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).
All trends remain Stable.
The rating confirmations were based on Cameco's (1) decision to restart its McArthur River/Key Lake complex, which should reduce the higher-cost open market purchases with incremental low-cost production and (2) strong business risk profile because of the Company's long-life reserves, low operating cost structure, integration across the nuclear fuel cycle, and a portfolio of long-term contractual commitments. The Stable trends were maintained because of the Company's attractive liquidity profile with $2.5 billion of liquidity available as at March 31, 2022, with no debt maturities until June 2024 and positive pricing momentum for uranium.
While the Coronavirus Disease (COVID-19) pandemic has continued to cause disruptions to global supply chains and an acceleration in inflation, the unrest in Kazakhstan in January 2022 raised concerns about security of uranium supply and increased upward pressure on spot and long-term contract uranium prices. Also, the impact of Russia's invasion of Ukraine and the subsequent, unprecedented sanctions on Russia have yet to be fully reflected in global uranium markets. Russia accounts for approximately 39% of global uranium enrichment capacity, 27% of uranium conversion supply 14% of triuranium octoxide (U3O8) production capacity, and approximately half of global secondary supplies. As a result, the demand for uranium conversion and enrichment services has increased but has yet to trickle down to the primary uranium markets. Nonetheless, upward pressure on spot and long-term uranium prices has continued. Cameco has been able to take advantage of increasing prices in 2022 by adding long-term contracts for approximately 40 million pounds (lbs) of U3O8, which has underpinned the McArthur River restart. However, DBRS Morningstar notes that Kazatomprom, the world's largest uranium producer, and its partners in 2021 increased production by approximately 5.1 million lbs U308 or a 12% increase compared with 2020 and has provided guidance that 2022 and 2023 production are likely to be at similar levels. The combination of increased production from both Cameco and Kazatomprom could potentially provide headwinds to both higher volumes of long-term contracting and prices.
DBRS Morningstar expects the Company's key metrics to moderately improve in 2022 compared with 2021 but remain largely below the BBB range (with the exception of debt-to-capital). DBRS Morningstar expects the Company's credit metrics to improve further in 2023 as the McArthur River operations ramp up production. That said, if McArthur River and other possible mine restarts cause material pressure on uranium prices and utilities limit contracting volumes, DBRS Morningstar may take a negative rating action. However, if the sanctions on Russia and rebalancing of the global uranium markets results in a material increase in long-term contracting volumes and prices, DBRS Morningstar could take a positive rating action.
There were no environmental, social, or governance (ESG) factors that had a significant or relevant effect on the credit analysis.
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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
All figures are in Canadian dollars unless otherwise noted.
The principal methodologies are Rating Companies in the Mining Industry (August 16, 2021; https://www.dbrsmorningstar.com/research/383106), DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 1, 2022; https://www.dbrsmorningstar.com/research/393065), and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022; https://www.dbrsmorningstar.com/research/394683), 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 (May 17, 2022; https://www.dbrsmorningstar.com/research/396929).
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 email@example.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.
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Date Issued Debt Rated Action Rating Trend Attributesi
US = Lead Analyst based in USA
CA = Lead Analyst based in Canada
EU = Lead Analyst based in EU
UK = Lead Analyst based in UK
E = EU endorsed
U = UK endorsed
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26-May-22 Issuer Rating Confirmed BBB Stb CA
26-May-22 Senior Debt Confirmed BBB Stb CA
26-May-22 Commercial Paper Confirmed R-2 (middle) Stb CA