The world’s largest uranium producer is adding to its portfolio of downstream uranium assets.
Just before the Christmas break, Saskatoon-based
BE’s remaining 2.6% interest is being bought by two unions: Power Workers and the Society of Energy Professionals.
(As well, the Cameco-TransCanada-OMERS consortium will acquire the half-interest BE holds in Huron Wind, Ontario’s first commercial wind farm.)
Under the latest agreement, Cameco will pay about $198 million (subject to minor closing adjustments) for its additional 16.6% interest in Bruce Power, bringing its total interest to 31.6%.
On top of that, Cameco will provide another $75 million, which represents its one-third share of $225 million in deferred rent payments to provincial government-owned Ontario Power Generation.
Cameco will fund the acquisition and the rent payments from cash and its existing credit facilities. As a result, its net debt-to-capitalization ratio will rise to about 20% upon closing.
The uranium giant will retain its role as fuel-supply manager to Bruce Power.
Cameco expects that the deal will be accretive to earnings and cash flow, with after-tax earnings from its 31.6% share ranging from 90 to $1.00 per share in 2003, depending on wholesale electricity prices in the Ontario market.
However, this estimate is based on a host of assumptions: the effective date of the acquisition being set at Jan. 1, 2003; two (of four) currently idled Bruce A units being reactivated on schedule in April and June; and the partners’ achieving a combined forecasted capacity factor of 87%.
“We have been pleased with our initial 15% investment in Bruce Power and have worked hard to build, with our partners, this made-in-Canada solution,” says Cameco Chairman Bernard Michel.
After the deal is closed in mid-February, ownership of Bruce Power will be divided among Cameco, Trans- Canada and BPC (all with 31.6%) and the two unions (5.2% in total).
The deal must still clear several hurdles, including the approval of BE’s shareholders, the consent of the Canadian Nuclear Safety Commission (formerly named the Atomic Energy Control Board), receipt of favourable Canadian tax rulings, clearance under the Canadian Competition Act, and the retention of certain key employees.
“With this transaction, Bruce Power will find itself with financially strong owners,” says Michel, “and the management team will be able to dedicate its full attention to the continuing improvement of the power station performance and to the restart of the two Bruce A reactors.”
The partners say the $400-million restart of the two Bruce A reactors remains on schedule to meet Ontario’s peak summer demand. Things moved forward another step in early January, when federal regulators accepted an environmental assessment of the restart plan.
The Bruce Power complex is on the shore of Lake Huron between the towns of Kincardine and Saugeen. It is one of the world’s largest nuclear facilities, employing 2,300 people.
The facility has a total installed capacity of 6,216 MW, enough to provide power for two Torontos. Bruce A has four Candu reactors, each of which could provide 825 MW. Bruce B has another four reactors, each of which provides 840 MW. Currently, only the Bruce B reactors are operating, generating about 15% of Ontario’s power needs.
British Energy was privatized in 1996 and entered the North American market the following year by forming a joint venture with Philadelphia-based Peco Energy, now known as Exelon. BE established its North American office in Toronto in 1999.
At its peak, BE was the world’s largest privately owned nuclear company, with ownership interests in 26 reactors in Britain, Canada and the U.S.
Shares in BE have taken a beating over the past year, falling from the mid-teens in New York at the start of 2002 to trade at US41 at presstime. Indeed, BE shares have the dubious distinction of being the Big Board’s worst performer in 2002.
BE expects to receive a maximum of $770 million from the Bruce Power sale, including $630 million in cash.
In addition, the Canadian consortium will pay $100 million to BE to fund a one-time “estimation and restructuring” fee of $100 million to the provincial government in consideration of the province’s consenting to the transaction. Some $220 million will be paid into trust accounts to cover such things as outstanding tax and pension-fund liabilities.
Thus, the total consideration payable by the consortium is expected to be $950 million.
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