DBRS Morningstar Confirms Cameco Corporation at BBB and R-2 (middle), Maintains Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Debt rating of Cameco Corporation (Cameco or the Company) at BBB and the Commercial Paper rating at R-2 (middle), and maintained all trends at Stable. The rating confirmations were based on Cameco’s (1) redemption of its $399 million in debentures maturing in November 2022 from the proceeds of the $400 million issuance of new debentures maturing in October 2027 with no further maturities until June 2024, and (2) strong business risk profile because of the Company’s long-life reserves, low operating cost structure, full integration across the nuclear fuel cycle, and a portfolio of long-term contractual commitments. The Stable trends were maintained because of the Company’s sufficient liquidity profile with $2.0 billion of liquidity available at a time when the outlook for the uranium industry continues to improve, including an increased emphasis on the role nuclear energy can play in global decarbonization efforts.

The Coronavirus Disease (COVID-19) pandemic has continued to affect global uranium production; Cameco’s Cigar Lake operation was closed from December 2020 until April 2021, and Kazatomprom’s 2020 production was 15% lower than the prior year, followed by 6% lower production in Q1 2021 because of lower staff levels and reduced wellfield development. Annual supply will also be reduced in future by approximately 7 million pounds (lbs) triuranium octoxide (U3O8) as a result of the closures of the Ranger mine in Australia and Cominak mine in Niger in early 2021.

All of these developments should put upward pressure on prices. Based on the Bloomberg forward curve (as of May 7, 2021) for spot uranium prices, DBRS Morningstar estimates Cameco’s 2021 contract uranium price realizations to be in the $41 to $42 per lb U3O8 range, or about 6% lower than 2020, mainly because of the appreciation of the Canadian dollar (Bloomberg consensus forecast as of May 7, 2021), which is expected to strengthen by 7% compared with 2020. That said, the impact from the eventual restart of idled capacity could represent a headwind for the industry. However, DBRS Morningstar believes that the uranium market continues to transition to a producer-driven market where utilities return to long-term contracting of primary production instead of drawing from their inventories or relying on the spot market.

DBRS Morningstar expects the Company’s key metrics to be relatively flat in 2021 compared with 2020 and to remain largely below investment grade (with the exception of debt-to-capital) before recovering in 2022, as DBRS Morningstar expects the McArthur River operations to restart during H2 2022, eliminating the bulk of Cameco’s care and maintenance costs. That said, if McArthur River and other possible mine restarts cause material pressure on prices and utilities limit contracting volumes, DBRS Morningstar may take a negative rating action. However, if the reduced primary supply results in a material increase in long-term contracting volumes and prices, DBRS Morningstar could take a positive rating action.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Mining Industry (August 17, 2020; https://www.dbrsmorningstar.com/research/365807), DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 9, 2021; https://www.dbrsmorningstar.com/research/375001), and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 14, 2021; https://www.dbrsmorningstar.com/research/372344), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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