Cameco, CRA tax dispute to go to court in Sept 2016

TORONTO (miningweekly.com) – Canada’s largest uranium producer Cameco expects to defend itself in court next year over a tax dispute with the Canadian Revenue Agency (CRA) about taxation years 2003, 2005 and 2006.

The CRA was questioning Cameco’s practise of selling uranium at a low fixed price to its European subsidiary, which then sold the product at a higher world price, resulting in more profits being booked in Europe than Canada. This dated back to 1999, when Cameco opened Swiss-based Cameco Europe, which had a more favourable tax regime.

Cameco expected the proceedings, which would start in the week of September 26, 2016, to conclude within four months. Should this timing be adhered to, it expected to receive a Tax Court decision within 6 to 18 months after the trial was completed.

For the years 2003 through 2009, the CRA had issued Cameco with notices of reassessment for about C$2.8-billion of additional income for Canadian tax purposes, which would result in a related tax expense of about C$820-million.

The company expected to receive the reassessment for 2010 in the fourth quarter of this year.

The CRA had also issued notices of reassessment for transfer pricing penalties for the years 2007 through 2009, in the amount of C$229-million. The Canadian income tax rules included provisions that required larger companies such as Cameco to remit half of the cash tax plus related interest and penalties at the time of reassessment.

To date, under these provisions, after applying elective deductions and tax loss carryovers, Cameco had paid a net amount of C$229-million in cash to the Canadian government.

“Using the methodology we believe CRA will continue to apply and, including the C$2.8-billion already reassessed, we expect to receive notices of reassessment for a total of about C$6.6-billion of additional taxable income in Canada for the years 2003 through 2014, which would result in a related tax expense of about C$1.9-billion,” Cameco stated in its latest management discussion and analysis.

Further, the CRA might continue to apply transfer pricing penalties to taxation years subsequent to 2009. As a result, Cameco expected that cash taxes and transfer pricing penalties for these years would be between C$1.45-billion and C$1.5-billion, while interest and instalment penalties applied would also be material to the company.

“While in dispute, we would be responsible for remitting or otherwise providing security for 50% of the cash taxes and transfer pricing penalties (between C$725-million and C$750-million), plus related interest and instalment penalties assessed, which would be material to us,” the company said.

Other companies in the precious metals space also on the hook for a tax review were precious metals streaming firm Silver Wheaton and gold-focused royalty and streaming company Franco–Nevada.

Silver Wheaton was in September required to post security in the amount of C$177-million over the CRA’s decision to reassess the company’s 2005 to 2010 tax years. The total tax, interest and penalties sought by the CRA for the relevant taxation years amounted to C$353-million.

Q3 LOSS

For the three months ended September, Cameco reported a narrower net loss of C$4-million, or C$0.01 a share, compared with a net loss of C$146-million, or C$0.37 a share, in the third quarter of 2014, when the company booked significant impairment charges.
Excluding special items, earnings for the period under review were C$78-million, or C$0.20 a share, down 16% year-over-year when compared with earnings of C$93-million, or C$0.23 a share, in the third quarter of 2014. Cameco cited lower gross profit from its uranium segment as the cause for the change.

This was below Bay Street analysts’ average forecast of earnings of C$0.30 a share.

Consolidated revenue in the period rose about 11% year-on-year to C$649-million.

Uranium sales fell about 23% to 6.9-million pounds in the quarter, while the average realised uranium price fell about 5% to $43.61/lb.

“We’ve continued to see the oversupply in the market impacting demand and price and, while we can’t control the pace of industry recovery, we can ensure that our company is ready at each step along the way,” president and CEO Tim Gitzel stated.

Cameco advised that its newest mine Cigar Lake, in Saskatchewan, had already exceeded its 2015 production target range. The mine, which started production in March 2014, was expected to produce between six-million and eight-million pounds of uranium concentrate this year.

As a result, Cameco had raised its full-year production guidance to 27.3-million pounds of uranium, from a previous range of 25.3-million to 26.3-million pounds.

Cameco’s TSX-listed stock on Monday closed down 2.27% at C$18.10 apiece, having traded in a band between C$15.50 to C$22.44 apiece in the previous 12 months.