Cameco Corp (CCJ) 2003 Q3 法說會逐字稿

Please stand by. Your meeting is about to begin, and please be advised that this conference call is being recorded.

Good morning and welcome to the Cameco Corporation Third Quarter Results Conference Call for Wednesday, October 29, 2003. Your host for today will be Alice Wong, Director of Investor and Media Relations. Ms. Wong, please go ahead, ma'am.

Thank you. Good morning, everyone, and welcome to Cameco's Third Quarter Conference Call to discuss our financial results. Thank you for joining us today. I am also joined today by Bob Lillie from Investor Relations.

We are pleased to have four of Cameco's senior executives with us. They are Jerry Grandey, President and Chief Executive Officer; Terry Rogers, Senior Vice President and Chief Operating Officer; David Petroff, Senior Vice President-Finance and Administration and our Chief Financial Officer; and George Assie, who is Senior Vice President-Marketing and Business Development.

Today's conference call is open to all members of the investment community and the media. During the question-and-answer period, we'll take questions from the investment community first, followed then by questions from the media.

Please note that statements made during this call by the Company regarding its objectives, projections, estimates, expectations, or predictions may be forward-looking statements within the meaning of applicable securities laws and regulations. The Company cautions that such statements involve risks and uncertainties and that actual results may differ from those expressed or implied. Important risk factors are outlined in the Company's Annual Information Form dated April 16, 2003 on Pages 36, 45, 57, and 58.

And with that, I'll turn it over to Jerry.

OK, Alice, thank you very much. And let me add my good morning to everyone and thank you for joining the quarterly conference call here.

This morning, we'll hear a little bit from David Petroff - he'll review some of the financial highlights of the quarter, talk about the impact the rising U.S. dollar is having on some of our revenues; we'll then ask George Assie to talk a little bit about the uranium market, whereas you've probably seen prices continue to increase; and then finally we'll hear from Terry Rogers, who will provide us with a progress report on Cameco's operations including not only a look at McArthur River and our remediation efforts there but also improved results at Kumtor.

The third quarter produced a number of highlights that contributed to the strength of the results that we reported and I'd like to just touch on a few of them. As you know, quarterly results at Cameco can fluctuate greatly, based upon the pricing mix of our contract portfolio and when our customers ask for deliveries.

So, as we've often admonished, a clearer picture can be had only by looking at longer-term performance.

Results for the first nine months illustrate Cameco's improving earnings trend. And for the first three quarters, revenue was up 16% to $555 million. Net earnings, but excluding the positive tax adjustment, recorded in the second quarter more than tripled to 89 million, or $1.58 per share.

This fairly represents our progress this year, with much of the improvement coming from Bruce Power. And for Cameco, the most outstanding aspect of the quarterly results was the operational performance we saw in almost every area of the company. And this excellent performance allowed us to produce the results we reported late yesterday.

Others will cover operations, marketing and financials, so what I'd like to focus on are two topics: Bruce Power and our negotiations involving our gold assets.

At Bruce Power, the four B units achieved a combined capacity factor of 94%. And I'd say this percentage would have been higher had it not been for the blackout, which began on August the 14th. Bruce Power's response to that blackout was extremely well regarded by the industry. Indeed, three of the four units immediately reduced their power to 60%, as they had been designed to do, and they were available within minutes to produce electricity. And the three units were reconnected to the grid that night at the discretion of the Ontario market operator.

Unit six -- again, one of the B units -- also reduced power as designed, but a minor equipment problem emerged and the unit was then shut down. Repairs were made quickly and the unit was brought back on line nine days later per the usual start-up procedures.

At the time of the blackout, the independent market operation instituted what is known as an administrative market in which all trading was suspended. This lasted for just about 10 days, and upon resumption of the market, the IMO established power prices based on days with demand profiles that were similar to the days when they had suspended trading.

And I should note, immediately following the onset of the blackout, members of the Bruce management and staff, including unionized personnel and many people who were on their holidays, voluntarily made their way back to the Bruce site just simply to lend a hand. It was a gratifying demonstration of dedication by the people at Bruce Power who understand the importance of what they do in providing power to the Province of Ontario.

At Bruce A, we continue to make progress in bringing the two A units fully back on line. The first unit, unit four, was reconnected to the grid for the first time in five years on October the 7th. And it is now in the testing phase. After successfully completing a test of its shutdown systems at 50% power, which is required by the Canadian Nuclear Safety Commission, the 750 megawatt unit will ramp up to full power over the next several weeks.

Bruce Power is now working toward Unit Three restart as quickly and safely as possible. As we saw from the experience with Unit Four, technical issues can arise during the testing phase at Bruce Power, and its owner to committed obviously to addressing the issues as they arise.

Well the objective has always been to restart these units as quickly and cost effectively as possible. Work is now being done during the restart phase to insure that these units enjoy sustained, reliable operations once they have been returned to service.

And for that reason, we prefer not to provide a precise date for the A3 restart milestones, but I will say we are making good progress.

To the end of September, 688 million has been invested for the restart of the 2A units. Going forward, the same, the rate of capital expenditure on the 2A units will be $13 million per reactor per month until the units are performing at a sustained level of performance.

And while the restart has been delayed, it is important to note that the additional 1,500 megawatts of clean power remains a sound investment for Cameco.

And turning to our gold negotiations, Cameco Gold, our wholly owned subsidiary continues to actually pursue the restructuring of the Kumtor Ownership. So doing this

as one would understand proceeding cautiously. And the changing of the Gold market price increases has certainly added to the complexity to already complex negotiations.

Our plan is to merge these restructured gold assets with AGR and to take the subsequent entity public. Given the amount of time that has elapsed since we began the process of consolidating our gold assets, we felt that a more definitive time table should be put in place. As such, our wholly owned subsidiary Cameco Gold plans to present a definitive proposal for the merger of the gold assets and AGR by March 1, 2004. If for some reason this does not occur or the AGR shareholders reject the proposal, then the AGR Board will initiate the process of lifting AGR on a recognized stock exchange.

This will provide AGR minority shareholders with a listing they desire and allow Cameco Gold to move forward with its plans to maximize the value of our Gold assets for our shareholders.

So with that let me turn things now over to David Petroff, who will review some of the financial highlights from the third quarter results. David?

Thank you, Jerry.

Well, looking at our third quarter results of 2003 compared to 2002, net earnings rose to $33 million or 59 cents per share and benefited from improved contributions from Bruce Power and from our gold business. Now, these were offset to some extent by lower earnings from the conversion business.

At Bruce Power, Cameco's third quarter earnings before taxes rose due to our increased level of ownership and higher output at Bruce. Bruce Power's revenue was up as a result of higher output from the four B units which performed very well and achieved a capacity factor of 94% in the third quarter compared to 80% in the same period in 2002.

Now, offsetting the effect of the higher output was a lower realized price during the quarter. This third quarter, the average realized price was $45 per megawatt hour, which was down from $50 per megawatt hour in the third quarter of 2002. And a contributing factor was that the average temperatures in Ontario this past summer were more moderate than in 2002.

At Kumtor, increased production led to more than double the sales, which were 63,000 ounces net to Cameco. As a result, earnings before taxes were $10 million, and this compared favorably to the loss of $7 million in the third quarter of last year. And for income statement purposes, our average realized gold price for the period was $312 U.S. per ounce, which compared to a spot market gold price of $363 U.S. per ounce.

So maybe I should take a minute and explain why there is such a large difference between the realized gold price and the spot market price. And the reason is that in late 2002, we were reducing the hedge book to take advantage of the strengthening trend in the gold price, and as we closed out contracts to achieve that goal, it cost us some cash. And that cash ended up to be on average $45 per ounce for those ounces in the third quarter of 2003 that we were closing out.

So accounting rules dictate that this amount must be charged to income in this past quarter - not when we closed out the contract last year, but this year when those ounces were deemed to be hedged. So as a result, while our average realized gold price for cash purposes this past quarter was $357 U.S. per ounce, the third quarter related accounting entries had the effect of suppressing the average revenue by $45 per ounce to $312 per ounce for the quarter.

So looking ahead for the fourth quarter, the quantum of these deferred charges to be recognized is much lower than in the third quarter.

In the conversion business, earnings before taxes were $1.4 million for the third quarter this year. Results were negatively affected by an increase in the unit cost of products and services sold, and this was due to the delivery of higher cost

product. Additionally, there was a 10% decrease in the realized selling price, and that was mainly as a result of foreign exchange rate fluctuations.

But on the bright side, sales volumes increased by 48%.

Earnings before tax for the Uranium Business were stable quarter over quarter at $18 million. And as with the conversion, average realized selling price declined in this case 3% and mainly due to foreign exchange rate fluctuations.

And furthermore, in 2002, we realized about three million dollars from the gain on sale of property, and this did not recur this past quarter.

And then on the positive side for the Uranium Business, the U.S. dollar spot price market continued to take a positive trend, and volume sold increased by 48%.

So, now it's time, I guess, for another explanation, because obviously the stronger value of the Canadian dollar negatively affected revenue in our uranium conversion and gold business during the quarter. But there was an offsetting benefit in

, and so let me explain this by briefly reviewing our approach to foreign currency hedging.

We use two approaches to head the transaction exposure which we have. The first one is the use of derivative contracts, and is by and large the largest single hedging mechanism that we use. But, Cameco also has a number of payments that are denominated in U.S. dollars, such as U.S. debt, operations with U.S. dollar costs and purchases of uranium. And these payments in U.S. dollars represent a natural hedge for a portion of our U.S. dollar denominated revenue. So, this is the second method that we use, natural hedging, and through the combination of the derivative products and the natural hedges, the economic effects of changes in exchange rates are mitigated, and it's on this basis that you have heard us say before that we have been fully hedged for 2003 when it comes to foreign exchange rates.

However, the natural hedges introduced timing differences across accounting periods. The U.S. dollar that we may get this period -- which we might use to, let's say, purchase uranium next period -- might end up in our cost of products sold the following period. So, it's the natural hedges, although there is no economic benefit at all. It's the natural hedges which introduced these timing differences. And it's very easy to track the foreign exchange rate impact on revenue, but it's much less obvious and much more obscure when you try and track the commensurate benefit as it impacts costs.

So, I hope this clarifies the matter.

In respective credit ratings, we are pleased that two of the three credit rating agencies have now lifted their watches that have been placed on Cameco's senior debt, which followed the water inflow incident at MacArthur River, and discussions are continuing with the third agency, Standard & Poor's.

You all know that in September, Cameco issued $230 million of 5% convertible debentures, and issue that was very well subscribed, and which returned significant flexibility to Cameco's financial position.

The proceeds will repay Commercial Paper is it matures over the next few months, and because it didn't all mature on the date of closing, that's why you see a relatively high cash balance in our statements at the end of the third quarter.

And then finally, looking ahead, we expect Cameco strong operating and financial performance to continue through the fourth quarter, and while there may only be modest improvement in our uranium business, we are expecting improved contributions from our Conversion and Gold businesses.

Gold should benefit from higher realized prices and conversion production is expected to double, substantially reducing unit costs.

Earnings at Bruce Power are projected to decline do to the continuation of the planned maintenance outage of one Bruce B unit for part of the quarter, and we remain optimistic that Bruce A Unit Four may also contribute to the results in the fourth quarter.

And with that, I'll pass this over to George Assie.

Thank you David. Good morning everyone.

Spot market volume for the first nine months of this year was just under 15 million pounds of U3O8 and that's about 500,000 pounds higher than in the same nine month period last year.

So far in October spot market volume has been just over a million pounds bringing year-to-date volume to about 16 million pounds. Industry average spot price on September 30th was 1223 per pounds, which is a 12% increase from the end of the previous quarter. The spot price at the end of the third quarter of last year was 973, so year over year, it has increased just over 25%, and all the prices I'm quoting here are in U.S. dollars per pound U3O8.

The spot price has continued to strengthen from the 1223 at the end of the quarter, and as of today, is it reported 1270 by TradeTech and 1275 by UX.

We had previously expected fourth quarter spot market volume would increase as utilities began to cover some of their 2004 spot requirements. At this point in the quarter, that is not happening, and instead utilities are electing to defer those purchases in the face of rising prices.

At the same time, sellers are reluctant to sell at then currently reported spot prices. I think one of the industry publications, the October 24th Nuclear Market Review by TradeTech summed it up well when they reported, and I'm quoting here, "several traditional spot sellers have been noticeably absent from recent solicitations, while most potential buyers remain reticent to commit to purchase. Those in a must-buy situation are currently faced with paying above market in order to secure significant quantities", end of quote.

In short, we have market that's in demand and very tight supply. So while 2003 spot demands may end up being a little less than what we previously anticipated for the year, we still expect prices to remain quite firm and possibly strengthen further by year end.

And of course, the unfilled utility requirements do not go away. They're still there and any delay in procurement will simply push the demand into 2004.

Turning to the long-term market, activity is starting to increase and at present we have nine active buyers and several more expected to enter the market in the near future.

Long-term contracting in 2003 is likely to be at or slightly above the 75 million pounds contracted last year.

Now as I said in our last conference call, utilities, while generally well covered for the next two years, have very large uncovered requirements beginning in 2006. And for that reason, the level of long-term contracting will have to pick up over the next few years and that should serve to further strengthen market prices.

The long-term price as currently reported by TradeTech is $12, which is up from $11.75 reported at the end of last quarter. Now, they only adjust this indicator at the end of each month, so the next time it is published will be in a few days on October 31. And based on recent market feedback, we would expect that number to be increasing if not this month-end, then certainly over the next few months.

Looking more generally at the longer term, I think that market sentiment can best be summarized by looking at the feedback coming out of the World Nuclear Association Conference in London in early September and the Nuclear Energy Institute Conference in San Diego earlier this month.

The takeaway message from both conferences was that the underlying market fundamentals dictate that new production is required within the next few years and higher uranium prices are necessary to encourage the investment to bring that new production online. For these reasons, uranium prices are generally expected to remain on an upward trend. Now, having said that, there will no doubt be some volatility along the way.

Moving now to the UF6 conversion market, industry average spot price for North America at the end of the third quarter was $4.85, down slightly from $4.95 at the end of last quarter. This compares to $5.03 at the end of the third quarter of 2002. And these prices are all in U.S. dollars per kgU UF6. In Europe, the spot UF6conversion market is $6.50, unchanged from last quarter.

The differential in the North American and European conversion prices continues to be related to the imbalance in conversion capacity between the two continents and the cost of transporting UF6 from North America to Europe. There are only four conversion plants in the Western world - two in North America and two in Europe. The other North American converter has encountered some operational problems and has not been operating since early September.

Their latest news release stated that they expected to resume production in early November, which is about a month later than earlier projected. They have also stated that the delay will result in some adjustments to delivery schedules and this could possibly have an impact on the near-term UF6 conversion market. Since the end of the quarter, the industry average spot price has moved up 10 cents to $4.95.

The long-term fundamentals of this market continue to be positive and the long-term price for conversion services as quoted by TradeTech is at $5.35, which is up 15 cents from the $5.20 at the end of the second quarter.

And finally, a few words on the HEU agreement. Things generally continue to operate fairly smoothly. Since my last - since my report last quarter, we have exercised additional options to take product in the longer term. By exercising those options now, we have locked in what we believe will be favorable pricing for these future deliveries.

That concludes my report, and I'll now turn things over to Terry Rogers.

Thank you, George, and once again, good morning to everyone.

I'm happy to report to you that for the last four months now, the McArthur River mine has been operating at full capacity and, indeed, is exceeding budgeted production on a monthly basis. In September, McArthur River very nearly matched the standing record for a single month's production.

The water inflow from the tunnel collapse in April has not yet been fully sealed, but the quantity has been reduced slightly as we are continuing to fill the void with concrete and are

the areas around the failure.

This process has taken longer than we had originally anticipated, but this pace - this pace, which, by the way, followed the recommendations of consultants and is our regulators, gives us the best chance of ensuring a good seal when we finally shut the taps off. And we expect to complete that sealing process later this year, or very early next.

Of course, we are still treating all the mine water we discharge through primary and secondary treatment plants, which is augmented by a temporary treatment facility set up on a service water storage pond. But with winter coming upon us, we want to get back to normal treatment protocol as soon as possible.

The internal incident review team has finished its work and will be submitting its report to the CNFC in the next few days. It is appropriate that the commission do its work before we comment about the report, but we may have been victims of our own successes in dealing with minor ground control problems along the way.

This was our first development foray into the area of the mine near the contact of the basement

rocks and the overlying sandstone. And although further recommendations may come from the regulators on their review of the report, we have already instituted some changes in the design process, and our change management procedures and then in quality assurance for future works in the mine.

So, that's the status of MacArthur's rehab program.

On the

side, MacArthur, as I said a minute ago, is back in full swing. We have gained a little on the ground lost during the shutdown, reducing our shortfall in production of just over 4 million pounds by the end of September. We had, shortly after the water inflow incident, we forecast dealer production to 13.5 million pounds, down from the over 18 million pounds originally budgeted. The Cameco share of that, of course, is 70%. We are confident that we will easily meet the re-forecasted number. Whereas Key Lake's production of yellowcake will follow MacArthur's lead.

The situation at Rabbit Lake is pretty much unchanged from our expectations at the end of the first quarter, and the anticipated annual production of five and a half million pounds is also unchanged from last time we talked.

The CNFC just last week issued a license renewal for Rabbit Lake that extends the operational license period through October 31st of 2008.

The in situ leach mines in the U.S. -- the ISL mines -- are also slightly ahead of their targets for the year, and their forecast is also unchanged 1.9 million pounds.

So, in total, Cameco's share of U308 is expected to be 16.8 million pounds produced on the year -- basically unchanged from the second quarter forecast.

On our developing projects, the Inkai joint venture in Kazakhstan -- also an ISL mine -- is in the final stages of preparing a feasibility study that will be complete by year's end. Assuming the results of this feasibility study are positive, we'll move to construction next year.

Now, the test mine over there has been performing a little bit better than expected, so that's encouraging as well.

At Cigar Lake, our project enjoyed a pretty productive summer -- nearing completion on about $11 million site preparation work project -- that involved freezing and preparing the sub-collar of the second shaft. And that's in preparation for the full-scale construction activities that may start, depending upon the receipt of the construction license from CNFC, and, of course, joint venture partner approvals.

Our fuel services division, with the refinery at Blind River and conversion facility at Fort Hope in Ontario are doing pretty well. They're pretty well on track in spite of the curtailed production experienced as a result of the blackout in August. We expect that year-end production from Port Hope to be on order of 13,000 tons.

On the Gold side, the construction of the Boroo Gold Project in Mongolia is nearly completed. The mill has been put through a series of functional test and the work remaining consists of some final touches wiring and installation of some railings and things like that, creature comforts and some painting.

Stripping of the first mine pit is underway and the project looks to be in good shape for the commercial production starting in the first quarter next year.

The Kumtor Mine in the Kyrgyz Republic is producing slightly ahead of the budgeted targets for this year and of course, much improved over where we were last year after the pit wall failure.

Mining through the wall failure zone from last year is nearly complete, within a few meters of the bench that was covered by the wall's collapse, in fact we started cleaning up on the bench over the last few days.

This will be cleared in the next few weeks and then full with bench mining will commence once again. The yearly target of 670,000 ounces reported earlier is expected to be net.

At the

Project, the exploration play in Nevada, the drilling Phase II is about half done. We stepped out aggressively from the known boundaries of the mineralized zone to further define it and these step outs are pretty aggressive and they are proving up what the geologist had for the most part, anticipated.

The scoping study to determine specific project hurdles as to minimum reserve size, based upon several alternatives, entry methods, and or mining methods, was commission and is now in recent of in draft form, and is being reviewed at this time.

So that sums up where we are in operations and we'll turn it back to Jerry, thank you.

OK Terry, thank you very much, and we'll now entertain questions from all of you, please.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. We would first like to open the session to the investment community. If you would like to ask a question and are from the investment community, please press star-one on your touch-tone phone.

If you're using a speakerphone, please pick up your handset before entering your request. If your request has been answered and you wish to withdraw your request, you may do so by pressing star-two. Please go ahead if you have any questions.

Our first question comes from Ernie Nutter with RBC Capital. Please go ahead.

Good morning gentlemen. I guess maybe a question for David. I think you did a pretty good job of explaining the timing of these natural hedges, which is certainly something that showed up this quarter. I'm wondering on the derivative part, first part of the question is do you have any constraints on when you use those as we go through the next year. I guess there's about 400 million US of them.

And the second part or the second question I has was really on the contract mix in uranium business and specifically a mix between fixed and spot related. You've given us those numbers before, and I was just kind of wondering, looking at the numbers, if there was a higher percentage than average of fixed price deliveries in Q3?

OK, Ernie, thank you and David you want to respond to those?

OK, Ernie on the foreign exchange question, the first one, you know that when we do hedge, we are required if we want to account for it as a hedge to designate the period to which it, to which it applies.

And looking forward for the fourth quarter, for example, 57% of our hedges are using derivatives or close to 60% as opposed to 40, which would be on the - on the natural type, and if we go forward into 2004, there's about - right now there's - 47% are on the - are with derivatives, and 24% are natural, and the rest are not hedged at present. On the - and I hope that adds to the clarity and doesn't confuse things.

No, I think that helps.

OK, on the mix of contracts in uranium, the - I would say that in the third quarter, the percentage of contracts that were into base escalated prices was actually lower than usual on a percentage basis. It's - it was running lower than our annual guidelines of about 40%.

Thank you.

Thank you. Your next question comes from Ray Goldie of Salman Partners. Please go ahead.

Good morning. My question was we're looking for a number on McArthur River. I wondered if you could give the rates at which you're currently pumping water.

Terry, you want to answer that?

OK, current pumping rate is

from day-to-day but on order of 600-750 cubic meters a day - or, per hour.

Thank you very much.

Is that it Ray?

Thank you. Your next question comes from Terence Ortslan with T.S. Ortslan and Associates. Please go ahead.

No, it's still T.S.O. Good morning, guys.

A couple of questions - one is, George, with respect to the U.S. plants, they seem to be running at a lower rate than last year and the year before. What impact - what are the rates that you expect them to run

and what impact do you think it's going to have to the uranium business?

You're talking about the nuclear plants?

Correct.

We expect them to basically achieve the - something in the order of 92% capacity factors overall. I don't think that we see that they'll be down at all.

Well, one year, I think they achieved

better rate - better rate than that, and I think there is a lot of talk about this year being a fairly poor year in terms of capacity utilization.

I'm frankly not aware of that, Terry. My information is that the plants are generally operating fairly well.

You know, you've 103 plants operating, there's been problems with one in Ohio, but, you know, one out of 103 would constitute only 1%, so I think it's safe to say it's still going to be in that 90%-plus arena or area, and in terms of uranium impact, it should be - you know, the usage of uranium should just be about the same.

Thanks for that.

Jerry, just come back to the end of the year feasibility study for

, could you tell us about the test results - what they provided so far in terms of - you - I think you referred to them as being better than expected. And also if you're going to go ahead with that, what the cap ex schedule is going to be in terms of new expenditures?

OK, I'll have Terry do the first part of it, and then, David, you can add to the cap ex schedule.

OK, well, when you're talking about results, you're talking about the test mine in our block two. There are two blocks. The feasibility study actually covers the first mine area. The test mine is in the second area, and we talked about better-than-expected results. We have just better recoveries, and, you know, more uranium coming out of the ground than what we had originally -- or just was originally thought.

What were they recovering?

I don't know if we know the full recoveries because of the way ISLs work. But we have to run in that test mine 80% recovered to complete the work to the government's satisfaction. We're not there yet.

And on the capital front, you know, the feasibility study is still being developed. It will be done this year, and we'll wait for that before we see what the capital outlays are.

Just in the range of guesstimates, what are they and over how many years are you gonna spend the money.

Well, it's gonna be, I guess, until we ramp up production, so that will be over two years.

And the ballpark number is what for the cap ex?

Say it again, Terry.

Yeah.

Well, I'd like to wait and see the feasibility study.

What

? Is it 50 million? Is it 20 million? What is that number?

I think historically, Terry, we've talked about a figure between 20 and 40 million U.S.

And the first

action you're gonna see earliest will be the second year of expenditure?

Well, next year will be designing plans on the basis of the feasibility study and trying to get the necessary permissions, and then we'll hopefully commence development of the well fields and the facilities late next year.

And to us, the questions are -- come back to the gold deadline you put, Gerry, with respect next year, 2004. Is that -- I mean, the time element is still a long time, and are there any benchmarks within that that you expect to see evidence that there's progress? Can you figure out anything before that in case there's more progress? It's still a long time to consider.

Terry, I missed the first part of it. Are you talking about the negotiations?

Correct.

Well, progress will be when the government of Kurdistan as a government actually says, "Yes, let's move it forward." I think we're very, very close to that, hopefully. And then we move into the preparation of the legal agreement phase. And then, once that's done -- assuming, again, all those agreements get approved, and I think that'll be a rather lengthy procedure, given the complexity of the transaction -- we then need to achieve agreement with all of the parties on consolidation.

Is there an option here, Gerry, whereby you may just turn the table around and let them buy it out? And then you can go on your own.

Let them -- meaning the Kurdinese government?

Yes.

That's one option I don't think is on the table.

OK. Last question, David. With respect to the balance sheet adjustments and the issue you made, what do you figure your cost of capital after taxes will be now or will be in the future?

Cost of capital?

Yes.

Oh I think about 10% on a real basis.

After tax, obviously, right?

Yes.

And you're applying your tax rate of about what 35% today?

It's, this past quarter it's been about 33 and going forward, it will be, you know, in the 30-35 range.

I'm done. Thank you.

Thank you Terry.

thank you our next question comes from

with BMO Nesbitt Burns, please go ahead.

Yes, good morning. I was wondering if you could shed some more light on the current status of the Bruce A Reactor, specifically with the Unit Four? I'm not sure if I heard you correctly, but did you say that the reactor has already performed the trip test and is the next step will be to reconnect to the grid and start ramping up?

No, the Unit was synchronized to the grid on the 7th, began generating electricity ultimately had a forced outage because of a small leak that has been repaired. Unit now, once again, being brought back into service. Once it reaches that 50% level, and has stabilized for a short period of time, then they will conduct that trip test.

OK, and at this point, any idea what the additional cost will be on a gross basis for the A reactors? Like, the B's have been averaging about 45 to 50 million per reactor per quarter. Should we expect something similar for the A's, or are those expected to be lower cost?

You mean when they return to service?

Yes, when they return to service.

I think it's safe to assume that it'll be in the same order of magnitude. There will be, once they return to service, economies of scale, if you will, that will be realized. So I don't think you can do it straight arithmetic and say it's going to be half of what the B units are, it'll be a little bit better than that.

OK, and any idea when you expect to, when you expect to start receiving dividends from Bruce?

That's an issue that has, is still being considered by the partners, and so we really can't respond to that. Obviously, it's a function of a number of things, one electricity prices, performance as a unit, the A Unit, also that A Unit capital costs. So all of that is still being reviewed by the owners, the partners to make decisions on distribution policies going forward.

OK, and one final question if I may. What can we expect for uranium shipments in the fourth quarter?

George?

You mean deliveries right?

Deliveries, yes.

Yes, well at the rate that we're going here, well you can expect something in the order of 35 million pounds total for the year.

OK, thank you, thank you very much.

Thank you.

Thank you. We would now like to open the question-and-answer session to all participants on the phone lines. As a reminder, please press star-one on your touch-tone phone. If you're using a speaker phone, please pick up your handset before entering your request.

Thank you. I'm sorry, we do have a question from Brian MacArthur with UBS. Please go ahead.

Good morning gentlemen. Few questions. First of all David, you talked about the impact of the Gold Hedges into the fourth quarter. Will this continue through next year as well, either low or realized price for accounting purposes?

Well Brian on the, in the third quarter, in the second quarter we reported that we had $5 million of deferred charges on the balance sheet, and in the amount at the end of the third quarter on a net basis is 1 million.

OK.

Most of it's come through, but as you know, that's a net basis, so, you know, by quarter-by-quarter, it's different.

But it's going to be fairly small, then, going forward vis-à-vis the big impact this quarter?

We expect that to be true. Yes.

The second question, if I could ask - there were some comments made about, you know, the review's been done on McArthur and you don't really want to comment, obviously, until the

and see reviews

everything, but I did want to ask again as a result of this and you made comments about victims of your own success you may have to do things differently going forward, do you expect the cost structure of McArthur to be substantially different going forward now?

Brian, we think not. We will have to - we'll have to do - make some changes in how we support ground, but we don't - that's only in the development areas. We don't see any significant long-term cost impact by it.

Great. And maybe just one final comment - you talked a fair bit about the UF6 market and, you know, it looks like it's tightening up a little bit. Can you just make - I know I don't follow it probably as much as I should and it's a little less clear, but UO2 market - are prices there trending up, as well?

The UO2 market tends to be relatively stable, Brian.

But - and you still - I realize that, but

gets tight, there's no - do you expect to be able to push those up at all? I realize it's a much smaller market, but you would expect it just to be stable going forward as well?

Right - pretty stable going forward - yes. We have a limited amount of demand and a limited number of customers, obviously, here and abroad. It's predictable, and probably more predictable than any other segment of our business depending on how

units perform.

Great. Thank you very much.

Thank you.

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Thank you, sir. There are no further questions at this time. I'll turn the conference back over to you.

OK, well, I want to thank you all for joining us this morning and hearing a little bit about the Cameco story and our results, and I wish you all a very good day. Thank you again.

Thank you. Ladies and gentlemen, this concludes today's conference call. We thank you for your participation and ask that you please disconnect your lines.