DBRS Comments on Cameco’s Favourable Ruling from the Tax Court of Canada

DBRS notes that Cameco Corporation (Cameco or the Company; rated BBB (high) with Negative trends by DBRS) has received a favourable ruling from the Tax Court of Canada (the Tax Court) in its dispute of the reassessments issued by the Canadian Revenue Agency (CRA) for the 2003, 2005 and 2006 tax years. The Tax Court ruled that the transfer pricing methodology used by Cameco for certain intercompany purchase and sale agreements was in compliance with Canadian tax laws during those years and that its marketing and trading structure was set up appropriately. The ruling doesn’t apply to the CRA reassessments for the 2007 to 2012 tax years. The CRA has 30 days to file an appeal with the Federal Court of Appeal. If the CRA elects to appeal the ruling, the Company believes that it would take a further two years before a decision was rendered.

At the time of the reassessments, Cameco was required to remit or otherwise secure 50% of the cash taxes assessed, which as of June 30, 2018 comprised collectively $303 million in cash and $478 million in letters of credit. However, the bulk of these amounts are for the 2007 to 2012 tax years as the cash portion related to the 2003, 2005 and 2006 tax years was approximately $11 million, of which the Company has remitted 50%.

Cameco’s next significant debt maturity is $500 million on September 2, 2019, and management has indicated that the decision to repay or refinance will be made based on the uranium market conditions at that time. DBRS expects that Cameco will choose the credit-positive option and repay the debt using a portion of its $837 million in cash and short-term investments as at June 30, 2018. While DBRS considers the ruling to be moderately credit positive, its view is currently tempered by the possibility of an appeal and uncertainty of any outcome with respect to the CRA reassessment of the 2007 to 2012 tax years. DBRS will continue to monitor the situation and update its view as matters unfold.

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

The principal methodology is Rating Companies in the Mining Industry (September 2018) and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (April 2018), which can be found on dbrs.com under Methodologies.

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