Cameco Rejects TEPCO’s Uranium Contract Termination Notice

Cameco announced Tokyo Electric Power Company Holdings, Inc. (TEPCO) has issued a termination notice for a uranium supply contract with Cameco Inc. that we do not accept. Cameco Inc. sees no basis for terminating the contract, considers TEPCO to be in default, and will pursue all its legal rights and remedies.

On January 31, 2017, TEPCO confirmed it would not accept a uranium delivery scheduled for February 1, 2017, and would not withdraw the contract termination notice it provided to Cameco Inc. on January 24, 2017. TEPCO alleges that an event of ‘force majeure’ has occurred because it has been unable to operate its nuclear generating plants for 18 consecutive months due to government regulations arising from the Fukushima nuclear accident in March 2011.

“We are surprised and disappointed that TEPCO is seeking to terminate its contract given all the past productive discussions we have had to date,” said Tim Gitzel, president and CEO of Cameco. “For the past six years we have worked in good faith with TEPCO to restructure this contract, and would continue to do so if there was any basis for a commercial resolution. During the past week we tried to engage TEPCO to obtain clarification given conflicting information we had received previously from them and only received confirmation of their intent to terminate the contract yesterday.”

“Now we will vigorously pursue remedies to recover value for our shareholders and other stakeholders, as we have done successfully in the past.”

Under the contract, TEPCO has already received and paid for 2.2 million pounds of uranium since 2014. The termination would affect approximately 9.3 million pounds of uranium deliveries through 2028, worth approximately $1.3 billion in revenue to Cameco, including about $126 million in each of 2017, 2018 and 2019 based on 855,000 pounds of deliveries in each of those years.

In 2017, Cameco’s consolidated revenue, including the TEPCO volume, is expected to range between $2.1 billion to $2.2 billion. More information on Cameco’s 2017 outlook will be provided with our annual results which will be released after markets close on February 9, 2017.

Cameco Inc. will be moving expeditiously to enforce its rights under the uranium supply contract to recover losses arising from TEPCO’s actions. The uranium supply contract provides for disputes to be resolved by binding arbitration after a period of good faith negotiations. As with any commercial dispute, it will take some time for a resolution to be achieved, particularly if it proceeds all the way to arbitration.

Cameco has sufficient financial capacity to manage any loss of revenue in 2017 as a result of the dispute.

All estimates and uranium volumes are provided on a consolidated basis for Cameco using expected contract prices and an exchange rate of $1.00 (US) for $1.30 (Cdn) and do not reflect any resale of the cancelled deliveries under the contract with TEPCO.

Image: Port Hope Conversion Facility, Port Hope, Ontario, Canada. (Photo: Cameco)