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Cameco rejects TEPCO's supply contract termination, flags C$1.3B loss

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Cameco rejects TEPCO's supply contract termination, flags C$1.3B loss

Cameco Corp. rejected the termination of a uranium supply contract by Tokyo Electric Power Company Holdings Inc., or TEPCO.

The company on Feb. 1 said it considers TEPCO to be in default, with no basis for terminating the contract, and that it will take legal action.

On Jan. 31, TEPCO confirmed a termination notice provided Jan. 24, which said an event of force majeure occurred as it had been unable to operate its nuclear plants for 18 months due to government regulations arising from the Fukushima nuclear accident in Japan in March 2011.

TEPCO, which was scheduled to receive a uranium delivery Feb. 1, has received and paid for 2.2 million pounds of uranium since 2014 under the contract.

Cameco said it would lose about C$1.3 billion in total revenue as the termination would affect about 9.3 million pounds of uranium deliveries through 2028. The company expects consolidated revenue of between C$2.1 billion and C$2.2 billion this year, including C$126 million from the TEPCO deliveries.

"We are surprised and disappointed that TEPCO is seeking to terminate its contract given all the past productive discussions we have had to date," Cameco President and CEO Tim Gitzel said in a statement.

The contract has provisions for disputes to be resolved through binding arbitration, and Cameco said it plans to "enforce its rights" to recover losses arising from the termination.

The company noted that it has sufficient financial capacity to manage any loss of revenue in 2017 as a result of the dispute.

Earlier this month, Cameco outlined plans to reduce the workforce at its McArthur River, Key Lake and Cigar Lake operations by about 10% by the end of May.

S&P Global Ratings recently placed its ratings on Cameco, including its BBB+ long-term debt rating, on CreditWatch with negative implications.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.