Cameco Q1 profit up from year ago;CRA steps up reassessment related to tax case

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SASKATOON – Uranium miner Cameco (TSX:CCO) said Tuesday it expects payments to the Canada Revenue Agency, in its fight over the use of an offshore subsidiary, to accelerate.

Chief financial officer Grant Isaac said the total payments Cameco expects to make hasn’t changed at between $625 million and $650 million, but the timing has been stepped up.

“The CRA has indicated that it intends to accelerate the frequency of reassessment related to our transfer pricing case,” Isaac told a conference call Tuesday with financial analysts.

The CRA has taken issue with the offshore marketing company structure Cameco uses to sell uranium produced in Canada, and the price used for intercompany uranium sales. The tax agency alleges Cameco sells the uranium to its Swiss subsidiary for less than it should and then books the profits in the lower-tax jurisdiction.

The tax agency has already issued notices of reassessment for roughly $2 billion in additional income for 2003 through 2008 and Cameco said Tuesday that it expects to receive notices for an additional $5.7 billion for the years 2003 through 2013.

The company said it now expects to pay between $115 million and $135 million this year, between $450 million and $475 million in 2016-16 and up to $25 million in 2017-23.

That compared with earlier guidance of $250 million to $275 million in 2014-16, and between $325 million and $350 million in 2017-2023.

Cameco said it still expects to win its case in Tax Court and recover the amounts it pays out, but the case on the 2003 reassessment isn’t expected to go to trial until 2015.

If that timing stays on track, Cameco said it expects a decision from the court by 2016.

The updated guidance on its tax fight came as Cameco said it earned $131 million or 33 cents per diluted share for the quarter ended March 31, compared with a profit of $9 million or two cents per diluted share a year ago.

Revenue slipped to $419 million from $444 million in the first three months of 2013.

Excluding one-time items, including the $127 million from the sale of Cameco’s stake in the Ontario-based Bruce Power nuclear facility, the company said it earned $36 million or nine cents per share compared with $27 million or seven cents per diluted share a year ago.

Analysts on average had expected a profit of 10 cents per share and revenue of nearly $473 million, according to estimates compiled by Thomson Reuters.

Cameco said the increase in its adjusted results compared with a year ago was mainly due to higher sales volumes of uranium and higher realized prices, fees it paid due to the cancellation of its toll conversion agreement with Springfields Fuels Ltd. (SFL), which was to expire in 2016.

Cameco president and CEO Tim Gitzel said the company’s operations performed well, highlighted by the start of production at its Cigar Lake mine in northern Saskatchewan.

“As an industry, we saw positive signs in Japan, where a new energy policy confirmed that nuclear power will remain an important source of energy,” Gitzel said in a statement.

“However, that news did not change our view of the current market, where excess supply and discretionary demand for uranium products has resulted in further downward pressure on the uranium price.”

Last month, Cameco began ore production at its long-delayed Cigar Lake uranium mine which was flooded during construction in 2006.

However, RBC Capital Markets analyst Fraser Phillips said while mining has started, the processing at the McClean Lake mill has been delayed until the third quarter of this year.

“The overall results were below our expectations, though the uranium business results were better than our forecast,” said Phillips, who also noted the CRA payments could pinch Cameco’s cash flow.

During the quarter, Cameco produced 5.7 million pounds of uranium and sold 6.9 million pounds. That compared with production of 5.9 million pounds and sales of 5.1 million pounds in the same quarter last year.

The company’s average realized price increased to $50.58 per pound compared with $48.25 a year ago, boosted by a weaker Canadian dollar.

In its outlook, Cameco raised its expectations for revenue growth for 2014 to between five and 10 per cent based on a forecast for a weaker Canadian dollar than earlier expected.

The uranium miner had earlier expected revenue growth between zero and five per cent for the year.

Cameco also cut its fuel services production guidance by one million kilograms to between 12 million and 13 million kilograms.

Shares in Cameco fell $1.08 or about four per cent to $23.05 in trading on the Toronto Stock Exchange.

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