800				(18	)%
Gross profit			2				106				(98	)%
Net loss attributable to equity holders			(103	)			(53	)			(94	)%
$ per common share (diluted)			(0.26	)			(0.13	)			(92	)%
Adjusted net loss (non-IFRS, see page 33)			(98	)			(66	)			(48	)%
$ per common share (adjusted and diluted)			(0.25	)			(0.17	)			(47	)%
Cash provided by operations			458				57				>100	%

Net loss attributable to equity holders (net loss) and adjusted net loss were greater in 2021 compared to 2020. See 2021 consolidated financial results beginning on page 32 for more information. Of note:

 

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generated $458 million in cash from operations

 

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incurred $210 million in care and maintenance costs as a result of our strategic decisions, including $40 million due to the precautionary suspension at Cigar Lake in 2021 to deal with the risks posed by the COVID-19 pandemic

 

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received $21 million under the Canada Emergency Wage Subsidy program

 

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recorded $27 million in the first quarter as a reduction to administration costs to reflect the amounts owing to us for legal fees and disbursements for costs as awarded in our dispute with CRA. See Transfer pricing dispute on page 37 for more information

 

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filed notice of appeal to the Tax Court in our dispute with CRA to have $777 million in cash and letters of credit returned. See Transfer pricing dispute on page 37 for more information.

Our segment updates

In our uranium segment, we continued to execute our strategy to preserve our tier-one assets and to ensure a safe working environment for all our workers, which impacted our operations. Of note in 2021:

 

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continued the production suspensions at McArthur River/Key Lake, Rabbit Lake and US ISR operations, keeping about 23 million pounds (100% basis) out of the market

 

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resumed production at the Cigar Lake mine at the end of April following the second suspension that commenced in December 2020 as a precaution due to the COVID-19 pandemic

 

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annual production at Cigar Lake of 6.1 million pounds (our share) was 33% below licensed capacity due to the impacts of the precautionary four-month suspension

 

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purchased 11.1 million pounds of uranium, including our spot purchases, committed purchase volumes and JV Inkai purchases

 

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delivered on our sales commitments of over 24 million pounds in alignment with our contract portfolio and profitable market opportunities and added 30 million pounds in long-term contracts to our portfolio. Since the beginning of 2022, we have added another 40 million pounds, bringing the total added since the beginning of 2021 to 70 million pounds.

Production in 2021 from our fuel services segment was 3% higher than in 2020, as a result of production suspensions in 2020 due to the COVID-19 pandemic. Planned production was impacted by hydrogen supply issues in 2021. The hydrogen supply constraint was resolved in the fourth quarter, however supply chain disruption remains a risk generally.

Additionally, we increased our interest in Global Laser Enrichment LLC (GLE) from 24% to 49% and signed a number of non-binding arrangements to explore several areas of cooperation to advance the commercialization and deployment of small modular reactors (SMRs) in Canada and around the world. This furthers our commitment to responsibly and sustainably manage our business and increase our contributions to global climate change solutions by exploring other emerging and non-traditional opportunities within the fuel cycle.

See Operations and projects beginning on page 57 for more information.

 

10    CAMECO CORPORATION

HIGHLIGHTS						2021				2020				CHANGE
Uranium		Production volume (million lbs)					6.1				5.0				22	%
		Sales volume (million lbs)					24.3				30.7				(21	)%
		Average realized price1		($US/lb)			34.53				34.39				—
				($Cdn/lb)			43.34				46.13				(6	)%
		Revenue ($ millions)					1,055				1,416				(25	)%
		Gross profit (loss) ($ millions)					(108	)			18				(700	)%
Fuel services		Production volume (million kgU)					12.1				11.7				3	%
		Sales volume (million kgU)					13.6				13.5				1	%
		Average realized price 2		($Cdn/kgU)			29.72				27.89				7	%
		Revenue ($ millions)					404				377				7	%
		Gross profit ($ millions)					118				96				23	%

 

1	Uranium average realized price is calculated as the revenue from sales of uranium concentrate, transportation and storage fees divided by the volume of uranium concentrates sold.

2	Fuel services average realized price is calculated as revenue from the sale of conversion and fabrication services, including fuel bundles and reactor components, transportation and storage fees divided by the volumes sold.

Industry prices

 

		2021				2020				CHANGE
Uranium ($US/lb U3O8)1
Average annual spot market price			35.28				29.96				18	%
Average annual long-term price			36.81				34.63				6	%
Fuel services ($US/kgU as UF6)1
Average annual spot market price
North America			19.41				21.94				(12	)%
Europe			18.99				21.09				(10	)%
Average annual long-term price
North America			18.42				18.27				1	%
Europe			18.42				18.18				1	%
Note: the industry does not publish UO2 prices.

 

1	Average of prices reported by TradeTech and UxC, LLC (UxC)

On the spot market, where purchases call for delivery within one year, the volume reported by UxC for 2021 was the highest annual total ever of approximately 102 million pounds U₃O₈ equivalent, compared to 95 million pounds U₃O₈ equivalent in 2020. Spot market volumes were significant in the second half of the year due to unplanned uranium demand from Sprott, which contributed to the thinning of spot uranium supply. Total spot purchases by producers, junior uranium companies and financial funds was approximately 50 million pounds U₃O₈ equivalent. At the end of 2021, the average reported spot price was $42.05 (US) per pound, up $11.85 (US) per pound from the end of 2020. During the year, the uranium spot price ranged from a month-end high of $45.75 (US) per pound to a low of $27.98 (US) per pound, averaging $35.28 (US) for the year.

Long-term contracts usually call for deliveries to begin more than two years after the contract is finalized, and use a number of pricing formulas, including base-escalated (fixed prices escalated over the term of the contract), and market referenced prices (spot and long-term indicators) quoted near the time of delivery. The volume of long-term contracting reported by UxC for 2021 was about 70 million pounds U₃O₈ equivalent, up from about 57 million pounds U₃O₈ equivalent in 2020. Higher volumes can be attributed in part to utilities turning their attention to securing their long-term needs as demand from financial funds further thinned the spot market and eliminated the ability for utilities to rely on carry trade activity. The average reported long-term price at the end of the year was $42.75 (US) per pound, up $7.75 (US) from 2020. During the year, the uranium long-term price ranged from a month-end high of $43.00 (US) per pound to a low of $33.50 (US) per pound, averaging $36.81 (US) for the year.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    11

Following the record highs for conversion prices in both the North American and European markets in 2020, the average reported spot price for North American delivery at the end of 2021 was $16.10 (US) per kilogram uranium as UF₆ (US/kgU as UF₆), down $5.65 (US) from the end of 2020. Long-term UF₆ conversion prices finished 2021 at $18.00 (US/kgU as UF₆), down $1.00 (US) from the end of 2020.

URANIUM (US$/lb U₃O₈) AND CONVERSION (US$/kgU UF₆) PRICES

 

Source: Average of prices reported from TradeTech and UxC

 

12    CAMECO CORPORATION

Market overview and developments

A market in transition

In 2021, there was a significant improvement in uranium prices and market sentiment. Spot uranium prices for the year were up nearly 40%, reaching their highest level in nine years. The uranium available in the spot market thinned driven by record spot market purchases primarily by the Sprott Physical Uranium Trust, which has purchased approximately 26 million pounds since its inception in 2021, but also including other financial funds, producers and junior uranium companies who have indicated that the long-term fundamentals point to growing demand and supply uncertainty. The thinning of material available in the spot market and rising spot uranium prices motivated some utilities to return to the term market both with on-market RFPs as well as continued off-market contracting. As a result, the long-term price increased by 22%, ending the year at $42.75 (US) per pound. Despite an increase in contracting in the long-term market, the volume of uranium executed under long-term contracts remained well below annual consumption levels, continuing the inventory destocking that was already underway in the industry and adding to the growing wedge of uncovered requirements that we believe will need to be filled at a time when the availability of sufficient supply is not guaranteed. With a renewed focus on security of supply we believe we are in the early stages of a market transition, with utilities turning to proven producers and assets to meet their uncovered requirements.

Durable demand growth

The benefits of nuclear energy came clearly into focus with a durability we believe has not been previously seen, driven by the accountability created by the net-zero carbon targets being set by countries and companies around the world. These targets are turning attention to a triple challenge. First, is to lift one-third of the global population out of energy poverty by growing clean and reliable baseload electricity. Second, is to replace 85% of the current global electricity grids that run on carbon-emitting sources of thermal power with a clean, reliable alternative. And finally, is to grow global power grids by electrifying industries, such as private and commercial transportation, home, and industrial heating, largely powered with carbon-emitting sources of thermal energy today. Additionally, the energy crisis experienced in some parts of the world has amplified concerns about energy security and highlighted the role of energy policy in balancing three main objectives: providing a clean emissions profile; providing a reliable and secure baseload profile; and providing an affordable levelized cost profile. Too much focus on one objective, has left some jurisdictions struggling with power shortages and spiking energy prices. There is increasing recognition that nuclear power, with its clean emissions profile, reliable and secure baseload characteristics and low, levelized cost has a key role to play in achieving decarbonization goals.

Demand and energy policy highlights

 

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On behalf of the Sprott Physical Uranium Trust, Sprott issued an At-The-Market (ATM) program allowing it to sell discretionary shares and use the proceeds to purchase U3O8. The initial limit was for up to $300 million (US), and on September 9th, Sprott increased the ATM program limit to $1.3 billion (US) followed by another increase to $3.5 billion (US) on November 23. As of February 7th, the fund had raised over $1.1 billion (US) and purchased approximately 26 million pounds U3O8. In addition to its listing on the Toronto Stock Exchange, Sprott is obligated to seek a US listing for the trust.

 

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In March, Yellow Cake PLC (YCA) raised $100 million (US) to exercise their option with KAP to purchase approximately 3.5 million pounds of U3O8 as well as an additional purchase of 440,000 pounds U3O8. Subsequently, YCA agreed to purchase an additional 2 million pounds U3O8 from KAP. In October, YCA then raised approximately $150 million (US) and used the proceeds to fund the purchase of 2 million pounds U3O8 from Curzon Uranium Limited and purchased an additional 1 million pounds U3O8 from KAP. The net impact of other transactions in 2021 resulted in YCA acquiring an additional 0.6 million pounds U3O8.

 

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On October 18th, KAP announced their 48.5% initial investment into a privately-held physical uranium fund for $50 million (US). The fund has a projected second stage of development to raise up to an additional $500 million (US), through either a public or private offering.

 

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Many countries, states, and utilities announced net-zero carbon targets in 2020 and 2021. Notable countries include China, Japan, South Korea, United States (US), Canada, and France. While most of these targets are further out in the future, many of the plans include an important role for nuclear.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    13

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The International Atomic Energy Agency (IAEA) increased its projections for nuclear out to 2050 for the first time since the Fukushima events in 2011. This includes nuclear generating capacity doubling to 792 GWe, from 393 GWe in 2020, which represents a 10% rise over the prior forecast.

 

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The 2021 World Nuclear Association Nuclear Fuel Report was released in September and includes numerous positive developments for the industry. It highlights the prospects for nuclear growth and linkages to countries now targeting net-zero carbon emissions. Improved growth in China makes the most notable impact to higher demand projections post 2030. On the supply side, uranium production through 2025 declined significantly relative to the previous report in 2019, demonstrating the growing need for more production out in time.

 

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China’s 14th five-year plan and related policy documents covering the 2021 to 2025 period were published in March as part of their plan to be carbon neutral by 2060. Nuclear received increased attention in the plan relative to the prior version. The key objective stated was China targeting 70 GWe operating and 50 GWe under construction through 2025. Additionally, China’s Nuclear Energy Association (CNEA) stated that by 2030, China could reach up to 120 GWe in operation.

 

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In Japan, Kansai’s Mihama 3 restarted after over ten years and represents the first Japanese reactor in service over forty years to be restarted. In October, Fumio Kishida of the Liberal Democratic Party, was confirmed as Japan’s 100th Prime Minister. He has stated support for Japan’s energy policy which is targeting 20% to 22% nuclear by 2030 as part of its plan for carbon neutrality by 2050.

 

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Russia’s nuclear generation reached historic records in 2021 as Leningrad II-2 became the latest operating reactor. In addition, Rosatom announced plans to build about 15 new 1,200 MWe Gen 3+ reactors by 2035, with most units being built at existing sites where units that were built in the 1970s are to be decommissioned.

 

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In the European Union (EU), on February 2nd, the European Commission approved in principle a Complementary Climate Delegated Act (CDA), which includes specific nuclear and gas energy activities in the list of economic activities covered by the EU Taxonomy. This defines certain nuclear energy projects as green and sustainable for access to low-cost financing. The nuclear-related activities included are all advanced Generation IV nuclear technology with no expiry date, new Generation III+ nuclear reactors until 2045, and lifetime extension to existing nuclear reactors until 2040, while comprehensive nuclear safety and waste management requirements apply to all. The CDA now goes to the European Parliament and Council for debate.

 

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The Netherlands has recently elected a new government which has promised to build two new nuclear power reactors and become climate neutral by 2050.

 

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In France, President Emmanuel Macron announced planned new reactors, for the first time in decades, to meet its 2050 carbon neutral goal. Additionally, Électricité de France submitted a final plan to construct six EPR-2 reactors, with the vendor yet to be finalized and also announced that 32 900 MWe reactors were approved for expanded life spans from 40 years to 50 years.

 

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In the United Kingdom (UK), Prime Minster Boris Johnson confirmed plans for all UK electricity to come from low-carbon sources including nuclear and renewables by 2035.

 

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Germany closed three reactors at the end of 2021 and remains scheduled to close the last three operating reactors at the end of 2022.

 

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In the US, Exelon’s Byron and Dresden plants in Illinois were saved from early closure with the signing of the Climate and Equitable Jobs Act. This comprehensive energy bill included nearly $700 million (US) in new state subsidies over the next five years.

 

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US President Biden signed the $1.2 trillion bipartisan infrastructure bill that includes $6 billion to support at-risk nuclear plants and support for the US Department of Energy (DOE) with advanced reactors by 2030.

 

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India’s first domestically designed 700 MWe pressurized heavy water reactor at Kakrapar is nearing commercial operation, an important milestone for the country. Three more units of this design are expected to come online in the next few years. The country is targeting an expansion to 22.5 GWe operating by 2031.

 

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In South Korea, there will be federal elections in March of 2022. The leading presidential candidate, Yoon Seok-youl of the Peoples Power Party is pro nuclear and wants to end the nuclear phase-out. In addition, in January 2022, the current government announced plans to revise its green taxonomy and consider SMRs as eligible for state funding, reversing its stance to drop nuclear projects.

 

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During September and October Cameco announced signing several non-binding arrangements to evaluate and explore possible opportunities to partner on the development and deployment of SMR and advanced reactor technologies and evaluate opportunities to supply uranium, fuel services and other services.

 

14    CAMECO CORPORATION

According to the International Atomic Energy Agency there are currently 439 reactors operating globally and 52 reactors under construction. Several nations are appreciating the clean energy benefits of nuclear power. They have reaffirmed their commitment to it and are developing plans to support existing reactor units and are reviewing their policies to encourage more nuclear capacity. Several other non-nuclear countries have emerged as candidates for new nuclear capacity. In the EU, specific nuclear energy projects have been identified for inclusion under its sustainable financing taxonomy and therefore eligible for access to low-cost financing. Even in countries with phase-out policies, there is growing debate about the role of nuclear power, with public opinion polls showing growing support for it. The growth in demand is not just in the form of new builds, it is medium-term demand in the form of reactor life extensions, and it is near-term growth as early reactor retirements are prevented. And we are seeing momentum building for non-traditional commercial uses of nuclear power around the world such as development of small modular reactors and advanced reactors, with numerous companies and countries pursuing projects.

CURRENTLY UNDER CONSTRUCTION

 

WORLD OPERABLE REACTOR COUNT

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    15

Supply uncertainty

Low uranium prices, government-driven trade policies, and the COVID-19 pandemic have had an impact on the security of supply in our industry. Despite the recent increase in uranium prices, years of underinvestment in new capacity has shifted risk from producers to utilities. In addition to the decisions many producers, including the lowest-cost producers, have made to preserve long-term value by leaving uranium in the ground, there have been a number of unplanned supply disruptions related to the impact of the COVID-19 pandemic and associated supply chain challenges on uranium mining and processing activities. In addition, according to industry transport experts, there is a risk of transport disruptions for Class 7 nuclear material. Uranium is a highly trade-dependent commodity. Adding to security of supply concerns is the role of commercial and state-owned entities in the uranium market, and trade policies that highlight the disconnect between where uranium is produced and where it is consumed. Over 80% of primary production is in the hands of state-owned enterprises, after taking into account the cuts to primary production that have occurred over the last several years. Furthermore, nearly 90% of primary production comes from countries that consume little-to-no uranium, and nearly 90% of uranium consumption occurs in countries that have little-to-no primary production. As a result, government-driven trade policies can be particularly disruptive for the uranium market.

Supply and trade policy highlights

 

•

In early January 2022, Kazakhstan saw the most significant political instability since it became independent in 1991. The events resulted in a state of emergency being declared across the country. With the assistance of the Collective Security Treaty Organization (CSTO), the government restored the order and in the second half of January, the state of emergency was gradually lifted and withdrawal of CSTO forces from Kazakhstan was completed. KAP reported that its operations have been unaffected by these events.

 

•

In its 2021 fourth quarter operations and trading update, KAP confirmed its intent to maintain production levels at 20% below those stipulated in its Sub Soil Use Agreements through 2023. For 2022, production is expected to be between 54.6 million pounds and 57.2 million pounds U3O8 (100% basis). It also noted that wellfield development, procurement and supply chain challenges, including inflationary pressure on production materials and reagents, are expected to continue throughout 2022. In addition, it indicated its costs could be impacted by potential changes to the tax code in Kazakhstan and by possible local social funding requests.

 

•

On November 19th, KAP announced the approval of a plan to develop JV Budenovskoye LLP. The plan is for production at Budenovskoye Blocks 6 and 7 of up to 6.5 million pounds U3O8 (100% basis) no earlier than 2024, ramping up to 15.6 million pounds U3O8 (100% basis) no earlier than 2026. It is owned 51% by KAP and 49% by Stepnogorsk Mining and Chemical Plant LLP. KAP confirmed that the anticipated ramp up production from 2024-2026 is fully committed for supplying Russia under an offtake contract.

 

•

China General Nuclear Power Group acquired a 49% stake in Ortalyk LLP. This KAP subsidiary holds the Central Mynkuduk in situ recovery (ISR) mine with a capacity of about 5.2 million pounds U3O8 (100% basis) and the planned Zhalpak ISR mine with capacity of about 2 million pounds U3O8 (100% basis).

 

•

Unplanned production disruptions at the Cigar Lake mine and the McClean Lake mill as a precaution due to the COVID-19 pandemic resulted in production for the year being about 6 million pounds (100% basis) below annual licensed capacity. The Cigar Lake mine restarted in mid-April. On July 1 production at the mine was again temporarily suspended as a precaution due to the proximity of a forest fire, but with the risk subsided and all infrastructure intact, operations resumed a short time after.

 

•

ConverDyn’s parent, Honeywell, announced a 2023 restart of its UF6 conversion facility.

 

•

Supply from the Ranger mine ceased in January, as planned, after 40 years in operation. Ranger had been milling about 4 million pounds U3O8 per year in recent years.

 

•

Orano’s Cominak mine shut in March 2021, as expected, due to depletion of reserves. The mine had been producing about 3 million pounds U3O8 per year in recent years.

 

•

In August, the US DOE published a Request for Information to inform the establishment and procurement strategy of a Strategic Uranium Reserve program. The $75 Million (US) appropriated for the program for 2021 was rolled into 2022.

 

16    CAMECO CORPORATION

LONG-TERM CONTRACTING CREATES FULL-CYCLE VALUE FOR PROVEN PRODUCTIVE ASSETS

Global population is on the rise, and there is a growing focus on electrification and decarbonization. With the world’s need for safe, clean, reliable baseload energy, it is becoming increasingly clear that nuclear power will be an essential part of the clean-energy transition. We remain confident in the future of the nuclear industry. Demand is increasing in the near, medium, and long term with reactor restarts, cancellation of early reactor retirement decisions, life extensions, construction of new reactors, and a growing focus on non-traditional uses of nuclear power.

Like other commodities, the demand for uranium is cyclical. However, unlike other commodities, uranium is not traded in meaningful quantities on a commodity exchange. The uranium market is principally based on bilaterally negotiated long-term contracts covering the annual run-rate requirements of nuclear power plants, with a small spot market to serve discretionary demand. History demonstrates that in general, when prices are rising and high, uranium is perceived as scarce, and a lot of contracting activity takes place with proven and reliable suppliers. The higher prices discovered during this contracting cycle drive investment in higher-cost sources of production, which due to lengthy development timelines, tend to miss the contracting cycle and ramp up after demand has already been captured by proven producers. The new uncommitted supply exposed to the small, discretionary spot market becomes value destructive. The downward pressure on price creates the perception that uranium is abundant, potentially resulting in a failure of long-term price signals. When prices are declining and low, like we have seen over the past number of years, there is no perceived urgency to contract, and contracting activity and investment in new supply drops off. After years of low prices, and a lack of investment in supply, and as the uncommitted material available in the spot market begins to thin, as we are seeing currently, security-of-supply tends to overtake price concerns. Utilities re-enter the long-term contracting market to ensure they have a reliable future supply of uranium to run their reactors.

URANIUM CONTRACTING VOLUMES AND PRICE HISTORY

 

Source: UxC estimates

UxC reports that over the last five years approximately 400 million pounds U₃O₈ equivalent have been locked-up in the long-term market, while approximately 810 million pounds U₃O₈ equivalent have been consumed in reactors. We remain confident that utilities have a growing gap to fill.

We believe the current backlog of long-term contracting presents a substantial opportunity for commercially motivated suppliers like us who are proven reliable suppliers with tier-one productive capacity and a record of honouring our supply commitments. As a low-cost producer, we manage our operations to capture value throughout these price cycles.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    17

UTILITY UNCOVERED REQUIREMENTS

(2021 - 2035)

 

Source: UxC estimates - December 31, 2021

In our industry, customers do not come to the market right before they need to load nuclear fuel into their reactors. To operate a reactor that could run for more than 60 years, natural uranium and the downstream services have to be purchased years in advance, allowing time for a number of processing steps before a finished fuel bundle arrives at the power plant. At present, we believe there is a significant amount of uranium that needs to be contracted to keep reactors running into the next decade.

UxC estimates that cumulative uncovered requirements are about 1.4 billion pounds to the end of 2035. With the lack of investment over the past decade due to low uranium prices, there is growing uncertainty about where uranium will come from to satisfy growing demand. In fact, utilities have started to secure supply under long-term contracts, which has resulted in a 22% increase in the long-term price of uranium over the past year.

As utilities’ uncovered requirements continue to grow, primary and secondary supplies decline, and as continued demand for uranium from producers and other intermediaries leads to a thinning of the material available in the spot market, we expect there will be increased competition to secure uranium under long-term contracts on terms that will ensure the availability of reliable primary supply to meet growing demand.

Supply has become less certain as a result of low prices, production curtailments, lack of investment, end of reserve life, unplanned production disruptions, supply chain challenges, shrinking secondary supplies and trade policy issues. As a result, we believe we are starting to see a market transition that is shifting risk from the suppliers to the users of uranium fuel. We will continue to take the actions we believe are necessary to position the company for long-term success. Therefore, we will continue to align our production decisions with market signals and our contract portfolio. We will undertake contracting activity which is intended to ensure we have adequate protection under our contract portfolio, while maintaining exposure to the rewards that come from having uncommitted, low-cost supply to place into a strengthening market.

 

18    CAMECO CORPORATION

Our strategy

We are a pure-play nuclear fuel investment, focused on providing nuclear fuel products across the fuel cycle, on providing a clean source of energy, and on taking advantage of the long-term growth we see coming in our industry. Our strategy is set within the context of what we believe is a transitioning market environment, where increasing populations, and a growing focus on electrification and decarbonization are expected to durably strengthen the long-term fundamentals for our industry. Nuclear energy must be a central part of the solution to the world’s shift to a low-carbon, climate resilient economy. It is an option that can provide the power needed, not only reliably, but also safely and affordably, and in a way that will help avoid some of the worst consequences of climate change.

Our strategy is to capture full-cycle value by:

 

•

remaining disciplined in our contracting activity, building a balanced portfolio in accordance with our contracting framework

 

•

profitably producing from our tier-one assets and aligning our production decisions with our contract portfolio and market signals

 

•

being financially disciplined to allow us to self-manage risk

 

•

exploring other emerging and non-traditional opportunities within the fuel cycle, which align with our commitment to responsibly and sustainably manage our business and increase our contributions to global climate change solutions

We expect our strategy will allow us to increase long-term value, and we will execute it with an emphasis on safety, people and the environment.

URANIUM

Uranium production is central to our strategy, as it is the biggest value driver of the nuclear fuel cycle and our business. We have operating and idle tier-one assets that are licensed, permitted, long-lived, and are proven reliable and have expansion capacity. These tier-one assets are backed up by idle tier-two assets and what we think is the best exploration portfolio that leverages existing infrastructure.

We are focused on protecting and extending the value of our contract portfolio, on aligning our production decisions with our contract portfolio and market opportunities thereby preserving the value of our lowest cost assets, on maintaining a strong balance sheet, and on efficiently managing the company. We have undertaken a number of deliberate and disciplined actions, including a focus on digitization and automation to allow us to operate our assets with more flexibility. In 2021, these actions resulted in:

 

•

generation of $458 million in cash from operations

 

•

a year-end balance of $1.3 billion in cash and cash equivalents and short-term investments on our balance sheet

 

•

70 million pounds of uranium added to our long-term contract portfolio since the beginning of 2021

 

•

a more flexible asset base that allows us to continue to align our production with market conditions and our contract portfolio

FUEL SERVICES

Our fuel services division is a source of profit and supports our uranium segment while allowing us to vertically integrate across the fuel cycle.

We are focused on securing new long-term contracts that will allow us to continue to profitably produce and consistently support the long-term needs of our customers.

In addition, we are pursuing non-traditional markets for our UO₂ and fuel fabrication business and have been actively securing new contracts for reactor components to support refurbishment of Canadian reactors.

Our focus will continue to be on maintaining and optimizing the profitability of this segment of our business.

OTHER FUEL CYCLE INVESTMENTS

We continue to explore other opportunities within the nuclear fuel cycle. In particular, we are interested in the second largest value driver of the fuel cycle, enrichment. Having operational control of uranium production, conversion, and enrichment facilities would offer operational synergies that could enhance profit margins.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    19

In January 2021, we increased our interest in Global Laser Enrichment LLC (GLE) from 24% to 49%. We are the commercial lead for the project and have an option to attain a majority interest of up to 75% ownership. GLE is testing a third-generation enrichment technology that, if successful, will use lasers to:

 

•

re-enrich depleted uranium tails left over as a by-product, aiding in the responsible clean-up of enrichment facilities no longer in operation

 

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produce high-assay low-enriched uranium (HALEU), the primary fuel stock for the majority of small modular reactors and advanced reactor designs proceeding through development

 

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produce low-enriched uranium for the world’s existing and future fleet of large-scale light-water reactors

Additionally, we signed a number of non-binding arrangements to explore several areas of cooperation to advance the commercialization and deployment of small modular reactors in Canada and around the world.

Building a balanced portfolio

The purpose of our contracting framework is to deliver value. Our approach is to secure a solid base of earnings and cash flow by maintaining a balanced contract portfolio that optimizes our realized price.

Contracting decisions need to consider the uranium market structure, the nature of our competitors, and the current market environment. The vast majority of run-rate fuel requirements are procured under long-term contracts. The spot market is thinly-traded where utilities pick-up small, discretionary volumes. This market structure is reflective of the baseload nature of nuclear power and the relatively small proportion of the overall operating costs the fuel represents compared to other sources of baseload electricity. Additionally, about half of the fuel supply is not sensitive to market prices and is typically supplied by diversified mining companies that produce uranium as a by-product or state-owned entities with production volume strategies or ambitions to serve state nuclear power ambitions with low-cost fuel supplies. We evaluate our strategy in the context of our market environment and continue to adjust our actions in accordance with our contracting framework:

 

•

First, we will not produce from our tier-one assets to sell into an oversupplied spot market. We will not produce from these assets unless we can deliver our tier-one pounds under long-term contracts that provide an acceptable rate of return.

 

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Second, we do not intend to build an inventory of excess uranium. Excess inventory serves to contribute to the sense that uranium is abundant and creates an overhang on the market, and it ties up working capital on our balance sheet.

 

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Third, in addition to our committed sales, we will capture end-user demand in the market where we think we can obtain value. We will take advantage of opportunities the market provides, where it makes sense from an economic, logistical and strategic point of view. Those opportunities may come in the form of spot, mid-term or long-term demand, and will be additive to our current committed sales.

 

•

Fourth, once we capture demand, we will decide how to best source material to satisfy that demand. Depending on the timing and volume of our production, purchase commitments, and our inventory volumes, this means we may be active buyers in the market in order to meet our demand obligations.

 

•

And finally, in general, if we choose to source material to meet demand by purchasing it, we expect the price of that material will be more than offset by the leverage to market prices in our sales portfolio over the long-term.

In addition to this framework, our contracting decisions always factor in who the customer is, our desire for regional diversification, the product form, and logistical factors.

Ultimately, our goal is to protect and extend the value of our contract portfolio on terms that recognize the value of our assets and pricing mechanisms that provide adequate protection when prices go down and allow us to benefit when prices rise. We believe using this framework will allow us to create long-term value. Our focus will continue to be on ensuring we have the financial capacity to execute on our strategy and self-manage risk.

LONG-TERM CONTRACTING

Uranium is not traded in meaningful quantities on a commodity exchange. Utilities have historically bought the majority of their uranium and fuel services products under long-term contracts that are bilaterally negotiated with suppliers, and they have met the rest of their needs on the spot market. We sell uranium and fuel services directly to nuclear utilities around the world as uranium concentrates, UO₂ and UF₆, conversion services, or fuel fabrication. We have a solid portfolio of long-term sales contracts that reflect the long-term, trusting relationships we have with our customers.

 

20    CAMECO CORPORATION

In general, we are always active in the market, buying and selling uranium when it is beneficial for us and in support of our long-term contract portfolio. We undertake activity in the spot and term markets prudently, looking at the prices and other business factors to decide whether it is appropriate to purchase or sell into the spot or term market. Not only is this activity a source of profit, it gives us insight into underlying market fundamentals.

We deliver large volumes of uranium every year, therefore our net earnings and operating cash flows are affected by changes in the uranium price. Market prices are influenced by the fundamentals of supply and demand, market access and trade policy issues, geopolitical events, disruptions in planned supply and demand, and other market factors.

The objectives of our contracting strategy are to:

 

•

maximize realized price while providing some certainty for our future earnings and cash flow

 

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focus on meeting the nuclear industry’s growing annual uncovered requirements with our tier-one production

 

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establish and grow market share with strategic customers

We have a portfolio of long-term contracts that have a mix of base-escalated pricing and market-related pricing mechanisms, including provisions to protect us when the market price is declining and allow us to benefit when market prices go up. This is a balanced and flexible approach that allows us to adapt to market conditions, put a floor on our average realized price and deliver the best value over the long term.

This approach has allowed us to realize prices higher than the market prices during periods of weak uranium demand, and we expect it will enable us to realize increases linked to higher market prices in the future.

Base-escalated (fixed prices escalated over the term of the contract) contracts for uranium: typically use a pricing mechanism based on a term-price indicator at the time the contract is accepted and escalated over the term of the contract.

Market-related contracts for uranium: are different from base-escalated contracts in that the pricing mechanism may be based on either the spot price or the long-term price, and that price is as quoted at the time of delivery rather than at the time the contract is accepted. These contracts sometimes provide for discounts, and often include floor prices and/or ceiling prices, which are usually escalated over the term of the contract.

Fuel services contracts: the majority of our fuel services contracts use a base-escalated mechanism per kgU and reflect the market at the time the contract is accepted.

OPTIMIZING OUR CONTRACT PORTFOLIO

We work with our customers to optimize the value of our contract portfolio. With respect to new contracting activity, there is often a lag from when contracting discussions begin and when contracts are executed. With our large pipeline of business under negotiation in our uranium segment, and a value driven strategy, we continue to be strategically patient in considering the commercial terms we are willing to accept. Much of our pending business is off-market but we are starting to see more on-market activity emerge. We remain confident that we can add acceptable new sales commitments to our portfolio of long-term contracts to underpin the long-term operation of our productive capacity and capture long-term value.

Given our view that uranium prices need to rise to ensure the availability of long-term supply to fuel growing demand for safe, clean, reliable, carbon-free nuclear energy, our preference today is to sign long-term contracts with market-related pricing mechanisms. Unsurprisingly, we believe our customers too expect prices to rise and prefer to lock-in today’s prices, with a fixed-price mechanism. Our goal is to balance all these factors, along with our desire for customer and regional diversification, with product form, and logistical factors to ensure we have adequate protection and will benefit from higher prices under our contract portfolio, while maintaining exposure to the rewards that come from having low-cost supply to deliver into a strengthening market.

With respect to our existing contracts, at times we may also look for opportunities to optimize the value of our portfolio. In cases where a customer is seeking relief under an existing contract due to a challenging policy, operating, or economic environment, or we deem the customer’s long-term demand to be at risk, we may consider options that are beneficial to us and allow us to maintain our customer relationships.

CONTRACT PORTFOLIO STATUS

We have commitments to sell over 160 million pounds of U₃O₈ with 34 customers worldwide in our uranium segment, and over 48 million kilograms as UF₆ conversion with 30 customers worldwide in our fuel services segment.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    21

Customers – U₃O₈:

Five largest customers account for 59% of commitments

COMMITTED U₃O₈ SALES BY REGION

 

Customers – UF₆ conversion:

Five largest customers account for 52% of commitments

COMMITTED UF₆ SALES BY REGION

 

MANAGING OUR CONTRACT COMMITMENTS

To meet our delivery commitments and to mitigate risk, we have access to a number of sources of supply, which includes uranium obtained from:

 

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our existing production

 

•

purchases under our JV Inkai agreement, under long-term agreements and in the spot market

 

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our inventory in excess of our working requirements

 

•

product loans

We allow sales volumes to vary year-to-year depending on:

 

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the level of sales commitments in our long-term contract portfolio

 

•

our production volumes

 

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purchases under existing and/or new arrangements

 

•

discretionary use of inventories

 

•

market opportunities

 

22    CAMECO CORPORATION

Our supply discipline

As spot is not the fundamental market, true value is captured under a long-term contract portfolio and is measured over the full commodity cycle. Therefore, we align our uranium production decisions with our contract commitments and market opportunities to avoid creating an oversupply in a thinly-traded spot market or building an excess inventory. In accordance with market conditions, and to mitigate risk, we evaluate the optimal mix of our production, inventory and purchases in order to satisfy our contractual commitments and in order to return the best value possible over the entire commodity cycle. During a prolonged period of uncertainty, this could mean leaving our uranium in the ground. As a result, since 2016, we have left almost 115 million pounds of uranium in the ground (100% basis) through our supply curtailment activities. We have purchased more than 55 million pounds in the spot market and in 2018 we drew down our inventory by almost 20 million pounds. That totals about 190 million pounds (100% basis) of uranium that we have pulled out of the market.

Today we believe we are in the early stages of a uranium market transition, driven by the growing demand for nuclear energy and the increasingly undeniable conclusion that it must be an essential part of the clean-energy transition. As the market continues to transition, we expect to continue to place our uranium under long-term contracts and to meet rising demand with production from our best margin operations. We will continue to adjust our actions based on market signals and our contract portfolio with the intent of being able to self-manage risk, and to capture long-term value.

With the improvements in the market and the new long-term contracts we have put in place, it is time for us to proceed with the next phase of our supply discipline strategy. Continuing with our indefinite supply discipline, starting in 2024, we plan to be operating at about 40% below productive capacity (100% basis) compared to 75% below productive capacity (100% basis) in 2021. To achieve this, we will begin preparing McArthur River/Key Lake to ensure it is operationally ready to reach our 2024 production plan. A return to production at McArthur River/Key Lake will significantly improve our financial performance by allowing us to source more of our committed sales from the lower-cost produced pounds and we will no longer be required to expense care and maintenance costs directly to cost of sales. However, until we achieve a reasonable production rate, we expect to incur between $15 million to $17 million per month in operational readiness costs, which will be expensed directly to cost of sales. This is not an end to our supply discipline. Over the course of 2022 and 2023, we will undertake all of the activities necessary to ensure we are operationally ready to achieve the 2024 production plan of 15 million pounds (100% basis) per year, 40% below the annual licensed capacity of the operation. Once we reach the planned production at McArthur River/Key Lake, starting in 2024, we plan to reduce production at Cigar Lake to 13.5 million pounds (100% basis) per year, 25% below its annual licensed capacity. Extending the mine life at Cigar Lake by aligning production with the market opportunities and our contract portfolio is consistent with our tier-one strategy and is expected to allow more time to evaluate the feasibility of extending the mine life beyond the current reserve base while continuing to supply ore to Orano’s McClean Lake mill. This will remain our production plan until we see further improvements in the uranium market and contracting progress, once again demonstrating that we are a responsible supplier of uranium fuel.

Managing our costs

PRODUCTION COSTS

In order to operate efficiently and cost-effectively, we manage operating costs and improve plant reliability by prudently investing in production infrastructure, new technology, and business process improvements. Like all mining companies, our uranium segment is affected by the cost of inputs such as labour and fuel.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    23

2021 URANIUM OPERATING COSTS BY CATEGORY

 

 

 

*	Production supplies include reagents, fuel and other items. Contracted services include utilities and camp costs, air charters, mining and maintenance contractors and security and ground freight.

Over the last two years the annual cash cost of production at Cigar Lake has been slightly higher than the estimated life of mine cost of between $15 and $16 per pound, as a result of the impacts of COVID-19. See 2021 financial results by segment – Uranium starting on page 49 for more information. In 2022 and 2023, our cash production costs may continue to be affected by the impacts of the COVID-19 pandemic, as well as timing and rate of production at the McArthur River/Key Lake operation. Once we achieve 2024 planned production, the average unit operating costs at Cigar Lake may increase as production declines.

Operating costs in our fuel services segment are mainly fixed. In 2021, labour accounted for about 51% of the total. The largest variable operating cost is for zirconium, followed by anhydrous hydrogen fluoride, and energy (natural gas and electricity).

We are currently undertaking a corporate-wide initiative to accelerate innovation and the adoption of advanced digital and automation technologies to improve efficiency and operational flexibility, and to further reduce cost.

For example, we are implementing energy management information systems to understand where we use energy so we can make changes to become more efficient. We have established a cross-functional working group to further study the transition opportunities and risks to our operations. This working group is analyzing the costs and benefits of various potential projects to achieve transformational reductions in emissions.

CARE AND MAINTENANCE COSTS AND OPERATIONAL READINESS COSTS

In 2022, we expect to incur between $50 million and $60 million in care and maintenance costs related to the suspension of production at our Rabbit Lake mine and mill, and our US operations. These operations are higher-cost, and with plenty of idle tier-one capacity and tier-one expansion capacity globally that can come back online relatively quickly, the restart horizon is less certain. We continue to evaluate our options in order to minimize these costs.

At the McArthur River/Key Lake operation we expect to incur between $15 million and $17 million per month in operational readiness costs which will be expensed directly to cost of sales until we achieve a reasonable production rate.

PURCHASES AND INVENTORY COSTS

Our costs are also affected by the purchases of uranium and conversion services we make under long-term contracts and on the spot market.

To meet our delivery commitments, we make use of our mined production, inventories, purchases under long-term contracts, purchases we make on the spot market and product loans. In 2022, the price for the majority of our purchases will be quoted at the time of delivery.

The cost of purchased material may be higher or lower than our other sources of supply, depending on market conditions. The cost of purchased material affects our cost of sales, which is determined by calculating the average of all of our sources of supply, including opening inventory, production, and purchases, and adding royalties, selling costs, and care and maintenance costs. If market prices exceed our cost of inventory, we expect the cost of sales may be impacted.

 

24    CAMECO CORPORATION

FINANCIAL IMPACT

As greater certainty returns to the uranium market, our view is that uranium prices will need to reflect the cost of bringing on new primary production to meet growing demand.

The deliberate and disciplined actions we have taken to reduce supply and streamline operations have come with near-term costs like care and maintenance costs and purchase costs higher than our production costs, but we believe the benefit over the long term will far outweigh those costs.

We believe our actions have helped position the company to self-manage risk and will reward shareholders for their continued patience and support of our strategy to build long-term value.

Capital allocation – focus on value

Delivering returns to our long-term shareholders is a top priority. While we navigate by our investment-grade rating, we continually evaluate our investment options to ensure we allocate our capital in a way that we believe will:

 

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sustain our assets and grow our business in a manner that we expect will create the greatest long-term value

 

•

maintain a strong balance sheet that will allow us to execute on our strategy and mitigate risk

 

•

allow us to sustainably execute on our dividend while considering the cyclical nature of our earnings and cash flow

To deliver value, free cash flow must be productively reinvested in the business or returned to shareholders, which requires good execution and disciplined allocation. Our decisions are based on the run rate of our business, not one-time events. Cash on our balance sheet that exceeds value-adding growth opportunities and/or is not needed to self-manage risk should be returned to shareholders.

We start by determining how much cash we have to invest (investable capital), which is based on our expected cash flow from operations minus expenses we consider to be a higher priority, such as dividends and financing costs, and could include others. This investable capital can be reinvested in the company or returned to shareholders.

REINVESTMENT

We have a multidisciplinary capital allocation team that evaluates all possible uses of investable capital.

If a decision is made to reinvest capital in sustaining, capacity replacement, or growth, all opportunities are ranked and only those that meet the required risk-adjusted return criteria are considered for investment. We also must identify, at the corporate level, the expected impact on cash flow, earnings, and the balance sheet. All project risks must be identified, including the risks of not investing. Allocation of capital only occurs once an investment has cleared these hurdles.

This may result in some opportunities being held back in favour of higher return investments and should allow us to generate the best return on investment decisions when faced with multiple prospects, while also controlling our costs. If there are not enough good investment prospects internally or externally, this may result in residual investable capital, which we would then consider returning directly to shareholders.

RETURN

We believe in returning cash to shareholders but are also focused on protecting the company and rewarding those shareholders who understand and support our strategy to build long-term value. If we have excess cash and determine the best use is to return it to shareholders, we can do that through a share repurchase or dividend—an annual dividend, one-time supplemental dividend or a progressive dividend. When deciding between these options, we consider a number of factors, including the nature of the excess cash (one time or cash generated by our business operations), growth prospects for the company, and growth prospects for the industry.

Share buyback: If we are at our tier-one run rate and are generating excess cash while there were few or no growth prospects for the company or the industry, then a share buyback might make sense. However, our current view is that the long-term fundamentals for Cameco and the industry remain strong.

Dividend: The amount and type of dividend paid, annual, progressive or one-time supplemental is evaluated by our board of directors with careful consideration of our cash flow, financial position, strategy, and other relevant factors including appropriate alignment with the cyclical nature of our earnings.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    25

IN ACTION

Until such time as we return to our tier-one cost structure, the objective of our capital allocation will be to ensure we have the financial capacity to execute on our strategy, while navigating by our investment-grade rating through close management of our balance sheet metrics.

In today’s transitioning uranium market environment, we are taking a cautious and prudent approach to capital allocation. We are not yet at our tier-one run-rate, and, despite rulings from the courts in our favour, our dispute with CRA continues. With the metrics that inform an investment-grade rating in mind, we have taken steps to allow us to deliver long-term value and self-manage risk by:

 

•

responsibly managing our sources of supply by aligning our production decisions with market conditions and our contract portfolio, and building a more flexible tier-one asset base

 

•

exercising strategic patience when contracting

 

•

restructuring our activities to reduce our operating, capital, and general and administrative spending

 

•

reducing our total debt and restructuring our debt maturity profile

 

•

aligning our dividend with the run-rate of our business and with consideration for the cyclical nature of our earnings and cash flow

 

•

focusing on technology and its applications to improve efficiency and reduce costs across the organization, with a particular focus on innovation and accelerating the adoption of advanced digital and automation technologies

As the market continues to transition, we will focus on improving operational effectiveness across our operations, including the use of digital and automation technologies with a particular goal of reducing operating costs and increasing operational flexibility. Any opportunities will be rigorously assessed before an investment decision is made. We will invest to ensure we are able to meet our 2024 production plan.

If we get clarity on our CRA dispute without a continued and sustained market transition, which generates a one-time cash infusion, we may focus on the debt portion of our ratings metrics. This may mean greater emphasis on reducing the debt on our balance sheet. However, if the market continues to transition and higher uranium prices are flowing through our contract portfolio, and we are able to increase our portfolio of long-term contracts with acceptable pricing mechanisms, the earnings portion of our rating metrics are expected to improve. In that scenario, reducing debt would not be the priority. Our priorities would be to invest in ramping up and expanding production at our tier-one assets, and if warranted leveraging our existing tier-two assets and brownfield infrastructure, turning to value-adding growth opportunities including further vertical integration and returning excess cash to shareholders.

SHARES AND STOCK OPTIONS OUTSTANDING

At February 7, 2022, we had:

 

•

398,289,260 common shares and one Class B share outstanding

 

•

3,228,006 stock options outstanding, with exercise prices ranging from $11.32 to $26.81

DIVIDEND

In 2021, our board of directors declared a dividend of $0.08 per common share, which was paid December 15, 2021.

As a result of our deliberate actions and conservative financial management we have been and continue to be resilient. With a strong balance sheet, improving fundamentals for our business, a growing contract portfolio, and our decision to prepare McArthur River/Key Lake to be operationally ready, we have line of sight to a significant improvement in our future earnings and cash flow. Therefore, we are increasing our 2022 annual dividend by 50%.

An annual dividend of $0.12 per common share has been declared, payable on December 15, 2022 to shareholders of record on November 30, 2022. The decision to declare an annual dividend by our board is reviewed regularly and will be based on our cash flow, financial position, strategy and other relevant factors including appropriate alignment with the cyclical nature of our earnings.

 

26    CAMECO CORPORATION

Our ESG principles and practices: A key part of our strategy, reflecting our values

We are committed to delivering our products responsibly. We integrate environmental, social and governance (ESG) principles and practices into every aspect of our business, from our objectives and approach to compensation, to our overall corporate strategy and day-to-day operations. We seek to be transparent with our stakeholders, keeping them updated on the risks and opportunities that we believe may have a significant impact on our ability to add long-term value. We recognize the importance of integrating certain ESG factors, such as safety performance, a clean environment and supportive communities, into our executive compensation strategy as we see success in these areas as critical to the long-term success of the company.

Our 2020 ESG report, published in October of 2021, marked an evolution in our sustainability reporting. We adopted the relevant ESG performance indicators issued by the Sustainability Accounting Standards Board (SASB) and have taken the first steps towards addressing the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), which we expect to continue to progress. The report sets out our strategy and the policies and programs we use to govern and manage ESG issues that are important to our stakeholders. In addition to SASB and TCFD, the report provides key ESG performance indicator data based on the Global Reporting Initiative’s Sustainability Framework as well as some unique corporate indicators, to measure and report our performance on environmental, social and economic impacts in the areas we believe have a significant impact on our sustainability in the long-term. This is our ESG report card to our stakeholders. You can find our report at cameco.com/about/sustainability.

Environment

We recognize and embrace our responsibility to manage our activities with care for the protection of environmental resources. Protection of the environment is one of our highest corporate priorities during all stages of our activities from exploration through development, operations, and decommissioning. Environmental stewardship is embedded in how we operate.

We are guided by our safety, health, environment and quality policy and associated programs that are designed to minimize our impact on air, land, and water and to conserve the biodiversity of surrounding ecosystems. Across our operations, we comply with strict regulations and have systems in place to monitor and mitigate our impacts. In addition to our own environmental monitoring, we collaborate with local communities around our operations to give confidence to them that traditionally harvested foods remain safe to eat, and water remains safe to drink.

Climate change: Nuclear power is part of the solution

We believe the reduction of carbon and greenhouse gas (GHG) emissions is important and necessary in Canada and around the world, and that nuclear power must be a central part of the solution to the world’s shift to a low-carbon, climate-resilient economy. As one of the world’s largest producers of the uranium needed to fuel nuclear reactors, we believe there is a significant opportunity for us to be part of the solution to combat climate change. We are a constructive partner in the battle against climate change. We enable vast emissions reductions that can be achieved through nuclear power and are committed to transforming our own low GHG emissions footprint in our ambition to reach net-zero emissions while delivering significant long-term business value.

We recognize that climate change, including shifts in temperature, precipitation and more frequent severe weather events could affect our operations in a range of possible ways. We have established a working group composed of representatives from across the organization to further study the climate-related opportunities and risks for our business. For example, this working group has conducted a preliminary analysis of the increase in operating costs that could occur at our Canadian facilities (in the short-, medium-, and long-term) as a result of increased GHG pricing and regulation. In addition, in 2022, we are undertaking a physical climate risk assessment with a third-party expert.

Social

Our relationships with our workforce, Indigenous Peoples, and local communities are fundamental to our success. The safety and protection of our workforce and the public is our top priority in our assessment of risk and planning for safe operations and product transport. To deliver on our vision, we invest in programs to attract and retain a diverse and skilled workforce that better reflects the communities in which we operate and to increase the participation of underrepresented groups in trades and technical positions. We want to build a workforce that is dedicated to continuous improvement and shares our values.

The importance of our workers and Indigenous Peoples working and living near our operations is exemplified by our ongoing commitment to help manage the impacts of the COVID-19 pandemic on our workforce, their families and their communities.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    27

Our response to the COVID-19 pandemic

We continue to closely monitor and adapt to the developments related to the outbreak of COVID-19. Throughout the pandemic, our priority has been to protect the health and well-being of our workers, including employees and contractors, their families, and their communities. Early in 2020, we activated our Corporate Crisis Management Plan, which includes our Pandemic Plan, and our various Local and Corporate Business Continuity Plans.

Following the precautions and restrictions enacted by all levels of government where we operate, and, considering the unique circumstances at each of our operating sites, we proactively implemented a number of measures and made a number of decisions to ensure a safe working environment for all our workers. In addition to all the safety protocols and measures put in place in 2020, in 2021 we:

 

•

suspended production at Cigar Lake for a second time for about four months starting in December 2020

 

•

introduced a requirement that all employees, contractors and visitors be vaccinated across all our operations and offices

 

•

developed a hybrid work model for employees working from home that balances time in the office and remote working in accordance with business needs

The proactive decisions we have made, and continue to make, to protect our workers and to help slow down the spread of the COVID-19 virus are necessary decisions that are consistent with our values. Even while production was suspended, we kept and continued to pay all our employees. The health and safety of our workers, their families and their communities continues to be the priority in all our plans, which will align with the guidance of the relevant health authorities where we operate.

Governance: Sound governance is the foundation for strong performance

We believe that sound governance is the foundation for strong corporate performance. Our diverse and independent board of directors plays an important role in providing oversight of the management team and providing direction for our strategy and business affairs, including the integration of ESG principles throughout the company. The board guides the company to operate as a sustainable business, to optimize financial returns while effectively managing risk, and to conduct business in a way that is transparent, independent, and ethical.

The board has formal governance guidelines that set out our approach to governance and the board’s governance role and practices. The guidelines ensure we comply with all of the applicable governance rules and legislation in Canada and the United States, conduct ourselves in the best interests of our stakeholders, and meet industry best practices. The guidelines are reviewed and updated regularly.

Our corporate governance framework includes an established and recognized management system that describes the policies, processes and procedures we use to help us fulfill all the tasks required to achieve our objectives and strategy. It sets out our vision, values, and measures of success. It speaks to our strategic planning process, leadership alignment and accountability, compliance and assessment, people and culture, process identification and work management, risk management, communications and stakeholder support, knowledge and information management, change management, problem identification and resolution, and continual improvement.

OUR VISION

Our vision – “Energizing a clean-air world” – recognizes that we have an important role to play in enabling the vast reductions in global greenhouse gas emissions required to achieve a resilient net-zero carbon economy. We support climate action that is consistent with the ambition of the Paris Agreement and the Canadian government’s commitment to the agreement to limit global temperature rise to less than 2°C and we know that this means the world needs to reach net-zero emissions by 2050 or sooner. The uranium we produce is used around the world in the generation of safe, carbon-free, affordable, base-load nuclear power. As we seek to achieve our vision, we will do so in a manner that reflects our values. We believe we have the right strategy to achieve our vision and are committed to our efforts to transform our own, already low, greenhouse gas footprint in our ambition to reach net-zero emissions, while identifying and addressing the ESG risks and opportunities that we believe may have a significant impact on our ability to add long-term value for our stakeholders.

COMMITTED TO OUR VALUES

Our values are discussed below and are at the core of everything we do and define who we are as a company. They are:

 

•

safety and environment

 

•

people

 

28    CAMECO CORPORATION

•

integrity

 

•

excellence

Safety and Environment

The safety of people and protection of the environment are the foundations of our work. All of us share in the responsibility of continually improving the safety of our workplace and the quality of our environment.

We are committed to keeping people safe and conducting our business with respect and care for both the local and global environment.

People

We value the contribution of every employee and we treat people fairly by demonstrating our respect for individual dignity, creativity and cultural diversity. By being open and honest, we achieve the strong relationships we seek.

We are committed to developing and supporting a flexible, skilled, stable and diverse workforce, in an environment that:

 

•

attracts and retains talented people and inspires them to be fully productive and engaged

 

•

encourages relationships that build the trust, credibility and support we need to grow our business

Integrity

Through personal and professional integrity, we lead by example, earn trust, honour our commitments and conduct our business ethically.

We are committed to acting with integrity in every area of our business, wherever we operate.

Excellence

We pursue excellence in all that we do. Through leadership, collaboration and innovation, we strive to achieve our full potential and inspire others to reach theirs.

Risk and Risk Management

Our board of directors oversee management’s implementation of appropriate risk management processes and controls. We have a Risk Policy that is supported by our formal Risk Management Program.

Our Risk Management Program involves a broad, systematic approach to identifying, assessing, monitoring, reporting and managing the significant risks we face in our business and operations, including consideration of ESG and climate-related risks that could impact our four measures of success. The program establishes clear accountabilities for employees throughout the company to take ownership of risks specific to their area and to effectively manage those risks. The program is reviewed annually to ensure that it continues to meet our needs.

We use a common risk matrix throughout the company. Any risk that has the potential to significantly affect our ability to achieve our corporate objectives or strategic plan is considered an enterprise risk and is brought to the attention of senior management and the board.

See Managing the risks, starting on page 58, for a discussion of the risks, that generally apply to all of our operations and advanced uranium projects, and that could have a material impact on business in the near term. We also recommend you review our most recent annual information form, which includes a discussion of other material risks that could have an impact on our business.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    29

Measuring our results

TARGETS AND METRICS: THE LINK BETWEEN ESG FACTORS AND EXECUTIVE PAY

Each year, we set corporate objectives that are aligned with our strategic plan. These objectives fall under our four measures of success: outstanding financial performance, safe, healthy and rewarding workplace, clean environment and supportive communities. Performance against specific targets under these objectives forms the foundation for a portion of annual employee and executive compensation. See our most recent management proxy circular for more information on how executive compensation is determined.

Our targets for 2021 continue to reflect the operational strategic actions that we are taking. As such, we do not believe our financial performance (earnings and cash flow) reflects our long-term run rate performance. Despite the impact on financial results, we believe that the strategic actions we are taking will help to pave the way to stronger financial performance over time, and we will not compromise our commitment to safety, people and our environment.

 

2021 OBJECTIVES1		TARGET		RESULTS
OUTSTANDING FINANCIAL PERFORMANCE
Earnings measure		Achieve targeted adjusted net earnings.		•   adjusted net earnings was below target
Cash flow measure		Achieve targeted cash flow from operations (before working capital changes).		•   cash flow from operations was slightly below target
SAFE, HEALTHY AND REWARDING WORKPLACE
Workplace safety measure		Strive for no injuries at all Cameco-operated sites. Maintain a long-term downward trend in combined employee and contractor total recordable injury rate while achieving targets on specified leading indicators.		•   a new performance record was set for the fourth year in a row. TRIR improved significantly by about 25% relative to 2020, exceeding the 2021 improvement target   •   performance of the leading indicators exceeded the targets
CLEAN ENVIRONMENT
Environmental performance measures		Achieve divisional environmental aspect improvement targets.		•   performance was within the targeted range   •   there were no significant environmental incidents in 2021
SUPPORTIVE COMMUNITIES
Stakeholder support measure		Enhance the skill set of Residents of Saskatchewan’s North for changing industrial environments		•   performance exceeded the target

 

1	Detailed results for our 2021 corporate objectives and the related targets will be provided in our 2022 management proxy circular prior to our Annual Meeting of Shareholders on May 10, 2022.

2022 objectives

 

OUTSTANDING FINANCIAL PERFORMANCE

•   Achieve targeted financial measures focused on controlling costs and generating cash.

SAFE, HEALTHY AND REWARDING WORKPLACE

•   Improve workplace safety performance at all sites.

CLEAN ENVIRONMENT

•   Improve environmental performance at all sites.

SUPPORTIVE COMMUNITIES

•   Build and sustain strong stakeholder support for our activities.

 

30    CAMECO CORPORATION

Financial results

This section of our MD&A discusses our performance, financial condition and outlook for the future.

 

32		2021 CONSOLIDATED FINANCIAL RESULTS
41		OUTLOOK FOR 2022
43		LIQUIDITY AND CAPITAL RESOURCES
49		2021 FINANCIAL RESULTS BY SEGMENT
49		URANIUM
51		FUEL SERVICES
52		FOURTH QUARTER FINANCIAL RESULTS
52		CONSOLIDATED RESULTS
55		URANIUM
56		FUEL SERVICES

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    31

2021 consolidated financial results

This section of our MD&A discusses our performance, financial condition and outlook for the future.

In the third quarter, we determined that NUKEM no longer meets the criteria for being considered a segment and concluded that it was appropriate to include NUKEM’s results with our uranium and fuel services segments. The purchase and sale of enriched uranium product and separative work units will continue to be reported in “other”. Comparative information has been adjusted. See note 28 for more information.

 

HIGHLIGHTS DECEMBER 31 ($ MILLIONS EXCEPT WHERE INDICATED)		2021				2020				2019				CHANGE FROM 2020 TO 2021
Revenue			1,475				1,800				1,863				(18	)%
Gross profit			2				106				242				(98	)%
Net earnings (loss) attributable to equity holders			(103	)			(53	)			74				(94	)%
$ per common share (basic)			(0.26	)			(0.13	)			0.19				(92	)%
$ per common share (diluted)			(0.26	)			(0.13	)			0.19				(92	)%
Adjusted net earnings (loss) (non-IFRS, see page 33)			(98	)			(66	)			41				(48	)%
$ per common share (adjusted and diluted)			(0.25	)			(0.17	)			0.10				(47	)%
Cash provided by operations			458				57				527				>100	%

Net earnings

The following table shows what contributed to the change in net earnings in 2021 compared to 2020 and 2019.

 

($ MILLIONS)				2021				2020				2019
Net earnings (losses) - previous year					(53	)			74				166
Change in gross profit by segment
(we calculate gross profit by deducting from revenue the cost of products and services sold, and depreciation and amortization (D&A), net of hedging benefits)
Uranium		Lower sales volume			(4	)			(4	)			(27	)
		Higher (lower) realized prices ($US)			5				25				(133	)
		Foreign exchange impact on realized prices			(72	)			14				35
		Lower (higher) costs			(55	)			(169	)			9
		change – uranium			(126	)			(134	)			(116	)
Fuel services		Higher (lower) sales volume			1				(4	)			13
		Higher (lower) realized prices ($Cdn)			23				21				(11	)
		Lower (higher) costs			(2	)			(10	)			28
		change – fuel services			22				7				30
Other changes
Lower (higher) administration expenditures					17				(20	)			17
Lower exploration expenditures					3				3				6
Change in reclamation provisions					32				(21	)			57
Change in gains or losses on derivatives					(24	)			5				113
Change in foreign exchange gains or losses					(14	)			33				(45	)
Change in earnings from equity-accounted investments					32				(9	)			13
Redemption of Series E debentures in 2020					24				(24	)			—
Canadian Emergency Wage Subsidy					(16	)			37				—
Arbitration award in 2019 related to TEPCO contract					—				(52	)			52
Gain on sale of interest in Wheeler River Joint Venture in 2018					—				—				(17	)
Gain on restructuring of JV Inkai in 2018					—				—				(49	)
Gain on customer contract restructuring in 2018					—				—				(6	)
Sale of exploration properties in 2018					—				—				(7	)
Reversal of tax provision in 2018 related to CRA dispute					—				—				(61	)
Change in income tax recovery or expense					15				47				(126	)
Other					(15	)			1				47
Net earnings (losses) - current year					(103	)			(53	)			74

 

32    CAMECO CORPORATION

Non-IFRS measures

ADJUSTED NET EARNINGS

Adjusted net earnings (ANE) is a measure that does not have a standardized meaning or a consistent basis of calculation under IFRS (non-IFRS financial measure). We use this measure as a more meaningful way to compare our financial performance from period to period. Adjusted net earnings is our net earnings attributable to equity holders, adjusted to better reflect the underlying financial performance for the reporting period. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate our performance. Adjusted net earnings is one of the targets that we measure to form the basis for a portion of annual employee and executive compensation (see Measuring our results starting on page 30).

In calculating ANE we adjust for derivatives. We do not use hedge accounting under IFRS and, therefore, we are required to report gains and losses on all hedging activity, both for contracts that close in the period and those that remain outstanding at the end of the period. For the contracts that remain outstanding, we must treat them as though they were settled at the end of the reporting period (mark-to-market). However, we do not believe the gains and losses that we are required to report under IFRS appropriately reflect the intent of our hedging activities, so we make adjustments in calculating our ANE to better reflect the impact of our hedging program in the applicable reporting period. See Foreign exchange starting on page 39 for more information.

We also adjust for changes to our reclamation provisions that flow directly through earnings. Every quarter we are required to update the reclamation provisions for all operations based on new cash flow estimates, discount and inflation rates. This normally results in an adjustment to an asset retirement obligation asset in addition to the provision balance. When the assets of an operation have been written off due to an impairment, as is the case with our Rabbit Lake and US ISR operations, the adjustment is recorded directly to the statement of earnings as “other operating expense (income)”. See note 15 of our annual financial statements for more information. This amount has been excluded from our ANE measure.

Adjusted net earnings is a non-IFRS financial measure and should not be considered in isolation or as a substitute for financial information prepared according to accounting standards. Other companies may calculate this measure differently, so you may not be able to make a direct comparison to similar measures presented by other companies.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    33

To facilitate a better understanding of these measures, the table below reconciles adjusted net earnings with our net earnings for the years ended 2021, 2020 and 2019.

 

($ MILLIONS)		2021				2020				2019
Net earnings (loss) attributable to equity holders			(103	)			(53	)			74
Adjustments
Adjustments on derivatives			13				(45	)			(49	)
Adjustments on other operating expense (income)			(8	)			24				3
Income taxes on adjustments			—				8				13
Adjusted net earnings (loss)			(98	)			(66	)			41

The following table shows what contributed to the change in adjusted net earnings (non-IFRS measure, see above) in 2021 compared to the same period in 2020 and 2019.

 

($ MILLIONS)				2021				2020				2019
Adjusted net earnings (losses) - previous year					(66	)			41				211
Change in gross profit by segment
(we calculate gross profit by deducting from revenue the cost of products and services sold, and depreciation and amortization (D&A), net of hedging benefits)
Uranium		Lower sales volume			(4	)			(4	)			(27	)
		Higher (lower) realized prices ($US)			5				25				(133	)
		Foreign exchange impact on realized prices			(72	)			14				35
		Lower (higher) costs			(55	)			(169	)			9
		change – uranium			(126	)			(134	)			(116	)
Fuel services		Higher (lower) sales volume			1				(4	)			13
		Higher (lower) realized prices ($Cdn)			23				21				(11	)
		Lower (higher) costs			(2	)			(10	)			28
		change – fuel services			22				7				30
Other changes
Lower (higher) administration expenditures					17				(20	)			17
Lower (higher) exploration expenditures					3				3				6
Change in gains or losses on derivatives					34				9				(1	)
Change in foreign exchange gains or losses					(14	)			33				(45	)
Change in earnings from equity-accounted investments					32				(9	)			13
Redemption of Series E debentures in 2020					24				(24	)			—
Canadian Emergency Wage Subsidy					(16	)			37				—
Arbitration award in 2019 related to TEPCO contract					—				(52	)			52
Gain on sale of interest in Wheeler River Joint Venture in 2018					—				—				(17	)
Gain on customer contract restructuring in 2018					—				—				(6	)
Sale of exploration properties in 2018					—				—				(7	)
Reversal of tax provision in 2018 related to CRA dispute					—				—				(61	)
Change in income tax recovery or expense					7				42				(82	)
Other					(15	)			1				47
Adjusted net earnings (losses) - current year					(98	)			(66	)			41

Average realized prices

 

				2021				2020				2019				CHANGE FROM 2020 TO 2021
Uranium1		$US/lb			34.53				34.39				33.77				—
		$Cdn/lb			43.34				46.13				44.85				(6	)%
Fuel services		$Cdn/kgU			29.72				27.89				26.21				7	%

 

1	Average realized foreign exchange rate ($US/$Cdn): 2021 – 1.26, 2020 – 1.34 and 2019 – 1.33.

 

34    CAMECO CORPORATION

Revenue

The following table shows what contributed to the change in revenue for 2021.

 

($ MILLIONS)
Revenue – 2020			1,800
Uranium
Lower sales volume			(293	)
Lower realized prices ($Cdn)			(68	)
Fuel services
Higher sales volume			2
Higher realized prices ($Cdn)			25
Other			9
Revenue – 2021			1,475

See 2021 Financial results by segment on page 49 for more detailed discussion.

THREE-YEAR TREND

In 2020, revenue decreased by 3% compared to 2019 due to a decrease in sales volume in the uranium segment that was partially offset by an increase in the Canadian dollar average realized price. In our fuel services segment, revenue increased by 2% as a result of the increase in average realized price partially offset by a decrease in sales volume.

In 2021, revenue decreased by 18% compared to 2020 due to a decrease in sales volume in the uranium segment and a decrease in the Canadian dollar average realized price. In our fuel services segment, revenue increased by 10% as a result of the increase in average realized price and sales volume. See notes 17 and 28 in our annual financial statements for more information.

SALES DELIVERY OUTLOOK FOR 2022

For 2022 we have committed sales volumes in our uranium segment of between 23 to 25 million pounds. We will continue to be active buying and selling uranium in the spot market if it makes sense for us.

In our uranium and fuel services segments, our customers choose when in the year to receive deliveries. As a result, our quarterly delivery patterns and, therefore, our sales volumes and revenue can vary significantly. We expect the quarterly distribution of uranium deliveries in 2022 to be fairly evenly distributed as shown below. However, not all delivery notices have been received to date and the expected delivery pattern could change. Typically, we receive notices six months in advance of the requested delivery date.

ANNUAL DELIVERY VOLUME DISTRIBUTION BY QUARTER

 

Source: Cameco reports and estimates

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    35

Corporate expenses

ADMINISTRATION

 

($ MILLIONS)		2021				2020				CHANGE
Direct administration1			111				113				(2	)%
Stock-based compensation1			44				32				38	%
Recovery of fees related to CRA dispute			(27	)			—				n/a
Total administration			128				145				(12	)%

 

1	Direct administration and stock-based compensation are supplementary financial measures. They are components of administration expense as shown on the statement of earnings and calculated according to IFRS.

Direct administration costs in 2021 decreased by $2 million from 2020. As a result of the Supreme Court’s dismissal of CRA’s application for leave to appeal the June 26, 2020 decision of the Court of Appeal, we recorded $27 million as a reduction to administration costs to reflect the amounts owing to us for legal fees and disbursements for costs as was awarded to us by the Tax Court and nominal cost awards related to the Court of Appeal hearing and Supreme Court application.

We recorded $44 million in stock-based compensation expenses in 2021, $12 million higher compared to 2020 due to the increase in our share price. See note 24 to the financial statements.

Administration outlook for 2022

We expect direct administration costs to be between $125 million to $135 million.

EXPLORATION

Our 2021 exploration activities were focused primarily on Canada. Our spending decreased from $11 million in 2020 to $8 million in 2021 due to lower planned expenditures.

Exploration outlook for 2022

We expect exploration expenses to be about $11 million in 2022. The focus for 2022 will be on our core projects in Saskatchewan.

FINANCE COSTS

Finance costs were $77 million, a decrease from $96 million in 2020 due to the cost associated with the early redemption of our Series E debentures in 2020. See note 19 to the financial statements.

FINANCE INCOME

Finance income was $7 million compared to $11 million in 2020 mainly due to lower interest rates.

GAINS AND LOSSES ON DERIVATIVES

In 2021, we recorded $13 million in gains on our derivatives compared to $37 million in gains in 2020. The decrease reflects the strength in the Canadian dollar compared to the US dollar at the end of 2021 compared to 2020. See Foreign exchange on page 39 and note 26 to the financial statements.

INCOME TAXES

We recorded an income tax recovery of $1 million in 2021 compared to an expense of $14 million in 2020. The increase in recovery was primarily due to a change in the distribution of earnings among jurisdictions compared to 2020.

In 2021, we recorded earnings of $59 million in Canada compared to earnings of $73 million in 2020, while in foreign jurisdictions, we recorded a loss of $162 million compared to a loss of $112 million in 2020. Differences between accounting income and income for tax purposes resulted in lower taxes recorded in Canada.

 

36    CAMECO CORPORATION

($ MILLIONS)		2021				2020
Net earnings (loss) before income taxes
Canada			59				73
Foreign			(162	)			(112	)
Total net loss before income taxes			(103	)			(39	)
Income tax expense (recovery)
Canada			(2	)			9
Foreign			1				5
Total income tax expense (recovery)			(1	)			14
Effective tax rate			1	%			(36	)%

TRANSFER PRICING DISPUTE

Background

Since 2008, CRA has disputed our marketing and trading structure and the related transfer pricing methodology we used for certain intercompany uranium sale and purchase agreements.

For the years 2003 to 2014, CRA shifted Cameco Europe Limited’s income (as recalculated by CRA) back to Canada and applied statutory tax rates, interest and instalment penalties, and, from 2007 to 2011, transfer pricing penalties. In addition, for 2014 and 2015, CRA has advanced an alternate reassessing position, see Reassessments, remittance and next steps below for more information.

In September 2018, the Tax Court ruled that our marketing and trading structure involving foreign subsidiaries, as well as the related transfer pricing methodology used for certain intercompany uranium sales and purchasing agreements, were in full compliance with Canadian law for the tax years in question (2003, 2005 and 2006). On June 26, 2020 the Court of Appeal upheld the Tax Court’s decision.

Supreme Court of Canada decision

On February 18, 2021, the Supreme Court dismissed CRA’s application for leave to appeal the June 26, 2020 decision of the Court of Appeal. The dismissal means that the dispute for the 2003, 2005 and 2006 tax years is fully and finally resolved in our favour. Although not technically binding, there is nothing in the reasoning of the lower court decisions that should result in a different outcome for the 2007 through 2014 tax years, which were reassessed on the same basis.

Refund and cost award

The total tax reassessed for the three tax years was $11 million, and we remitted 50%. The Minister of National Revenue has issued new reassessments for the 2003 through 2006 tax years in accordance with the decision and in July we received payments totaling $9 million, representing the refund of the $5.5 million we remitted plus interest.

On April 20, 2021, we received $10 million from CRA, which includes payment of the legal fees awarded by the Tax Court as well as the cost awards related to the Court of Appeal and Supreme Court decisions.

In addition to the cost award for legal fees, in 2019, the Tax Court awarded us an amount for disbursements of up to $17 million. The actual amount of the award for disbursements will be determined by an officer of the Tax Court. We expect to recover all, or substantially all, of the $17 million in disbursements.

We anticipate further direction on our award for disbursements from the Tax Court in the first quarter of this year.

Reassessments, remittances and next steps

The Canadian income tax rules include provisions that generally require larger companies like us to remit or otherwise secure 50% of the cash tax plus related interest and penalties at the time of reassessment. While we have received a refund for the amounts remitted for the 2003 through 2006 reassessments as noted above, CRA continues to hold $777 million ($295 million in cash and $482 million in letters of credit) we paid or secured for the years 2007 through 2013. For the 2014 and 2015 reassessments, CRA did not require additional security to secure the tax debts they considered owing.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    37

Following the Supreme Court’s dismissal of CRA’s application for leave to appeal, we wrote to CRA requesting reversal of CRA’s transfer pricing adjustments for 2007 through 2013 and the return of our $777 million in cash and letters of credit. Given the strength of the court decisions received, our request was made on the basis that the Tax Court would reject any attempt by CRA to defend its reassessments for the 2007 through 2013 tax years applying the same or similar positions already denied for previous years. Due to a lack of significant progress in response to our request, in October 2021, we filed a notice of appeal with the Tax Court for the years 2007 through 2013. We are asking the Tax Court to order the reversal of the CRA’s transfer pricing adjustment for those years and the return of our cash and letters of credit, with costs.

In 2020, CRA advanced an alternate reassessing position for the 2014 tax year in the event the basis for its original reassessment, noted above, is unsuccessful. In late 2021, we received a reassessment for the 2015 tax year using this alternative reassessing position. The new basis of reassessment is inconsistent with the methodology CRA has pursued for prior years and we are disputing it separately. Our view is that this alternate methodology will not result in a materially different outcome from our 2014 or 2015 filing positions.

We will not be in a position to determine the definitive outcome of this dispute for any tax year other than 2003 through 2006 until such time as all reassessments have been issued advancing CRA’s arguments and final resolution is reached for that tax year. CRA may also advance alternative reassessment methodologies for years other than 2003 through 2006, such as the alternative reassessing position advanced for 2014 and 2015.

Caution about forward-looking information relating to our CRA tax dispute

This discussion of our expectations relating to our tax dispute with CRA and future tax reassessments by CRA is forward-looking information that is based upon the assumptions and subject to the material risks discussed under the heading Caution about forward-looking information beginning on page 2 and also on the more specific assumptions and risks listed below. Actual outcomes may vary significantly.

 

 

Tax outlook for 2022

Our consolidated tax rate is a blend of the statutory rates applicable to taxable income earned or tax losses incurred in Canada and in our foreign subsidiaries. We have a global customer base and we have established a marketing and trading structure involving foreign subsidiaries, which entered into various intercompany purchase and sale arrangements, as well as uranium purchase and sale agreements with third parties. Cameco and its subsidiaries made reasonable efforts to put arm’s-length transfer pricing arrangements in place, and these arrangements expose the parties to the risks and rewards accruing to them under these contracts. The intercompany contract prices are generally comparable to those established in comparable contracts between arm’s-length parties entered into at that time. In 2017, we changed our global marketing organization to consolidate our international activities in Canada in order to achieve efficiencies. The existing purchase and sale arrangements will continue to be in place until they expire. As the existing contracts expire, we anticipate that more income will be earned in Canada.

 

38    CAMECO CORPORATION

We continue to expect our consolidated tax rate will trend toward the Canadian statutory rate in the longer term. The actual effective tax rate will vary from year-to-year, primarily due to the actual distribution of earnings among jurisdictions and the market conditions at the time transactions occur under both our intercompany and third-party purchase and sale arrangements.

FOREIGN EXCHANGE

The exchange rate between the Canadian dollar and US dollar affects the financial results of our uranium and fuel services segments.

We sell the majority of our uranium and fuel services products under long-term sales contracts, which are routinely denominated in US dollars. Our product purchases are denominated in US dollars while our production costs are largely denominated in Canadian dollars. To provide cash flow predictability we hedge a portion of our net US/Cdn exposure (e.g. total US dollar sales less US dollar expenditures and product purchases) to manage shorter term exchange rate volatility.

Our risk management policy is based on a 60-month period and permits us to hedge 35% to 100% of our expected net exposure in the first 12-month period. Our normal practice is to layer in hedge contracts over a three- to four-year period with the hedge percentage being highest in the first 12 months and decreasing hedge percentages in subsequent years. The portion of our net exposure that remains unhedged is subject to prevailing market exchange rates for the period. Therefore, our results are affected by the movements in the exchange rate on our hedge portfolio (explained below), and on the unhedged portion of our net exposure. A weakening Canadian dollar would have a positive effect on the unhedged exposure, and a strengthening Canadian dollar would have a negative effect

Impact of hedging on IFRS earnings

We do not use hedge accounting under IFRS and, therefore, we are required to report gains and losses on all hedging activity, both for contracts that close in the period and those that remain outstanding at the end of the period. For the contracts that remain outstanding, we must treat them as though they were settled at the end of the reporting period (mark-to-market).

However, we do not believe the gains and losses that we are required to report under IFRS appropriately reflect the intent of our hedging activities, so we make adjustments in calculating our ANE to better reflect the impact of our hedging program in the applicable reporting period.

Impact of hedging on ANE

We designate contracts for use in particular periods, based on our expected net exposure in that period. Hedge contracts are layered in over time based on this expected net exposure. The result is that our current hedge portfolio is made up of a number of contracts which are currently designated to net exposures we expect in 2022 and future years and we will recognize the gains or losses in ANE in those periods.

For the purposes of ANE, gains and losses on derivatives are reported based on the difference between the effective hedge rate of the contracts designated for use in the particular period and the exchange rate at the time of settlement. This results in an adjustment to current period IFRS earnings to effectively remove reported gains or losses on derivatives that arise from contracts put in place for use in future periods. The effective hedge rate will lag the market in periods of rapid currency movement. See Non-IFRS measures on page 33.

The table below provides a summary of our hedge portfolio at December 31, 2021. You can use this information to estimate the expected gains or losses on derivatives for 2022 on an ANE basis. However, if we add contracts to the portfolio that are designated for use in 2022 or if there are changes in the US/Cdn exchange rates in the year, those expected gains or losses could change.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    39

HEDGE PORTFOLIO SUMMARY

 

DECEMBER 31, 2021 ($ MILLIONS)				2022				AFTER 2022				TOTAL
US dollar forward contracts		($ millions)			210				330				540
Average contract rate 1		(US/Cdn dollar)			1.34				1.28				1.30
US dollar option contracts		($ millions)			120				70				190
Average contract rate range1		(US/Cdn dollar)			1.32 to 1.36				1.30 to 1.34				1.31 to 1.36
Total US dollar hedge contracts		($ millions)			330				400				730
Average hedge rate range		(US/Cdn dollar)			1.33 to 1.35				1.28 to 1.30				1.31 to 1.33
Hedge ratio2					51	%			9	%			14	%

 

1	The average contract rate is the weighted average of the rates stipulated in the outstanding contracts.

2	Hedge ratio is calculated by dividing the amount (in foreign currency) of outstanding derivative contracts by estimated future net exposures.

At December 31, 2021:

 

•

The value of the US dollar relative to the Canadian dollar was $1.00 (US) for $1.26 (Cdn), down from $1.00 (US) for $1.27 (Cdn) at December 31, 2020. The exchange rate averaged $1.00 (US) for $1.25 (Cdn) over the year.

 

•

The mark-to-market position on all foreign exchange contracts was a $28 million gain compared to a $41 million gain at December 31, 2020. The mark-to-market position is a component of gain on derivatives as shown on the statement of earnings and calculated in accordance with IFRS.

We manage counterparty risk associated with hedging by dealing with highly rated counterparties and limiting our exposure. At December 31, 2021, all of our hedging counterparties had a Standard & Poor’s (S&P) credit rating of A or better.

For information on the impact of foreign exchange on our intercompany balances, see note 26 to the financial statements.

 

40    CAMECO CORPORATION

Outlook for 2022

Our outlook for 2022 reflects the expenditures necessary to help us achieve our strategy, including the ramp-up to planned production of 15 million pounds per year (100% basis) at McArthur River/Key Lake by 2024. As in prior years, we will incur care and maintenance costs for the ongoing outage at our tier-two assets, which are expected to be between $50 million and $60 million. We also expect to incur between $15 million and $17 million per month at McArthur River/Key Lake in operational readiness costs which will be expensed directly to cost of sales until we achieve a reasonable production rate.

The production outlook reflects the expected impact of the delays and deferrals to development work at Cigar Lake in 2021 and the ongoing pandemic and supply chain challenges we are currently experiencing at all our operations. We will work to mitigate and minimize any disruptions to our operations.

We expect our business to remain resilient. From a cash perspective, we expect to continue to maintain a significant cash balance. We expect to continue to generate cash from operations. The amount of cash generated will be dependent on the timing and volume of production at McArthur River, and the extent to which COVID-related disruptions including supply chain challenges impact our operations and the resulting magnitude of our purchasing activity. Therefore, our cash balances may fluctuate throughout the year.

See 2021 Financial results by segment on page 49 for details.

2021 outlook compared to actual

Our actual results were largely in-line with the outlook provided in our third quarter MD&A. In 2021 we started the year with Cigar Lake suspended due to the uncertainty created by the COVID-19 pandemic. Based on the restart of the Cigar Lake mine in April, we set a production target for Cigar Lake of up to 6 million pounds (our share). We achieved 6.1 million pounds production at Cigar Lake in 2021.

Capital expenditures for 2021 were $99 million, lower than our outlook of $130 to $155 million, as a result of the deferral of project work to 2022.

2022 FINANCIAL OUTLOOK

 

		CONSOLIDATED		URANIUM		FUEL SERVICES
Production (owned and operated properties)		—		up to 11 million lbs		12.5 to 13.5 million kgU
Purchases		—		11 to 13 million lbs		—
Sales/delivery volume		—		23 to 25 million lbs		10.5 to 11.5 million kgU
Revenue		$1,500 to 1,650 million		$1,150 to 1,240 million		$340-370 million
Average realized price		—		$50.90/lb		—
Average unit cost of sales (including D&A)		—		$50.00-51.00/lb1		$21.50-22.50/kgU2
Direct administration costs		$125-135 million		—		—
Exploration costs		—		$11 million		—
Capital expenditures		$150-175 million		—		—

 

1	Uranium average unit cost of sales is calculated as the cash and non-cash costs of the product sold, royalties, care and maintenance and selling costs, divided by the volume of uranium concentrates sold.

2	Fuel services average unit cost of sales is calculated as the cash and non-cash costs of the product sold, transportation and weighing and sampling costs, as well as care and maintenance costs, divided by the volume of products sold.

We do not provide an outlook for the items in the table that are marked with a dash.

The following assumptions were used to prepare the outlook in the table above:

 

•

Production – we achieve 11 million pounds of production (our share) in our uranium segment. If we do not achieve 11 million pounds, the outlook for the uranium segment could vary.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    41

•

Purchases – are based on the volumes we currently have commitments to acquire under contract in 2022, including our JV Inkai purchases, and it includes additional volumes we are required to purchase in order to meet the sales/delivery commitments we have under contract in 2022 and maintain a working inventory. It does not include any purchases that we may make as a result of the impact of any delays or disruptions to production for any reason, including disruptions caused by the COVID-19 pandemic and related supply chain challenges.

 

•

Our 2022 outlook for sales/delivery volume does not include sales between our uranium and fuel services segments.

 

•

Sales/delivery volume is based on the volumes we currently have commitments to deliver under contract in 2022.

 

•

Uranium revenue and average realized price are based on a uranium spot price of $42.10 (US) per pound (the UxC spot price as of December 31, 2021), a long-term price indicator of $40.50 (US) per pound (the UxC long-term indicator on December 31, 2021) and an exchange rate of $1.00 (US) for $1.27 (Cdn)

 

•

Uranium average unit cost of sales (including D&A) is based on the expected unit cost of sales for produced material, the planned purchases noted in the outlook at an anticipated average purchase price of about $48.80 (Cdn) per pound and includes care and maintenance costs of between $50 million and $60 million, and operational readiness costs at McArthur River and Key Lake operations of between $15 million and $17 million per month until a reasonable level of production is achieved. We expect overall unit cost of sales could vary if there are changes in production and purchase volumes, uranium spot prices, care and maintenance costs and/or operational readiness costs in 2022.

Our 2022 financial outlook is presented on the basis of equity accounting for our minority ownership interest in JV Inkai. Under equity accounting, our share of the profits earned by JV Inkai on the sale of its production will be included in “income from equity-accounted investees” on our consolidated statement of earnings. Our share of production will be purchased at a discount to the spot price and included at this value in inventory. In addition, JV Inkai capital is not included in our outlook for capital expenditures. Please see Inkai Planning for the future on pages 71 and 72 for more details.

The following table shows how changes in the exchange rate or uranium prices can impact our outlook. For more details on the impact of exchange rates, also see Foreign exchange on page 39.

 

				IMPACT ON:
FOR 2022 ($ MILLIONS)		CHANGE		REVENUE				ANE				CASH FLOW
Uranium spot and long-term price1		$5(US)/lb increase			68				29				16
		$5(US)/lb decrease			(76	)			(35	)			(24	)
Value of Canadian dollar vs US dollar		One cent decrease in CAD			11				4				3
		One cent increase in CAD			(11	)			(4	)			(3	)

 

1	Assuming change both UxC spot price ($42.10 (US) per pound on December 27, 2021) and the UxC long-term price indicator ($40.50 (US) per pound on December 27, 2021).

PRICE SENSITIVITY ANALYSIS: URANIUM SEGMENT

As discussed under the Long-term contracting section on page 20, our portfolio of long-term contracts includes a mix of base-escalated and market-related contracts. Each contract is bilaterally negotiated with the customer and is subject to terms of confidentiality. Therefore, to help understand how the pricing under our current portfolio of commitments is expected to react at various spot prices at December 31, 2021, we have constructed the table below.

The table is based on the pricing terms under the long-term commitments in our contract portfolio that have been fully executed as at December 31, 2021. Based on the terms and volumes under those commitments, the table is designed to indicate how our average realized price will react under various spot price assumptions at a point in time. At year-end, the annual average sales commitments under our contract portfolio at December 31, 2021 are 18 million pounds per year, with commitment levels in 2022, 2023 and 2024 higher than the average and in 2025 and 2026 lower than the average. As the market improves, we expect to continue to layer in volumes capturing greater upside using market-related pricing mechanisms. In this table, we do not consider the impact on our average realized price of volumes under negotiation and those not yet committed under contract. In other words, the prices shown in the table would only be realized if the contract portfolio remained exactly as it was on December 31, 2021, using the following assumptions:

 

•

The uranium price remains fixed at a given spot level for each annual period shown

 

•

Deliveries based on commitments under contracts include best estimates of the expected deliveries under contract terms

 

•

To reflect escalation mechanisms contained in existing contracts, the long-term US inflation rate of 2% is used, for modeling purposes only

 

42    CAMECO CORPORATION

It is important to note, that the table is not a forecast of prices we expect to receive. The prices we actually realize will be different from the prices shown in the table. We intend to update this table each quarter in our MD&A to reflect deliveries made and changes to our contract portfolio. As a result, we expect the table to change from quarter to quarter.

Expected realized uranium price sensitivity under various spot price assumptions at December 31, 2021

 

(rounded to the nearest $1.00) SPOT PRICES ($US/lb U3O8)		$20				$40				$60				$80				$100				$120				$140
2022			29				39				48				55				59				62				65
2023			28				39				50				57				61				63				66
2024			30				39				49				54				57				58				58
2025			31				40				52				60				64				66				68
2026			33				40				53				61				66				71				74

Liquidity and capital resources

Our financial objective is to ensure we have the cash and debt capacity to fund our operating activities, investments and other financial obligations in order to execute our strategy and to allow us to self-manage risk. We have a number of alternatives to fund future capital requirements, including using our operating cash flow, drawing on our existing credit facilities, entering new credit facilities, and raising additional capital through debt or equity financings. We are always considering our financing options so we can take advantage of favourable market conditions when they arise. In addition, due to the deliberate cost reduction measures we have implemented, we have continued to have positive cash from operations and as a result, we have significant cash balances.

At the end of 2021, we had cash and cash equivalents and short-term investments of $1.3 billion, while our total debt amounted to $996 million.

We have large, creditworthy customers that continue to need uranium even during weak economic conditions, and we expect the uranium contract portfolio we have built to continue to provide a solid revenue stream. From 2022 through 2026, we have commitments to deliver an average of 18 million pounds per year, with commitment levels in 2022, 2023 and 2024 higher than in 2025 and 2026.

The health and safety of our employees, their families and their communities is our priority as the COVID-19 pandemic continues to bring uncertainty and could have an impact on both the sources and uses of liquidity.

We expect a return to production at McArthur River/Key Lake will be positive for cash flow. It will allow us to source more of our committed sales from lower-cost produced pounds and we will no longer be required to expense care and maintenance costs directly to cost of sales. Until we achieve a reasonable production rate, we expect to incur between $15 million to $17 million per month in operational readiness costs, which will be expensed directly to cost of sales. Therefore, cash flow from operations for 2022 will be dependent on the timing and volume of McArthur River/Key Lake production, the timing and volume of Cigar Lake production and the timing and magnitude of our purchasing activity, as a result cash balances may fluctuate throughout the year. However, we expect our cash balances and operating cash flows to meet our capital requirements during 2022.

With the Supreme Court’s dismissal of CRA’s application for leave, the dispute of the 2003 through 2006 tax years are fully and finally resolved in our favour. Furthermore, we are confident the courts would reject any attempt by CRA to utilize the same or similar positions and arguments for the other tax years currently in dispute (2007 through 2014) and believe CRA should return the $777 million in cash and letters of credit we have been required to pay or otherwise secure. As such, we have filed notice of appeal to the Tax Court however, timing of any further payments is uncertain. See page 37 for more information.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    43

FINANCIAL CONDITION

 

		2021				2020
Cash position ($ millions)
(cash and cash equivalents and short-term investments)			1,332				943
Cash provided by operations ($ millions)
(net cash flow generated by our operating activities after changes in working capital)			458				57
Cash provided by operations/net debt1
(net debt is total consolidated debt, less cash position)			-136	%			109	%
Net debt/total capitalization1
(total capitalization is net debt and equity)			-7	%			1	%

 

1	As at December 31, 2021, Cameco was negative net debt due to our strong cash position.

CREDIT RATINGS

The credit ratings assigned by external ratings agencies are important as they impact our ability to raise capital at competitive pricing to support our business operations and execute our strategy.

Third-party ratings for our commercial paper and senior debt as of February 8, 2022:

 

SECURITY		DBRS		S&P
Commercial paper		R-2 (middle)			A-3
Senior unsecured debentures		BBB			BBB-
Rating trend / rating outlook		Stable1			Negative	2

 

1	On May 28, 2020, DBRS changed Cameco’s rating trend to stable. On June 3, 2021, DBRS confirmed the rating and outlook.

2	On March 11, 2020, S&P changed Cameco’s rating outlook to negative. On March 12, 2021, S&P affirmed the rating and outlook.

The rating agencies may revise or withdraw these ratings if they believe circumstances warrant. The rating trend/outlook represents the rating agency’s assessment of the likelihood and direction that the rating could change in the future.

A change in our credit ratings could affect our cost of funding and our access to capital through the capital markets.

Liquidity

 

($ MILLIONS)		2021				2020
Cash and cash equivalents at beginning of year			943				1,062
Cash from operations			458				57
Investment activities
Additions to property, plant and equipment and acquisitions			(99	)			(77	)
Other investing activities			79				1
Financing activities
Change in debt			—				(2	)
Interest paid			(39	)			(66	)
Other financing activities			(3	)			(3	)
Issue of shares			27				5
Dividends			(32	)			(32	)
Exchange rate on changes on foreign currency cash balances			(2	)			(2	)
Cash and cash equivalents and short-term investments at end of year			1,332				943

CASH FROM OPERATIONS

Cash from operations was higher than in 2020 due largely to the purchasing activity that was a result of the Cigar Lake production suspension and higher sales commitments in 2020. Purchases in 2021 were 11.1 million pounds compared to 36.2 million pounds in 2020. Not including working capital requirements, our operating cash flows in the year were down $79 million. See note 23 to the financial statements.

INVESTING ACTIVITIES

Cash used in investing includes acquisitions and capital spending.

 

44    CAMECO CORPORATION

Capital spending

We classify capital spending as sustaining, capacity replacement or growth. As a mining company, sustaining capital is the money we spend to keep our facilities running in their present state, which would follow a gradually decreasing production curve, while capacity replacement capital is spent to maintain current production levels at those operations. Growth capital is money we invest to generate incremental production, and for business development.

Capital expenditures for 2021 were $99 million, lower than our outlook of $130 million to $155 million, as a result of the deferral of project work to 2022.

Outlook for investing activities

 

CAMECO’S SHARE ($ MILLIONS)		2022 PLAN				2023 PLAN				2024 PLAN
Total uranium & fuel services			150-175				100-150				100-150
Sustaining capital			110-125				75-105				75-105
Capacity replacement capital			40-50				25-45				25-45
Growth capital			—				—				—

Our 2022, 2023 and 2024 capital spending estimates assume that we engage in operational readiness activities at McArthur River/Key Lake to reach our 2024 production plan and are able to mitigate the risks posed by the COVID-19 pandemic and supply chain disruptions at all our operations.

Our estimate for capital spending in 2022 has been increased to between $150 million and $175 million (previously between $50 million and $100 million) due to the capital required for operational readiness activities and the rescheduling of some expenditures planned in 2021 to 2022.

Capital expenditures for JV Inkai are expected to be covered by JV Inkai cash flows in 2022 and are included in our overall equity investment.

Major sustaining and capacity replacement expenditures in 2022 include:

 

•

Fuel services – continued work on our Vision in Motion project

 

•

Cigar Lake – underground development and necessary ground freezing infrastructure to meet production targets

 

•

McArthur River/Key Lake – capital required for operational readiness to reach the 2024 planned production of 15 million pounds per year (100% basis)

 

•

Our investment in digital and automation technologies

This information regarding currently expected capital expenditures for future periods is forward-looking information and is based upon the assumptions and subject to the material risks discussed on pages 3 and 4. Our actual capital expenditures for future periods may be significantly different.

FINANCING ACTIVITIES

Cash from financing includes borrowing and repaying debt, and other financial transactions including paying dividends and providing financial assurance.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    45

Long-term contractual obligations

 

DECEMBER 31 ($ MILLIONS)		2022				2023 AND 2024				2025 AND 2026				2027 AND BEYOND				TOTAL
Long-term debt			—				500				—				500				1,000
Interest on long-term debt			38				65				34				93				230
Provision for reclamation			45				66				71				918				1,100
Provision for waste disposal			1				4				3				—				8
Other liabilities			4				8				2				85				99
Capital commitments			53				—				—				—				53
Total			141				643				110				1,596				2,490

We have contractual capital commitments of approximately $53 million at December 31, 2021. Certain of the contractual commitments may contain cancellation clauses; however, we disclose the commitments based on management’s intent to fulfil the contracts.

We have sufficient borrowing capacity with available unsecured lines of credit totalling about $2.7 billion, which include the following:

 

•

A $1.0 billion unsecured revolving credit facility that matures October 1, 2025. Each calendar year, upon mutual agreement, the facility can be extended for an additional year. We may increase the revolving credit facility above $1.0 billion, by increments of no less than $50 million, up to a total of $1.25 billion. The facility ranks equally with all of our other senior debt. At December 31, 2021, there were no amounts outstanding under this facility and we do not expect to need to draw on this facility in 2022.

 

•

At December 31, 2021, we had approximately $1.6 billion outstanding in financial assurances provided by various financial institutions. We use these facilities mainly to provide financial assurance for future decommissioning and reclamation of our operating sites, for our obligations relating to the CRA dispute, and as overdraft protection.

In total we have $1.0 billion in senior unsecured debentures outstanding:

 

•

$500 million bearing interest at 4.19% per year, maturing on June 24, 2024

 

•

$400 million bearing interest at 2.95% per year, maturing on October 21, 2027

 

•

$100 million bearing interest at 5.09% per year, maturing on November 14, 2042

Debt covenants

Our revolving credit facility includes the following financial covenants:

 

•

our funded debt to tangible net worth ratio must be 1:1 or less

 

•

other customary covenants and events of default

Funded debt is total consolidated debt less non-recourse debt, $100 million in letters of credit, cash and cash equivalents and short-term investments.

Not complying with any of these covenants could result in accelerated payment and termination of our revolving credit facility. At December 31, 2021, we complied with all covenants, and we expect to continue to comply in 2022.

OFF-BALANCE SHEET ARRANGEMENTS

We had three kinds of off-balance sheet arrangements at the end of 2021:

 

•

purchase commitments

 

•

financial assurances

 

•

other arrangements

 

46    CAMECO CORPORATION

Purchase commitments

We make purchases under long-term contracts where it is beneficial for us to do so and in order to support our long-term contract portfolio. The following table is based on our purchase commitments in our uranium and fuel services segments at December 31, 2021² but does not include purchases of our share of Inkai production. These commitments include a mix of fixed-price and market-related contracts. Actual payments will be different as a result of changes to our purchase commitments and, in the case of contracts with market-related pricing, the market prices in effect at the time of delivery. We will update this table as required in our MD&A to reflect material changes to our purchase commitments and changes in the prices used to estimate our commitments under market-related contracts.

 

DECEMBER 31, 2021 ($ MILLIONS)		2022				2023 AND 2024				2025 AND 2026				2027 AND BEYOND				TOTAL
Purchase commitments1,2			224				207				258				175				864

 

1	Denominated in US dollars and Japanese yen, converted from US dollars to Canadian dollars at the rate of 1.27 and from Japanese yen to Canadian dollars at the rate of $0.01.

2	These amounts have been adjusted for any additional purchase commitments that we have entered into since December 31, 2021 but does not include deliveries taken under contract since December 31, 2021.

We have commitments of $864 million (Cdn) for the following:

 

•

approximately 19 million pounds of U3O8 equivalent from 2022 to 2028

 

•

approximately 0.8 million kgU as UF6 in conversion services from 2022 to 2024

 

•

about 0.9 million Separative Work Units (SWU) of enrichment services to meet existing forward sales commitments under agreements with a non-Western supplier

The suppliers do not have the right to terminate agreements other than pursuant to customary events of default provisions.

Financial assurances

We use standby letters of credit and surety bonds mainly to provide financial assurance for the decommissioning and reclamation of our mining and conversion facilities as well as for our obligations relating to the CRA dispute. We are required to provide financial assurances to various regulatory agencies until decommissioning and reclamation activities are complete. We are also providing letters of credit until the CRA dispute is resolved. Our financial assurances renew automatically on an annual basis, unless otherwise advised by the issuing institution. At December 31, 2021 our financial assurances totaled $1.6 billion, the same as at December 31, 2020.

Other arrangements

We have arranged for standby product loan facilities with various counterparties. The arrangements allow us to borrow up to 2.0 million kgU of UF₆ conversion services and 2.6 million pounds of U₃O₈ over the period 2020 to 2023 with repayment in kind up to December 31, 2023. Under the loan 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 1.6%. At December 31, 2021, we have 1.1 million kgU of UF₆ conversion services drawn on the loans.

BALANCE SHEET

 

DECEMBER 31, ($ MILLIONS EXCEPT PER SHARE AMOUNTS)		2021				2020				2019				CHANGE 2020 TO 2021
Inventory			410				680				321				(40	)%
Total assets			7,518				7,581				7,427				(1	)%
Total non-current liabilities			2,258				2,318				2,155				(3	)%
Dividends per common share			0.08				0.08				0.08				—

Total product inventories decreased by 40% to $410 million this year as sales were higher than production and purchases during the year. At December 31, 2021, our average cost for uranium was $38.30 per pound, up from $38.01 per pound at December 31, 2020. As of December 31, 2021, we held an inventory of 8 million pounds of U₃O₈ equivalent (excluding broken ore).

 

MANAGEMENT’S DISCUSSION AND ANALYSIS    47