CCJ Cameco Corporation

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

Under the Securities Exchange Act of 1934

For the month of February, 2015

 

 

Cameco Corporation

(Commission file No. 1-14228)

 

 

2121-11th Street West

Saskatoon, Saskatchewan, Canada S7M 1J3

(Address of Principal Executive Offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F  ¨            Form 40-F   þ

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes   ¨            No   þ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

 

 

 

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Exhibit Index

 

Exhibit No.		Description		Page No.
1.		Press Release dated February 6, 2015 announcing financial results for the period ended December 31, 2014
2.		2014 Cameco Corporation Consolidated Financial Statements

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: February 9, 2015				Cameco Corporation
				By:		“Sean A. Quinn”
						Sean A. Quinn
						Senior Vice-President, Chief Legal Officer and Corporate Secretary

TSX: CCO NYSE: CCJ				website: cameco.com currency: Cdn (unless noted)

2121 – 11th Street West, Saskatoon, Saskatchewan, S7M 1J3 Canada

Tel: (306) 956-6200 Fax: (306) 956-6201

Cameco reports fourth quarter and 2014 financial results

 

•

delivered on our guidance with strong performance in a weak market environment

 

•

another year of solid uranium segment results—record annual revenue, record average realized price, and strong production

 

•

produced the first packaged uranium concentrate from Cigar Lake

 

•

write-down of $126 million in the fourth quarter related to our Rabbit Lake operation, due to the deferral of various projects related to future planned production

 

•

received a notice of proposed adjustment (NOPA) from the US Internal Revenue Agency for our 2009 tax year

Saskatoon, Saskatchewan, Canada, February 6, 2015    .    .    .    .    .    .    .    .    .     .    .    .    .    .    .    .    .    .

Cameco (TSX: CCO; NYSE: CCJ) today reported its consolidated financial and operating results for the fourth quarter ended December 31, 2014 in accordance with International Financial Reporting Standards (IFRS).

“The uncertainty in the uranium market has persisted for longer than expected, but 2014 was another year of strong financial and operational performance,” said president and CEO, Tim Gitzel. “We have continued to meet and, in several areas, exceed our annual guidance.

“And when we look longer term, we continue to see exceptional growth on the horizon, as billions of dollars are being invested in reactor construction around the world—reactors that will need uranium. With our world-class, low-cost assets, we believe that when the market signals a need for more uranium, we will be well positioned to benefit from that growing demand.”

 

HIGHLIGHTS						THREE MONTHS ENDED DECEMBER 31												YEAR ENDED DECEMBER 31
($ MILLIONS EXCEPT PER SHARE AMOUNTS)						2014				2013				CHANGE				2014				2013				CHANGE
Revenue							889				977				(9	)%			2,398				2,439				(2	)%
Gross profit							251				185				36	%			638				607				5	%
Net earnings attributable to equity holders							73				64				14	%			185				318				(42	)%
$ per common share (basic and diluted)							0.18				0.16				13	%			0.47				0.81				(42	)%
Adjusted net earnings (non-IFRS, see page 8)							205				150				37	%			412				445				(7	)%
$ per common share (adjusted and diluted)							0.52				0.38				37	%			1.04				1.12				(7	)%
Cash provided by continuing operations (after working capital changes)1							236				163				45	%			480				524				(8	)%
Average realized prices		Uranium		$US/lb			50.57				47.76				6	%			47.53				48.35				(2	)%
				$Cdn/lb			56.78				49.80				14	%			52.37				49.81				5	%
		Fuel services		$Cdn/kgU			16.92				17.24				(2	)%			19.70				18.12				9	%
		NUKEM		$Cdn/lb			52.12				41.84				25	%			44.90				42.26				6	%

 

1	For comparison purposes, our results have been revised to exclude BPLP. The impact of BPLP is shown separately in our annual MD&A as a discontinued operation.

The 2014 annual financial statements have been audited; however, the 2013 and 2014 fourth quarter financial information presented is unaudited. You can find a copy of our 2014 audited financial statements on our website at cameco.com. Our 2014 annual management’s discussion and analysis (MD&A) will be posted on our website before markets open on Monday, February 9, 2015.

 

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FULL YEAR

Our net earnings attributed to equity holders (net earnings) were $185 million ($0.47 per share diluted) compared to $318 million ($0.81 per share diluted) in 2013, mainly due to:

 

•

write-downs totalling $327 million of our investments in Eagle Point mine assets at Rabbit Lake – $126 million, GLE – $184 million, and Goviex – $17 million

 

•

no earnings from Bruce Power Limited Partnership (BPLP), which we divested in the first quarter of 2014

 

•

the write-off of $41 million of assets under construction as a result of changes made to the scope of a number of projects

 

•

an early termination fee of $18 million incurred as a result of the cancellation of our toll conversion agreement with Springfields Fuels Limited (SFL), which was to expire in 2016

 

•

settlement costs of $12 million with respect to the early redemption of our Series C debentures

 

•

lower earnings in our fuel services segment as a result of a decrease in sales volumes and higher unit cost of sales

 

•

higher losses on foreign exchange derivatives due to the weakening of the Canadian dollar

partially offset by:

 

•

a $127 million gain on the sale of our interest in BPLP

 

•

higher earnings in our uranium segment due to higher average realized prices

 

•

a favourable settlement of $66 million in a dispute regarding a long-term supply contract with a utility customer

 

•

lower exploration costs due to a more focused effort on our core projects in Saskatchewan, with decreases in activity elsewhere, particularly in Australia and at Inkai

 

•

higher tax recoveries resulting from pre-tax losses in Canada

On an adjusted basis, our earnings were $412 million ($1.04 per share diluted) (non-IFRS measure, see page 8) compared to $445 million ($1.12 per share diluted) in 2013, mainly due to:

 

•

no earnings from BPLP due to divestiture of our interest in the first quarter of 2014

 

•

an early termination fee of $18 million incurred as a result of the cancellation of our toll conversion agreement with SFL, which was to expire in 2016

 

•

settlement costs of $12 million with respect to the early redemption of our Series C debentures

 

•

lower earnings from our fuel services business as a result of lower sales volumes and higher unit cost of sales

 

•

higher losses on foreign exchange derivatives due to the weakening of the Canadian dollar

partially offset by:

 

•

higher earnings in our uranium segment due to higher average realized prices

 

•

a favourable settlement of $66 million with respect to a dispute regarding a long-term supply contract with a utility customer

 

•

lower exploration costs due to a more focused effort on our core projects in Saskatchewan, with decreases in activity elsewhere, particularly at our Kintyre project in Australia and at Inkai

FOURTH QUARTER

In the fourth quarter of 2014, our net earnings were $73 million ($0.18 per share diluted), an increase of $9 million compared to $64 million ($0.16 per share diluted) in 2013, mainly due to:

 

•

higher uranium gross profits resulting from higher average realized prices and lower average unit cost of sales

 

•

a favourable settlement of $37 million with respect to a dispute regarding a long-term supply contract with a utility customer

 

•

lower exploration expenditures

 

•

higher income tax recovery

partially offset by:

 

•

the impact of a $126 million write-down of our investments in the Eagle Point mine assets at Rabbit Lake

 

•

the write-off of $41 million of assets under construction as a result of changes made to the scope of a number of projects

 

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•

no earnings from BPLP due to divestiture of our interest in the first quarter of 2014

 

•

higher losses on foreign exchange derivatives resulting from the weakening of the Canadian dollar

On an adjusted basis, our earnings this quarter were $205 million ($0.52 per share diluted) compared to $150 million ($0.38 per share diluted) (non-IFRS measure, see page 8) in the fourth quarter of 2013, mainly due to:

 

•

higher uranium gross profits due to higher average realized price and lower average unit cost of sales

 

•

a favourable settlement of $37 million with respect to a dispute regarding a long-term supply contract with a utility customer

 

•

lower exploration expenditures

partially offset by:

 

•

no earnings from BPLP due to divestiture of our interest in the first quarter of 2014

IMPAIRMENT CHARGE ON PRODUCING ASSETS

During the fourth quarter of 2014, we recognized a $126 million impairment charge related to our Rabbit Lake operation. The impairment was due to the deferral of various projects that were related to planned production over the remaining life of the Eagle Point mine. The amount of the charge was determined as the excess of the carrying value over the recoverable amount. The recoverable amount of the mine was determined to be $29 million. See note 10 of the financial statements.

2014 market developments

Today, the uranium market is in a state of oversupply, and there are a number of factors contributing: primary supply continues to perform relatively well; enrichers are underfeeding their plants in reaction to excess enrichment capacity, which creates another source of uranium that’s being put onto the spot market; and Japanese reactors remain idled, meaning their inventories continue to grow. We do not believe those inventories are coming to market, but it removes Japanese utilities from the market as buyers for the time being.

SUPPLY AND DEMAND

Market conditions remained depressed in 2014. In particular, the slower than expected pace of Japanese reactor restarts and generally sluggish reactor construction and start-ups globally led to demand erosion. Unlike 2013, we did observe supply contraction during the year as several existing production centres were shut down and some uranium projects were delayed or cancelled in response to poor market conditions. However, this was more than offset by demand erosion and steady flows of secondary supply. The impact of these conditions was the continuation of the inventory overhang and depressed prices resulting from the 2011 events at the Fukushima-Daiichi nuclear power plant in Japan.

CONTRACTING

Market contracting activity was modest. Spot volumes were normal, but long-term contracting was well below historical averages and current consumption levels—about half of current annual reactor consumption estimates, albeit higher than in 2013. Long-term contracting is a key factor in the timing of market recovery, and its pace will depend on the respective coverage levels, market views and risk appetite of both buyers and sellers.

JAPAN

There were several positive indications for the long term in 2014. Japanese utilities and the Nuclear Regulatory Authority (NRA) began implementing the regulatory process required for reactor restarts; currently, 11 restart applications have been submitted by 11 utilities covering 21 reactors. The frontrunners are the two Sendai reactors, which appear poised for restart in the first half of 2015 following a few final regulatory confirmations and safety checks. Beyond Sendai, two Takahama units were granted preliminary safety approval from the NRA in late-2014, moving these reactors into the final regulatory approval stages. More broadly, we continue to see a high degree of confidence from Japanese utilities who are spending billions of dollars on plant upgrades in anticipation of a positive restart environment.

 

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OTHER REGIONS

China’s remarkable nuclear growth program remains on track and the United Kingdom continues to be a bright spot for the industry as plans for new reactor construction move forward. India, Russia and South Korea are also among several key regions growing their nuclear generation fleet.

In 2014, growth was tangible as five reactors came online: three in China, one in Argentina, and one in Russia. It was also exciting to see two emerging nuclear countries start construction on reactors: one in the United Arab Emirates and one in Belarus.

Outlook for 2015

Our strategy is to profitably produce at a pace aligned with market signals, while maintaining the ability to respond to conditions as they evolve.

Our outlook for 2015 reflects the expenditures necessary to help us achieve our strategy. We do not provide an outlook for the items in the table that are marked with a dash.

See 2014 Financial results by segment on page 12 for details.

2015 FINANCIAL OUTLOOK

 

CONSOLIDATED

URANIUM1

FUEL SERVICES

NUKEM1

Production

—

25.3 to 26.3 million lbs

9 to 10 million kgU

—

Sales volume1

—

31 to 33 million lbs

Decrease 5% to 10%

7 to 8 million lbs U3O8

Revenue compared to 20142

Decrease 0% to 5%

Decrease 5% to 10%

3

Decrease 0% to 5%

Increase 5% to 10%

Average unit cost of sales (including D&A)

—

Increase 5% to 10%

4

Increase 5% to 10%

Increase 0% to 5%

Direct administration costs compared to 20145

Increase 0% to 5%

—

—

Decrease 0% to 5%

Exploration costs compared to 2014

—

Decrease 5% to 10%

—

—

Tax rate

Recovery of 60% to 65%

—

—

Expense of 30% to 35%

Capital expenditures

$

370 million

—

—

—

 

1	Our 2015 outlook for sales volume in our uranium and NUKEM segments does not include sales between our uranium, fuel services and NUKEM segments.

2	For comparison of our 2015 outlook and 2014 results for revenue in our uranium and NUKEM segments, we do not include sales between our uranium, fuel services and NUKEM segments.

3	Based on a uranium spot price of $37.50 (US) per pound (the Ux spot price as of February 2, 2015), a long-term price indicator of $49.00 (US) per pound (the Ux long-term indicator on January 26, 2015) and an exchange rate of $1.00 (US) for $1.10 (Cdn).

4	This increase is based on the unit cost of sale for produced material and committed long-term purchases. If we make discretionary purchases in 2015, then we expect the overall unit cost of sales may be affected.

5	Direct administration costs do not include stock-based compensation expenses.

CONSOLIDATED OUTLOOK

We expect consolidated revenue to decrease up to 5% in 2015 due to an expected decrease in uranium and fuel services sales volumes.

We expect administration costs (not including stock-based compensation) to be up to 5% higher compared to 2014.

We expect exploration expenses to be about 5% to 10% lower than they were in 2014 due to decreased spending at Inkai.

We have contractual arrangements to sell uranium produced at our Canadian mining operations to a trading and marketing company located in a foreign jurisdiction. These arrangements reflect the uranium markets at the time they were signed, with the risk and benefit of subsequent movements in uranium prices accruing to the foreign trading and marketing company.

 

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On an adjusted net earnings basis, we expect a tax recovery of 60% to 65% in 2015 from our uranium, fuel services and NUKEM segments, as taxable income in Canada is expected to decline. In 2016, the older contractual arrangements under our portfolio of intercompany sale and purchase arrangements largely expire, and we expect our portfolio to be increasingly reflective of the market at the time transactions occur under the contracts. As this transition occurs, we expect our consolidated tax rate to increase from a recovery to an expense, however the rate of change will depend on market conditions at the time new contracts are put in place and when transactions occur under the contracts.

URANIUM OUTLOOK

We expect to produce 25.3 million to 26.3 million pounds in 2015 and have commitments under long-term contracts to purchase approximately 2 million pounds.

Based on the contracts we have in place and not including sales between our segments, we expect to deliver between 31 million and 33 million pounds of U₃O₈ in 2015. We expect the unit cost of sales to be 5% to 10% higher than in 2014, primarily due to higher costs for produced material. As Cigar Lake ramps up to full production, the cash cost of material produced from the mine will initially be higher. If we make additional discretionary purchases in 2015 at a cost different than our other sources of supply, then we expect the overall unit cost of sales to be affected.

We expect revenue to be 5% to 10% lower than it was in 2014 as a result of an expected decrease in deliveries, not including sales between our segments, and a lower average realized price.

In our uranium and fuel services segments, our customers choose when in the year to receive deliveries, so our quarterly delivery patterns and, therefore, our sales volumes and revenue, can vary significantly. We expect the quarterly distribution of uranium deliveries to be relatively balanced in 2015. However, not all delivery notices have been received to date, which could alter the delivery pattern. Typically, we receive notices six months in advance of the requested delivery date.

PRICE SENSITIVITY ANALYSIS: URANIUM SEGMENT

The table below 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. It is designed to indicate how the portfolio of long-term contracts we had in place on December 31, 2014 would respond to different spot prices. In other words, we would realize these prices only if the contract portfolio remained the same as it was on December 31, 2014, and none of the assumptions we list below change.

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

 

(rounded to the nearest $1.00)
SPOT PRICES ($US/lb U3O8)		$20				$40				$60				$80				$100				$120				$140
2015			41				46				55				63				72				80				87
2016			41				47				57				68				78				87				95
2017			41				46				57				67				78				87				94
2018			42				48				58				69				79				87				93
2019			43				49				59				69				78				85				91

The table illustrates the mix of long-term contracts in our December 31, 2014 portfolio, and is consistent with our marketing strategy. It has been updated to reflect deliveries made and contracts entered into up to December 31, 2014.

Our portfolio includes a mix of fixed-price and market-related contracts, which we target at a 40:60 ratio. Those that are fixed at lower prices or have low ceiling prices will yield prices that are lower than current market prices.

 

Our portfolio is affected by more than just the spot price. We made the following assumptions (which are not forecasts) to create the table:

 

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FUEL SERVICES OUTLOOK

In 2015, we plan to produce 9 million to 10 million kgU, and we expect sales volumes not including intersegment sales to be 5% to 10% lower than in 2014. Overall revenue is expected to decrease by up to 5% as lower sales volumes will be partially offset by an increase in the average realized price. We expect the average unit cost of sales (including D&A) to increase by 5% to 10%; therefore, overall gross profit will decrease as a result.

NUKEM OUTLOOK

For 2015, NUKEM expects to deliver between 7 million and 8 million pounds of uranium, resulting in an increase in revenues not including intersegment sales, of 5% to 10% compared to 2014. NUKEM expects to incur administration costs up to 5% lower than in 2014. The effective income tax rate is expected to remain in the range of 30% to 35%.

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.

 

CAMECO’S SHARE ($ MILLIONS)		2014 PLAN				2014 ACTUAL				2015 PLAN
Sustaining capital
McArthur River/Key Lake			25				22				25
Cigar Lake			25				14				15
Rabbit Lake			45				33				35
US ISR			5				3				5
Inkai			10				9				5
Fuel services			10				8				15
Other			15				6				5
Total sustaining capital			135				95				105
Capacity replacement capital
McArthur River/Key Lake			55				57				85
Cigar Lake			35				38				35
Rabbit Lake			—				—				—
US ISR			20				23				20
Inkai			15				10				15
Total capacity replacement capital			125				128				155

 

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Growth capital
McArthur River/Key Lake			60				51				25
Cigar Lake			155				186				70
US ISR			5				2				—
Inkai			5				10				5
Fuel services			5				6				5
Other			—				2				5
Total growth capital			230				257				110
Total uranium & fuel services			490	1			480				370

 

1

Capital spending outlook was updated to $490 million in our third quarter MD&A.

OUTLOOK FOR INVESTING ACTIVITIES

 

(CAMECO’S SHARE IN $ MILLIONS)		2016 PLAN				2017 PLAN
Total uranium & fuel services			300-350				350-400
Sustaining capital			125-140				155-170
Capacity replacement capital			100-115				125-140
Growth capital			75-95				70-90

We expect total capital expenditures for uranium and fuel services to decrease by about 23% in 2015.

Major sustaining, capacity replacement and growth expenditures in 2015 include:

 

•

McArthur River/Key Lake – At McArthur River, the largest projects are the upgrade of the electrical infrastructure, the expansion of freeze capacity and mine development. Other projects include site facility and equipment purchases. At Key Lake, work will be completed on the calciner.

 

•

US in situ recovery (ISR) – wellfield construction represents the largest portion of our expenditures in the US.

 

•

Rabbit Lake – At Eagle Point, the largest component is mine development, along with mine equipment upgrades and purchases. Work on various mill facility and equipment replacements will also continue.

 

•

Cigar Lake – Underground mine development makes up the largest portion of capital at the Cigar Lake site. We are also paying our share of the costs to modify and expand the McClean Lake mill.

We previously expected to spend between $400 million and $450 million in 2015, and between $500 million and $550 million in 2016. We now expect to spend $370 million in 2015 and between $300 million and $350 million in 2016. The change is due to the removal of our fixed production target and the decrease in spending on the related projects. As the market begins to signal new production is needed, we plan to increase our capital expenditures to allow us to be among the first to respond to the growth we see coming.

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 beginning on page 19. Our actual capital expenditures for future periods may be significantly different.

ACQUISITIONS AND DIVESTITURES

On January 30, 2014, we signed an agreement with BPC Generation Infrastructure Trust to sell our 31.6% limited partnership interest in BPLP and related entities for $450 million. The effective date for the sale is January 1, 2014. We have realized an after tax gain of $127 million on this divestiture.

REVENUE AND EARNINGS SENSITIVITY ANALYSIS

At December 31, 2014, every one-cent change in the value of the Canadian dollar versus the US dollar would change our 2015 net earnings by about $7 million (Cdn), with a decrease in the value of the Canadian dollar versus the US dollar having a positive impact. This sensitivity is based on an exchange rate of $1.00 (US) for $1.00 (Cdn).

For 2015, a change of $5 (US) per pound in each of the Ux spot price ($37.50 (US) per pound on February 2, 2015) and the Ux long-term price indicator ($49.00 (US) per pound on January 26, 2015) would change revenue by $93 million and net earnings by $55 million.

 

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NON-IFRS MEASURES – ADJUSTED NET EARNINGS

Adjusted net earnings is a measure that does not have a standardized meaning or a consistent basis of calculation under IFRS (non-IFRS measure). We use this measure as a more meaningful way to compare our financial performance from period to 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 our net earnings attributable to equity holders, adjusted to better reflect the underlying financial performance for the reporting period. The adjusted earnings measure reflects the matching of the net benefits of our hedging program with the inflows of foreign currencies in the applicable reporting period, and adjusted for impairment charges, the write-off of assets, NUKEM inventory write-down, loss on exploration properties, gain on interest in BPLP (after tax), and income taxes on adjustments.

Adjusted net earnings is non-standard supplemental information 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.

To facilitate a better understanding of these measures, the following table reconciles adjusted net earnings with our net earnings for the quarters and years ended December 31, 2014 and December 31, 2013.

 

($ MILLIONS)		THREE MONTHS ENDED DECEMBER 31								YEAR ENDED DECEMBER 31
		2014				2013				2014				2013
Net earnings attributable to equity holders			73				64				185				318
Adjustments
Adjustments on derivatives1			10				36				47				56
Impairment charges			131				70				327				70
Write-off of assets			41				—				41				—
NUKEM inventory write-down (recovery)			(4	)			(3	)			(5	)			14
Loss on exploration properties			—				—				—				15
Gain on interest in BPLP (after tax)			—				—				(127	)			–
Income taxes on adjustments			(46	)			(17	)			(56	)			(28	)
Adjusted net earnings			205				150				412				445

 

1	We do not apply hedge accounting for our portfolio of foreign currency forward sales contracts. However, we have adjusted our gains or losses on derivatives to reflect what our earnings would have been had hedge accounting been in place.

TRANSFER PRICING DISPUTES

We have been reporting on our transfer pricing dispute with Canada Revenue Agency (CRA) since 2008, when it originated. As well, we recently received a NOPA from the United States Internal Revenue Service (IRS) challenging the transfer pricing used under certain intercompany transactions including uranium purchase and sales arrangements relating to 2009. Below, we discuss the general nature of transfer pricing disputes and, more specifically, the ongoing disputes we have.

Transfer pricing is a complex area of tax law, and it is difficult to predict the outcome of cases like ours. However, tax authorities generally test two things:

 

•

the governance (structure) of the corporate entities involved in the transactions

 

•

the price at which goods and services are sold by one member of a corporate group to another

We have a global customer base and we established a marketing and trading structure involving foreign subsidiaries, including Cameco Europe Limited (CEL), which entered into various intercompany arrangements, including purchase and sale agreements, 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.

 

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For the years 2003 to 2009, CRA has shifted CEL’s income (as re-calculated by CRA) back to Canada and applied statutory tax rates, interest and instalment penalties, and, from 2007 to 2009, transfer pricing penalties. The IRS is also proposing to allocate a portion of CEL’s income for 2009 to the US, resulting in such income being taxed in multiple jurisdictions. Taxes of approximately $290 million for the 2003 – 2014 years have already been paid in a jurisdiction outside Canada and the US. Bilateral international tax treaties contain provisions that generally seek to prevent taxation of the same income in both countries. As such, in connection with these disputes, we are considering our options including remedies under international tax treaties that would limit double taxation; however, it is unclear whether we will be successful in eliminating all potential double taxation. The expected income adjustments under our tax disputes are represented by the amounts claimed by CRA and IRS and are described below.

CRA Dispute

Since 2008, CRA has disputed our corporate structure and the related transfer pricing methodology we used for certain intercompany uranium sale and purchase agreements, and issued notices of reassessment for our 2003 through 2009 tax returns. We have recorded a cumulative tax provision of $85 million, where an argument could be made that our transfer price may have fallen outside of an appropriate range of pricing in uranium contracts for the period from 2003 through 2014. We continue to believe the ultimate resolution of this matter will not be material to our financial position, results of operations and cash flows in the year(s) of resolution.

We are confident that we will be successful in our case; however, for the years 2003 through 2009, CRA issued notices of reassessment for approximately $2.8 billion of additional income for Canadian tax purposes, which would result in a related tax expense of about $820 million. CRA has also issued notices of reassessment for transfer pricing penalties for the years 2007 through 2009 in the amount of $229 million, including notices of reassessment recently received for transfer pricing penalties of an aggregate of $156 million for the 2008 and 2009 tax years. We have not yet made any remittance related to the 2008 and 2009 transfer pricing penalties. The Canadian income tax rules include provisions that require larger companies like us to remit 50% of the cash tax plus related interest and penalties at the time of reassessment. To date, under these provisions, after applying elective deductions and tax loss carryovers, we have paid a net amount of $212 million cash to the Government of Canada, which includes the amounts shown in the table below. As an alternative to paying cash, we are exploring the possibility of providing security in the form of letters of credit to satisfy our requirements under these provisions.

 

YEAR PAID ($ MILLIONS)		CASH TAXES				INTEREST AND INSTALMENT PENALTIES				TRANSFER PRICING PENALTIES				TOTAL
Prior to 2013			—				13				—				13
2013			1				9				36				46
2014			106				47				—				153
Total			107				69				36				212

Using the methodology we believe CRA will continue to apply, and including the $2.8 billion already reassessed, we expect to receive notices of reassessment for a total of approximately $6.6 billion of additional income taxable in Canada for the years 2003 through 2014, which would result in a related tax expense of approximately $1.9 billion. As well, CRA may continue to apply transfer pricing penalties to taxation years subsequent to 2009. As a result, we estimate that cash taxes and transfer pricing penalties for these years would be between $1.45 billion and $1.5 billion. In addition, we estimate there would be interest and instalment penalties applied that would be material to us. While in dispute, we would be responsible for remitting or otherwise providing security for 50% of the cash taxes and transfer pricing penalties (between $725 million and $750 million), plus related interest and instalment penalties assessed, which would be material to us.

Under the Canadian federal and provincial tax rules, the amount required to be paid or secured each year will depend on the amount of income reassessed in that year and the availability of elective deductions and tax loss carryovers. The estimated amounts summarized in the table below reflect actual amounts paid and estimated future amounts owing based on the actual and expected reassessments for the years 2003 through 2014. We will update this table annually to include the estimated impact of reassessments expected for completed years subsequent to 2014.

 

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$ MILLIONS		2003 - 2014				2015				2016 - 2017				2018 - 2023				TOTAL
50% of cash taxes and transfer pricing penalties paid or owing in the period1			143				165 - 190				320 - 345				80 - 105				725 - 750

 

1	These amounts do not include interest and instalment penalties, which totalled approximately $69 million to December 31, 2014.

In light of our view of the likely outcome of the case as described above, we expect to recover the amounts remitted to the Government of Canada, including the $212 million already paid to date.

Due to the time it is taking to work through the pre-trial process, we now expect our appeal of the 2003 reassessment to be heard in the Tax Court of Canada in 2016. If this timing is adhered to, we expect to have a Tax Court decision within six to 18 months after the trial is complete.

IRS dispute

As noted above, we received a NOPA from the IRS pertaining to the 2009 tax year for certain of our US subsidiaries.

In general, a NOPA is used by the IRS to communicate a proposed adjustment to income and provides the basis upon which the IRS will issue a Revenue Agent’s Report (RAR), which lists the adjustments proposed by the IRS and calculates the tax and any penalties owing based on the proposed adjustments. We currently anticipate receiving a RAR in the first quarter of 2015.

The current position of the IRS is that a portion of the non-US income reported under our corporate structure and taxed in non-US jurisdictions should be recognized and taxed in the US on the basis that:

 

•

the prices received by our US mining subsidiaries for the sale of uranium to CEL are too low

 

•

the compensation being earned by Cameco Inc., one of our US subsidiaries, is inadequate

The proposed adjustment results in an increase in taxable income in the US of approximately $108 million (US) and a corresponding increased income tax expense of approximately $32 million (US) for the 2009 taxation year, with interest being charged thereon. In addition, the IRS may apply penalties in respect of the adjustment.

At present, the NOPA pertains only to the 2009 tax year; however, the IRS is also auditing our tax returns for 2010 through 2012 on a similar basis and we expect adjustments in these years to be similar to those we expect to be made for 2009. If the IRS audits years subsequent to 2012 on a similar basis, we expect these adjustments would also be similar to those proposed for 2009.

We believe that the conclusions of the IRS in the NOPA are incorrect and we plan to contest them in an administrative appeal, during which we are not required to make payments. At present, this matter is still at an early stage and, until this matter progresses further, we cannot provide an estimation of the likely timeline for a resolution of the dispute.

We believe that the ultimate resolution of this matter will not be material to our financial position, results of operations and cash flows in the year(s) of resolution.

Overview of disputes

The table below provides an overview of some of the key points with respect to our CRA and IRS tax disputes.

 

		CRA		IRS
Basis for dispute		•   Corporate structure/governance   •   Transfer pricing methodology used for certain intercompany uranium sale and purchase agreements   •   Allocates Cameco Europe Ltd. (CEL) income (as adjusted) for 2003 through 2009 to Canada (same income we paid tax on in foreign jurisdictions and includes income that IRS is proposing to tax)		•   Income earned on sales of uranium by the US mines to CEL is inadequate   •   Compensation earned by Cameco Inc., one of our US subsidiaries, is inadequate   •   Allocates a portion of CEL’s 2009 income to the US (a portion of the same income we paid tax on in foreign jurisdictions and which the CRA is proposing to tax)

 

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		CRA		IRS
Years under considerations		•   CRA reassessed 2003 to 2009   •   Auditing 2010 to 2012		•   IRS issued Notice of Proposed Adjustment (NOPA) for 2009   •   Auditing 2010 to 2012
Timing of resolution		•   Expect our appeal of the 2003 reassessment to be heard in the Tax Court in 2016   •   Expect Tax Court decision six to 18 months after completion of trial		•   Expect Revenue Agent’s Report (follows NOPA) in Q1 2015   •   Plan to contest proposed adjustments in an administrative appeal   •   This dispute is at an early stage, and we cannot yet provide an estimate as to the timeline for resolution
Required payments		•   Expect to remit 50% of cash taxes, interest and penalties as reassessed   •   Paid $212 million in cash to date   •   Exploring possibility of providing security in the form of letters of credit to satisfy required remittances		•   No payments required while under administrative appeal

 

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

This discussion of our expectations relating to our tax disputes with CRA and IRS and future tax reassessments by CRA and IRS 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 19 and also on the more specific assumptions and risks listed below. Actual outcomes may vary significantly.

 

 

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2014 financial results by segment

Uranium results

 

		THREE MONTHS ENDED DECEMBER 31												YEAR ENDED DECEMBER 31
HIGHLIGHTS		2014				2013				CHANGE				2014				2013				CHANGE
Production volume (million lbs)			8.2				7.5				9	%			23.3				23.6				(1	)%
Sales volume (million lbs)			10.7	1			12.7				(16	)%			33.9	2			32.8				3	%
Average spot price ($US/lb)			37.13				35.03				6	%			33.21				38.17				(13	)%
Average long-term price ($US/lb)			48.00				50.00				(4	)%			46.46				54.13				(14	)%
Average realized price
($US/lb)			50.57				47.76				6	%			47.53				48.35				(2	)%
($Cdn/lb)			56.78				49.80				14	%			52.37				49.81				5	%
Average unit cost of sales ($Cdn/lb) (including D&A)			34.27				37.94				(10	)%			34.64				33.01				5	%
Revenue ($ millions)			606	1			631				(4	)%			1,777	2			1,633				9	%
Gross profit ($ millions)			240				150				60	%			602				550				9	%
Gross profit (%)			40				24				67	%			34				34				—

 

1	Includes sales of 0.4 million pounds and revenue of $15 million between our uranium, fuel services and NUKEM segments.

2	Includes sales of 1.4 million pounds and revenue of $48 million between our uranium, fuel services and NUKEM segments.

FOURTH QUARTER

Production volumes this quarter were 9% higher compared to the fourth quarter of 2013, mainly as a result of higher production at McArthur River/Key Lake, in addition to the first production from Cigar Lake/McClean Lake. See Our operations starting on page 16 for more information.

Uranium revenues were down 4% due to a 16% decrease in sales volumes, which represents normal quarterly variance in our delivery schedule, offset by a 14% increase in average realized price.

The average realized price increased by 14% compared to 2013 due to higher US dollar prices under fixed price contracts, and the effect of foreign exchange. In the fourth quarter of 2014, our realized foreign exchange rate was $1.12 compared to $1.04 in the prior year.

Total cost of sales (including D&A) decreased by 24% ($366 million compared to $481 million in 2013). This was the result of a 10% decrease in the average unit cost of sales and a 16% decrease in sales volumes.

The unit cost of sales decreased due to a decrease in the cash costs of produced material in the fourth quarter compared to the same period in 2013, as a result of increased production and timing of royalties. In addition, standby charges for the McClean Lake mill ceased in the fourth quarter, as production from Cigar Lake commenced.

The net effect was a $90 million increase in gross profit for the quarter.

FULL YEAR

Production volumes in 2014 did not vary significantly from 2013. Lower production at McArthur River/Key Lake was offset by higher production at other sites. See Our operations on page 16 for more information.

Uranium revenues this year were up 9% compared to 2013 due to an increase in sales volumes of 3% and an increase of 5% in the Canadian dollar average realized price. Although the spot and term prices were lower than 2013, our average realized prices remained fairly constant compared to 2013, as lower market-related prices were largely offset by higher US dollar prices under fixed price contracts. The effect of foreign exchange resulted in a higher Canadian dollar average realized price than in the prior year. The realized foreign exchange rate was $1.10 compared to $1.03 in 2013. The spot price for uranium averaged $33.21 (US) per pound in 2014, a decline of 13% compared to the 2013 average price of $38.17 (US) per pound.

 

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Total cost of sales (including D&A) also increased by 9% ($1.18 billion compared to $1.08 billion in 2013) mainly due to slightly higher sales volumes and an increase in the average unit cost of sales resulting from an increase in non-cash costs. Total non-cash costs were $273 million compared to $213 million in 2013 as a result of an increase in the average non-cash unit cost of inventory.

The net effect was a $52 million increase in gross profit for the year.

The following table shows the costs of produced and purchased uranium incurred in the reporting periods (non-IFRS measures, see page 8). These costs do not include selling costs such as royalties, transportation and commissions, nor do they reflect the impact of opening inventories on our reported cost of sales.

 

		THREE MONTHS ENDED DECEMBER 31												YEAR ENDED DECEMBER 31
($Cdn/lb)		2014				2013				CHANGE				2014				2013				CHANGE
Produced
Cash cost			14.19				15.61				(9	)%			18.66				18.37				2	%
Non-cash cost			7.15				9.42				(24	)%			9.30				9.46				(2	)%
Total production cost			21.34				25.03				(15	)%			27.96				27.83				—
Quantity produced (million lbs)			8.2				7.5				9	%			23.3				23.6				(1	)%
Purchased
Cash cost			39.03				37.26				5	%			38.17				27.95				37	%
Quantity purchased (million lbs)			3.7				4.4				(16	)%			7.1				13.2				(46	)%
Totals
Produced and purchased costs			26.84				29.55				(9	)%			30.34				27.87				9	%
Quantities produced and purchased (million lbs)			11.9				11.9				—				30.4				36.8				(17	)%

Cash cost per pound, non-cash cost per pound and total cost per pound for produced and purchased uranium presented in the above table are non-IFRS measures. These measures do not have a standardized meaning or a consistent basis of calculation under IFRS. We use these measures in our assessment of the performance of our uranium business. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate our performance and ability to generate cash flow.

These measures are non-standard supplemental information and should not be considered in isolation or as a substitute for measures of performance prepared according to accounting standards. These measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently, so you may not be able to make a direct comparison to similar measures presented by other companies.

To facilitate a better understanding of these measures, the following table presents a reconciliation of these measures to our unit cost of sales for the quarters and years ended December 31, 2014 and December 31, 2013.

 

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Cash and total cost per pound reconciliation

 

		THREE MONTHS ENDED DECEMBER 31								YEAR ENDED DECEMBER 31
($ MILLIONS)		2014				2013				2014				2013
Cost of product sold			269.0				359.8				902.8				869.1
Add / (subtract)
Royalties			(34.5	)			(52.5	)			(91.2	)			(90.8	)
Standby charges			—				(11.1	)			(24.8	)			(37.4	)
Other selling costs			(2.3	)			(4.8	)			(9.0	)			(1.4	)
Change in inventories			28.5				(10.3	)			(71.9	)			63.1
Cash operating costs (a)			260.7				281.1				705.9				802.6
Add / (subtract)
Depreciation and amortization			96.7				121.2				272.6				212.9
Change in inventories			(38.0	)			(50.7	)			(56.2	)			10.1
Total operating costs (b)			319.4				351.6				922.3				1,025.6
Uranium produced and purchased (millions lbs) (c)			11.9				11.9				30.4				36.8
Cash costs per pound (a ÷ c)			21.91				23.62				23.22				21.81
Total costs per pound (b ÷ c)			26.84				29.55				30.34				27.87

Fuel services results

(includes results for UF₆, UO₂ and fuel fabrication)

 

		THREE MONTHS ENDED DECEMBER 31												YEAR ENDED DECEMBER 31
HIGHLIGHTS		2014				2013				CHANGE				2014				2013				CHANGE
Production volume (million kgU)			2.7				2.7				—				11.6				14.9				(22	)%
Sales volume (million kgU)			7.4	1			6.5				14	%			15.5	2			17.6	3			(12	)%
Realized price ($Cdn/kgU)			16.92				17.24				(2	)%			19.70				18.12				9	%
Average unit cost of sales ($Cdn/kgU) (including D&A)			14.78				14.42				2	%			17.24				15.16				14	%
Revenue ($ millions)			125	1			112				12	%			306	2			319	3			(4	)%
Gross profit ($ millions)			16				18				(11	)%			38				52				(27	)%
Gross profit (%)			13				16				(19	)%			12				16				(25	)%

 

1	Includes sales of 0.5 million kgU and revenue of $4 million between our uranium, fuel services and NUKEM segments.

2	Includes sales of 0.5 million kgU and revenue of $4 million between our uranium, fuel services and NUKEM segments.

3	Includes sales of 0.7 million kgU and revenue of $6 million between our uranium, fuel services and NUKEM segments.

FOURTH QUARTER

Total revenue increased by 12% due to a 14% increase in sales volumes, partially offset by a 2% decrease in average realized price.

The total cost of sales (including D&A) increased by 17% ($109 million compared to $93 million in the fourth quarter of 2013) mainly due to a 14% increase in sales volumes and a 2% increase in the average unit cost of sales.

The net effect was a $2 million decrease in gross profit.

FULL YEAR

Total revenue decreased by 4% due to a 12% decrease in sales volumes, partially offset by a 9% increase in the realized price.

 

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The total cost of products and services sold (including D&A) remained relatively stable compared to 2013 at $268 million, as a 12% decrease in sales volume was offset by a 14% increase in the average unit cost of sales (including D&A).

The net effect was a $14 million decrease in gross profit.

NUKEM results

 

		THREE MONTHS ENDED DECEMBER 31												YEAR ENDED DECEMBER 31
HIGHLIGHTS		2014				2013				CHANGE				2014				2013				CHANGE
Uranium sales (million lbs)			3.4	1			3.3				3	%			8.1	1			8.9	2			(9	)%
Average realized price ($Cdn/lb)			52.12				41.84				25	%			44.90				42.26				6	%
Cost of product sold (including D&A)			156				169				(8	)%			327				445				(27	)%
Revenue			159	1			188				(15	)%			349	1			465	2			(25	)%
Gross profit			3				19				(84	)%			22				20				10	%
Net earnings			(6	)			13				(146	)%			(3	)			7				(143	)%
Adjustments on derivatives3			—				(1	)			100	%			2				(3	)			167	%
NUKEM inventory write-down (reversal) (net of tax)			(2	)			(1	)			(100	)%			(4	)			10				(140	)%
Adjusted net earnings (loss)3			(8	)			11				(173	)%			(5	)			14				(136	)%

 

1	Includes sales of 1.1 million pounds and revenue of $43 million between our uranium, fuel services and NUKEM segments.

2	Includes sales of 0.6 million pounds and revenue of $23 million between our uranium, fuel services and NUKEM segments.

3	Adjustments relate to unrealized gains and losses on foreign currency forward sales contracts (non-IFRS measure, see page 8).

FOURTH QUARTER

During the three months ended December 31, 2014, NUKEM delivered 3.4 million pounds of uranium, an increase of 0.1 million pounds compared to 2013 due to timing of customer requirements. NUKEM revenues amounted to $159 million compared to $188 million in 2013 due to a decline in the uranium spot price relative to the previous year.

The unit cost of uranium sold was lower in 2014 as a result of the decline in the spot price.

The net effect was a $16 million decrease in gross profit. On a percentage basis, gross profits were 2% in the fourth quarter of 2014 compared to 10% in the same period in 2013.

Administration costs were higher in the fourth quarter due to the timing of expenditures. In addition, the sale of inventory on hand at the time of the acquisition of NUKEM resulted in an allocation of the historic purchase price to the sale of uranium in the quarter. This resulted in an adjusted net loss for the fourth quarter of 2014 of $8 million, compared to earnings of $11 million (non-IFRS measure, see page 8) in 2013.

FULL YEAR

During 2014, NUKEM delivered 8.1 million pounds of uranium, a decrease of 0.8 million pounds compared to the previous year due to weak market conditions. Revenues from NUKEM amounted to $349 million, 25% lower than in 2013 as a result of lower sales volume and a decline in the realized price amid lower market prices.

Gross profit amounted to $22 million, an increase of $2 million compared to 2013. Although sales volumes decreased, NUKEM’s gross margin increased by 10% compared to 2013 due to generally higher margin sales and a $14 million inventory write-down in 2013. On a percentage basis, gross profits were 6% in 2014 compared to 4% in the prior year.

After administration costs, interest and income taxes, adjusted net earnings amounted to a loss of $5 million compared to earnings of $14 million in 2013 (non-IFRS measure, see page 8).

 

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Our operations

 

CAMECO’S SHARE (MILLION LBS)		THREE MONTHS ENDED DECEMBER 31								YEAR ENDED DECEMBER 31
		2014				2013				2014				2013				2014 PLAN1				2015 PLAN
McArthur River/Key Lake			4.4				4.0				13.3				14.1				12.8				13.7
Rabbit Lake			2.1				2.1				4.2				4.1				4.1				3.9
Smith Ranch-Highland			0.6				0.5				2.1				1.7				2.0				1.4
Crow Butte			0.2				0.2				0.6				0.7				0.6				0.3
Inkai			0.7				0.7				2.9				3.0				3.0				3.0
Cigar Lake			0.2				—				0.2				—				0.1 – 0.3				3.0 – 4.0
Total			8.2				7.5				23.3				23.6				22.6 – 22.8				25.3 – 26.3

 

1	We updated our initial 2014 plan for McArthur River/Key Lake (to 12.8 from 13.1 million pounds) and Cigar Lake (to between 0.1 and 0.3 from between 1.0 and 1.5 million pounds) in our Q3 MD&A.

URANIUM PRODUCTION OUTLOOK

We remain focused on taking advantage of the long-term growth we see coming in our industry, while maintaining the ability to respond to market conditions as they evolve. Our strategy is to profitably produce at a pace aligned with market signals to increase long-term shareholder value.

We plan to:

 

•

ensure continued reliable, low-cost production from our flagship operation, McArthur River/Key Lake and seek to expand that production

 

•

ensure continued reliable, low-cost production at Inkai

 

•

successfully ramp up production at Cigar Lake

 

•

manage the rest of our production facilities and other sources of supply in a manner that retains the flexibility to respond to market signals and take advantage of value adding opportunities within our own portfolio and the uranium market

 

•

maintain our low-cost advantage by focusing on execution and operational excellence

MCARTHUR RIVER

Production from McArthur River/Key Lake was 19.1 million pounds; our share was 13.3 million pounds. This was 4% higher than our forecast for the year as a result of a record month of production at Key Lake in December. However, annual production was 6% lower than in 2013 due to a labour disruption that resulted in an unplanned shutdown of the operations for approximately 18 days during the third quarter of 2014.

In 2014, the CNSC approved the Environmental Assessment (EA) for the Key Lake extension, a project which involves increasing our tailings capacity and Key Lake’s nominal annual production rate. We also received approval to increase the production limit at McArthur River. The licence conditions handbooks for these operations now allow:

 

•

the Key Lake mill to produce up to 25 million pounds (100% basis) per year

 

•

the McArthur River mine to produce up to 21 million pounds (100% basis) per year

With the approved EA, and once the Key Lake extension project is complete, mill production can be increased to closely follow production from the McArthur River mine.

McArthur River production expansion

We have been working to increase our annual production rate at McArthur River to 22 million pounds (100% basis). Since, in 2014, we received approval to produce up to 21 million pounds (100% basis) per year, we decided to file an application with the CNSC to increase licensed annual production up to 25 million pounds (100% basis) to allow flexibility to match the approved Key Lake mill capacity. The application was filed in January 2015.

In order to sustain or increase production, we must continue to successfully transition into new mine areas through mine development and investment in support infrastructure. We plan to:

 

•

obtain all the necessary regulatory approvals

 

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•

expand the freeze plant and electrical distribution systems

 

•

optimize the mine ventilation system

 

•

improve our dewatering system and expand our water treatment capacity as required to mitigate capacity losses should mine development increase background water volumes

 

•

expand the concrete distribution systems and batch plant capacity

New mining areas

New mining zones and increased mine production require increased ventilation and freeze capacity. In 2014, we continued to upgrade our electrical infrastructure on surface as part of our plan to address these future needs.

Underground, we began mining in zone 4 north during the fourth quarter of 2014.

Key Lake extension project and mill revitalization

The Key Lake mill began operating in 1983 and we continue to upgrade circuits with new technology to simplify operations and improve environmental performance. As part of the upgrades, we continued to construct a new calciner circuit, and expect to begin operating with the new calciner in 2015.

The revitalization plan is expected to allow the mill to increase its annual uranium production capability to closely follow annual production rates from the McArthur River mine.

Tailings capacity

This year, the CNSC approved the Key Lake extension EA, allowing us to deposit tailings to a higher level in the Deilmann tailing management facility. We now expect to have sufficient tailings capacity to mill all the known McArthur River mineral reserves and resources, should they be converted to reserves, with additional capacity to toll mill ore from other regional deposits.

Labour relations

The mine and mill experienced a labour disruption that resulted in an unplanned shutdown of the operations for approximately 18 days during the third quarter of 2014. On October 6, 2014, unionized employees at McArthur River and Key Lake accepted a new four-year contract that includes a 12% wage increase over the term of the agreement. The previous contract expired on December 31, 2013.

CIGAR LAKE

Total production from Cigar Lake was 340,000 pounds; our share was 170,000 pounds.

During the year, we:

 

•

brought the Cigar Lake mine into production

 

•

began processing the ore at AREVA’s McClean Lake mill, which, in the third quarter, produced the first uranium concentrate from the Cigar Lake operation

 

•

continued freezing the ground from surface to ensure frozen ore is available for future production years

Costs (all showing our share)

At the time of first production in March, 2014, we had:

 

•

invested about $1.2 billion for our share of the construction costs to develop Cigar Lake

 

•

expensed about $91 million in remediation expenses

 

•

expensed about $111 million in standby costs

After production began in March, and to December 31, 2014, we spent:

 

•

$83 million on the McClean Lake mill

 

•

$16 million on standby costs, which were expensed, and ceased August 31, 2014

Additional expenditures of about $60 to $70 million will be required at McClean Lake mill in 2015 in order to continue ramping up to full production.

In addition, during the year, we spent:

 

•

$57 million on operating costs

 

•

$21 million to complete various capital projects at site

 

•

$39 million on underground development

 

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Some of the costs were capitalized, while others were charged to inventory, depending on the nature of the activity.

We will continue to capitalize some of the costs at Cigar Lake until such time that commercial production is reached. Commercial production is reached when management determines that the mine is able to produce at a consistent or sustainably increasing level.

In 2015, we expect to:

 

•

begin commercial production

 

•

have three jet boring machines operating underground

 

•

continue ramping up towards the planned full production rate of 18 million pounds (100% basis) by 2018

We expect Cigar Lake to produce between 6 million and 8 million packaged pounds in 2015; our share is 3 million to 4 million pounds. Based on our operating experience and productivity during rampup, we will adjust our annual production plans as necessary to allow us to reach our full production rate of 18 million pounds (100% basis) by 2018.

INKAI

Total production from Inkai was 5.1 million pounds; our share was 2.9 million pounds. Production was 3% lower than both our forecast for the year and our production in 2013. Inkai experienced delays in bringing on new wellfields as a result of abnormally heavy snowfall and a rapid spring melt in 2014.

In 2012, we entered into a binding memorandum of agreement (2012 MOA) with our joint venture partner, Kazatomprom, setting out a framework to:

 

•

increase Inkai’s annual production from blocks 1 and 2 to 10.4 million pounds (our share 5.2 million pounds) and sustain it at that level

 

•

extend the term of Inkai’s resource use contract through 2045

Kazatomprom is pursuing a strategic objective to develop uranium processing capacity in Kazakhstan to complement its leading uranium mining operations. Their primary focus is now on uranium refining, which is an intermediate step in the uranium conversion process. A Nuclear Cooperation Agreement between Canada and Kazakhstan is in place, providing the international framework necessary for applying to the two governments for the required licences and permits. We expect to pursue further expansion of production at Inkai at a pace measured to market opportunities. Discussions continue with Kazatomprom.

In 2014 at block 3, Inkai continued construction of the test leach facility and test wellfields, and advanced work on a preliminary appraisal of the mineral potential according to Kazakhstan standards. In 2015, Inkai expects to complete construction of the test leach facility and continue working on a final appraisal of the mineral potential according to Kazakhstan standards.

We expect total production from blocks 1 and 2 to be 5.2 million pounds in 2015; our share is 3.0 million pounds. We expect to maintain production at this level until the potential expansion under the 2012 MOA proceeds.

FUEL SERVICES

Fuel services produced 11.6 million kgU, lower than our plan at the beginning of the year and 22% lower than 2013. This was a result of a decision to decrease production in response to weak market conditions.

In 2014, amid the continued weak market for UF₆ conversion, we paid $18 million to SFL to permit early termination of our toll-conversion agreement. Production for Cameco at the Springfields facility in the United Kingdom ceased on August 31, 2014, and the agreement ended December 31, 2014.

The Vision in Motion project entered the feasibility stage in late 2014. We will continue with the CNSC licensing process in 2015, which is required to advance the project.

We have decreased our production target for 2015 to between 9 million and 10 million kgU in response to weak market conditions.

 

-18-

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The current collective bargaining agreement for our unionized employees at CFM expires on June 1, 2015. We will commence the bargaining process in early 2015.

Qualified persons

The technical and scientific information discussed in this document for our material properties (McArthur River/Key Lake, Inkai and Cigar Lake) was approved by the following individuals who are qualified persons for the purposes of NI 43-101:

 

 

CAUTION ABOUT FORWARD-LOOKING INFORMATION

This document 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 securities laws. We refer to them in this document as forward-looking information.

Key things to understand about the forward-looking information in this document:

 

•

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).

 

•

It represents our current views, and can change significantly.

 

•

It is based on a number of material assumptions, including those we have listed on page 20, which may prove to be incorrect.

 

•

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 beginning on page 19. We recommend you also review our annual information form and annual MD&A, which include a discussion of other material risks that could cause actual results to differ significantly from our current expectations.

 

•

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 document

 

Material risks

 

 

-19-

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Material assumptions

 

-20-

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Conference call

We invite you to join our fourth quarter conference call on Monday, February 9, 2015 at 11:00 a.m. Eastern.

The call will be open to all investors and the media. To join the call, please dial (800) 769-8320 (Canada and US) or (416) 340-8530. An operator will put your call through. A live audio feed of the conference call will be available from a link at cameco.com. See the link on our home page on the day of the call.

A recorded version of the proceedings will be available:

 

•

on our website, cameco.com, shortly after the call

 

•

on post view until midnight, Eastern, March 15, 2015 by calling (800) 408-3053 (Canada and US) or (905) 694-9451 (Passcode 5846753#)

Additional information

Our 2014 annual management’s discussion and analysis and annual audited financial statements will be available shortly on SEDAR at sedar.com, on EDGAR at sec.gov/edgar.shtml and on our website at cameco.com. Our 2014 annual information form is expected to be available later in February.

Profile

We are one of the world’s largest uranium producers, a significant supplier of conversion services and one of two CANDU fuel manufacturers in Canada. Our competitive position is based on our controlling ownership of the world’s largest high-grade reserves and low-cost operations. Our uranium products are used to generate clean electricity in nuclear power plants around the world. We also explore for uranium in the Americas, Australia and Asia. Our shares trade on the Toronto and New York stock exchanges. Our head office is in Saskatoon, Saskatchewan.

As used in this news release, the terms we, us, our, the Company and Cameco mean Cameco Corporation and its subsidiaries; including NUKEM GmbH, unless otherwise indicated.

- End -

 

Investor inquiries:		Rachelle Girard		(306) 956-6403
Media inquiries:		Gord Struthers		(306) 956-6593

 

-21-

 

 

Cameco Corporation

2014 consolidated financial statements

February 5, 2015

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Report of management’s accountability

The accompanying consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Management is responsible for ensuring that these statements, which include amounts based upon estimates and judgments, are consistent with other information and operating data contained in the annual financial review and reflect the corporation’s business transactions and financial position.

Management is also responsible for the information disclosed in the management’s discussion and analysis including responsibility for the existence of appropriate information systems, procedures and controls to ensure that the information used internally by management and disclosed externally is complete and reliable in all material respects.

In addition, management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. The internal control system includes an internal audit function and a code of conduct and ethics, which is communicated to all levels in the organization and requires all employees to maintain high standards in their conduct of the corporation’s affairs. Such systems are designed to provide reasonable assurance that the financial information is relevant, reliable and accurate and that the Company’s assets are appropriately accounted for and adequately safeguarded. Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the criteria established in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s system of internal control over financial reporting was effective as at December 31, 2014.

KPMG LLP has audited the consolidated financial statements in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States).

The board of directors annually appoints an audit and finance committee comprised of directors who are not employees of the corporation. This committee meets regularly with management, the internal auditor and the shareholders’ auditors to review significant accounting, reporting and internal control matters. Both the internal and shareholders’ auditors have unrestricted access to the audit and finance committee. The audit and finance committee reviews the consolidated financial statements, the report of the shareholders’ auditors, and management’s discussion and analysis and submits its report to the board of directors for formal approval.

 

Original signed by Tim S. Gitzel		Original signed by Grant E. Isaac
President and Chief Executive Officer		Senior Vice-President and Chief Financial Officer
February 5, 2015		February 5, 2015

 

1

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Independent auditors’ report

To the Shareholders and Board of Directors of Cameco Corporation:

We have audited the accompanying consolidated financial statements of Cameco Corporation, which comprise the consolidated statements of financial position as at December 31, 2014 and December 31, 2013, the consolidated statements of earnings, statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Cameco Corporation as at December 31, 2014 and December 31, 2013 and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Original signed by KPMG LLP

Chartered Accountants

February 5, 2015

Saskatoon, Canada

 

2

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Consolidated statements of earnings

 

For the years ended December 31										(Revised - note 6)
($Cdn thousands, except per share amounts)		Note				2014				2013
Revenue from products and services						$	2,397,532			$	2,438,723
Cost of products and services sold							1,420,768				1,549,238
Depreciation and amortization							338,983				282,756
Cost of sales							1,759,751				1,831,994
Gross profit							637,781				606,729
Administration							176,385				184,976
Impairment charges			10, 12, 13				326,693				70,159
Exploration							46,565				72,833
Research and development							5,044				7,302
Loss on disposal of assets			10				44,762				6,766
Earnings from operations							38,332				264,693
Finance costs			21				(77,122	)			(62,121	)
Losses on derivatives			28				(121,160	)			(61,970	)
Finance income							7,402				6,967
Share of loss from equity-accounted investees			13				(17,141	)			(14,107	)
Other income (expense)			22				50,591				(18,326	)
Earnings (loss) before income taxes							(119,098	)			115,136
Income tax recovery			23				(175,268	)			(117,230	)
Net earnings from continuing operations							56,170				232,366
Net earnings from discontinued operation			6				127,243				85,321
Net earnings						$	183,413			$	317,687
Net earnings (loss) attributable to:
Equity holders						$	185,234			$	318,495
Non-controlling interest							(1,821	)			(808	)
Net earnings						$	183,413			$	317,687
Earnings per common share attributable to equity holders
Continuing operations							0.15				0.59
Discontinued operation							0.32				0.22
Total basic earnings per share			24			$	0.47			$	0.81
Continuing operations							0.15				0.59
Discontinued operation							0.32				0.22
Total diluted earnings per share			24			$	0.47			$	0.81

See accompanying notes to consolidated financial statements.

 

3

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Consolidated statements of comprehensive income

 

For the years ended December 31										(Revised - note 6)
($Cdn thousands)		Note				2014				2013
Net earnings						$	183,413			$	317,687
Other comprehensive income (loss), net of taxes			23
Items that will not be reclassified to net earnings:
Remeasurements of defined benefit liability							(7,952	)			1,870
Remeasurements of defined benefit liability—discontinued operation							—				239,915
Items that are or may be reclassified to net earnings:
Exchange differences on translation of foreign operations							58,890				(10,792	)
Gains on derivatives designated as cash flow hedges—discontinued operation							—				190
Gains on derivatives designated as cash flow hedges transferred to net earnings—discontinued operation							(300	)			(3,982	)
Unrealized gains (losses) on available-for-sale assets							(613	)			28
Losses on available-for-sale assets transferred to net earnings							2				—
Other comprehensive income, net of taxes							50,027				227,229
Total comprehensive income						$	233,440			$	544,916
Comprehensive income from continuing operations						$	106,497			$	223,472
Comprehensive income from discontinued operation							126,943				321,444
Total comprehensive income						$	233,440			$	544,916
Other comprehensive income attributable to:
Equity holders						$	49,969			$	227,157
Non-controlling interest							58				72
Other comprehensive income for the period						$	50,027			$	227,229
Total comprehensive income (loss) attributable to:
Equity holders						$	235,203			$	545,652
Non-controlling interest							(1,763	)			(736	)
Total comprehensive income for the period						$	233,440			$	544,916

See accompanying notes to consolidated financial statements.

 

4

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Consolidated statements of financial position

 

As at December 31		Note				2014				2013
($Cdn thousands)
Assets
Current assets
Cash and cash equivalents						$	566,583			$	229,135
Accounts receivable			8				455,002				431,375
Current tax assets							3,096				2,598
Inventories			9				902,278				913,315
Supplies and prepaid expenses							130,406				177,632
Current portion of long-term receivables, investments and other			12				10,341				3,775
Total current assets							2,067,706				1,757,830
Property, plant and equipment			10				5,291,021				5,040,993
Goodwill and intangible assets			11				201,102				194,031
Long-term receivables, investments and other			12				423,280				287,548
Investments in equity-accounted investees			13				3,230				492,712
Deferred tax assets			23				486,328				266,203
Total non-current assets							6,404,961				6,281,487
Total assets						$	8,472,667			$	8,039,317
Liabilities and shareholders’ equity
Current liabilities
Bank overdraft			15			$	—			$	41,226
Accounts payable and accrued liabilities			14				316,258				437,941
Current tax liabilities							51,719				54,708
Short-term debt			15				—				50,230
Dividends payable							39,579				39,548
Current portion of other liabilities			17				87,883				60,685
Current portion of provisions			18				20,375				20,213
Total current liabilities							515,814				704,551
Long-term debt			16				1,491,198				1,293,383
Other liabilities			17				172,034				79,380
Provisions			18				825,935				570,700
Deferred tax liabilities			23				23,882				41,909
Total non-current liabilities							2,513,049				1,985,372
Shareholders’ equity
Share capital							1,862,646				1,854,671
Contributed surplus							196,815				186,382
Retained earnings							3,333,099				3,314,049
Other components of equity							51,084				(6,837	)
Total shareholders’ equity attributable to equity holders							5,443,644				5,348,265
Non-controlling interest							160				1,129
Total shareholders’ equity							5,443,804				5,349,394
Total liabilities and shareholders’ equity						$	8,472,667			$	8,039,317

Commitments and contingencies [notes 10,18, 23]

See accompanying notes to consolidated financial statements.

Approved by the board of directors

Original signed by Tim S. Gitzel and John H. Clappison

 

5

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Consolidated statements of changes in equity

 

		Attributable to equity holders
($Cdn thousands)		Share capital				Contributed surplus				Retained earnings				Foreign currency translation				Cash flow hedges				Available- for-sale assets				Total				Non- controlling interest				Total equity
Balance at January 1, 2014		$	1,854,671			$	186,382			$	3,314,049			$	(7,165	)		$	300			$	28			$	5,348,265			$	1,129			$	5,349,394
Net earnings			—				—				185,234				—				—				—				185,234				(1,821	)			183,413
Other comprehensive income			—				—				(7,952	)			58,832				(300	)			(611	)			49,969				58				50,027
Total comprehensive income for the year			—				—				177,282				58,832				(300	)			(611	)			235,203				(1,763	)			233,440
Share-based compensation			—				15,808				—				—				—				—				15,808				—				15,808
Share options exercised			7,975				(5,375	)			—				—				—				—				2,600				—				2,600
Dividends			—				—				(158,232	)			—				—				—				(158,232	)			—				(158,232	)
Transactions with owners-contributed equity			—				—				—				—				—				—				—				794				794
Balance at December 31, 2014		$	1,862,646			$	196,815			$	3,333,099			$	51,667			$	—			$	(583	)		$	5,443,644			$	160			$	5,443,804
Balance at January 1, 2013		$	1,851,507			$	168,952			$	2,913,134			$	3,699			$	4,092			$	—			$	4,941,384			$	580			$	4,941,964
Net earnings			—				—				318,495				—				—				—				318,495				(808	)			317,687
Other comprehensive loss			—				—				241,785				(10,864	)			(3,792	)			28				227,157				72				227,229
Total comprehensive income for the year			—				—				560,280				(10,864	)			(3,792	)			28				545,652				(736	)			544,916
Share-based compensation			—				19,008				—				—				—				—				19,008				—				19,008
Share options exercised			3,164				(1,578	)			—				—				—				—				1,586				—				1,586
Dividends			—				—				(158,177	)			—				—				—				(158,177	)			—				(158,177	)
Acquisition of non-controlling interest in subsidiary			—				—				—				—				—				—				—				97				97
Change in ownership interest in subsidiary			—				—				(1,188	)			—				—				—				(1,188	)			1,188				—
Balance at December 31, 2013		$	1,854,671			$	186,382			$	3,314,049			$	(7,165	)		$	300			$	28			$	5,348,265			$	1,129			$	5,349,394

See accompanying notes to consolidated financial statements.

 

6

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Consolidated statements of cash flows

 

For the years ended December 31										(Revised - note 6)
($Cdn thousands)		Note				2014				2013
Operating activities
Net earnings						$	183,413			$	317,687
Adjustments for:
Depreciation and amortization							338,983				282,756
Deferred charges							61,869				48,041
Unrealized losses on derivatives							40,569				39,059
Share-based compensation			26				15,808				19,008
Loss on disposal of assets							44,762				6,766
Finance costs			21				77,122				62,121
Finance income							(7,402	)			(6,967	)
Share of loss from equity-accounted investees			13				17,141				14,107
Impairment charges			10, 12, 13				326,693				70,159
Other expense (income)			22				(622	)			18,326
Discontinued operation			6				(127,243	)			—
Income tax recovery			23				(175,268	)			(117,230	)
Interest received							5,935				6,089
Income taxes paid							(233,716	)			(107,350	)
Income taxes refunded							—				10,993
Other operating items			25				(87,862	)			(139,526	)
Net cash provided by continuing operations							480,182				524,039
Net cash provided by discontinued operation			6				—				5,845
Net cash provided by operations							480,182				529,884
Investing activities
Additions to property, plant and equipment			10				(480,108	)			(645,651	)
Acquisitions, net of cash			7				—				(133,924	)
Repayment of debt acquired on acquisition of business			7				—				(118,068	)
Decrease in short-term investments							—				49,535
Decrease (increase) in long-term receivables, investments and other							11,569				(6,373	)
Proceeds from sale of property, plant and equipment							701				67
Net cash used in investing (continuing operations)							(467,838	)			(854,414	)
Net cash provided by investing (discontinued operation)			6				447,096				—
Net cash used in investing							(20,742	)			(854,414	)
Financing activities
Increase in debt			16				496,476				14,655
Decrease in debt			15, 16				(351,046	)			(33,114	)
Interest paid							(78,144	)			(65,908	)
Contributions from non-controlling interest							794				—
Proceeds from issuance of shares, stock option plan							6,228				2,475
Dividends paid							(158,200	)			(158,165	)
Net cash used in financing							(83,892	)			(240,057	)
Increase (decrease) in cash and cash equivalents net of bank overdraft, during the year							375,548				(564,587	)
Exchange rate changes on foreign currency cash balances							3,126				2,997
Cash and cash equivalents, net of bank overdraft, beginning of year							187,909				749,499
Cash and cash equivalents, net of bank overdraft, end of year						$	566,583			$	187,909
Cash and cash equivalents is comprised of:
Cash						$	86,664			$	59,183
Cash equivalents							479,919				169,952
Cash and cash equivalents						$	566,583			$	229,135
Bank overdraft							—				(41,226	)
Cash and cash equivalents and bank overdraft						$	566,583			$	187,909

See accompanying notes to consolidated financial statements.

 

7

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Notes to consolidated financial statements

For the years ended December 31, 2014 and 2013

1. Cameco Corporation

Cameco Corporation is incorporated under the Canada Business Corporations Act. The address of its registered office is 2121 11th Street West, Saskatoon, Saskatchewan, S7M 1J3. The consolidated financial statements as at and for the year ended December 31, 2014 comprise Cameco Corporation and its subsidiaries (collectively, the Company or Cameco) and the Company’s interests in associates and joint arrangements. The Company is primarily engaged in the exploration for and the development, mining, refining, conversion, fabrication and trading of uranium for sale as fuel for generating electricity in nuclear power reactors in Canada and other countries.

2. Significant accounting policies

A. Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

These consolidated financial statements were authorized for issuance by the Company’s board of directors on February 5, 2015.

B. Basis of presentation

These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency. All financial information is presented in Canadian dollars, unless otherwise noted. Amounts presented in tabular format have been rounded to the nearest thousand except per share amounts and where otherwise noted.

The consolidated financial statements have been prepared on the historical cost basis except for the following material items which are measured on an alternative basis at each reporting date:

 

Derivative financial instruments at fair value through profit and loss		Fair value
Non-derivative financial instruments at fair value through profit and loss		Fair value
Available-for-sale financial assets		Fair value
Liabilities for cash-settled share-based payment arrangements		Fair value
Net defined benefit liability		Fair value of plan assets less the present value of the defined benefit obligation

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenue and expenses. Actual results may vary from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 5.

This summary of significant accounting policies is a description of the accounting methods and practices that have been used in the preparation of these consolidated financial statements and is presented to assist the reader in interpreting the statements contained herein. These accounting policies have been applied consistently to all entities within the consolidated group.

 

8

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C. Consolidation principles

i. Business combinations

The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Company. The Company measures goodwill at the acquisition date as the fair value of the consideration transferred, including the recognized amount of any non-controlling interests in the acquiree, less the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in earnings. In a business combination achieved in stages, the acquisition date fair value of the Company’s previously held equity interest in the acquiree is also considered in computing goodwill.

Consideration transferred includes the fair values of the assets transferred, liabilities incurred and equity interests issued by the Company. Consideration also includes the fair value of any contingent consideration and share-based compensation awards that are replaced mandatorily in a business combination.

The Company elects on a transaction-by-transaction basis whether to measure any non-controlling interest at fair value, or at their proportionate share of the recognized amount of the identifiable net assets of the acquiree, at the acquisition date.

Acquisition-related costs are expensed as incurred, except for those costs related to the issue of debt or equity instruments. Transaction costs arising on the issue of equity instruments are recognized directly in equity. Transaction costs that are directly related to the probable issuance of a security that is classified as a financial liability is deducted from the amount of the financial liability when it is initially recognized, or recognized in earnings when the issuance is no longer probable.

ii. Subsidiaries

The consolidated financial statements include the accounts of Cameco and its subsidiaries. Subsidiaries are entities over which the Company has control. Subsidiaries are fully consolidated from the date on which control is transferred to the Company and are deconsolidated from the date that control ceases.

iii. Investments in equity-accounted investees

Cameco’s investments in equity-accounted investees include investments in associates and joint ventures.

Associates are those entities over which the Company has significant influence, but not control or joint control, over the financial and operating policies. Significant influence is presumed to exist when the Company holds between 20% and 50% of the voting power of another entity, but can also arise where the Company holds less than 20% if it has the power to be actively involved and influential in policy decisions affecting the entity.

Investments in associates are accounted for using the equity method. The equity method involves the recording of the initial investment at cost and the subsequent adjusting of the carrying value of the investment for Cameco’s proportionate share of the earnings or loss and any other changes in the associates’ net assets, such as dividends. The cost of the investment includes transaction costs.

Adjustments are made to align the accounting policies of the associate with those of the Company before applying the equity method. When the Company’s share of losses exceeds its interest in an equity-accounted investee, the carrying amount of that interest is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of the associate. If the associate subsequently reports profits, Cameco resumes recognizing its share of those profits only after its share of the profits equals the share of losses not recognized.

iv. Joint arrangements

A joint arrangement can take the form of a joint operation or joint venture. All joint arrangements involve a contractual arrangement that establishes joint control.

 

9

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A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint operation may or may not be structured through a separate vehicle. These arrangements involve joint control of one or more of the assets acquired or contributed for the purpose of the joint operation. The consolidated financial statements of the Company include its share of the assets in such joint operations, together with its share of the liabilities, revenues and expenses arising jointly or otherwise from those operations. All such amounts are measured in accordance with the terms of each arrangement.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venture is always structured through a separate vehicle. It operates in the same way as other entities, controlling the assets of the joint venture, earning its own revenue and incurring its own liabilities and expenses. Interests in joint ventures are accounted for using the equity method of accounting, whereby the Company’s proportionate interest in the assets, liabilities, revenues and expenses of jointly controlled entities are recognized on a single line in the consolidated statements of financial position and consolidated statements of earnings. The share of joint ventures results is recognized in the Company’s consolidated financial statements from the date that joint control commences until the date at which it ceases.

v. Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Company’s interest in the investee. Unrealized losses are eliminated in the same manner as unrealized gains, but only to the extent that there is no evidence of impairment.

D. Foreign currency translation

Items included in the financial statements of each of Cameco’s subsidiaries, associates and joint arrangements are measured using their functional currency, which is the currency of the primary economic environment in which the entity operates. The consolidated financial statements are presented in Canadian dollars, which is Cameco’s functional and presentation currency.

i. Foreign currency transactions

Foreign currency transactions are translated into the respective functional currency of the Company and its entities using the exchange rates prevailing at the dates of the transactions. At the reporting date, monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. The applicable exchange gains and losses arising on these transactions are reflected in earnings with the exception of foreign exchange gains or losses on provisions for decommissioning and reclamation activities that are in a foreign currency, which are capitalized in property, plant and equipment.

ii. Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Canadian dollars at exchange rates at the reporting dates. The revenues and expenses of foreign operations are translated to Canadian dollars at exchange rates at the dates of the transactions.

Foreign currency differences are recognized in other comprehensive income. When a foreign operation is disposed of, in whole or in part, the relevant amount in the foreign currency translation account is transferred to earnings as part of the gain or loss on disposal.

When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of the net investment in a foreign operation, and are recognized in other comprehensive income and presented within equity in the foreign currency translation account.

 

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E. Cash and cash equivalents

Cash and cash equivalents consists of balances with financial institutions and investments in money market instruments, which have a term to maturity of three months or less at the time of purchase.

F. Short-term investments

Short-term investments are comprised of money market instruments with terms to maturity between three and 12 months.

G. Inventories

Inventories of broken ore, uranium concentrates, and refined and converted products are measured at the lower of cost and net realizable value.

Cost includes direct materials, direct labour, operational overhead expenses and depreciation. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

Consumable supplies and spares are valued at the lower of cost or replacement value.

H. Property, plant and equipment

i. Buildings, plant and equipment and other

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment charges. The cost of self-constructed assets includes the cost of materials and direct labour, borrowing costs and any other costs directly attributable to bringing the assets to the location and condition necessary for them to be capable of operating in the manner intended by management, including the initial estimate of the cost of dismantling and removing the items and restoring the site on which they are located.

When components of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment and depreciated separately.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognized in earnings.

ii. Mineral properties and mine development costs

The decision to develop a mine property within a project area is based on an assessment of the commercial viability of the property, the availability of financing and the existence of markets for the product. Once the decision to proceed to development is made, development and other expenditures relating to the project area are deferred as part of assets under construction and disclosed as a component of property, plant and equipment with the intention that these will be depreciated by charges against earnings from future mining operations. No depreciation is charged against the property until the production stage commences. After a mine property has been brought into the production stage, costs of any additional work on that property are expensed as incurred, except for large development programs, which will be deferred and depreciated over the remaining life of the related assets.

The production stage is reached when a mine property is in the condition necessary for it to be capable of operating in the manner intended by management. The criteria used to assess the start date of the production stage are determined based on the nature of each mine construction project, including the complexity of a mine site. A range of factors is considered when determining whether the production stage has been reached, which includes, but is not limited to, the demonstration of sustainable production at or near the level intended (such as the demonstration of continuous throughput levels at or above a target percentage of the design capacity).

 

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iii. Depreciation

Depreciation is calculated over the depreciable amount, which is the cost of the asset less its residual value. Assets which are unrelated to production are depreciated according to the straight-line method based on estimated useful lives as follows:

 

Land			Not depreciated
Buildings			15 - 25 years
Plant and equipment			3 - 15 years
Furniture and fixtures			3 - 10 years
Other			3 - 5 y ears

Mining properties and certain mining and conversion assets for which the economic benefits from the asset are consumed in a pattern which is linked to the production level are depreciated according to the unit-of-production method. For conversion assets, the amount of depreciation is measured by the portion of the facilities’ total estimated lifetime production that is produced in that period. For mining assets and properties, the amount of depreciation or depletion is measured by the portion of the mines’ proven and probable mineral reserves recovered during the period.

Depreciation methods, useful lives and residual values are reviewed at each reporting period and are adjusted if appropriate.

iv. Borrowing costs

Borrowing costs on funds directly attributable to finance the acquisition, production or construction of a qualifying asset are capitalized until such time as substantially all the activities necessary to prepare the qualifying asset for its intended use are complete. A qualifying asset is one that takes a substantial period of time to prepare for its intended use. Capitalization is discontinued when the asset enters the production stage or development ceases. Where the funds used to finance a project form part of general borrowings, interest is capitalized based on the weighted average interest rate applicable to the general borrowings outstanding during the period of construction.

v. Repairs and maintenance

The cost of replacing a component of property, plant and equipment is capitalized if it is probable that future economic benefits embodied within the component will flow to the Company. The carrying amount of the replaced component is derecognized. Costs of routine maintenance and repair are charged to products and services sold.

I. Goodwill and intangible assets

Goodwill arising from the acquisition of subsidiaries is initially recognized at cost, measured as the excess of the fair value of the consideration paid over the fair value of the identifiable net assets acquired. At the date of acquisition, goodwill is allocated to the cash generating unit (CGU), or group of CGUs that is expected to receive the economic benefits of the business combination. Goodwill is subsequently measured at cost, less accumulated impairment losses.

Intangible assets acquired individually or as part of a group of assets are initially recognized at cost and measured subsequently at cost less accumulated amortization and impairment losses. Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. The cost of a group of intangible assets acquired in a transaction, including those acquired in a business combination that meet the specified criteria for recognition apart from goodwill, is allocated to the individual assets acquired based on their relative fair values.

Intangible assets that have finite useful lives are amortized over their estimated remaining useful lives. Amortization methods and useful lives are reviewed at each reporting period and are adjusted if appropriate.

J. Leased assets

Leases which result in the Company receiving substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the

 

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accounting policy applicable to that asset. Minimum lease payments made under finance leases are apportioned between finance cost and the reduction of the outstanding liability. The finance cost is allocated to each period of the lease term to produce a constant periodic rate of interest on the remaining balance of the liability.

Lease agreements that do not meet the recognition criteria of a finance lease are classified and recognized as operating leases and are not recognized in the Company’s consolidated statements of financial position. Payments made under operating leases are charged to income on a straight-line basis over the lease term.

K. Finance income and finance costs

Finance income comprises interest income on funds invested, gains on the disposal of available-for-sale financial assets, and changes in the fair value of non-derivative financial instruments. Interest income is recognized in earnings as it accrues, using the effective interest method. Finance costs comprise interest and fees on borrowings, unwinding of the discount on provisions and changes in the fair value of non-derivative financial instruments.

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are expensed in the period incurred.

Foreign currency gains and losses are reported on a net basis as part of finance costs.

L. Research and development costs

Expenditures on research are charged against earnings when incurred. Development costs are recognized as assets when the Company can demonstrate technical feasibility and that the asset will generate probable future economic benefits.

M. Impairment

i. Non-derivative financial assets

Financial assets not classified as fair value through profit and loss are assessed at each reporting date to determine whether there is objective evidence of impairment. Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Company on terms that the Company would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

Impairment losses on available-for-sale financial assets are recognized by transferring the cumulative loss that has been recognized in other comprehensive income, and presented in equity, to earnings. The cumulative loss that is removed from other comprehensive income and recognized in earnings is the difference between the acquisition cost, net of any principal payment and amortization, and the current fair value, less any impairment loss previously recognized in earnings.

If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognized in earnings, then the impairment loss is reversed through earnings, otherwise, it is reversed through other comprehensive income. Impairment losses on available-for-sale equity securities that are recognized in earnings are never reversed through earnings.

ii. Non-financial assets

The carrying amounts of Cameco’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill is tested annually for impairment.

For impairment testing, assets are grouped together into CGUs which are the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.

 

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The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. Fair value is determined as the amount that would be obtained from the sale of the asset or CGU in an arm’s-length transaction between knowledgeable and willing parties. For exploration properties, fair value is based on the implied fair value of the resources in place using comparable market transaction metrics.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its recoverable amount. Impairment losses are recognized in earnings. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.

Impairment losses recognized in prior periods are assessed at each reporting date whenever events or changes in circumstances indicate that the impairment may have reversed. If the impairment has reversed, the carrying amount of the asset is increased to its recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. A reversal of an impairment loss is recognized immediately in earnings. An impairment loss in respect of goodwill is not reversed.

N. Exploration and evaluation expenditures

Exploration and evaluation expenditures are those expenditures incurred by the Company in connection with the exploration for and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. These expenditures include researching and analyzing existing exploration data, conducting geological studies, exploratory drilling and sampling, and compiling prefeasibility and feasibility studies. Exploration and evaluation expenditures are charged against earnings as incurred, except when there is a high degree of confidence in the viability of the project and it is probable that these costs will be recovered through future development and exploitation.

The technical feasibility and commercial viability of extracting a resource is considered to be determinable based on several factors, including the existence of proven and probable reserves and the demonstration that future economic benefits are probable. When an area is determined to be technically feasible and commercially viable, the exploration and evaluation assets attributable to that area are first tested for impairment and then transferred to property, plant and equipment.

Exploration and evaluation costs that have been acquired in a business combination or asset acquisition are capitalized under the scope of IFRS 6, Exploration for and Evaluation of Mineral Resources, and are reported as part of property, plant and equipment.

O. Provisions

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the risk-adjusted expected future cash flows at a pre-tax risk-free rate that reflects current market assessments of the time value of money. The unwinding of the discount is recognized as a finance cost.

i. Environmental restoration

The mining, extraction and processing activities of the Company normally give rise to obligations for site closure and environmental restoration. Closure and restoration can include facility decommissioning and dismantling, removal or treatment of waste materials, as well as site and land restoration. The Company provides for the closure, reclamation and decommissioning of its operating sites in the financial period when the related environmental disturbance occurs, based on the estimated future costs using information available at the reporting date. Costs included in the provision comprise all closure and restoration activity expected to occur gradually over the life of the operation and at the time of closure. Routine operating

 

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costs that may impact the ultimate closure and restoration activities, such as waste material handling conducted as a normal part of a mining or production process, are not included in the provision.

The timing of the actual closure and restoration expenditure is dependent upon a number of factors such as the life and nature of the asset, the operating licence conditions and the environment in which the mine operates. Closure and restoration provisions are measured at the expected value of future cash flows, discounted to their present value using a current pre-tax risk-free rate. Significant judgments and estimates are involved in deriving the expectations of future activities and the amount and timing of the associated cash flows.

At the time a provision is initially recognized, to the extent that it is probable that future economic benefits associated with the reclamation, decommissioning and restoration expenditure will flow to the Company, the corresponding cost is capitalized as an asset. The capitalized cost of closure and restoration activities is recognized in property, plant and equipment and depreciated on a unit-of-production basis. The value of the provision is gradually increased over time as the effect of discounting unwinds. The unwinding of the discount is an expense recognized in finance costs.

Closure and rehabilitation provisions are also adjusted for changes in estimates. The provision is reviewed at each reporting date for changes to obligations, legislation or discount rates that effect change in cost estimates or life of operations. The cost of the related asset is adjusted for changes in the provision resulting from changes in estimated cash flows or discount rates, and the adjusted cost of the asset is depreciated prospectively.

ii. Waste disposal

The refining, conversion and manufacturing processes generate certain uranium-contaminated waste. The Company has established strict procedures to ensure this waste is disposed of safely. A provision for waste disposal costs in respect of these materials is recognized when they are generated. Costs associated with the disposal, the timing of cash flows and discount rates are estimated both at initial recognition and subsequent measurement.

P. Employee future benefits

i. Pension obligations

The Company accrues its obligations under employee benefit plans. The Company has both defined benefit and defined contribution plans. A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan other than a defined contribution plan. Typically, defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The liability recognized in the consolidated statements of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the reporting date less the fair value of plan assets. The defined benefit obligation is calculated annually, by qualified independent actuaries using the projected unit credit method prorated on service and management’s best estimate of expected plan investment performance, salary escalation, retirement ages of employees and expected health care costs. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.

The Company recognizes all actuarial gains and losses arising from defined benefit plans in other comprehensive income, and reports them in retained earnings. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized immediately in earnings.

 

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For defined contribution plans, the contributions are recognized as employee benefit expense in earnings in the periods during which services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available.

ii. Other post-retirement benefit plans

The Company provides certain post-retirement health care benefits to its retirees. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as used for defined benefit pension plans. Actuarial gains and losses are recognized in other comprehensive income in the period in which they arise. These obligations are valued annually by independent qualified actuaries.

iii. Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be measured reliably.

iv. Termination benefits

Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or whenever an employee accepts an entity’s offer of benefits in exchange for termination of employment. Cameco recognizes termination benefits as an expense at the earlier of when the Company can no longer withdraw the offer of those benefits and when the Company recognizes costs for a restructuring. If benefits are payable more than 12 months after the reporting period, they are discounted to their present value.

v. Share-based compensation

For equity-settled plans, the grant date fair value of share-based compensation awards granted to employees is recognized as an employee benefit expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.

For cash-settled plans, the fair value of the amount payable to employees is recognized as an expense, with a corresponding increase in liabilities, over the period that the employees unconditionally become entitled to payment. The liability is re-measured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognized as employee benefit expense in earnings.

Cameco’s contributions under the employee share ownership plan are expensed during the year of contribution. Shares purchased with Company contributions and with dividends paid on such shares become unrestricted on January 1 of the second plan year following the date on which such shares were purchased.

Q. Revenue recognition

Cameco supplies uranium concentrates and uranium conversion services to utility customers.

Cameco recognizes revenue on the sale of its nuclear products when the risks and rewards of ownership pass to the customer and collection is reasonably assured. Cameco’s sales are pursuant to an enforceable contract that indicates the type of sales arrangement, pricing and delivery terms, as well as details related to the transfer of title.

Cameco has three types of sales arrangements with its customers in its uranium and fuel services businesses. These arrangements include uranium supply, toll conversion services and conversion supply (converted uranium), which is a combination of uranium supply and toll conversion services.

 

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Uranium supply

In a uranium supply arrangement, Cameco is contractually obligated to provide uranium concentrates to its customers. Cameco-owned uranium is physically delivered to conversion facilities (Converters) where the Converter will credit Cameco’s account for the volume of accepted uranium. Based on delivery terms in a sales contract with its customer, Cameco instructs the Converter to transfer title of a contractually specified quantity of uranium to the customer’s account at the Converter’s facility. At this point, the risks and rewards of ownership have been transferred and Cameco invoices the customer and recognizes revenue for the uranium supply.

Toll conversion services

In a toll conversion arrangement, Cameco is contractually obligated to convert customer-owned uranium to a chemical state suitable for enrichment. Based on delivery terms in a sales contract with its customer, Cameco either (i) physically delivers converted uranium to enrichment facilities (Enrichers) where it instructs the Enricher to transfer title of a contractually specified quantity of converted uranium to the customer’s account at the Enricher’s facility, or (ii) transfers title of a contractually specified quantity of converted uranium to either an Enricher’s account or the customer’s account. At this point, the risks and rewards of ownership have been transferred and Cameco invoices the customer and recognizes revenue for the toll conversion services.

Conversion supply

In a conversion supply arrangement, Cameco is contractually obligated to provide converted uranium of acceptable origins to its customers. Based on delivery terms in a sales contract with its customer, Cameco either (i) physically delivers converted uranium to the Enricher where it instructs the Enricher to transfer title of a contractually specified quantity of converted uranium to the customer’s account at the Enricher’s facility, or (ii) transfers title of a contractually specified quantity of converted uranium to either an Enricher’s account or a customer’s account at Cameco’s Port Hope conversion facility. At this point, the risks and rewards of ownership have been transferred and Cameco invoices the customer and recognizes revenue for both the uranium supplied and the conversion service provided.

R. Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another.

i. Non-derivative financial assets and financial liabilities

At initial recognition, Cameco classifies each of its financial assets and financial liabilities into one of the following categories:

Fair value through profit or loss

A financial asset or liability is classified as at fair value through profit or loss if it is classified as held-for-trading or is designated as such on initial recognition. Cameco classifies a financial instrument as held-for-trading if it was acquired principally for the purpose of selling or repurchasing in the near term, or if it is part of a portfolio with evidence of a recent pattern of short-term profit taking. Directly attributable transaction costs are recognized in earnings as incurred. These financial assets and financial liabilities are measured at fair value, with any gains or losses on revaluation being recognized in earnings.

Held-to-maturity

Held-to-maturity investments are financial assets that an entity has the intention and ability to hold until maturity, provide fixed or determinable payments and contain a fixed maturity date. Assets in this category are initially measured at fair value and subsequently measured at amortized cost using the effective interest method.

Loans and receivables

Loans and receivables are financial assets that provide fixed or determinable payments and are not quoted in an active market. Assets in this category are initially measured at fair value and subsequently measured at amortized cost using the effective interest method.

 

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Available-for-sale assets

Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified into any of the other categories. These assets are measured at fair value plus any directly attributable transaction costs with any gains or losses on re-measurement recognized in other comprehensive income. Accumulated changes in fair value are recorded as a separate component of equity until the asset is derecognized or impaired, then the cumulative gain or loss in other comprehensive income is transferred to earnings.

Other financial liabilities

This category consists of all non-derivative financial liabilities that do not meet the definition of held-for-trading liabilities, and that have not been designated as liabilities at fair value through profit or loss. These liabilities are initially recognized at fair value less any directly attributable transaction costs and are subsequently measured at amortized cost using the effective interest method.

ii. Derivative financial instruments

The Company holds derivative financial instruments to reduce exposure to fluctuations in foreign currency exchange rates and interest rates. Except for those designated as hedging instruments, all derivative financial instruments are recorded at fair value in the consolidated statements of financial position, with any directly attributable transaction costs recognized in earnings as incurred. Subsequent to initial recognition, changes in fair value are recognized in earnings.

The purpose of hedging transactions is to modify the Company’s exposure to one or more risks by creating an offset between changes in the fair value of, or the cash inflows attributable to, the hedged item and the hedging item. When hedge accounting is appropriate, the hedging relationship is designated as a fair value hedge, a cash flow hedge, or a foreign currency risk hedge related to a net investment in a foreign operation. The Company does not have any instruments that have been designated as hedge transactions at December 31, 2014.

Separable embedded derivatives

Derivatives may be embedded in other financial instruments (the “host instrument”). Embedded derivatives are treated as separate derivatives when their economic characteristics and risks are not clearly and closely related to those of the host instrument, the terms of the embedded derivative are the same as those of a stand-alone derivative, and the combined contract is not designated at fair value. These embedded derivatives are measured at fair value with subsequent changes recognized in gains or losses on derivatives.

S. Income tax

Income tax expense is comprised of current and deferred taxes. Current tax and deferred tax are recognized in earnings except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustments to tax payable in respect of previous years. Current tax assets and liabilities are measured at the amount expected to be paid or recovered from the taxation authorities.

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

 

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A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

The Company’s exposure to uncertain tax positions is evaluated and a provision is made where it is probable that this exposure will materialize.

T. Share capital

Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares are recognized as a reduction of equity, net of any tax effects.

U. Earnings per share

The Company presents basic and diluted earnings per share data for its common shares. Earnings per share is calculated by dividing the net earnings attributable to equity holders of the Company by the weighted average number of common shares outstanding.

Diluted earnings per share is determined by adjusting the net earnings attributable to equity holders of the Company and the weighted average number of common shares outstanding, for the effects of all dilutive potential common shares. The calculation of diluted earnings per share assumes that outstanding options which are dilutive to earnings per share are exercised and the proceeds are used to repurchase shares of the Company at the average market price of the shares for the period. The effect is to increase the number of shares used to calculate diluted earnings per share.

V. Segment reporting

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other segments. To be classified as a segment, discrete financial information must be available and operating results must be regularly reviewed by the Company’s Chief Executive Officer.

Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill.

W. Discontinued operations

A discontinued operation is a component of the Company that has either been disposed of or that is classified as held for sale. A component of the Company is comprised of operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company. Net earnings of a discontinued operation and any gain or loss on disposal are combined and presented as net earnings from discontinued operations in the consolidated statements of earnings.

3. Accounting standards

A. Changes in accounting policy

On January 1, 2014, Cameco adopted the following new standards and amendments to existing standards as issued by the IASB: IAS 32, Financial Instruments: Presentation (IAS 32), International Financial Reporting Interpretations Committee 21, Levies (IFRIC 21) and IAS 36, Impairment of Assets (IAS 36).

i. Financial assets and financial liabilities

Amendments to IAS 32 clarify matters regarding offsetting financial assets and financial liabilities as well as related disclosure requirements. As Cameco does not have a practice of offsetting its financial instruments, the adoption of IAS 32 has had no effect on the financial reporting of Cameco.

 

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ii. Levies

IFRIC 21 provides guidance on accounting for levies in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets. The interpretation defines a levy as an outflow from an entity imposed by a government in accordance with legislation and confirms that an entity recognizes a liability for a levy only when the triggering event specified in the legislation occurs. Cameco’s current accounting treatment for levies is consistent with the requirements of IFRIC 21, such that the adoption of IFRIC 21 has had no material impact on the financial reporting of Cameco.

iii. Disclosure of recoverable amounts

The amendments in IAS 36 reverse the unintended requirement in IFRS 13 to disclose the recoverable amount of every cash generating unit to which significant goodwill or indefinite-lived intangible assets have been allocated. Under these amendments, the recoverable amount is required to be disclosed only when an impairment loss has been recognized or reversed. As a result, the adoption of IAS 36 has had no effect on the financial reporting of Cameco.

B. New standards and interpretations not yet adopted

A number of new standards and amendments to existing standards are not yet effective for the year ended December 31, 2014, and have not been applied in preparing these consolidated financial statements. The following standards and amendments to existing standards have been published and are mandatory for Cameco’s accounting periods beginning on or after January 1, 2016, unless otherwise noted. Cameco does not intend to early adopt any of the following amendments to existing standards and does not expect the amendments to have a material impact on the financial statements, unless otherwise noted.

i. Property, plant and equipment and intangible assets

In May 2014, the IASB issued amendments to IAS 16, Property, Plant and Equipment and IAS 38, Intangible Assets. The amendments are to be applied prospectively. The amendments clarify the factors to be considered in assessing the technical or commercial obsolescence and the resulting depreciation period of an asset and state that a depreciation method based on revenue is not appropriate.

ii. Joint arrangements

In May 2014, the IASB issued amendments to IFRS 11, Joint Arrangements (IFRS 11). The amendments in IFRS 11 are to be applied prospectively. The amendments clarify the accounting for the acquisition of interests in joint operations and require the acquirer to apply the principles of business combinations accounting in IFRS 3, Business Combinations.

iii. Sale or contribution of assets

In September 2014, the IASB issued amendments to IFRS 10, Consolidated Financial Statements and IAS 28, Investments in Associates and Joint Ventures. The amendments provide clarification on the recognition of gains or losses upon the sale or contribution of assets between an investor and its associate or joint venture.

iv. Noncurrent assets held for sale and discontinued operations

In September 2014, the IASB issued amendments to IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations (IFRS 5). The amendments are to be applied prospectively, with earlier application permitted. Assets are generally disposed of either through sale or through distribution to owners. The amendments to IFRS 5 clarify the application of IFRS 5 when changing from one of these disposal methods to the other.

v. Financial instruments disclosures

In September 2014, the IASB issued amendments to IFRS 7, Financial Instruments: Disclosures (IFRS 7). The amendments in IFRS 7 are to be applied retrospectively, with earlier application permitted. The amendments to IFRS 7 clarify the disclosure required for any continuing involvement in a transferred asset that has been derecognized. The amendments also provide guidance on disclosures regarding the offsetting of financial assets and financial liabilities in interim financial reports.

 

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vi. Interim financial reporting

In September 2014, the IASB issued amendments to IAS 34, Interim Financial Reporting (IAS 34). The amendments to IAS 34 are to be applied retrospectively, with earlier application permitted. The amendments provide additional guidance on interim disclosures and whether they are provided in the interim financial statements or incorporated by cross-reference between the interim financial statements and other financial disclosures.

vii. Revenue

In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers (IFRS 15). IFRS 15 is effective for periods beginning on or after January 1, 2017 and is to be applied retrospectively. IFRS 15 clarifies the principles for recognizing revenue from contracts with customers. The extent of the impact of adoption of IFRS 15 has not yet been determined.

viii. Financial instruments

In July 2014, the IASB issued IFRS 9, Financial Instruments (IFRS 9). IFRS 9 replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset or liability. It also introduces additional changes relating to financial liabilities and aligns hedge accounting more closely with risk management.

IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early adoption of the new standard permitted. Cameco does not intend to early adopt IFRS 9. The extent of the impact of adoption of IFRS 9 has not yet been determined.

4. Determination of fair values

A number of the Company’s accounting policies and disclosures require the measurement of fair value, for both financial and non-financial assets and liabilities.

The fair value of an asset or liability is generally estimated as the amount that would be received on sale of an asset, or paid to transfer a liability in an orderly transaction between market participants at the reporting date. Fair values of assets and liabilities traded in an active market are determined by reference to last quoted prices, in the principal market for the asset or liability. In the absence of an active market for an asset or liability, fair values are determined based on market quotes for assets or liabilities with similar characteristics and risk profiles, or through other valuation techniques. Fair values determined using valuation techniques require the use of inputs, which are obtained from external, readily observable market data when available. In some circumstances, inputs that are not based on observable data must be used. In these cases, the estimated fair values may be adjusted in order to account for valuation uncertainty, or to reflect the assumptions that market participants would use in pricing the asset or liability.

All fair value measurements are categorized into one of three hierarchy levels, described below, for disclosure purposes. Each level is based on the transparency of the inputs used to measure the fair values of assets and liabilities:

Level 1 – Values based on unadjusted quoted prices in active markets that are accessible at the reporting date for identical assets or liabilities.

Level 2 – Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.

Level 3 – Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

When the inputs used to measure fair value fall within more than one level of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety.

 

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Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period during which the transfer occurred. There were no transfers between level 1, level 2, or level 3 during the period. Cameco does not have any recurring fair value measurements that are categorized as level 3 as of the reporting date.

Further information about the techniques and assumptions used to measure fair values is included in the following notes:

Note 10 – Property, plant and equipment

Note 11 – Goodwill and intangible assets

Note 13 – Equity-accounted investees

Note 26 – Share-based compensation plans

Note 28 – Financial instruments and risk management

5. Use of estimates and judgments

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future period affected.

Information about critical judgments in applying the accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is discussed below. Further details of the nature of these judgments, estimates and assumptions may be found in the relevant notes to the consolidated financial statements.

A. Recoverability of long-lived and intangible assets

Cameco assesses the carrying values of property, plant and equipment, and intangible assets when there is an indication of possible impairment. Goodwill and intangible assets not yet available for use or with indefinite useful lives are tested for impairment annually. If it is determined that carrying values of assets or goodwill cannot be recovered, the unrecoverable amounts are charged against current earnings. Recoverability is dependent upon assumptions and judgments regarding market conditions, costs of production, sustaining capital requirements and mineral reserves. Other assumptions used in the calculation of recoverable amounts are discount rates, future cash flows and profit margins. A material change in assumptions may significantly impact the potential impairment of these assets.

B. Cash generating units

In performing impairment assessments of long-lived assets, assets that cannot be assessed individually are grouped together into the smallest group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Management is required to exercise judgment in identifying these CGUs.

C. Provisions for decommissioning and reclamation of assets

Significant decommissioning and reclamation activities are often not undertaken until near the end of the useful lives of the productive assets. Regulatory requirements and alternatives with respect to these activities are subject to change over time. A significant change to either the estimated costs or mineral reserves may result in a material change in the amount charged to earnings.

D. Income taxes

Cameco operates in a number of tax jurisdictions and is, therefore, required to estimate its income taxes in each of these tax jurisdictions in preparing its consolidated financial statements. In calculating income taxes, consideration is given to factors such as tax rates in the different jurisdictions, non-deductible expenses, valuation allowances, changes in tax law and

 

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management’s expectations of future operating results. Cameco estimates deferred income taxes based on temporary differences between the income and losses reported in its consolidated financial statements and its taxable income and losses as determined under the applicable tax laws. The tax effect of these temporary differences is recorded as deferred tax assets or liabilities in the consolidated financial statements. The calculation of income taxes requires the use of judgment and estimates. If these judgments and estimates prove to be inaccurate, future earnings may be materially impacted.

E. Commencement of production stage

Until a mining property is declared as being in the production stage, all costs related to its development are capitalized. The determination of the date on which a mine enters the production stage is a matter of judgment that impacts when capitalization of development costs ceases and depreciation of the mining property commences and is charged to earnings. Refer to note 2 (h)(ii) for further information on the criteria used to make this assessment.

F. Mineral reserves

Depreciation on property, plant and equipment is primarily calculated using the unit-of-production method. This method allocates the cost of an asset to each period based on current period production as a portion of total lifetime production or a portion of estimated mineral reserves. Estimates of life-of-mine and amounts of mineral reserves are updated annually and are subject to judgment and significant change over time. If actual mineral reserves prove to be significantly different than the estimates, there could be a material impact on the amounts of depreciation charged to earnings.

G. Purchase price allocations

The purchase price related to a business combination or asset acquisition is allocated to the underlying acquired assets and liabilities based on their estimated fair values at the time of acquisition. The determination of fair value requires Cameco to make assumptions, estimates and judgments regarding future events. The allocation process is inherently subjective and impacts the amounts assigned to individually identifiable assets and liabilities. As a result, the purchase price allocation impacts Cameco’s reported assets and liabilities and future net earnings due to the impact on future depreciation and amortization expense and impairment tests.

H. Determination of joint control

Cameco conducts certain operations through joint ownership interests. Judgment is required in assessing whether Cameco has joint control over the investee, which involves determining the relevant activities of the arrangement and whether decisions around relevant activities require unanimous consent. Judgment is also required to determine whether a joint arrangement should be classified as a joint venture or joint operation. Classifying the arrangement requires us to assess our rights and obligations arising from the arrangement. Specifically, management considers the structure of the joint arrangement and whether it is structured through a separate vehicle and when the arrangement is structured through a separate vehicle, we also consider the rights and obligations arising from the legal form of the separate vehicle, the terms of the contractual arrangements and other facts and circumstances, when relevant. This judgment influences whether we equity account or proportionately consolidate our interest in the arrangement.

6. Discontinued operation

On March 27, 2014, Cameco completed the sale of its 31.6% limited partnership interest in Bruce Power L.P. (BPLP) which operates the four Bruce B nuclear reactors in Ontario. The aggregate sale price for Cameco’s interest in BPLP and certain related entities was $450,000,000. The sale has been accounted for effective January 1, 2014. Cameco received net proceeds of approximately $447,096,000 and realized an after tax gain of $127,243,000 on this divestiture.

 

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As a result of the transaction, Cameco presented the results of BPLP as a discontinued operation and revised its statement of earnings, statement of comprehensive income and statement of cash flows to reflect this change in presentation. Net earnings from this discontinued operation are as follows:

 

		2014				2013
Share of earnings from BPLP and related entities		$	—			$	112,793
Tax expense			—				27,472
			—				85,321
Gain on disposal of BPLP and related entities			144,912				—
Tax expense on disposal			17,669				—
			127,243				—
Net earnings from discontinued operation		$	127,243			$	85,321

7. Acquisitions

NUKEM Energy GmbH (NUKEM)

On January 9, 2013, Cameco completed the acquisition of NUKEM from Advent International and other shareholders, through the purchase of all the outstanding shares for cash consideration of $148,302,000 (US).

While Cameco received the economic benefit of owning NUKEM as of January 1, 2012, the results of NUKEM have been consolidated with the results of Cameco commencing on January 9, 2013. NUKEM is one of the world’s leading traders and brokers of nuclear fuel products and services. The acquisition complements Cameco’s business by strengthening our position in nuclear fuel markets and improving our access to unconventional and secondary sources of supply.

In accordance with the acquisition method of accounting, the purchase price was allocated to the underlying assets and liabilities assumed based on their fair values at the date of acquisition. Fair values were determined based on discounted cash flows and quoted market prices. The values assigned to the net assets acquired were as follows:

 

Net assets acquired (USD)
Cash and cash equivalents		$	12,974
Accounts receivable			43,529
Other working capital			5,172
Inventories			165,280
Intangible assets			87,535
Accounts payable and accrued liabilities			(68,464	)
Long-term debt			(116,922	)
Provisions			(15,514	)
Deferred tax liabilities			(53,665	)
Goodwill			88,377
Total		$	148,302

An advisory fee of $2,980,000 has been included in administration expense in the consolidated statement of earnings for the year ended December 31, 2013.

 

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8. Accounts receivable

 

		2014				2013
Trade receivables		$	428,850			$	391,749
Receivables due from related parties			—				13,400
HST/VAT receivables			19,523				15,344
Other receivables			6,629				10,882
Total		$	455,002			$	431,375

The Company’s exposure to credit and currency risks as well as impairment loss related to trade and other receivables, excluding harmonized sales tax (HST)/value added tax (VAT) receivables is disclosed in note 28.

9. Inventories

 

		2014				2013
Uranium
Concentrate		$	500,342			$	550,305
Broken ore			21,289				4,572
			521,631				554,877
NUKEM			251,942				208,217
Fuel services			128,705				150,221
Total		$	902,278			$	913,315

Cameco expensed $1,698,000,000 of inventory as cost of sales during 2014 (2013 - $1,690,000,000). Included in cost of sales is a $4,300,000 net recovery, resulting from the reversal of previous NUKEM inventory write-downs to reflect net realizable value (2013 - $14,000,000 write-down).

NUKEM enters into financing arrangements where future receivables arising from certain sales contracts are sold to financial institutions in exchange for cash. These arrangements require NUKEM to satisfy its delivery obligations under the sales contracts, which are recognized as deferred sales (note 17). In some of the arrangements, NUKEM is also required to pledge the underlying inventory as security against these performance obligations. As of December 31, 2014, NUKEM had $64,687,000 (US) (2013 -$31,763,000 (US)) of inventory pledged as security under financing arrangements.

 

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10. Property, plant and equipment

At December 31, 2014

 

		Land and buildings				Plant and equipment				Furniture and fixtures				Under construction				Exploration and evaluation				Total
Cost
Beginning of year		$	2,971,894			$	1,819,611			$	97,220			$	1,904,400			$	1,072,242			$	7,865,367
Additions			26,688				18,288				5,716				407,492				14,640				472,824
Transfers			143,639				152,564				17,171				(313,374	)			—				—
Change in reclamation provision			228,223				—				—				—				—				228,223
Disposals (b)			(902	)			(24,463	)			(1,111	)			(40,664	)			(10,984	)			(78,124	)
Effect of movements in exchange rates			54,194				18,721				1,076				4,646				8,817				87,454
End of year			3,423,736				1,984,721				120,072				1,962,500				1,084,715				8,575,744
Accumulated depreciation and impairment
Beginning of year			1,491,681				1,019,529				81,216				70,159				161,789				2,824,374
Depreciation charge			185,238				111,980				23,574				94				161				321,047
Transfers			(4,190	)			4,190				—				—				—				—
Disposals			(678	)			(16,736	)			(336	)			—				(7,160	)			(24,910	)
Impairment charge (a)			66,084				38,968				—				21,368				—				126,420
Effect of movements in exchange rates			31,391				7,038				(353	)			—				(284	)			37,792
End of year			1,769,526				1,164,969				104,101				91,621				154,506				3,284,723
Net book value at December 31, 2014		$	1,654,210			$	819,752			$	15,971			$	1,870,879			$	930,209			$	5,291,021

At December 31, 2013

 

		Land and buildings				Plant and equipment				Furniture and fixtures				Under construction				Exploration and evaluation				Total
Cost
Beginning of year		$	2,722,059			$	1,663,769			$	89,868			$	1,679,571			$	1,126,254			$	7,281,521
Acquisitions [note 7]			—				1,070				—				—				—				1,070
Additions			54,899				18,299				485				528,547				9,131				611,361
Change in reclamation provision			1,958				—				—				—				—				1,958
Transfers			161,042				141,018				6,929				(308,989	)			—				—
Disposals			(1,467	)			(14,294	)			(578	)			—				(131	)			(16,470	)
Effect of movements in exchange rates			33,403				9,749				516				5,271				(63,012	)			(14,073	)
End of year			2,971,894				1,819,611				97,220				1,904,400				1,072,242				7,865,367
Accumulated depreciation and impairment
Beginning of year			1,305,639				918,829				71,903				—				168,000				2,464,371
Depreciation charge			169,561				105,101				9,531				—				258				284,451
Transfers			(185	)			692				(507	)			—				—				—
Disposals			(378	)			(9,104	)			(155	)			—				—				(9,637	)
Impairment charges (c)			28				344				—				70,159				7,160				77,691
Effect of movements in exchange rates			17,016				3,667				444				—				(13,629	)			7,498
End of year			1,491,681				1,019,529				81,216				70,159				161,789				2,824,374
Net book value at December 31, 2013		$	1,480,213			$	800,082			$	16,004			$	1,834,241			$	910,453			$	5,040,993

 

 

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Cameco has contractual capital commitments of approximately $99,000,000 at December 31, 2014. Certain of the contractual commitments may contain cancellation clauses, however the Company discloses the commitments based on management’s intent to fulfill the contract. The majority of this amount is expected to be incurred in 2015.

(a) During 2014, Cameco recognized a $126,420,000 impairment charge relating to its Rabbit Lake operation in northern Saskatchewan, which is part of its uranium segment. Due to the deferral of various projects that were related to planned production over the remaining life of the Eagle Point mine, the Company concluded it was appropriate to recognize an impairment charge. The amount of the charge was determined as the excess of the carrying value over the recoverable amount. The recoverable amount of the mine was determined to be $28,570,000 based on a fair value less costs to sell model, which incorporated the future cash flows expected to be derived from the mine. It is categorized as a non-recurring level 3 fair value measurement.

The discount rate used in the fair value less costs to sell calculation was 8% and was determined based on a market participant’s incremental borrowing cost, adjusted for the marginal return that the participant would expect to use on an investment in the mine. The recoverable amount is not sensitive to changes in the discount rate. Other key assumptions include uranium price forecasts and operating and capital cost forecasts. Uranium prices applied in the calculation were based on approved internal price forecasts, which reflect management’s expectation of prices that a market participant would use. Operating and capital cost forecasts have been determined based on management’s internal cost estimates. A $1/lb decrease in the uranium price assumption decreases the recoverable amount by $17,600,000.

(b) Due to extended low market conditions and continued efforts to reduce costs, certain projects were re-evaluated. As a result, the Company wrote off $40,664,000 of assets under construction on these projects.

(c) In 2013, Cameco recognized a $70,159,000 impairment charge relating to its agreement with Talvivaara Mining Company Plc. to purchase uranium produced at the Sotkamo nickel-zinc mine in Finland. The impairment charge represents the full amount of Cameco’s investment which was used to cover construction costs with the amount to be repaid through deliveries of uranium concentrate. The amount of the charge was determined as the excess of the carrying value over the fair value less costs to sell. Due to Talvivaara’s weak financial position and application to the Finnish government to undergo a corporate restructuring, as an unsecured creditor, Cameco determined the fair value less costs to sell to be nil and, as such, recognized an impairment charge for the full amount of the asset.

11. Goodwill and intangible assets

A. Reconciliation of carrying amount

At December 31, 2014

 

		Goodwill				Contracts				Intellectual property				Patents				Total
Cost
Beginning of year		$	93,998			$	93,102			$	118,819			$	9,298			$	315,217
Effect of movements in exchange rates			8,528				8,447				—				843				17,818
End of year			102,526				101,549				118,819				10,141				333,035
Accumulated amortization
Beginning of year			—				82,960				36,940				1,286				121,186
Amortization charge			—				(1,438	)			4,052				531				3,145
Effect of movements in exchange rates			—				7,456				—				146				7,602
End of year			—				88,978				40,992				1,963				131,933
Net book value at December 31, 2014		$	102,526			$	12,571			$	77,827			$	8,178			$	201,102

 

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At December 31, 2013

 

		Goodwill				Contracts				Intellectual property				Patents				Total
Cost
Beginning of year		$	—			$	—			$	118,819			$	8,697			$	127,516
Additions [note 7]			87,460				86,627				—				—				174,087
Effect of movements in exchange rates			6,538				6,475				—				601				13,614
End of year			93,998				93,102				118,819				9,298				315,217
Accumulated amortization
Accumulated amortization			—				—				33,694				721				34,415
Amortization charge			—				79,609				3,246				494				83,349
Effect of movements in exchange rates			—				3,351				—				71				3,422
End of year			—				82,960				36,940				1,286				121,186
Net book value at December 31, 2013		$	93,998			$	10,142			$	81,879			$	8,012			$	194,031

B. Amortization

The intangible asset values relate to intellectual property acquired with Cameco Fuel Manufacturing (CFM), patents acquired with UFP Investments LLC (UFP) and purchase and sales contracts acquired with NUKEM. The CFM intellectual property is being amortized on a unit-of-production basis over its remaining life. Amortization is allocated to the cost of inventory and is recognized in cost of products and services sold as inventory is sold. The patents acquired with UFP are being amortized to cost of products and services sold on a straight-line basis over their remaining life which expires in July 2029. The NUKEM purchase and sales contracts will be amortized to earnings over the remaining terms of the underlying contracts, which extend to 2022. Amortization of the purchase contracts is allocated to the cost of inventory and is included in cost of products and services sold as inventory is sold. Sales contracts are amortized to revenue. The approximate amount of pre-tax earnings (in USD) relating to the amortization of the fair value allocated to the NUKEM contracts is as follows:

 

2015				2016				2017				2018				2019				2020				2021				2022				Total
	$2,540				2,897				994				1,091				975				871				777				692			$	10,837

C. Impairment test

For the purpose of impairment testing, goodwill is attributable to NUKEM, which is considered a CGU.

The recoverable amount of NUKEM was estimated based on a value in use calculation, which involved discounting the future cash flows expected to be generated from the continuing use of the CGU. The estimated recoverable amount of NUKEM exceeded its carrying amount by approximately $73,500,000 (US) and therefore no impairment loss was recognized.

Five years of cash flows were included in the discounted cash flow model. Any cash flows expected to be generated beyond the initial five-year period were extrapolated using a terminal value growth rate. The projected cash flows included in the calculation were based upon NUKEM’s approved financial forecasts and strategic plan, which incorporate NUKEM’s current contract portfolio as well as management’s expectations regarding future business activity. The key assumptions used in the estimation of the value in use were as follows:

 

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		2014
Discount rate (pre-tax)			12.8	%
Discount rate (post-tax)			8.8	%
Terminal value growth rate			2.4	%

The discount rate was determined based on NUKEM’s internal weighted average cost of capital, adjusted for the marginal return a market participant would expect to earn on an investment in the entity. It represents a nominal, post-tax figure. The terminal value growth rate was determined based on management’s expected average annual long-term growth in the uranium industry. The rate represents a nominal figure and is consistent with forecast economic growth rates observed in the market.

Other key assumptions include uranium price forecasts and perpetual cash flows. Uranium prices applied in the calculation were based on approved internal price forecasts, which reflect management’s experience and industry expertise. These prices are consistent with expected long-term prices observed in the market. Perpetual cash flows have been determined based on management’s expectation of future business activity.

Cameco has validated the results of the value in use calculation by performing sensitivity tests on its key assumptions. Holding all other variables constant, the decreases in recoverable amount created by marginal changes in each of the key assumptions are as follows:

 

		Change in assumption		Amount of decrease
Discount rate		1% increase		$	31,215
Terminal value growth rate		1% decrease			25,642
Uranium prices		$1/lb decrease			5,829
Perpetual annual cash flow		$1 million (US) decrease			10,947

As a result of these tests, the Company believes that any reasonably possible changes in the key assumptions would not result in NUKEM’s carrying amount exceeding its recoverable amount.

12. Long-term receivables, investments and other

 

		2014				2013
Investments in equity securities [note 28]		$	6,601			$	22,805
Derivatives [note 28]			3,889				7,391
Advances receivable from JV Inkai LLP [note 33]			91,672				95,319
Investment tax credits			90,658				82,177
Amounts receivable related to tax dispute [note 23]			211,604				59,475
Other			29,197				24,156
			433,621				291,323
Less current portion			(10,341	)			(3,775	)
Net		$	423,280			$	287,548

During 2014, GoviEx Uranium (GoviEx) became listed on the Canadian Securities Exchange. With the availability of a quoted market price, Cameco determined that there was a significant decline in the fair value of its investment in GoviEx and as a result, an impairment charge of $16,658,000 was recorded.

 

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13. Equity-accounted investees

 

		2014				2013
Interest in BPLP [note 6]		$	—			$	294,537
Interest in GE-Hitachi Global Laser Enrichment LLC (GLE)			—				185,162
Interests in other associates			3,230				7,104
Interests in other joint ventures			—				5,909
		$	3,230			$	492,712

Associates

i. GLE

Cameco owns a 24% interest in GLE and accounts for it under the equity method of accounting. During the year, a decision was made by the majority partner of GLE to significantly reduce funding of the project. As a result, Cameco recognized an impairment charge of $183,615,000, which represented the full amount of Cameco’s investment.

GLE primarily operates in North Carolina and is testing a third-generation technology that, if successful, will use lasers to commercially enrich uranium. The technology is unique to the industry, is inherently risky and the significant reduction of funding introduces a further level of risk to this project. Because the funding reduction significantly jeopardizes the viability of the project, Cameco determined the fair value less costs to sell to be nil and as such recognized an impairment charge for the full amount of the asset. Future contributions to the project will be reflected in net earnings.

The following table summarizes the financial information of GLE:

 

		2014				2013
Current assets		$	—			$	526
Non-current assets			—				206,107
Current liabilities			—				(5,280	)
Net assets (100%)		$	—			$	201,353
Cameco’s share of net assets (24%)		$	—			$	48,325
Acquisition fair value and other adjustments			—				136,837
Carrying amount in the statement of financial position		$	—			$	185,162
Loss from operations and comprehensive loss		$	(55,279	)		$	(54,477	)
Cameco’s share of loss from operations and comprehensive loss (24%)		$	(13,267	)		$	(13,074	)

ii. Other associate

Cameco has one other associate. The following table summarizes the carrying amount and share of loss and other comprehensive income of this associate:

 

		2014				2013
Carrying amount of associate		$	3,230			$	7,104
Share of loss from operations and comprehensive loss		$	(3,874	)		$	(1,033	)

At December 31, 2014, the quoted value of the Company’s share in this associate that has shares listed on a recognized stock exchange was $14,256,000 (2013 - $19,758,000).

 

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14. Accounts payable and accrued liabilities

 

		2014				2013
Trade payables		$	183,120			$	346,390
Non-trade payables			114,174				72,857
Payables due to related parties			18,964				18,694
Total		$	316,258			$	437,941

The Company’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 28.

15. Short-term debt

 

		2014				2013
Promissory note payable		$	—			$	10,601
Commercial paper			—				24,974
NUKEM short-term loans			—				14,655
Total		$	—			$	50,230

In 2008, a promissory note in the amount of $73,344,000 (US) was issued to finance the acquisition of GLE. No balance was outstanding under this promissory note at December 31, 2014. At December 31, 2013, $9,967,000 (US) of principal was outstanding.

Cameco borrows directly in the commercial paper market. At December 31, 2014, there was no commercial paper outstanding (2013 - $24,974,000).

JV Inkai LLP (Inkai) has a $20,000,000 (US) revolving credit facility that is available until August 11, 2015. While Cameco’s share of this facility is $12,000,000 (US), it acts as a guarantor for the full amount of the facility. No balance was outstanding under this facility at December 31, 2014 or December 31, 2013.

NUKEM has a multicurrency revolving loan facility that is available until February 15, 2018. Total funds of €100,000,000 are available under the facility, which can be drawn in either Euros or US dollars in the form of bank overdrafts, letters of credit, short-term loans or foreign exchange facilities. Any amounts drawn in Euros bear interest at a rate equal to the comparable EURIBOR on the draw date plus 0.9%, while amounts drawn in US dollars bear interest at a rate equal to the comparable LIBOR on the draw date plus 1.3%.

As of December 31, 2014, there were no amounts withdrawn against the facility. At December 31, 2013 NUKEM had drawn a total of €38,130,000 on the facility, of which €28,130,000 was drawn in the form of bank overdrafts and €10,000,000 in the form of short-term loans. As of December 31, 2014, NUKEM has $356,000 (US) in letters of credit outstanding against the facility in support of performance obligations under outstanding delivery contracts (2013 - $693,000 (US)).

The terms of the facility contain a financial covenant that requires NUKEM to maintain a minimum working capital to debt ratio of 1.35. The facility also stipulates Cameco as a guarantor for NUKEM’s withdrawals and requires the Company to maintain a credit rating of at least BBB-. Failure to comply with these covenants could result in cancellation of the facility and accelerated payment of any outstanding amounts. As of December 31, 2014, NUKEM and Cameco were in compliance with the covenants and the Company does not expect its operating and investing activities in 2015 to be constrained by them.

 

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16. Long-term debt

 

		2014				2013
Unsecured debentures
Series C - 4.70% debentures redeemed July 16, 2014		$	—			$	299,537
Series D - 5.67% debentures due September 2, 2019			497,465				497,003
Series E - 3.75% debentures due November 14, 2022			397,857				397,626
Series F - 5.09% debentures due November 14, 2042			99,230				99,217
Series G - 4.19% debentures due June 24, 2024			496,646				—
Total		$	1,491,198			$	1,293,383

On June 24, 2014, Cameco issued $500,000,000 of Series G debentures and announced the early redemption of the outstanding Series C debentures. The Series G debentures bear interest at a rate of 4.19% per annum. The net proceeds of the issue after deducting expenses were approximately $496,400,000. The debentures mature on June 24, 2024 and are being amortized at an effective interest rate of 4.28%. The $300,000,000 principal amount of the Series C debentures was redeemed on July 16, 2014. The company incurred total charges of $12,135,000 in relation to the early redemption of these debentures (note 21).

Cameco has a $1,250,000,000 unsecured revolving credit facility that is available until November 1, 2018. Upon mutual agreement, the facility can be extended for an additional year on the anniversary date. In addition to direct borrowings under the facility, up to $100,000,000 can be used for the issuance of letters of credit and, to the extent necessary, it may be used to provide liquidity support for the Company’s commercial paper program. The agreement also provides the ability to increase the revolving credit facility above $1,250,000,000 by increments no less than $50,000,000, to a total of $1,750,000,000. The facility ranks equally with all of Cameco’s other senior debt. As of December 31, 2014, there were no amounts outstanding under this facility.

Cameco has $1,068,420,000 (2013—$824,745,000) in letter of credit facilities. Outstanding and committed letters of credit at December 31, 2014 amounted to $950,716,000 (2013—$798,774,000), the majority of which relate to future decommissioning and reclamation liabilities (note 18).

Cameco is bound by a covenant in its revolving credit facility. The covenant requires a funded debt to tangible net worth ratio equal to or less than 1:1. Non-compliance with this covenant could result in accelerated payment and termination of the revolving credit facility. At December 31, 2014, Cameco was in compliance with the covenant and does not expect its operating and investing activities in 2015 to be constrained by it.

The table below represents currently scheduled maturities of long-term debt:

 

2015		2016				2017				2018				2019				Thereafter				Total
$—			—				—				—				497,465				993,733			$	1,491,198

 

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17. Other liabilities

 

		2014				2013
Deferred sales		$	123,298			$	55,126
Derivatives [note 28]			67,916				30,923
Accrued pension and post-retirement benefit liability [note 27]			61,670				45,931
Other			7,033				8,085
			259,917				140,065
Less current portion			(87,883	)			(60,685	)
Net		$	172,034			$	79,380

Deferred sales includes $92,299,000 (US) (2013—$36,725,000 (US)) of performance obligations relating to financing arrangements entered into by NUKEM (note 9).

18. Provisions

 

		Reclamation				Waste disposal				Total
Beginning of year		$	573,942			$	16,971			$	590,913
Changes in estimates and discount rates			227,206				2,574				229,780
Provisions used during the period			(13,746	)			(1,679	)			(15,425	)
Unwinding of discount			20,242				429				20,671
Impact of foreign exchange			20,371				—				20,371
End of year		$	828,015			$	18,295			$	846,310
Current		$	18,703			$	1,672			$	20,375
Non-current			809,312				16,623				825,935
		$	828,015			$	18,295			$	846,310

A. Reclamation provision

Cameco’s estimates of future decommissioning obligations are based on reclamation standards that satisfy regulatory requirements. Elements of uncertainty in estimating these amounts include potential changes in regulatory requirements, decommissioning and reclamation alternatives and amounts to be recovered from other parties.

Cameco estimates total future decommissioning and reclamation costs for its existing operating assets to be $874,314,000 (2013—$823,493,000). The expected timing of these outflows is based on life-of-mine plans with the majority of expenditures expected to occur after 2021. These estimates are reviewed by Cameco technical personnel as required by regulatory agencies or more frequently as circumstances warrant. In connection with future decommissioning and reclamation costs, Cameco has provided financial assurances of $910,902,000 (2013—$767,635,000) in the form of letters of credit to satisfy current regulatory requirements.

The reclamation provision relates to the following segments:

 

		2014				2013
Uranium		$	682,769			$	468,546
Fuel Services			145,246				105,396
Total		$	828,015			$	573,942

 

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B. Waste disposal

The Fuel Services division consists of the Blind River refinery, Port Hope conversion facility and Cameco Fuel Manufacturing. The refining, conversion and manufacturing processes generate certain uranium contaminated waste. These include contaminated combustible material (paper, rags, gloves, etc.) and contaminated non-combustible material (metal parts, soil from excavations, building and roofing materials, spent uranium concentrate drums, etc.). These materials can in some instances be recycled or reprocessed. A provision for waste disposal costs in respect of these materials is recognized when they are generated.

Cameco estimates total future costs related to existing waste disposal to be $18,100,000 (2013—$18,250,000). These outflows are expected to occur within the next eight years.

19. Share capital

Authorized share capital:

 

•

Unlimited number of first preferred shares

 

•

Unlimited number of second preferred shares

 

•

Unlimited number of voting common shares, no stated par value, and

 

•

One Class B share

A. Common shares

 

Number issued (number of shares)		2014				2013
Beginning of year			395,477,230				395,350,394
Issued:
Stock option plan [note 26]			315,292				126,836
Total			395,792,522				395,477,230

All issued shares are fully paid.

B. Class B share

One Class B share issued during 1988 and assigned $1 of share capital entitles the shareholder to vote separately as a class in respect of any proposal to locate the head office of Cameco to a place not in the province of Saskatchewan.

C. Dividends

Dividends on Cameco Corporation common shares are declared in Canadian dollars. For the year ended December 31, 2014, the dividend declared per share was $0.40 (December 31, 2013—$0.40).

 

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20. Employee benefit expense

The following employee benefit expenses are included in cost of products and services sold, administration, exploration, research and development and property, plant and equipment:

 

		2014				2013
Wages and salaries		$	353,254			$	353,772
Statutory and company benefits			66,456				62,287
Equity-settled share-based compensation [note 26]			21,048				24,289
Expenses related to defined benefit plans [note 27]			7,605				4,103
Contributions to defined contribution plans [note 27]			17,274				16,441
Cash-settled share-based compensation [note 26]			(1,616	)			1,272
Total		$	464,021			$	462,164

21. Finance costs

 

		2014				2013
Interest on long-term debt		$	67,614			$	66,273
Unwinding of discount on provisions			20,671				16,391
Other charges			6,531				6,286
Loss on redemption of Series C debentures [note 16]			12,135				—
Foreign exchange gains			(34,731	)			(27,378	)
Interest on short-term debt			4,902				549
Total		$	77,122			$	62,121

No borrowing costs were determined to be eligible for capitalization during the year.

22. Other income (expense)

 

		2014				2013
Contract settlement		$	65,557			$	—
Contract termination fee			(18,304	)			—
Loss on sale of investments			—				(14,952	)
Other			3,338				(3,374	)
Total		$	50,591			$	(18,326	)

During the year, Cameco recorded an early termination fee of $18,304,000, incurred as a result of the cancellation of our toll conversion agreement with Springfields Fuels Ltd., which was to expire in 2016.

In addition, Cameco recorded a gain with respect to a long-term supply contract with one of its utility customers. The $65,557,000 reflected as income from contract settlement relates to deliveries that the customer refused to take in the years 2012 through 2017. This represents the full amount to be received in relation to this contract dispute.

 

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23. Income taxes

A. Significant components of deferred tax assets and liabilities

 

		Recognized in earnings								As at December 31
		2014				2013				2014				2013
Assets
Inventories		$	—			$	(3,250	)		$	—			$	—
Provision for reclamation			75,732				9,084				251,045				174,708
Foreign exploration and development			(807	)			(2,711	)			6,103				6,910
Income tax losses			136,294				73,412				335,856				199,412
Defined benefit plan actuarial losses			—				—				5,813				8,807
Long-term investments and other			1,424				8,672				67,060				59,628
Deferred tax assets			212,643				85,207				665,877				449,465
Liabilities
Property, plant and equipment			(1,334	)			(42,994	)			182,841				184,930
Inventories			(15,719	)			(15,825	)			20,590				37,139
Other			(3,102	)			(24,918	)			—				3,102
Deferred tax liabilities			(20,155	)			(83,737	)			203,431				225,171
Net deferred tax asset		$	232,798			$	168,944			$	462,446			$	224,294

 

Deferred tax allocated as		2014				2013
Deferred tax assets		$	486,328			$	266,203
Deferred tax liabilities			(23,882	)			(41,909	)
Net deferred tax asset		$	462,446			$	224,294

Based on projections of future income, realization of these deferred tax assets is probable and consequently a deferred tax asset has been recorded.

B. Movement in net deferred tax assets and liabilities

 

		2014				2013
Net deferred tax asset at beginning of year		$	224,294			$	188,143
Deferred tax liability on acquisition of NUKEM			—				(52,964	)
Recovery for the year in net earnings			246,558				185,830
Expense on discontinued operations			(13,761	)			(16,886	)
Recovery (expense) for the year in other comprehensive income			3,171				(79,427	)
Foreign exchange adjustments			2,184				(402	)
End of year		$	462,446			$	224,294

 

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C. Significant components of unrecognized deferred tax assets

 

		2014				2013
Income tax losses		$	130,300			$	72,656
Property, plant and equipment			1,404				54,759
Long-term investments and other			85,927				12,539
Total		$	217,631			$	139,954

D. Tax rate reconciliation

The provision for income taxes differs from the amount computed by applying the combined expected federal and provincial income tax rate to earnings before income taxes. The reasons for these differences are as follows:

 

		2014				2013
Earnings from continuing operations before income taxes and non-controlling interest		$	(119,098	)		$	115,136
Combined federal and provincial tax rate			26.9	%			26.9	%
Computed income tax expense			(32,037	)			30,972
Increase (decrease) in taxes resulting from:
Difference between Canadian rates and rates applicable to subsidiaries in other countries			(225,368	)			(200,877	)
Change in unrecognized deferred tax assets			76,009				11,297
Other taxes			3,430				3,332
Share-based compensation plans			2,094				3,580
Change in tax provision related to transfer pricing			12,000				10,000
Non-deductible (non-taxable) capital amounts			(8,108	)			18,328
Other permanent differences			(3,288	)			6,138
Income tax recovery		$	(175,268	)		$	(117,230	)

E. Reassessments

In 2008, as part of the ongoing annual audits of Cameco’s Canadian tax returns, Canada Revenue Agency (CRA) disputed the transfer pricing structure and methodology used by Cameco and its wholly owned Swiss subsidiary, Cameco Europe Ltd., in respect of sale and purchase agreements for uranium products. From December 2008 to date, CRA issued notices of reassessment for the taxation years 2003 through 2009, which in aggregate have increased Cameco’s income for Canadian tax purposes by approximately $2,795,000,000. CRA has also issued notices of reassessment for transfer pricing penalties for the years 2007 through 2009 in the amount of $229,300,000. Cameco believes it is likely that CRA will reassess Cameco’s tax returns for subsequent years on a similar basis and that these will require Cameco to make future remittances on receipt of the reassessments.

Using the methodology we believe that CRA will continue to apply and including the $2,795,000,000 already reassessed, we expect to receive notices of reassessment for a total of approximately $6,600,000,000 for the years 2003 through 2014, which would increase Cameco’s income for Canadian tax purposes and result in a related tax expense of approximately $1,900,000,000. In addition to penalties already imposed, CRA may continue to apply penalties to taxation years subsequent to 2009. As a result, we estimate that cash taxes and transfer pricing penalties would be between $1,450,000,000 and $1,500,000,000. In addition, we estimate there would be interest and instalment penalties applied that would be material to Cameco. While in dispute, we would be responsible for remitting 50% of the cash taxes and transfer pricing penalties (between $725,000,000 and $750,000,000), plus related interest and instalment penalties assessed, which would be material to Cameco.

 

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Under Canadian federal and provincial tax rules, the amount required to be remitted each year will depend on the amount of income reassessed in that year and the availability of elective deductions and tax loss carryovers. In light of our view of the likely outcome of the case, we expect to recover the amounts remitted to CRA, including cash taxes, interest and penalties totalling $211,604,000 already paid as at December 31, 2014 (December 31, 2013—$59,475,000) (note 12).

The case on the 2003 reassessment is expected to go to trial in 2016. If this timing is adhered to, we expect to have a Tax Court decision within six to 18 months after the trial is complete.

Having regard to advice from its external advisors, Cameco’s opinion is that CRA’s position is incorrect and Cameco is contesting CRA’s position and expects to recover any amounts remitted as a result of the reassessments. However, to reflect the uncertainties of CRA’s appeals process and litigation, Cameco has recorded a cumulative tax provision related to this matter for the years 2003 through the current period in the amount of $85,000,000. While the resolution of this matter may result in liabilities that are higher or lower than the reserve, management believes that the ultimate resolution will not be material to Cameco’s financial position, results of operations or liquidity in the year(s) of resolution. Resolution of this matter as stipulated by CRA would be material to Cameco’s financial position, results of operations or liquidity in the year(s) of resolution and other unfavourable outcomes for the years 2003 to date could be material to Cameco’s financial position, results of operations and cash flows in the year(s) of resolution.

Further to Cameco’s decision to contest CRA’s reassessments, Cameco is pursuing its appeal rights under Canadian federal and provincial tax rules.

F. Earnings and income taxes by jurisdiction

 

		2014				2013
Earnings (loss) from continuing operations before income taxes
Canada		$	(840,705	)		$	(715,361	)
Foreign			721,607				830,497
		$	(119,098	)		$	115,136
Current income taxes
Canada		$	(2,944	)		$	3,087
Foreign			74,234				65,513
		$	71,290			$	68,600
Deferred income tax recovery
Canada		$	(209,255	)		$	(150,474	)
Foreign			(37,303	)			(35,356	)
		$	(246,558	)		$	(185,830	)
Income tax recovery		$	(175,268	)		$	(117,230	)

G. Income tax losses

At December 31, 2014, income tax losses carried forward of $1,632,194,000 (2013—$968,347,000) are available to reduce taxable income. These losses expire as follows:

 

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Date of expiry		Canada				US				Other				Total
2019		$	—			$	—			$	4,686			$	4,686
2020			—				—				2,637				2,637
2029			—				23,839				—				23,839
2030			—				1,393				—				1,393
2031			94,257				20,332				—				114,589
2032			213,871				20,065				—				233,936
2033			252,781				34,206				—				286,987
2034			300,182				24,029				—				324,211
No expiry			—				—				639,916				639,916
		$	861,091			$	123,864			$	647,239			$	1,632,194

Included in the table above is $434,051,000 (2013 - $244,845,000) of temporary differences related to loss carry forwards where no future benefit is realized.

H. Other comprehensive income

Other comprehensive income included on the consolidated statements of comprehensive income and the consolidated statements of changes in equity is presented net of income taxes. The following income tax amounts are included in each component of other comprehensive income:

For the year ended December 31, 2014

 

		Before tax				Income tax recovery (expense)				Net of tax
Remeasurements of defined benefit liability		$	(10,930	)		$	2,978			$	(7,952	)
Exchange differences on translation of foreign operations			58,890				—				58,890
Gains on derivatives designated as cash flow hedges transferred to net earnings—discontinued operation			(400	)			100				(300	)
Unrealized losses on available-for-sale assets			(707	)			94				(613	)
Losses on available-for-sale assets transferred to net earnings			3				(1	)			2
		$	46,856			$	3,171			$	50,027

For the year ended December 31, 2013

 

		Before tax				Income tax recovery (expense)				Net of tax
Remeasurements of defined benefit liability		$	2,585			$	(715	)		$	1,870
Remeasurements of defined benefit liability—discontinued operation			319,887				(79,972	)			239,915
Exchange differences on translation of foreign operations			(10,792	)			—				(10,792	)
Gains on derivatives designated as cash flow hedges—discontinued operation			253				(63	)			190
Gains on derivatives designated as cash flow hedges transferred to net earnings—discontinued operation			(5,309	)			1,327				(3,982	)
Unrealized gains on available-for-sale assets			32				(4	)			28
		$	306,656			$	(79,427	)		$	227,229

 

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24. Per share amounts

Per share amounts have been calculated based on the weighted average number of common shares outstanding during the period. The weighted average number of paid shares outstanding in 2014 was 395,740,117 (2013—395,427,548).

 

		2014				2013
Basic earnings per share computation
Net earnings attributable to equity holders		$	185,234			$	318,495
Weighted average common shares outstanding			395,740				395,428
Basic earnings per common share		$	0.47			$	0.81
Diluted earnings per share computation
Net earnings attributable to equity holders		$	185,234			$	318,495
Weighted average common shares outstanding			395,740				395,428
Dilutive effect of stock options			315				126
Weighted average common shares outstanding, assuming dilution			396,055				395,554
Diluted earnings per common share		$	0.47			$	0.81

25. Statements of cash flows

 

		2014				2013
Changes in non-cash working capital:
Accounts receivable		$	(18,063	)		$	26,972
Inventories			12,690				(107,221	)
Supplies and prepaid expenses			50,522				(60,738	)
Accounts payable and accrued liabilities			(141,905	)			(21,999	)
Reclamation payments			(15,425	)			(10,051	)
Amortization of purchase price allocation [note 7]			23,339				38,181
Other			980				(4,670	)
Other operating items		$	(87,862	)		$	(139,526	)

26. Share-based compensation plans

The Company has the following equity-settled plans:

A. Stock option plan

The Company has established a stock option plan under which options to purchase common shares may be granted to employees of Cameco. Options granted under the stock option plan have an exercise price of not less than the closing price quoted on the Toronto Stock Exchange (TSX) for the common shares of Cameco on the trading day prior to the date on which the option is granted. The options carry vesting periods of one to three years, and expire eight years from the date granted.

The aggregate number of common shares that may be issued pursuant to the Cameco stock option plan shall not exceed 43,017,198 of which 27,870,079 shares have been issued.

Stock option transactions for the respective years were as follows:

 

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(Number of options)		2014				2013
Beginning of year			9,817,443				9,517,840
Options granted			765,146				1,840,932
Options forfeited			(218,102	)			(587,653	)
Options expired			(1,696,189	)			(826,840	)
Options exercised [note 19]			(315,292	)			(126,836	)
End of year			8,353,006				9,817,443
Exercisable			5,819,252				6,279,629

Weighted average exercise prices were as follows:

 

		2014				2013
Beginning of year		$	29.95			$	31.20
Options granted			26.81				22.00
Options forfeited			30.69				31.61
Options expired			38.93				27.04
Options exercised			19.75				19.52
End of year		$	28.22			$	29.95
Exercisable		$	30.39			$	33.30

Total options outstanding and exercisable at December 31, 2014 were as follows:

 

						Options outstanding								Options exercisable
Option price per share		Number				Weighted average remaining life				Weighted average exercisable price				Number				Weighted average exercisable price
$19.37 - 34.99			5,987,570				5.1			$	23.20				3,453,816			$	23.17
$35.00 - 54.38			2,365,436				2.5				40.93				2,365,436				40.93
			8,353,006												5,819,252

The foregoing options have expiry dates ranging from March 29, 2015 to March 2, 2022.

Non-vested stock option transactions for the respective years were as follows:

 

(Number of options)		2014				2013
Beginning of year			3,537,814				3,553,639
Options granted			765,146				1,840,932
Options forfeited			(58,686	)			(200,546	)
Options vested			(1,710,520	)			(1,656,211	)
End of year			2,533,754				3,537,814

B. Executive performance share unit (PSU)

The Company has established a PSU plan whereby it provides each plan participant an annual grant of PSUs in an amount determined by the board. Each PSU represents one phantom common share that entitles the participant to a payment of one

 

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Cameco common share purchased on the open market, or cash at the board’s discretion, at the end of each three-year period if certain performance and vesting criteria have been met. The final value of the PSUs will be based on the value of Cameco common shares at the end of the three-year period and the number of PSUs that ultimately vest. Vesting of PSUs at the end of the three-year period will be based on total shareholder return over the three years, Cameco’s ability to meet its annual cash flow from operations targets and whether the participating executive remains employed by Cameco at the end of the three-year vesting period. As of December 31, 2014, the total number of PSUs held by the participants, after adjusting for forfeitures on retirement, was 620,654 (2013 - 559,401).

C. Restricted share unit (RSU)

In 2011, the Company established an RSU plan whereby it provides each plan participant an annual grant of RSUs in an amount determined by the board. In 2014, Cameco expanded the scope of the RSU plan to include additional employees of the Company. Each RSU represents one phantom common share that entitles the participant to a payment of one Cameco common share purchased on the open market, or cash, at the board’s discretion. The RSUs carry vesting periods of one to three years, and the final value of the units will be based on the value of Cameco common shares at the end of the vesting periods. As of December 31, 2014, the total number of RSUs held by the participants was 246,394 (2013 - 70,000).

D. Employee share ownership plan

Cameco also has an employee share ownership plan, whereby both employee and Company contributions are used to purchase shares on the open market for employees. The Company’s contributions are expensed during the year of contribution. Under the plan, employees have the opportunity to participate in the program to a maximum of 6% of eligible earnings each year with Cameco matching the first 3% of employee-paid shares by 50%. Cameco contributes $1,000 of shares annually to each employee that is enrolled in the plan. Shares purchased with Company contributions and with dividends paid on such shares become unrestricted 12 months from the date on which such shares were purchased. At December 31, 2014, there were 3,704 participants in the plan (2013 - 3,718). The total number of shares purchased in 2014 with Company contributions was 280,765 (2013 - 278,349). In 2014, the Company’s contributions totalled $5,240,000 (2013 - $5,281,000).

Cameco records compensation expense under its equity-settled plans with an offsetting credit to contributed surplus, to reflect the estimated fair value of units granted to employees. During the year, the Company recognized the following expenses under these plans:

 

		2014				2013
Stock option plan		$	7,802			$	13,322
Performance share unit plan			5,199				5,092
Restricted share unit plan			2,807				594
Employee share ownership plan			5,240				5,281
End of year		$	21,048			$	24,289

Fair value measurement of equity-settled plans

The fair value of the units granted through the PSU plan was determined based on Monte Carlo simulation and the fair value of options granted under the stock option plan was measured based on the Black-Scholes option-pricing model. The fair value of RSUs granted was determined based on their intrinsic value on the date of grant. Expected volatility was estimated by considering historic average share price volatility.

The inputs used in the measurement of the fair values at grant date of the equity-settled share-based payment plans were as follows:

 

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		Stock option plan				RSUs				PSUs
Number of options granted			765,146				260,583				230,200
Average strike price		$	26.81			$	27.21				—
Expected dividend		$	0.40				—				—
Expected volatility			33	%			—				33	%
Risk-free interest rate			1.5	%			—				1.2	%
Expected life of option			4.4 years				—				3 years
Expected forfeitures			8	%			5	%			5	%
Weighted average grant date fair values		$	6.79			$	27.21			$	27.25

In addition to these inputs, other features of the PSU grant were incorporated into the measurement of fair value. The market condition based on total shareholder return was incorporated by utilizing a Monte Carlo simulation. The non-market criteria relating to realized selling prices, production targets and cost control have been incorporated into the valuation at grant date by reviewing prior history and corporate budgets.

The Company has the following cash-settled plans:

A. Deferred share unit (DSU)

Cameco offers a DSU plan to non-employee directors. A DSU is a notional unit that reflects the market value of a single common share of Cameco. 60% of each director’s annual retainer is paid in DSUs. In addition, on an annual basis, directors can elect to receive 25%, 50%, 75% or 100% of the remaining 40% of their annual retainer and any additional fees in the form of DSUs. If a director meets their ownership requirements, the director may elect to take 25%, 50%, 75% or 100% of their annual retainer and any fees in cash, with the balance, if any, to be paid in DSUs. Each DSU fully vests upon award. The DSUs will be redeemed for cash upon a director leaving the board. The redemption amount will be based upon the weighted average of the closing prices of the common shares of Cameco on the TSX for the last 20 trading days prior to the redemption date multiplied by the number of DSUs held by the director. As of December 31, 2014, the total number of DSUs held by participating directors was 542,391 (2013 - 523,855).

B. Phantom stock option

Cameco makes annual grants of bonuses to eligible non-North American employees in the form of phantom stock options. Employees receive the equivalent value of shares in cash when exercised. Options granted under the phantom stock option plan have an award value equal to the closing price quoted on the TSX for the common shares of Cameco on the trading day prior to the date on which the option is granted. The options vest over three years and expire eight years from the date granted. As of December 31, 2014, the number of options held by participating employees was 223,053 (2013 - 239,885) with exercise prices ranging from $19.37 to $46.88 per share (2013 - $19.37 to $46.88) and a weighted average exercise price of $28.81 (2013 - $31.22).

Cameco has recognized the following expenses under its cash-settled plans:

 

		2014				2013
Deferred share unit plan		$	(1,493	)		$	1,192
Phantom stock option plan			(123	)			80
		$	(1,616	)		$	1,272

At December 31, 2014, a liability of $10,675,000 (2013 - $12,112,000) was included in the consolidated statements of financial position to recognize accrued but unpaid expenses for cash-settled plans.

 

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Fair value measurement of cash-settled plans

The fair value of the phantom stock option plan was measured based on the Black-Scholes option-pricing model. Expected volatility is estimated by considering historic average share price volatility. The inputs used in the measurement of the fair values of the phantom stock option plan at the grant and reporting dates were as follows:

 

		Grant date March 3, 2014				Reporting date December 31, 2014
Number of units			52,270				223,053
Average strike price		$	26.81			$	28.81
Expected dividend		$	0.40			$	0.40
Expected volatility			32	%			32	%
Risk-free interest rate			1.5	%			1.1	%
Expected life of option			3.5 years				3.3 years
Expected forfeitures			8	%			8	%
Weighted average measurement date fair values		$	5.10			$	2.01

27. Pension and other post-retirement benefits

Cameco maintains both defined benefit and defined contribution plans providing pension benefits to substantially all of its employees. All regular and temporary employees participate in a registered defined contribution plan. This plan is registered under the Pension Benefits Standard Act, 1985. In addition, all Canadian-based executives participate in a non-registered supplemental executive pension plan which is also a defined benefit plan.

Under the supplemental executive pension plan, Cameco provides a lump sum benefit equal to the present value of a lifetime pension benefit based on the executive’s length of service and final average earnings. The plan provides for unreduced benefits to be paid at the normal retirement age of 65, however unreduced benefits could be paid if the executive was at least 60 years of age and had 20 years of service at retirement. This program provides for a benefit determined by a formula based on earnings and service, reduced by the benefits payable under the registered base plan. In 2013, there was a plan amendment wherein Cameco’s funding to the supplemental plan was replaced by a letter of credit held by the plan’s trustee. The face amount of the letter of credit will be determined each year based on the wind-up liabilities of the supplemental plan, less any plan assets currently held with the trustee. A valuation will be required annually to determine the letter of credit amount. Benefits will continue to be paid from plan assets until the fund is exhausted, at which time Cameco will begin paying benefits from corporate assets.

Cameco also maintains non-pension post-retirement plans (“other benefit plans”) which are defined benefit plans that cover such benefits as group life insurance and supplemental health and dental coverage to eligible employees and their dependants. The costs related to these plans are charged to earnings in the period during which the employment services are rendered. These plans are funded by Cameco as benefit claims are made.

The board of directors of Cameco has final responsibility and accountability for the Cameco retirement programs. The board is ultimately responsible for managing the programs to comply with applicable legislation, providing oversight over the general functions and setting certain policies.

Cameco expects to pay $537,000 in contributions and letter of credit fees to its defined benefit plans in 2015.

The post-retirement plans expose Cameco to actuarial risks, such as longevity risk, market risk, interest rate risk, liquidity risk and foreign currency risk. The other benefit plans expose Cameco to risks of higher supplemental health and dental utilization than expected. However, the other benefit plans have limits on Cameco’s annual benefits payable.

 

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The effective date of the most recent valuations for funding purposes on the registered defined benefit pension plans is January 1, 2012. The next planned effective date for valuations is January 1, 2015.

Cameco has more than one defined benefit plan and has generally provided aggregated disclosures in respect of these plans, on the basis that these plans are not exposed to materially different risks. Information relating to Cameco’s defined benefit plans is shown in the following table:

 

		Pension benefit plans								Other benefit plans
		2014				2013				2014				2013
Fair value of plan assets, beginning of year		$	15,402			$	20,167			$	—			$	—
Interest income on plan assets			717				791				—				—
Return on assets excluding interest income			188				(640	)			—				—
Employer contributions			10				123				—				—
Benefits paid			(5,420	)			(5,024	)			—				—
Administrative costs paid			(20	)			(15	)
Fair value of plan assets, end of year		$	10,877			$	15,402			$	—			$	—
Defined benefit obligation, beginning of year		$	44,386			$	37,497			$	16,947			$	15,317
Acquisition [note 7]			—				11,560				—				—
Current service cost			2,203				1,809				960				1,016
Interest cost			1,940				1,926				825				733
Actuarial loss (gain) arising from:
- demographic assumptions			971				1,752				106				558
- financial assumptions			5,992				(3,705	)			2,037				(1,474	)
- experience adjustment			2,192				(1,827	)			(180	)			1,471
Past service cost			2,374				(605	)			—				—
Benefits paid			(6,674	)			(5,558	)			(588	)			(674	)
Foreign exchange			(944	)			1,537				—				—
Defined benefit obligation, end of year		$	52,440			$	44,386			$	20,107			$	16,947
Defined benefit liability [note 17]		$	(41,563	)		$	(28,984	)		$	(20,107	)		$	(16,947	)

The percentages of the total fair value of assets in the pension plans for each asset category at December 31 were as follows:

 

		Pension benefit plans
		2014				2013
Asset category (a)
Canadian equity securities			7	%			8	%
Global equity securities			13	%			15	%
Canadian fixed income			21	%			21	%
Other (b)			59	%			56	%
Total			100	%			100	%

 

(a)	The defined benefit plan assets contain no material amounts of related party assets at December 31, 2014 and 2013 respectively.

 

(b)	Relates to the value of the refundable tax account held by the Canada Revenue Agency. The refundable total is approximately equal to half of the sum of the realized investment income plus employer contributions less half of the benefits paid by the plan.

 

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The following represents the components of net pension and other benefit expense included primarily as part of administration:

 

		Pension benefit plans								Other benefit plans
		2014				2013				2014				2013
Current service cost		$	2,203			$	1,809			$	960			$	1,016
Net interest cost			1,223				1,135				825				733
Past service cost			2,374				(605	)			—				—
Administration cost			20				15				—				—
Defined benefit expense [note 20]			5,820				2,354				1,785				1,749
Defined contribution pension expense [note 20]			17,274				16,441				—				—
Net pension and other benefit expense		$	23,094			$	18,795			$	1,785			$	1,749

The total amount of actuarial losses (gains) recognized in other comprehensive income is:

 

		Pension benefit plans								Other benefit plans
		2014				2013				2014				2013
Actuarial loss (gain)		$	9,155			$	(3,780	)		$	1,963			$	555
Return on plan assets excluding interest income			(188	)			640				—				—
		$	8,967			$	(3,140	)		$	1,963			$	555

The assumptions used to determine the Company’s defined benefit obligation and net pension and other benefit expense were as follows at December 31 (expressed as weighted averages):

 

		Pension benefit plans								Other benefit plans
		2014				2013				2014				2013
Discount rate—obligation			3.4	%			4.4	%			3.9	%			4.8	%
Discount rate—expense			4.4	%			3.8	%			4.8	%			4.0	%
Rate of compensation increase			3.0	%			3.3	%			—				—
Initial health care cost trend rate			—				—				7.0	%			7.0	%
Cost trend rate declines to			—				—				5.0	%			5.0	%
Year the rate reaches its final level			—				—				2018				2018
Dental care cost trend rate			—				—				5.0	%			5.0	%

At December 31, 2014, the weighted average duration of the defined benefit obligation for the pension plans was 20.3 years (2013—16.6 years) and for the other benefit plans was 14.0 years (2013—13.2 years).

A 1% change at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the following:

 

		Pension benefit plans								Other benefit plans
		Increase				Decrease				Increase				Decrease
Discount rate		$	(6,708	)		$	8,848			$	(2,124	)		$	2,610
Rate of compensation increase			2,889				(2,589	)			n/a				n/a

A 1% change in any of the other assumptions would not have a significant impact on the defined benefit obligation.

 

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The methods and assumptions used in preparing the sensitivity analyses are the same as the methods and assumptions used in determining the financial position of Cameco’s plans as at December 31, 2014. The sensitivity analyses are determined by varying the sensitivity assumption and leaving all other assumptions unchanged. Therefore, the sensitivity analyses do not recognize any interdependence in the assumptions. The methods and assumptions used in determining the above sensitivity are consistent with the methods and assumptions used in the previous year.

In addition, an increase of one year in the expected lifetime of plan participants in the pension benefit plans would increase the defined benefit obligation by $1,183,000.

To measure the longevity risk for these plans, the mortality rates were reduced such that the average life expectancy for all members increased by one year. The reduced mortality rates were subsequently used to re-measure the defined benefit obligation of the entire plan.

28. Financial instruments and related risk management

Cameco is exposed in varying degrees to a variety of risks from its use of financial instruments. Management and the board of directors, both separately and together, discuss the principal risks of our businesses. The board sets policies for the implementation of systems to manage, monitor and mitigate identifiable risks. Cameco’s risk management objective in relation to these instruments is to protect and minimize volatility in cash flow. The types of risks Cameco is exposed to, the source of risk exposure and how each is managed is outlined below.

Market risk

Market risk is the risk that changes in market prices, such as commodity prices, foreign currency exchange rates and interest rates, will affect the Company’s earnings or the fair value of its financial instruments. Cameco engages in various business activities which expose the Company to market risk. As part of its overall risk management strategy, Cameco uses derivatives to manage some of its exposures to market risk that result from these activities.

Derivative instruments may include financial and physical forward contracts. Such contracts may be used to establish a fixed price for a commodity, an interest-bearing obligation or a cash flow denominated in a foreign currency. Market risks are monitored regularly against defined risk limits and tolerances.

Cameco’s actual exposure to these market risks is constantly changing as the Company’s portfolios of foreign currency and commodity contracts change. Changes in fair value or cash flows based on market variable fluctuations cannot be extrapolated as the relationship between the change in the market variable and the change in fair value or cash flow may not be linear.

The types of market risk exposure and the way in which such exposure is managed are as follows:

A. Commodity price risk

As a significant producer and supplier of uranium and nuclear fuel processing services, Cameco bears significant exposure to changes in prices for these products. A substantial change in prices will affect the Company’s net earnings and operating cash flows. Prices for Cameco’s products are volatile and are influenced by numerous factors beyond the Company’s control, such as supply and demand fundamentals and geopolitical events.

Cameco’s sales contracting strategy focuses on reducing the volatility in future earnings and cash flow, while providing both protection against decreases in market price and retention of exposure to future market price increases. To mitigate the risks associated with the fluctuations in the market price for uranium products, Cameco seeks to maintain a portfolio of uranium product sales contracts with a variety of delivery dates and pricing mechanisms that provide a degree of protection from pricing volatility.

 

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Cameco does not hold any significant financial instruments that expose the Company to material commodity price risk as of the reporting date.

B. Foreign exchange risk

The relationship between the Canadian and US dollar affects financial results of the uranium business as well as the fuel services business. Sales of uranium product, conversion and fuel manufacturing services are routinely denominated in US dollars while production costs are largely denominated in Canadian dollars.

Cameco attempts to provide some protection against exchange rate fluctuations by planned hedging activity designed to smooth volatility. To mitigate risks associated with foreign currency, Cameco enters into forward sales and option contracts to establish a price for future delivery of the foreign currency. These foreign currency contracts are not designated as hedges and are recorded at fair value with changes in fair value recognized in earnings. Cameco also has a natural hedge against US currency fluctuations because a portion of its annual cash outlays, including purchases of uranium and conversion services, is denominated in US dollars.

Cameco holds a number of financial instruments denominated in foreign currencies that expose the Company to foreign exchange risk. Cameco measures its exposure to foreign exchange risk on financial instruments as the change in carrying values that would occur as a result of reasonably possible changes in foreign exchange rates, holding all other variables constant. As of the reporting date, the Company has determined its pre-tax exposure to foreign currency exchange risk on financial instruments to be as follows based on a 5% weakening of the Canadian dollar:

 

		Currency				Carrying value (Cdn)				Gain (loss)
Cash and cash equivalents			EUR			$	13,537			$	677
Cash and cash equivalents			USD				46,958				2,348
Accounts receivable			USD				346,331				17,317
Accounts receivable			EUR				14,798				740
Long-term receivables, investments and other			USD				91,672				4,584
Accounts payable and accrued liabilities			USD				(97,508	)			(4,875	)
Accounts payable and accrued liabilities			GBP				(18,999	)			(950	)
Net foreign currency derivatives			USD				(67,005	)			(104,479	)

A 5% strengthening of the Canadian dollar against the currencies above at December 31, 2014 would have had an equal but opposite effect on the amounts shown above, assuming all other variables remained constant.

C. Interest rate risk

The Company has a strategy of minimizing its exposure to interest rate risk by maintaining target levels of fixed and variable rate borrowings. The proportions of outstanding debt carrying fixed and variable interest rates are reviewed by senior management to ensure that these levels are within approved policy limits. At December 31, 2014, the proportion of Cameco’s outstanding debt that carries fixed interest rates is 80% (2013—84%).

Cameco is exposed to interest rate risk through its interest rate swap contracts whereby fixed rate payments on a notional amount of $300,000,000 of the Series D senior unsecured debentures were swapped for variable rate payments. The swaps terminate on September 2, 2019. Under the terms of the swaps, Cameco makes interest payments based on the three-month Canada Dealer Offered Rate plus an average margin of 3.7% and receives fixed interest payments of 5.67%. To mitigate this risk, Cameco entered into interest rate cap arrangements, effective March 18, 2013, whereby the three-month Canada Dealer Offered Rate was capped at 5.0% such that total variable payments will not exceed, on average, 8.7%. At December 31, 2014, the fair value of Cameco’s interest rate swaps and caps was $2,978,000 (2013—$3,616,000).

 

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Cameco is also exposed to interest rate risk on its loan facility with Inkai and on NUKEM’s multicurrency revolving loan facility due to the variable nature of the interest rates contained in the terms therein.

Cameco measures its exposure to interest rate risk as the change in cash flows that would occur as a result of reasonably possible changes in interest rates, holding all other variables constant. As of the reporting date, the Company has determined the impact on earnings of a 1% increase in interest rate on variable rate financial instruments to be as follows:

 

		Gain (loss)
Interest rate contracts		$	(4,028	)
Advances receivable from Inkai			867

No amounts were withdrawn against NUKEM’s revolving loan facility as of December 31, 2014.

Counterparty credit risk

Counterparty credit risk is associated with the ability of counterparties to satisfy their contractual obligations to Cameco, including both payment and performance. Cameco’s sales of uranium product, conversion and fuel manufacturing services expose the Company to the risk of non-payment.

Cameco manages the risk of non-payment by monitoring the credit worthiness of its customers and seeking pre-payment or other forms of payment security from customers with an unacceptable level of credit risk. To mitigate risks associated with certain financial assets, Cameco will hold positions with a variety of large creditworthy institutions.

The maximum exposure to credit risk, as represented by the carrying amount of the financial assets, at December 31 was:

 

		2014				2013
Cash and cash equivalents		$	566,583			$	229,135
Accounts receivable			435,479				416,031
Advances receivable from Inkai [note 33]			91,672				95,319
Derivative assets			3,889				7,391

At December 31, 2014, there were no significant concentrations of credit risk and no amounts were held as collateral. Historically, Cameco has experienced minimal customer defaults and, as a result, considers the credit quality of its accounts receivable to be high. All accounts receivable at the reporting date are neither past due nor impaired.

Liquidity risk

Financial liquidity represents Cameco’s ability to fund future operating activities and investments. Cameco ensures that there is sufficient capital in order to meet short-term business requirements, after taking into account cash flows from operations and the Company’s holdings of cash and cash equivalents. The Company believes that these sources will be sufficient to cover the likely short-term and long-term cash requirements.

The table below outlines the Company’s available debt facilities at December 31, 2014:

 

		Total amount				Outstanding and committed				Amount available
Unsecured revolving credit facility		$	1,250,000			$	—			$	1,250,000
Letter of credit facility			1,068,420				950,716				117,704
Inkai revolving credit facility (Cameco’s share)			13,921				—				13,921
NUKEM multicurrency revolving loan facility			140,380				413				139,967

 

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The tables below present a maturity analysis of Cameco’s financial liabilities, including principal and interest, based on the expected cash flows from the reporting date to the contractual maturity date:

 

		Carrying amount				Contractual cash flows				Due in less than 1 year				Due in 1-3 years				Due in 3-5 years				Due after 5 years
Accounts payable and accrued liabilities		$	316,258			$	316,258			$	316,258			$	—			$	—			$	—
Long-term debt			1,491,198				1,500,000				—				—				500,000				1,000,000
Foreign currency contracts			67,916				67,916				53,873				14,043				—				—
Total contractual repayments		$	1,875,372			$	1,884,174			$	370,131			$	14,043			$	500,000			$	1,000,000

 

		Total				Due in less than 1 year				Due in 1-3 years				Due in 3-5 years				Due after 5 years
Total interest payments on long-term debt		$	613,770			$	69,390			$	138,780			$	138,780			$	266,820

Measurement of fair values

A. Accounting classifications and fair values

The following tables summarize the carrying amounts and accounting classifications of Cameco’s financial instruments at the reporting date:

As at December 31, 2014

 

		Fair value through profit or loss				Loans and receivables				Available for sale				Other financial liabilities				Total
Financial assets
Cash and cash equivalents		$	—			$	566,583			$	—			$	—			$	566,583
Accounts receivable [note 8]			—				455,002				—				—				455,002
Derivative assets [note 12]
Foreign currency contracts			911				—				—				—				911
Interest rate contracts			2,978				—				—				—				2,978
Investments in equity securities [note 12]			—				—				6,601				—				6,601
Advances receivable from Inkai [note 33]			—				91,672				—				—				91,672
			3,889				1,113,257				6,601				—				1,123,747
Financial liabilities
Accounts payable and accrued liabilities [note 14]			—				—				—				316,258				316,258
Derivative liabilities [note 17]
Foreign currency contracts			67,916				—				—				—				67,916
Long-term debt [note 16]			—				—				—				1,491,198				1,491,198
			67,916				—				—				1,807,456				1,875,372
Net		$	(64,027	)		$	1,113,257			$	6,601			$	(1,807,456	)		$	(751,625	)

 

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As at December 31, 2013

 

		Fair value through profit or loss				Loans and receivables				Available for sale				Other financial liabilities				Total
Financial assets
Cash and cash equivalents		$	—			$	229,135			$	—			$	—			$	229,135
Accounts receivable [note 8]			—				431,375				—				—				431,375
Derivative assets [note 12]
Foreign currency contracts			3,775				—				—				—				3,775
Interest rate contracts			3,616				—				—				—				3,616
Investments in equity securities [note 12]			—				—				22,805				—				22,805
Advances receivable from Inkai [note 33]			—				95,319				—				—				95,319
			7,391				755,829				22,805				—				786,025
Financial liabilities
Bank overdraft			41,226				—				—				—				41,226
Accounts payable and accrued liabilities [note 14]			—				—				—				437,941				437,941
Short-term debt [note 15]
Commercial paper			—				—				—				24,974				24,974
Promissory note			—				—				—				10,601				10,601
NUKEM short-term loan			—				—				—				14,655				14,655
Derivative liabilities [note 17]
Foreign currency contracts			30,907				—				—				—				30,907
Share purchase options			16				—				—				—				16
Long-term debt [note 16]			—				—				—				1,293,383				1,293,383
			72,149				—				—				1,781,554				1,853,703
Net		$	(64,758	)		$	755,829			$	22,805			$	(1,781,554	)		$	(1,067,678	)

Cameco does not have any financial instruments classified as held-for-trading, or held-to-maturity as of the reporting date.

The following tables summarize the carrying amounts and fair values of Cameco’s financial instruments that are measured at fair value, including their levels in the fair value hierarchy:

As at December 31, 2014

 

						Fair value
		Carrying value				Level 1				Level 2				Total
Derivative assets [note 12]
Foreign currency contracts		$	911			$	—			$	911			$	911
Interest rate contracts			2,978				—				2,978				2,978
Investments in equity securities [note 12]			6,601				6,601				—				6,601
Derivative liabilities [note 17]
Foreign currency contracts			(67,916	)			—				(67,916	)			(67,916	)
Net		$	(57,426	)		$	6,601			$	(64,027	)		$	(57,426	)

 

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As at December 31, 2013

 

						Fair value
		Carrying value				Level 1				Level 2				Total
Derivative assets [note 12]
Foreign currency contracts		$	3,775			$	—			$	3,775			$	3,775
Interest rate contracts			3,616				—				3,616				3,616
Derivative liabilities [note 17]
Foreign currency contracts			(30,907	)			—				(30,907	)			(30,907	)
Share purchase options			(16	)			(16	)			—				(16	)
Net		$	(23,532	)		$	(16	)		$	(23,516	)		$	(23,532	)

The preceding tables exclude fair value information for financial instruments whose carrying amounts are a reasonable approximation of fair value.

There were no transfers between level 1 and level 2 during the period. Cameco does not have any financial instruments that are classified as level 3 as of the reporting date.

B. Financial instruments measured at fair value

Cameco measures its short-term investments, derivative financial instruments and material investments in equity securities at fair value. Short-term investments and investments in publicly held equity securities are classified as a recurring level 1 fair value measurement and derivative financial instruments are classified as a recurring level 2 fair value measurement.

Short-term investments represent available-for-sale money market instruments. The fair value of these instruments is determined using quoted market yields as of the reporting date. The fair value of investments in equity securities is determined using quoted share prices observed in the principal market for the securities as of the reporting date.

Foreign currency derivatives consist of foreign currency forward contracts, options and swaps. The fair value of foreign currency options is measured based on the Black Scholes option-pricing model. The fair value of foreign currency forward contracts and swaps is measured using a market approach, based on the difference between contracted foreign exchange rates and quoted forward exchange rates as of the reporting date.

Interest rate derivatives consist of interest rate swap contracts and interest rate caps. The fair value of interest rate swaps is determined by discounting expected future cash flows from the contracts. The future cash flows are determined by measuring the difference between fixed interest payments to be received and floating interest payments to be made to the counterparty based on Canada Dealer Offer Rate forward interest rate curves. The fair value of interest rate caps is determined based on broker quotes observed in active markets at the reporting date.

Where applicable, the fair value of the derivatives reflects the credit risk of the instrument and includes adjustments to take into account the credit risk of the Company and counterparty. These adjustments are based on credit ratings and yield curves observed in active markets at the reporting date.

Cameco previously measured its investment in GoviEx at cost due to the unavailability of a quoted price in an active market. GoviEx is now listed on the Canadian Securities Exchange and as a result the Company has measured its investment at fair value as of the reporting date.

 

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C. Financial instruments not measured at fair value

The carrying value of Cameco’s cash and cash equivalents, receivables, payables and accrued liabilities is assumed to approximate the fair value as a result of the short-term nature of the instruments. The carrying value of Cameco’s short-term debt (commercial paper and promissory notes) and long-term debt (debentures) is assumed to approximate the fair value as a result of the variable interest rate associated with the instruments or the fixed interest rate of the instruments being similar to market rates.

Derivatives

The following table summarizes the fair value of derivatives and classification on the consolidated statements of financial position:

 

		2014				2013
Non-hedge derivatives:
Foreign currency contracts		$	(67,005	)		$	(27,132	)
Interest rate contracts			2,978				3,616
Share purchase options			—				(16	)
Net		$	(64,027	)		$	(23,532	)
Classification:
Current portion of long-term receivables, investmentsand other [note 12]		$	500			$	3,775
Long-term receivables, investments and other [note 12]			3,389				3,616
Current portion of other liabilities [note 17]			(53,873	)			(30,923	)
Other liabilities [note 17]			(14,043	)			—
Net		$	(64,027	)		$	(23,532	)

The following table summarizes the different components of the losses on derivatives included in net earnings:

 

		2014				2013
Non-hedge derivatives:
Foreign currency contracts		$	(126,069	)		$	(62,578	)
Interest rate contracts			4,893				624
Share purchase options			16				(16	)
Net		$	(121,160	)		$	(61,970	)

 

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29. Capital management

Cameco’s capital structure reflects our vision and the environment in which we operate. We seek growth through development and expansion of existing assets by acquisition. Our capital resources are managed to support achievement of our goals. The overall objectives for managing capital in 2014 remained unchanged from the prior comparative period.

Cameco’s management considers its capital structure to consist of bank overdrafts, long-term debt, short-term debt (net of cash and cash equivalents and short-term investments), non-controlling interest and shareholders’ equity.

The capital structure at December 31 was as follows:

 

		2014				2013
Bank overdraft		$	—			$	41,226
Long-term debt [note 16]			1,491,198				1,293,383
Short-term debt [note 15]			—				50,230
Cash and cash equivalents			(566,583	)			(229,135	)
Net debt			924,615				1,155,704
Non-controlling interest			160				1,129
Shareholders’ equity			5,443,644				5,348,265
Total equity			5,443,804				5,349,394
Total capital		$	6,368,419			$	6,505,098

Cameco is bound by certain covenants in its general credit facilities. These covenants place restrictions on total debt, including guarantees and set minimum levels for net worth. As of December 31, 2014, Cameco met these requirements.

The terms of NUKEM’s revolving loan facility contain a financial covenant that places restrictions on total debt and working capital balances. The facility also requires Cameco, as guarantor, to maintain a minimum credit rating. As of December 31, 2014 the Company is in compliance with all requirements under this facility.

 

30.	Segmented information

Cameco has three reportable segments: uranium, fuel services and NUKEM. The uranium segment involves the exploration for, mining, milling, purchase and sale of uranium concentrate. The fuel services segment involves the refining, conversion and fabrication of uranium concentrate and the purchase and sale of conversion services. The NUKEM segment acts as a market intermediary between uranium producers and nuclear-electric utilities.

Cameco’s reportable segments are strategic business units with different products, processes and marketing strategies.

Accounting policies used in each segment are consistent with the policies outlined in the summary of significant accounting policies. Segment revenues, expenses and results include transactions between segments incurred in the ordinary course of business. These transactions are priced on an arm’s length basis, are eliminated on consolidation and are reflected in the “other” column.

 

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A. Business segments

For the year ended December 31, 2014

 

		Uranium				Fuel services				NUKEM				Other				Total
Revenue		$	1,777,180			$	306,235			$	349,245			$	(35,128	)		$	2,397,532
Expenses
Cost of products and services sold			902,813				237,872				319,369				(39,286	)			1,420,768
Depreciation and amortization			272,632				30,038				7,584				28,729				338,983
Cost of sales			1,175,445				267,910				326,953				(10,557	)			1,759,751
Gross profit (loss)			601,735				38,325				22,292				(24,571	)			637,781
Administration			—				—				16,591				159,794				176,385
Impairment charges			143,078				183,615				—				—				326,693
Exploration			46,565				—				—				—				46,565
Research and development			—				—				—				5,044				5,044
Loss (gain) on disposal of assets			32,959				11,808				(5	)			—				44,762
Finance costs			—				—				3,769				73,353				77,122
Losses on derivatives			—				—				1,799				119,361				121,160
Finance income			—				—				(14	)			(7,388	)			(7,402	)
Share of loss from equity-accounted investees			3,874				13,267				—				—				17,141
Other expense (income)			(68,626	)			18,035				—				—				(50,591	)
Earnings (loss) before income taxes			443,885				(188,400	)			152				(374,735	)			(119,098	)
Income tax recovery																			(175,268	)
Net earnings from continuing operations																		$	56,170
Capital expenditures for the year		$	466,332			$	13,776			$	—			$	—			$	480,108

 

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For the year ended December 31, 2013

 

		Uranium				Fuel services				NUKEM				Other				Total
Revenue		$	1,632,508			$	319,157			$	464,592			$	22,466			$	2,438,723
Expenses
Cost of products and services sold			869,137				240,746				419,771				19,584				1,549,238
Depreciation and amortization			212,881				26,241				25,459				18,175				282,756
Cost of sales			1,082,018				266,987				445,230				37,759				1,831,994
Gross profit (loss)			550,490				52,170				19,362				(15,293	)			606,729
Administration			—				—				15,240				169,736				184,976
Impairment charge			70,159				—				—				—				70,159
Exploration			72,833				—				—				—				72,833
Research and development			—				—				—				7,302				7,302
Loss on disposal of assets			6,766				—				—				—				6,766
Finance costs			—				—				7,936				54,185				62,121
Losses (gains) on derivatives			—				—				(10,215	)			72,185				61,970
Finance income			—				—				(69	)			(6,898	)			(6,967	)
Share of loss from equity-accounted investees			1,033				13,074				—				—				14,107
Other expense			16,587				—				—				1,739				18,326
Earnings (loss) before income taxes			383,112				39,096				6,470				(313,542	)			115,136
Income tax recovery																			(117,230	)
Net earnings from continuing operations																		$	232,366
Capital expenditures for the year		$	635,152			$	10,499			$	133,924			$	—			$	779,575

B. Geographic segments

Revenue is attributed to the geographic location based on the location of the entity providing the services. The Company’s revenue from external customers is as follows:

 

		2014				2013
Canada		$	308,327			$	230,505
Germany			174,622				232,296
United States			1,914,583				1,975,922
		$	2,397,532			$	2,438,723

 

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The Company’s non-current assets, excluding deferred tax assets and financial instruments, by geographic location are as follows:

 

		2014				2013
Canada		$	4,048,009			$	3,868,871
United States			409,495				371,705
Germany			116,106				105,293
Australia			643,986				645,952
Other			274,527				243,203
		$	5,492,123			$	5,235,024

31. Group entities

The following are the principal subsidiaries and associates of the Company:

 

		Principal place				Ownership interest
		of business				2014				2013
Subsidiaries:
Cameco Bruce Holdings Inc.			Canada				—				100	%
Cameco Bruce Holdings II Inc.			Canada				—				100	%
Cameco Fuel Manufacturing Inc.			Canada				100	%			100	%
Cameco Inc.			US				100	%			100	%
Power Resources, Inc.			US				100	%			100	%
Crow Butte Resources, Inc.			US				100	%			100	%
Urtek LLC			US				73	%			73	%
NUKEM Investments GmbH			Germany				100	%			100	%
Cameco Australia Pty. Ltd.			Australia				100	%			100	%
Cameco Europe Ltd.			Switzerland				100	%			100	%
Associates
GE-Hitachi Global Laser Enrichment LLC			US				24.00	%			24.00	%
UEX Corporation			Canada				21.28	%			21.95	%

32. Joint operations

Cameco conducts a portion of its exploration, development, mining and milling activities through joint operations located around the world. Operations are governed by agreements that provide for joint control of the strategic operating, investing and financing activities among the partners. These agreements were considered in the determination of joint control. Cameco’s significant Canadian uranium joint operation interests are McArthur River, Key Lake and Cigar Lake. The Canadian uranium joint operations allocate uranium production to each joint operation participant and the joint operation participant derives revenue directly from the sale of such product. The participants in the Inkai joint operation purchase uranium from Inkai and, in turn, derive revenue directly from the sale of such product to third-party customers. Mining and milling expenses incurred by joint operations are included in the cost of inventory.

 

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Cameco reflects its proportionate interest in these assets and liabilities as follows:

 

		Principle place of business				Ownership				2014				2013
Total assets
McArthur River			Canada				69.81	%		$	1,074,501			$	1,034,095
Key Lake			Canada				83.33	%			645,186				626,090
Cigar Lake			Canada				50.03	%			1,617,101				1,370,476
Inkai			Kazakhstan				60.00	%			359,554				323,404
										$	3,696,342			$	3,354,065
Total liabilities
McArthur River							69.81	%		$	54,170			$	51,094
Key Lake							83.33	%			181,443				149,263
Cigar Lake							50.03	%			52,580				55,718
Inkai							60.00	%			171,198				170,134
										$	459,391			$	426,209

Through unsecured shareholder loans, Cameco has agreed to fund the development of the Inkai project. Cameco eliminates the loan balances recorded by Inkai and records advances receivable (notes 12 and 33) representing its 40% ownership interest.

33. Related parties

The shares of Cameco are widely held and no shareholder, resident in Canada, is allowed to own more than 25% of the Company’s outstanding common shares, either individually or together with associates. A non-resident of Canada is not allowed to own more than 15%.

Transactions with key management personnel

Key management personnel are those persons that have the authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel of the Company include executive officers, vice-presidents, other senior managers and members of the board of directors.

In addition to their salaries, Cameco also provides non-cash benefits to executive officers and vice-presidents and contributes to pension plans on their behalf (note 27). Senior management and directors also participate in the Company’s share-based compensation plans (note 26).

Executive officers are subject to terms of notice ranging from three to six months. Upon resignation at the Company’s request, they are entitled to termination benefits up to the lesser of 24 months or the period remaining until age 65. The termination benefits include gross salary plus the target short-term incentive bonus for the year in which termination occurs.

 

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Compensation for key management personnel was comprised of:

 

		2014				2013
Short-term employee benefits		$	19,922			$	21,276
Post-employment benefits			8,395				4,415
Share-based compensation (a)			11,306				11,864
		$	39,623			$	37,555

 

(a)	Excludes deferred share units held by directors (see note 26).

Other related party transactions

 

		Transaction value year ended								Balance outstanding as at
		2014				2013				2014				2013
Joint arrangements
Interest income (Inkai)(a)		$	2,038			$	2,053			$	91,672			$	95,319
Associates
Interest expense			(5	)			(220	)			—				(10,647	)

 

(a)	Disclosures in respect of transactions with joint arrangements represent the amount of such transactions which do not eliminate on proportionate consolidation.

Through unsecured shareholder loans, Cameco has agreed to fund Inkai’s project development costs as well as further evaluation on block 3. The limits of the loan facilities are $244,650,000 (US) and advances under these facilities bear interest at a rate of LIBOR plus 2%. At December 31, 2014, $197,551,000 (US) of principal and interest was outstanding (2013 - $224,047,000 (US)).

In 2008, a promissory note in the amount of $73,344,000 (US) was issued to finance the acquisition of GLE. No balance was outstanding under this promissory note at December 31, 2014. At December 31, 2013, $10,010,000 (US) of principal and interest was outstanding.

34. Subsequent event

On January 21, 2015, Cameco received a Notice of Proposed Assessment (NOPA) from the United States Internal Revenue Service (IRS) pertaining to its 2009 taxation year. A NOPA is used by the IRS to communicate a proposed adjustment to income and is subject to negotiation and change; it is not the final tax assessment. The NOPA provides the basis for the IRS to issue a Revenue Agent Report (RAR), which lists the proposed adjustments and calculates tax and any penalties owing based on the proposed adjustments. We currently anticipate receiving a final RAR in the first quarter of 2015.

The NOPA we received is focused on the transfer pricing used for certain intercompany transactions within our corporate structure. The IRS has proposed that a portion of the non-US income reported under our corporate structure and taxed in non-US jurisdictions should be recognized and taxed in the US. We believe that the conclusions of the IRS in the NOPA are incorrect and are contesting them. We believe that the ultimate resolution of this matter will not be material to our financial position, results of operations and cash flows in the year(s) of resolution.

 

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