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Uranium company Cameco in trouble: the industry is just not viable

Unviable economics of nuclear power catches up with Cameco, Independent Australia, Jim Green 9 May 2017 Multinational uranium producer Cameco is battling a uranium downturn, the tax office, disinterested customers and Traditional Owners, Dr Jim Green reports. 

ECONOMICS is killing the nuclear power industry.

Westinghouse, a giant of the industry, recently filed for bankruptcy protection and its parent company Toshiba may also go bankrupt — both companies brought undone by $15 billion cost overruns building four reactors.

In France, nuclear utilities EDF and Areva would have gone bankrupt if not for repeated multi-billion-dollar government bailouts — their most immediate problem is cost overruns of $18 billion building just two reactors.

The question arises: will them nuclear power crisis create similar carnage in the uranium industry? Might it bring down a uranium industry giant like Cameco, which provides about 17% of the world’s production from mines in Canada, the U.S. and Kazakhstan?

The short answer is that Cameco will likely survive, but the company has been downsizing continuously for the past five years:

Another 120 workers are to be sacked by May 2017 at three Canadian uranium mines ‒ McArthur River, Key Lake and Cigar Lake ‒ and production at McArthur River, already reduced, will be suspended for six weeks in mid-2017.

Cameco’s revenue dropped US$238 million (AU$321 million) in 2016 and the company posted a US$46 million (AU$62 million) loss for the year. The loss was largely the result of US$267 million (AU$360 million) in impairment charges, including US$91 million (AU$123 million) related to the Rabbit Lake mine and a write-off of the full US$176 million (AU$237 million) value of the Kintyre uranium project in Western Australia.

President Tim Gitzel said:

“I think it’s fair to say that no one, including me, by the way, expected the market would go this low and for this long … market conditions in 2016 were as tough as I have seen them in 30 years.”

Cameco’s “tier-1” mines ‒ McArthur River and Cigar Lake in Canada and the Inkai ISL mine in Kazakhstan ‒ have been largely unaffected by the cutbacks except for the slowdown at McArthur River. But the tier-1 mines aren’t safe, Cameco plans to reduce production by 7% in 2017, the two mines in the U.S. might be sold (if a buyer can be found), and new mines are off the table.

TEPCO cancels billion-dollar contract

Cameco faces a new problem with notorious Japanese company TEPCO ‒ owner of the Fukushima reactors ‒ announcing on January 24 that it had issued a contract termination notice, sparking a 15% drop in Cameco’s share price over the next two days. The termination affects about 9.3 million pounds (4.22 kilos) of uranium oxide due to be delivered until 2028, worth approximately US$959 million (AU$1294 million).

TEPCO argues that a “force majeure” event occurred because it has been unable to operate its nuclear plants in Japan ‒ four reactors at Fukushima Daini and seven reactors at Kashiwazaki Kariwa ‒ for some years due to government regulations relating to reactor restarts in the aftermath of the March 2011 Fukushima disaster.

Cameco plans to fight the contract termination and will pursue “all its legal rights and remedies”.

Gitzel said:

‘They’ve taken delivery under this contract in 2014, 2015 and 2016, so we’re a bit perplexed as to why now all of a sudden they think there’s a case of, as they say, “force majeure”.’ 

TEPCO has received and paid for 2.2 million pounds of uranium oxide from Cameco since 2014

Japan is “swimming – some would say drowning – in uranium”, the senior editor of Platts Nuclear Publications said in early 2016. According to Forbes writer James Conca, Japan’s existing uranium inventory will suffice to fuel the country’s power reactors “for the next decade”.

Nick Carter from Ux Consulting said he believes TEPCO is the first Japanese utility to terminate a long-term contract, while many others have tried to renegotiate contracts to reduce volumes or prices or delay shipments. Gitzel acknowledged that “there is concern over the risk of contagion from the TEPCO announcement” ‒ more customers might try to cancel contracts if TEPCO succeeds.

Tax dispute

A long-running tax dispute is starting to heat up with the October 2016 commencement of a court case brought against Cameco by the Canada Revenue Agency (CRA). The dispute has been slowly winding its way through appeals and legal motions since 2009 when Cameco first challenged the CRA’s findings. The court case is likely to conclude in the coming months but the court’s decision may not be finalised until late-2017 or 2018.

Cameco is accused of setting up a subsidiary in Switzerland and selling it uranium at a low price to avoid tax. Thus Cameco was paying the Swiss tax rate of about 10% compared to almost 30% in Canada. Cameco set up the subsidiary in 1999 and established a 17-year deal selling uranium at approximately US$10 (AU$13.50) a pound — far less than the average price over the 17-years period. Another subsidiary was established in Barbados — possibly to repatriate offshore profits.

If Cameco loses the case in the Tax Court of Canada, it could be liable for back taxes of US$1.6 billion (AU$2.2 billion). Last year, the company spent approximately US$89 million (AU$120 million) legal costs related to the tax dispute.

Canadians for Tax Fairness have been arguing the case for legislative change to stop profit-shifting schemes, and for Cameco to pay up. Last year, the NGO teamed up with Saskatchewan Citizens for Tax Fairness and the international corporate watchdog, SumOfUs, to deliver a petition with 35,000 signatures to the Canadian Prime Minister’s office and to Cameco’s executive offices.

Don Kossick from Canadians for Tax Fairness noted that the US$1.6 billion (AU$2.2 billion) could easily cover the budgetary deficit in Saskatchewan that has resulted in major cuts to health, education and human services……..https://independentaustralia.net/business/business-display/unviable-economics-of-nuclear-power-catches-up-with-cameco,10275

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May 10, 2017 - Posted by | business and costs, Canada, Uranium

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