Cameco Corp (CCJ) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Cameco Corporation fourth-quarter results conference call. I would now like to turn the meeting over to Ms. Alice Wong, Director of Investor and Corporate Relations. Please go ahead, Ms. Wong.

Thank you. Good morning, everyone, and welcome to Cameco's fourth-quarter conference call to discuss the financial results. We are pleased to have four of Cameco's senior executives with us. They are Gerry Grandey, President and Chief Executive Officer; Terry Rogers, Senior Vice President and Chief Operating Officer; Kim Goheen, Senior Vice President and Chief Financial Officer; and George Assie, who is Senior Vice President, Marketing and Business Development. And as some of you may know, Bob Lillie has rejoined us after a long stint with Centerra, and I am pleased that he is joining us as well today on the call.

Today's conference call is open to all members of the investment community and the media. During the question-and-answer session we will take questions from the investment community first followed by questions from the media. Please note that statements made during this conference 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 risk 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 March 19, 2004. With that, I will turn it over to Gerry.

Thank you very much, and let me extend my welcome to everyone as well who is participating today by telephone. As with past practice, we will have Kim Goheen, Terry Rogers and George Assie will be elaborating on their respective areas of responsibility.

Now, you've got the fourth-quarter report, which was released yesterday. I'd say that it reflects a very positive period for the Cameco and the culmination of another solid year. Our businesses are healthy; that is reflected in our strong revenue, earnings and cash flow.

2004 was another record-setting year for Cameco. Consolidated revenue exceeded one billion for the first time in the Company's history, and we had more uranium revenue as well as more conversion revenue and sales than ever before. Our gold production and revenue also hit record highs.

As we look to the future, there is a lot of optimism around Cameco. Say that people are walking around with smiles on their face, and that's simply because the uranium and conversion markets have finally begun to respond to the underlying market fundamentals. If you just take a look a little bit at 2004, spot market uranium prices were up 43 percent, long-term uranium prices increased 61 percent, UF6 conversion prices were also up by 50 percent.

These dramatically increased prices are a reflection of strong markets and in areas where we have strong assets, and we will increasingly capitalize on these prices as the new contracts we are signing and have been signing for some time here bring future profits to our shareholders.

Those of you that had been following Cameco, even incidentally, will know that our future will be driven by our vision to be a dominant nuclear energy company, producing uranium fuel and generating clean electricity. Since we are reporting on 2004 results, I think it's appropriate to take a quick look at some of the initiatives that are underway that are fueling our growth.

First, if we take a look at uranium mining, I'm pleased to confirm that the construction of the Cigar Lake mine is underway. It will be another exceptional mine to complement our other extraordinary Saskatchewan assets. You would note too that we are also working on developing the Inkai mine in Kazakhastan, we are pursuing our plans to increase production at McArthur River, as well as increasing production at our mining facilities in the U.S. We are giving expiration more attention these days and, importantly, we have been successful in extending the life of Rabbit Lake. I think it's Saskatchewan's longest operating uranium mine.

We plan to be a much larger producer of uranium in the future, with increasing market share. The fact that Cameco controls the timing of more than 60 percent of the identified new production bodes well for our position in this industry. We will continue to build upon our solid relationships with our customers through long-term contracting.

Turning for a moment to generation, we are certainly pleased with our investment in Bruce Power. We've announced that we are looking at restarting two additional units, Unit 1 and 2. Still in discussions with the government, and as we have said before, we are investigating the potential of investing in the Point Lepreau nuclear plant in New Brunswick. We are actively pursuing other acquisition opportunities.

As you know, our gold assets had been restructured in a new public company, Centerra Gold, which has the resources, expertise and market position to expand and prosper. Aggressive exploration and focused acquisition programs by Centerra are underway.

We ended the year by increasing Cameco's dividend by 20 percent beginning in 2005 and completing a 3-for-1 stock split. I would say that our decision to split the stock and increase the dividend reflects our confidence that Cameco can continue to grow as a nuclear energy company. The confidence we have in our Company is a reflection of the optimism about the industry, about nuclear power in general.

This week, I had the pleasure of speaking at the Mineral Exploration Roundup in Vancouver. Three years ago, it would have been unusual for the CEO of a nuclear energy company to be the featured luncheon speaker at any mineral exploration conference. Three years ago, there were less than five junior uranium exploration companies looking for uranium in Saskatchewan. There were only about 10 looking worldwide. Today, there are over 45 juniors looking in Saskatchewan, many more in the world, and it seems that new ones are being created almost every day.

And last week we participated in a trade mission to China, giving us the opportunity to build relationships in a country with incredible nuclear potential. China plans to quadruple the nuclear power generation in that country by 2020. Right now, they have plans to increase the number of reactors that are operating from 9 to 20 by 2013.

In India is another story where nuclear is playing quite a role in their future energy electricity demands. India plans to increase the number of reactors from 14 to 22. Overall, there are plans for an additional 38 reactors in Asia alone by 2013, all of which will be reflected in increasing demand for our products. Of course the news, in other countries like the United States and France, where they are preparing a path for the next generation of reactors, has also in recent weeks and months been quite positive. In Canada, we see the Ontario government viewing nuclear energy as a vital part of its energy future.

These are optimistic times for the nuclear industry and certainly for Cameco. And as I look into my crystal ball, I see that the best is yet to come. With our vision and perseverance, we will engage in greater exploration activity, produce more uranium from existing sites and from our new mines under construction, invest in nuclear electricity generation and actively pursue other nuclear fuel cycle opportunities.

With that I'll close and ask Kim to now discuss the financial results. Kim?

Thank you, Gerry, and good morning everyone. Fourth quarter was another good one for the Company. Consolidated revenues increased 33 percent to a quarterly record of $361 (ph) million. Net earnings were up 9 percent over the same period from a year earlier to 37 million, or 21 cents per share. We continued to benefit during the fourth quarter from higher realized prices for uranium and gold and from higher production at Centerra. At the same time, the conversion business experienced weaker results since it resumed full production only in November, following an extended shutdown due to a labor disruption. Our bottom line in the quarter was also affected by a charge of $7 million in deferred issue costs related to the redemption of Cameco's 8 3/4 percent preferred securities.

I'm going to discuss the results for each of our businesses, before outlining our financial condition and describing the outlook for the first quarter of 2005 and the year as a whole. First, the fourth quarter by segment. In uranium, we were pleased with the results in this key segment, which yielded over half of our consolidated earnings before tax. The average realized price in the fourth quarter increased 14 percent, to $19.09 per pound of U308 compared to $16.68 a year earlier. Revenues rose by 9 percent to $203 million.

In the conversion business, revenues in the quarter were steady at $47 million, although earnings before taxes declined from $17 million to 10 million due to higher production costs. Fourth quarter production was 41 percent below the level of a year ago, but quarterly sales deliveries of 5.4 million kilograms were the strongest during the year. You will note that we now reporting conversion sales from production volumes in millions of kilograms of uranium rather than tons.

At Bruce Power, results for the quarter reflects a below capacity factor of 72 percent. This was attributable to an active maintenance program, which included the outages outlined in our report. Cameco's share of pretax earnings in the quarter was $2 million compared to 6 million in the same period of 2003. While the capacity factor was low, output of 7.4 terawatt hours was still 25 percent higher than a year earlier, as the two A units delivered another 1500 megawatts of capacity.

At Centerra Gold, revenues almost tripled to $110 million, and gross profit increased 72 percent to 31 million. Cameco fully consolidates Centerra's results based on our 53 percent interest in the company, whereas in 2003 we had reported only a one-third ownership in the Kumtor mine. The Boroo mine in Mongolia began commercials production in March of 2004 and continues to operate very well. Centerra's realized price for gold rose 15 percent to $430 U.S. per ounce in the fourth quarter, thanks mainly to Centerra being fully exposed to rising gold prices as a result of eliminating its hedge position.

Turning to the results for the full year, consolidated revenues were up 27 percent, a new record, as Jerry had mentioned. You will likely notice in our news release that our 2004 earnings received an unplanned addition of 86 million as a result of accounting adjustments. These changes related to the Centerra Gold transactions that occurred in the second quarter of 2004. These are not the kind of earnings that we seek out. However, the change with something that we felt appropriate, but only after much deliberation among management at Centerra and Cameco, as well as with our auditors and respective audit committees.

Suffice to say these adjustments do not affect the nature of our performance in 2004. They are onetime items and non-cash in nature. The impact of these adjustments was to add 86 million to net earnings for a total of 279 million or $1.63 per share. This compares to 208 million in 2003, which included the effective changes in federal and Ontario tax laws. Setting aside the Centerra adjustments and the 2003 tax changes, 2004 net earnings were up 46 percent at $185 million compared to $127 million in 2003.

Cash provided by operations totaled 228 million for the year, compared to 250 million last year. In 2004, additional cash was invested in working capital and particular product inventories increased.

Our financial condition remains very strong. Total long-term debt declined by 87 million in 2004, to $519 million at year-end. Cameco's net debt to capitalization ratio was 13 percent at December 31, compared to 22 percent at the end of 2003. We plan to maintain our conservative financial profile as we pursue our growth strategy. Cameco will continue moving forward by developing its rich asset base.

In 2005, we intend to embark upon considerably more active capital and exploration programs. Capital expenditures are expected to be more than double the level of 2004. Terry will provide the details on the capital spending program in a moment.

Let me close with a brief outlook for the first quarter of 2005 and the year as a whole. For the year, revenue is expected to grow by about 10 percent due to increases in the uranium and gold businesses. In the uranium business, revenue is likely to increase also by about 10 percent as a result of higher average realized prices and greater volume.

At Bruce Power, the average capacity factor for 2005 is expected to be about 85 percent. I should mention that while the refurbishment programs undertaken by Bruce Power are expensive, they are driven by Bruce Power's maintenance policy, which stresses the importance of equipment reliability, lifecycle maintenance and long-range maintenance strategies. Bruce's capacity factor is expected to improve in 2006 and a significant reduction in refurbishment programs is anticipated.

Revenue in the gold business is also expected to be higher in 2005. In And the consolidated gross profit margin is projected to improve from the 23 percent reported in 2004. As for the first quarter, revenue is expected to be about 60 (ph) percent higher than the first quarter of 2004, reflecting increased deliveries and higher prices in the uranium business. Our results will also continue to benefit from the consolidation of Centerra. Earnings from Bruce Power are expected to be about one-half of those reported in the first quarter of 2004, due to lower generation output. As a result, consolidated earnings in the first quarter of 2005 look to be moderately lower than those in the same period of 2004.

With that, I'll now turn things over to Terry.

Thanks, Kim, and hello, everybody. You have seen the numbers published in the press release about production, so I won't really belabor them much. What we didn't talk about too much is this year's performance in safety and environmental protection. In 2003, even though our statistics in the mining company compared very favorably to industry averages for Saskatchewan, Ontario and really any place in the world, our accident frequency at Cameco had actually increased over the record of prior years.

But during 2004, we renewed our efforts in these areas and as a result the accident frequency and environmental incident frequency were significantly reduced, back to levels that existed before 2003. So our efforts focused mostly on safety and environmental education than on specific training and we are very pleased with the results.

(indiscernible) uranium production was quite improved in 2004 compared to 2003 due to McArthur River having recovered from the water and flow (ph) event. But on quarter-over-quarter, it was about the same. McArthur River and Key Lake ran up against license limits for production by year's end. Rabbit Lake was down year-over-year due to lower tonnage throughput and a disappointing stoke (ph) near the end of the year that we had backfill (ph) early and we will recover it in this quarter. McArthur River and Key Lake both were granted four-year operating licenses in October, extending us to 2008. Production at the U.S. ISL operations proceeded in line with the targets, as you've seen -- actually slightly exceeding the target that were set.

On the new development front, the Star Lake project was issued its construction license in late December, and we hit the ground running with start of construction January 1st. Currently, we have about 200 people on-site and expect to peak to about 350 during the busiest part of the construction period. As you know, we anticipate a 27 month construction schedule and we will begin producing in 2007, ramping up to a full production rate of about 18 million pounds over a period of about three years. The Mill at Rabbit Lake will begin receiving perginaquea (ph) solution from the Cigar Lake project in 2009.

The project in Kazakhstan, as Jerry mentioned in Inkai, is also underway, although construction activities cannot start until the final environmental impact statement has cleared the government approval process. As some of you may know, the approval process in Kazakhstan is such that final design plans must be very detailed and have to be incorporated into the EIS before they pass judgment on the project. We are expecting the submittal of final design in the EIS in the second quarter of this year and expect approvals and construction start late in quarter three.

We have procured and have started excepting deliveries on the main camp modules, so when Inkai reaches full production, it will be at 5.2 million pounds per year, rather than the 2.6 million originally planned. The revised capital budget to $83 million reflects that expansion.

At the U.S. ISL operations we are in a process of modest expansion plans, mostly at the Smith Ranch-Highland complex in Wyoming. (indiscernible) the relatively large landholding position in Wyoming, our expansion plans in the U.S. will be focused there rather than in Nebraska.

We have before the CNSC a request to expand licensed production capacity at McArthur River and Key Lake to 22 million pounds a year. We are hopeful of a positive finding and approval late in 2005. The capital expenditures for 2005 on McArthur River and Key Lake show sustaining capital is not related to the production increase. For the mine at McArthur, both of the expenditures are for development work, installation of freeze lines and preparation of the dewatering station, readying ourselves for entering Zone 4, a new mining area of the mine.

At Key Lake, the capital costs are for mill improvements, for instrumentation and process improvements, plus some infrastructure upgrades. Key Lake can produce at increased rate and has demonstrated so on (indiscernible) month basis. We can do that by increased running time and throughput rates.

Capital expenditures for Rabbit Lake is for mill upgrades, equipments replacements, but the bulk of it is for mine development. At the U.S. ISL, the CapEx for 2005 was increased over 2004 as a result of increased well field development and increased permitting activity on the currently held lands.

In our fuel services division, after settling the 7-week labor disruption, the U02 in UF6 plant began operating in late October. But production was down quarter over quarter due to less operating time. It was also reduced to some commissioning debugging of the control center and the instrumentation involved. As Kim said, in November the plant was up running very well. So it's running very well now and it's at its full rate of capacity.

As said in the news release, CapEx for the fuel services division in 2005 are planned for process enhancement, our regulatory compliance and meeting code revisions and the like and upgrade to plant aesthetics. And finally, a capital expenditure of about 20 million is planned for the continuation of the SEU project.

As noted, there has been a slip in the regulatory approval schedule caused by a peer review report of Cameco's environmental assessment report. Cameco supported and sponsored the peer review by an independent third party to enable the town council of Port Hope to obtain a third-party technical opinion as to the completeness and comprehensiveness of the EA. As we state in the news release, the peer review conclusions support the EA in the study report. We expect a hearing on the EA screening report with the CNSC sometime in midsummer. In the meantime, detail design work for the SEU blending facility continues.

On the gold side, the very successful IPO of our gold assets mentioned earlier about Centerra was completed last summer. Centerra had an outstanding year in 2004, producing over 900,000 ounces of gold from Kumtor and Boroo operations, about 600,000 ounces of that attributable to the new company since its information. These operations too demonstrated stellar safety and environmental performance on the year, reporting only one environmental incident, a spill of diesel fuel at Kumtor, and one nonserious lost-time injury at each site. Kumtor racked up over 3 million hours without an injury during the year, and Boroo has just recently surpassed 12 months without workplace injury. In 2005, Centerra should produce about 750,000 ounces from the two sites at a cash cost of about $230.

So 2005 shapes up as yet another interesting year. Exciting for us, especially on the mining side, with the new projects at Cigar Lake and Inkai getting off to a good start. Our optimism for McArthur and Key Lake to increase production upon CNSC approval and Rabbit Lake chasing new reserves, and are developing longer-term expansion plans for the U.S. ISL operations. These are fun times. We're growing the business in pursuit of the vision. So that's it for operations. Now I yield the floor to George Assie to talk about marketing.

Thank you, Terry, and good morning everyone. For the most part, the fourth quarter continues the trend that we saw over the previous three quarters. Spot market demand was quite low with total volume just under 2 million pounds. But at the same time, supply remained very tight with the result being that the industry average spot price increased slightly to end the year at 20.60, a 3 percent increase from the third quarter. At the end of 2003, the spot price was 14.45. Total spot market volume reported for 2004 is just slightly more than 18 million pounds, which is about a 20 percent decrease from the 2003 level.

Looking to 2005, we expect spot demand to be at about the same or possibly even less than it was in 2004. Utilities requirements are generally well covered for 2005 and into early 2006, and where they do have uncovered requirements, they will, to the extent they can, take advantage of upward flexibilities under older, lower-priced contracts, rather than come to the spot market. As noted in the trade press, a large majority of transactions, almost 90 percent, were conducted off-market as buyers continued to try to minimize upward pressure on prices. This trend is also expected to continue in 2005. As was the case last year, there are a limited number of sellers with supply available for sale into the spot market in 2005.

Discretionary buying in 2004 represented a large portion of total spot market transactions, more so than in the previous year -- just under 40 percent as compared with 25 percent in 2003. Some of this discretionary buying is associated with utilities purchasing uranium specifically to hold an inventory, and indeed some utilities have exercised upward flex under older, longer-term contracts to add to their inventory positions. Since the end of 2004, the spot price published by USC has increased to $21 and TradeTech to 20.75.

Moving on to the long-term market, the industry average long-term market price ended the year at $25, up from 23 at the end of the third quarter and a very considerable 60 percent for the year. The long-term market was more active in 2004 and we estimate that new long-term contract volume was up at least 20 percent to some 19 (ph) million pounds. And we expect long-term contracting activity in 2005 will remain at or above this level as utilities who have attempted to wait out the price run-up will have to come to the market to fill uncovered requirements beginning in the next few years.

Market dynamics have shifted to a more seller-oriented market, and as we move forward, we expect sellers generally will prefer to enter into longer-term deals. At the same time, some utilities, in particular those that are looking at market fundamentals more strategically and are concerned about supply beyond the end of this decade, are also interested in entering into longer-term contracts with sellers that can reliably supply in the longer-term.

Along with this shift in market dynamics come some other changes in contracting. With regard to price, sellers are generally no longer offering discounts and some have been asking for market related prices with a premium over the spot market at the time of delivery. Volume flexibilities have been reduced very significantly. Several years ago, a flexibility of 20 to 30 percent was relatively common; today, little or no flex is being offered. As is the case in the spot market, a large share of the long-term contracting that is taking place is being done quietly or off-market.

Historically, long-term prices at any point in time have generally been at a premium of 1 to $2 to the then-prevailing spot price. Today, that difference is in the order of $4 per pound. This spread is the consequence of the very low level of activity in the spot market over the last year or so as compared with the higher level of activity in the longer-term market. Current market fundamentals suggest that but the spot and long-term prices will continue to strengthen, and we would expect the spot price to move up somewhat more than the long-term price such that the differential will move back to the more traditional spread of 1 to $2.

Chemical has been active signing new multiyear contracts at levels which reflect the much improved market conditions of both higher fixed or base escalated prices and the more favorable terms associated with market related contracts, which today contain floors that are generally in line with the current level of the spot price.

For the time being, we continue to target a contract portfolio mix of 60 percent market related and 40 percent fixed from base escalated, as I mentioned earlier. We believe that that mix continues to be appropriate given our view that market prices will continue to strengthen. At the same time, this mix allows us to lock the significant differential between current spot and long-term prices on a portion of our portfolio and provides a firm pillar of support for our growth strategy.

As reported in our press release on Cigar Lake that was issued just before Christmas, we have finalized a number of long-term contracts to support our decision to proceed with development. These contracts are very much in line with the contracting strategy that I have just discussed.

Moving to the UF6 conversion market, the industry average spot price for North America ended the year at $9 a kg, unchanged from the end of the third quarter. And in Europe, industry average spot price is $10, also unchanged from last quarter. While both North American plants are back in production, supplies in the UF6 conversion market remain very tight. The inventory reductions that have resulted from decreased 2004 production have to be replenished and that is likely to take several years.

Long-term prices in the North American and European markets as published by TradeTech remain unchanged from the end of the third quarter at 10 and 11.50 a kg respectively. On average, the spot indicators are up over 50 percent and the long-term indicators almost 70 percent from December of 2003.

In the fourth quarter, there was a lack of straight spot conversion transactions to provide price transparency. However, recently there have been a few UF6 transactions, and here I am talking about transactions were the conversion and uranium are packaged as UF6. And these were completed at a significant premium to the cost of the individual components. We think a good portion of that premium relates to the conversion component. Cameco is currently in the market to buy conversion supplies to supplement our present supply sources and inventory position.

The level of contracting for conversion services will pick up and is expected to be very robust in 2005. And for this and the reasons I cited earlier, we expect upward pressure on conversion prices to continue. That includes my remarks and I will pass things back to Gerry.

George, thank you very much. That concludes the overview and now we would turn it over to the operator and welcome your questions.

(OPERATOR INSTRUCTIONS) David Charles from GMP Securities.

Good morning, everybody. You can here me flicking pages here. But anyway, Gerry, could you maybe answer the following question. Cameco and Cogema's names were linked with reports that you guys had visited Western -- WMC Resources' Olympic Dams project in the last few weeks. Obviously, there is some speculation there. Could you maybe chat about that, explain how you guys might be involved there if you could, how you would go about financing it, and would there be any issues related to the fact that if some transaction were to occur at some point in the future that your control of the uranium business would be increased and people might be worried about maybe your possible influence over pricing?

David, you are well ahead of everybody, I think. Obviously, we always survey what is going on in the market -- Olympic Dam, Western Mining. They are a major competitor; it's a major production source. So as we always do, we kind of check out what's going on in the industry. But as always is the case too, we really don't comment on things that we might be interested in. As I said to the media the other day, we're watching the (indiscernible) a bit, looking at the response of the others and just seeing what might happen here.

This morning, you mentioned that you would maybe look on the power side and you didn't really say anything about the uranium side. Can I take it then to mean that if there was an opportunity on the uranium side, you would look to increase your production there through an acquisition?

If you come back to the vision statement, David, one of the foundations of this company is the production of uranium. We will always be vigilant to make sure that that part of the business is paid attention to and that we're expanding it. I talked about it increasing market share over time; that's going to come both organically, and if we find the right opportunities out there, we will certainly pursue them.

Maybe just finally, you did say that you were looking at opportunities on the power side. Do you have any comments there, I mean, how many opportunities you might be looking at at any one time and how maybe that compares to previous quarters?

As we often say, opportunities really throughout the industry, but clearly on the generation side are rather lumpy. They come along only every once in awhile, and some of them we think might make sense and others we would just simply not participate in because we think that it wouldn't add value to Cameco. We've talked about the efforts underway with respect to the two shutdown Bruce units, and I indicated those conversations with the government of Ontario are ongoing. I think they will be ongoing, frankly, for some period of time yet. See whether we and the government can find a proper mechanism to allow those units to be refurbished. I talked a little bit about our efforts at Point Lepreau, doing due diligence and engaging in conversations there. So in reality, our plate is full on that side of the equation. And then we continue to watch elsewhere as to developments both in North America and elsewhere.

Thank you very much.

Terence Ortslan of TSO & Associates.

Good morning. Just a question on Bruce. Capacity factor as is, how do you see the progress through the quarters of this year, and given the refurbishments and all this, do you have a number that we should be using for 2006?

I think we gave a little bit of guidance, Terry, on 2005 in the press release. As I recall, I think it was around 85 percent or thereabouts.

For the year, but how (multiple speakers).

For the year, it's obviously driven by outage schedules that we'd have to go back, if you want it quarter by quarter, to take a look at it. But so many variables in terms of electricity pricing and length of outages. I think if you take a look at the entire year, you are far better off. And we hope as time goes on that we continue to push that capacity factor up to what the business plan said when made the original investment, which over time we though we would get up to the 90 percent level.

For 2006 that would be a good number to use?

I'm not sure we will be there quite in 2006. Again, we'd have to look at the outage schedules.

Come back to David's question on the two shut down Bruce units. Could we anticipate you are going to use a similar model the way you did for the existing transaction with the government and your partners?

What do you mean by a similar model?

In a similar sense of arrangements with partnerships and also the terms of the arrangements you had -- (indiscernible) separate deal?

I think it will fall under the general umbrella of the agreements that we've got already. There's going to have to be some alteration just to recognize if we do it, and I emphasize that, because no decision has been made. But there will obviously be some alteration of the underlying agreements. But I wouldn't get too focused on that; I don't think it's going to be all that material.

Question to George actually on the spot market transaction. When you say off-market -- my other comment (ph) we know what it means -- but if everybody else knows what off-market transactions are, what is the use of having the off-market transactions?

That's a good point, Terry. I also have trouble quite often I want to refer to just saying quietly or -- all we are really referring to here is that traditionally in this business, utilities would issue very public RFQs to a whole host of suppliers to the extent --. And today, instead, you have a much reduced number of suppliers and a lot of utilities rather than issuing public RFQs just enter into these off-market or quiet discussions with suppliers. That is all it really refers to.

The 90 million pound for transacted in the long-term market. Do you have a feel, George, about the periods that it covered in terms of if you put a little curve on it, what years did we cover, we didn't cover -- I'm much more interested in that.

I think that it's fair to say that most of the contracts that were entered into continue to be fairly short term, Terry. And so I would say that that's three to five years. But I would also say that term is up and that's why in my remarks I alluded to producers looking for longer-term contracts, and some of the utilities themselves that are looking at supply and demand over the longer-term looking for longer-term contracts than have been in the case in recent years.

So let's say in recent years, it was maybe three, four years. I think the average this year is pushing more of that five-year period and I think that it's going to get longer as we go up. For the most part, if you are looking to see when utilities are uncovered, uncovered requirements would start to grow quite dramatically in 2008 and beyond.

2008 beyond, that is what the point I want to make, is that that the period beyond (indiscernible) yet to cover.

Yes, that is where the huge uncovered requirements really start.

I think Gerry highlighted it and George, maybe you want to talk about or Gerry, on the China situation -- obviously, it's a favorite topic. Could you go through that one more time in terms of four times the nuclear power that got generated by 2020, I think you said, Gerry -- how many megawatts that it entails and what kind of reactor they're going to go after and how is it going to help out chemical (indiscernible).

I'm not sure we can get into all that detail, Terry, but they've got a very ambitious nuclear power program. I indicated that today they are operating 9 units and generally they tend to be smaller. But nevertheless, they are using somewhere between -- say around 3 million pounds per year, George, isn't that about right?

Yes.

Given their growing demand for electricity, which I believe in 2004 grew at about 9 percent or thereabouts, maybe even more than that, they have made the decision, the government has, to have a substantial component of the nuclear and have announced plans to have 20,000 megawatts between now and 2015 or thereabouts. Now, that is an ambition program but it's not really more than what France was able to achieve in the 1960 to 1970 period of time. The U.S. program was about that aggressive as well.

I don't think there is much doubt that if China puts its mind to it they can do that. They've already identified sites. Obviously, they've got existing sites and sites that they've earmarked for future capacity. And have actually started the tender process on a number of these sites. And the interesting thing about it is if they are not just saying, well, we want to build one unit at a particular site; they are talking 2 to 4 units.

So one of the very interesting things, because they've opened up to all of the vendors, be they U.S., French, British or Asian, we agonize for the next generation of plants about getting over that first of a kind cost. I think China is going to solve that problem for the industry; when they order more than one, then a vendor knows they're going to have significant orders for a fleet. I think that's going to help considerably not just in China but elsewhere as we look to restart the construction program, be it in the U.S., Canada or in Europe.

Gerry, how do you see this playing out for chemical, which we are all interested for?

China itself is a small producer of uranium. As we see it, their uranium endowment is pretty limited -- a lot of small, in situ leach deposits. And because of this aggressive nuclear program, they have been out scouring the earth, Canada, Brazil, Kazakhstan, Uzbekistan, looking for uranium supply. We have been talking to them, obviously, as would any supplier, and I think they are going to be a significant importer of uranium in the future. And hopefully over time they become a valued customer. We've done only a very limited amount of business with them historically. We know them; as I say, we were on a trade mission here last week. But we know them well enough and so I would suspect that Cameco will get its fair share of any business in China.

Last question. On the 20 million exploration program, I'm sure (indiscernible) and his team generating a lot of projects. Gerry, what is the split between Saskatchewan and other places for the $20 million, if you just quick breakdown for me. Thanks.

That should come back really to George, because it's within his area.

It's a fairly even split, but I think it's like 60 percent domestic and 40 percent outside of Canada.

How much is Australia -- do you know offhand?

It would be a fair chunk of that 40 percent, you know.

Gerry, I couldn't go to the luncheon in Vancouver, by the way, because I was told that your luncheon was sold out like an Elvis concert, so you didn't see me there.

Terry, I was looking for you.

I was outside trying to get an autograph. Thank you.

Ray Goldie from Salman Partners.

Good morning. I noticed that your overall corporate-wide tax rate was just over 19 percent in '04. And in the past, I think you have suggested that a long-term tax rate would be something in the 30, 33 percent range. So I was surprised to see your forecast that this year's rate will be between 10 and 15 percent. I was wondering two things. Firstly, if you could give us a little more background for such a low tax rate? And secondly, what we should expect -- how long it should be before we revert to the more normal tax rates that I have been expecting?

Ray, I'll ask Kim to address that, thank you.

Ray, the impact this year you can attribute to a couple of factors. The gold operations, the Kumtor gold company, the Boroo gold company operating in (indiscernible) and Mongolia, have very little tax impact. Therefore, they're essentially tax-free operations. Mongolia is under a three-year tax holiday and the Kurgese (ph) operation has a number of loss carryforwards that shelter their income.

In addition to that, some of the activities that we carry out on the uranium side, such as the purchase of HEU, we do through jurisdictions that have lower tax rights than Canada. That is what has driven the rate this year. Your initial comment there about maybe in a mid 30s type of tax rate, that would certainly apply to activities such as Bruce Power and domestic Canadian operations. But the overall impact is, as we have said here, the 19 percent this year is driven by the impact of the gold operations and some of our purchasing taking place outside of Canada.

As to how long that will go, we have projected in the report there that for next year we will be somewhere between 10 and 15 percent on a consolidated rate. Beyond 2005, I'd really like to just hold off on for now, but I do not perceive something in the mid 30s consolidated for at least a little while yet.

Thank you.

David Snow (ph) from Energy Equities (ph).

I wonder if you could give us a little more color on the 40 percent that you are selling fixed at a base plus escalation. What kind of terms, what length and what kind of escalation, how close to market would those actually end up being?

David, we are probably not going to get too far into proprietary terms of contracts. Obviously, one caution. Two is that we have been writing contracts and do constantly, so while uranium prices have been increasing over the past year or year and a half, we have in both markets, both types of contracts, fixed-price and those related to the spot market price, we have been writing contracts as that price has been going up. And as you would expect, reaping the benefit of the increased prices in those contracts.

I'll ask George to see if we can better describe for you a little bit more of the general terms that we are seeing.

Well, as Gerry has already point out, I mean, really if you look at how the long-term price has moved, let's say, over the course of the last year and with the explanation already that we've generally consistently been in the market, you can imagine a portfolio that would have prices at the various long-term price levels. Today that long-term price level indicator is $25, and that provides, I think, some good guidance as to what we would propose.

In terms of -- I mentioned some of the other contracting terms. Flexibilities are pretty well nonexistent, so these would be term contracts for specified volumes with very little flexibility.

What length would you have on those?

When we say fixed-price, what we are really referring to is a base price that escalates by factors such as GDP and IPD. Some of them could be as short as five and some of them are as long as 10 years.

Okay. They would escalate with GDP and what?

GDP, IPD factors.

Basically with inflation.

Thank you.

Douglas Hall (ph) from DJ Hall & Co.

Congratulations on a great year. Your expiration and development efforts appear to be well funded. Your share price has more than doubled over the past 52 weeks. Accordingly, do you plan to take advantage of your higher share price to engage in any mergers or acquisitions should an attractive acquisition candidate in your industry become available?

Well, Douglas, we run a very conservative company. You can see where the balance sheet is, the debt to total capital. The projects we have in front of us we intend to fund with internal cash and with lines of credit that are available to the extent that we need them. We had indicated in the past when opportunities have been out there that we want to have the financial flexibility to pursue them without having to go ask banks for permission, and so far we have been able to achieve that. Assuming something comes along that is of interest, then we will always take a look at the best way to finance that so that that conservative financial picture stays intact and then allows us to take the next step for growth.

Kim, do you have anything you want to add to that? We have indicated, I think when we did the south Texas project, that we would that we would consider issuing equity. We did not get that project and right now we have no need to contemplate that. But if there's an opportunity in the future we would consider it.

Gerry, all I would add to that is just to reinforce that we are not looking just at the next transaction but the one after that and the one after that. So when we look at financing these activities, you have to perceive that from where we're looking to take the Company and not wanting to constrain ourselves.

Thank you.

Greg Barnes from Canaccord.

George, you are gradually giving us a little more detail on your sensitivities, your uranium prices as we go through here. Looking at out to 2008. the pricing sensitives volume as your sales target is 43 percent; insensitive to 20.60 (ph) or above. Is it fair to say that by 2008 you're close to that 20.60 mark on the price insensitive part of your contracts?

No. I'm not sure that I fully understand they way you're presenting it, but I don't believe that to be the case. Kim?

Greg, on that, what we were trying to do with those tables is really somehow reflect that what the price that was really variable. There are a number of contracts that we will sign and that have been signed that are fixed-price in excess of 20.60. So it is not below that.

What's in, for example, in that 43 percent, what's in there are the market related contracts that have ceilings that would allow it to be higher and uncommitted. It excludes fixed or base price contract, even if they are above 20.60. For example, let's say that we signed a new long-term contract at 25; we would have that in the insensitive category.

That is much better than I thought you would trying to communicate.

Right, okay.

On the price sensitive side, the 57 percent in 2008, those are the contracts that are referenced to the spot price or the long-term price correct?

Yes, or are uncommitted. Volumes that are not yet committed.

Not yet committed. They are not locked in?

That is right.

How much by 2008 do have locked in versus not locked in?

We do not give out that information.

I thought I'd try.

Pretty good try, Greg.

So just to go back then, for the 2008, the 43 percent that is price insensitive, it could be higher than 20.60, it could be lower than 20.60.

Yes.

It just depends on what the contract is.

Yes. All we're saying is that -- the way we categorize it, if we have a contract at 25 and it's fixed, if the price goes from 20.60 to $23, it doesn't change that price and we put it in the insensitive category.

Okay. That's not as negative as I thought it was. The second question is for Terry Rogers. On McArthur River, you are looking at an optimal mining rate for the mine. So you say it may be -- the optimal mining rate may be less than full capacity. I'm just wondering what full capacity is and why it would be lower than that?

Greg, we are getting a license for -- applying for a license for 22 million pounds. We can -- the bottleneck if there is one is not at McArthur but at Key Lake, and we are bound -- the throughput at Key Lake is restricted by license to a certain grade. So we have to downblend, basically, from McArthur River and if we run that mill full out, then we would be somewhere between that 21, 22 million pounds. McArthur is restricted by license but it's not physically restricted. We could take it up if we had the mill capacity in place.

Are you looking at expanding the mill capacity then?

We are looking at all opportunities. We've done a lot of investigation into some different technologies, but it's pretty much in the infancy stage.

That is great. Thanks very much.

Steve Bonnyman from CIBC World Markets.

Good morning. Question on Bruce Power. Obviously this quarter we had a lot of costs that were incurred as a result of the maintenance shutdowns. Can you give us some guidance as to how much of the cost structure that we saw was in fact a onetime item related to that maintenance and what in fact we should look for as a steady cost base for these operations. We recognize that they are very, very fixed costs, and thus the profitability will change with your maintenance schedule. Can you offer us guidance on that sense?

Steve, I think you put your finger on it when you said that the costs are largely fixed. And so they are ongoing whether the unit is operating or not. The cost associated with a maintenance outage are largely the same as what you would have if it were operating event with what might be materials and supplies that might be added. But I think if you just made the assumption that they are fixed and over the course of the year and realize that we've now got a six-unit operating site, then you're on pretty safe ground from year-to-year as to what the costs are -- recognizing that Bruce Power has had an initiative on a number of fronts to try to over time lower cost in the various components of labor and materials and supplies. One trend that's going the other direction is obviously fuel cost. And those, because the market prices are going up, fuel costs to them are going up as well.

Gerry, I understand that. But Bruce has been running six units for most of the last half of this year. And yet in Q4 operating costs were up almost 16 percent over Q3. I have trouble understanding why there would be such a huge volatility quarter to quarter unless there was a big chunk of either contract or costs or something else in there. Kim thinks he has an answer, so I'll turn it over to him.

Steve, related directly to your question, the additional outage costs, we refer to this on page 25 of the report of the press release. Additional outage costs were in the range of about $25 million during the quarter four compared to quarter three -- of the $48 million increase that we refer to there. The incremental technical feasibility cost for the two A units, A1 and A2, that's another about $6 million quarter four to quarter three. And the outstanding liability question there is another 10 million. So of the 48, we have outage costs of about 25 and the other two items 16, taking it to about 41. The other 8 is a bunch of -- 7 is a bunch of miscellaneous items.

In reality, at worst I can take that 25 and treat it as onetime?

As a liability as a onetime; as the feasibility studies as a onetime.

That helps a lot. Thank you very much.

Lawrence Smith of TD Newcrest.

Good morning. Question on capitalized interest. It looked like -- well, you did capitalize around 24 million of interest this year, 2004. With the ramp up on expanding on Cigar Lake, what do you expect capitalized interest would be in '05? And could you just explain how do you calculate your capitalized interest -- how much of capital actually -- how much debt is capitalized against your capital spending?

Lawrence, I'm looking at Kim again for that.

The number for 2005 is about $20 million to be capitalized.

So down from '04?

It's on page 14 of the press release. As to how we do that, we are required to capitalize by both U.S. accounting rules and then it defaults into the Canadian accounting rules, in effect, everything that can be capitalized. So we will take what proportion of -- if we have sufficient debt on our balance sheet to allocate and affect to the development project, it is required to assume that they are 100 percent debt financed.

Thank you very much.

That's how the process works.

Okay, Lawrence?

That is great. Thanks.

(OPERATOR INSTRUCTIONS) We will now take questions from the media community. (OPERATOR INSTRUCTIONS) David Snow of Energy Equities.

I'm just going back to the duration of the contracts. I think you indicated 25 to 30 percent of your current contract portfolio rolls off each year. It that -- those are the term contracts or is that all contracts together?

David, we do not sell really in the spot market, so all of our sales are under long-term contract. So the entire portfolio you can assume the 25 to 30 percent applies to the portfolio.

For both the spot related or the price sensitive and the insensitive?

Yes, that is right.

If you are looking at this gap of uncovered demands starting 2008, are you trying to keep your fixed up price or price insensitive (indiscernible) at a minimum in that wedge period of uncovered demands going forward, or are you just going right through that and filling it out at the same 43 percent?

We are still maintaining that 60/40 ratio.

Okay. Don't you think it would be -- you're in the driver's seat -- you could keep your cars a little lower in that timeframe to take advantage of the uncovered market?

In terms of the contracting strategy, yes, we are mindful of that. But I think you have to recognize too that we also have some fairly major investments that are underway at Inkai and Cigar Lake. And we are constantly looking at that ratio and then making sure that we are preserving upside for ourselves and our shareholders, but also try to be prudent about it. So up until now, that ratio seems to have worked well and it's one that we are sticking with for the time being.

You mentioned that you're going to be taking some of the ore from McArthur to the mill in a -- I thought it said in a different form then -- or how will that be transported over?

I'm not sure what you are referring to. Terry, do have an idea?

David, are you talking about the reference to (indiscernible) going to Rabbit Lake?

Yes.

The process at Cigar Lake is that in the mine itself we produce just an ore slurry. That is it's -- the ore itself is in the slurry compound; we pump it out and we take it over to a mill at McClean Lake. And then the uranium is leached there. The product that we're shipping across from McClean Lake to the gem mill in McClean Lake to Rabbit Lake is the leached solution.

It comes out as a slurry and then how does it -- walk me through that once more.

It comes out of Cigar Lake in slurry form. And the rock is just in suspension in a slurry. Then it takes by truck to McClean Lake where the front end of the process, the leaching, takes place. And so we bleach the uranium out and part of it stays at McClean Lake for (indiscernible) use and part of it goes over to Rabbit Lake. But the leached solution -- that is the uranium in solution -- will be hauled by truck over to Rabbit Lake where it's recovered.

Thank you very much.

(OPERATOR INSTRUCTIONS) Steve Bonnyman of CIBC World Markets.

Question for George. If we look back over the last couple of years in terms of what you have seen from actual deliveries, contracting, spot market purchases and things like that, how would that compare to actual consumption? And can you paint a little bit of a picture for us as to what might be happening at the reactor level in terms of inventories?

In terms of inventories, I guess the way we see it today really at a point where you don't have utilities with excess inventories. They have (indiscernible) inventories; they classify them as strategic. I mentioned earlier in my remarks that we've seen some utilities building inventory over the course of the year, but it's been relatively limited.

Going back to the earlier part of your question in terms of procurement patterns, as we have been saying for sometime, the level of contracting has to pick up significantly as you go forward here. While utilities were well covered in the past, had inventories and long-term contracts in place, as you go forward, I mentioned earlier, they're significantly (indiscernible) for 2008. So the pace of contracting has to pick up significantly as compared with more recent years.

I guess what I'm trying to understand is if we go back a half a dozen years, strategic inventories at many sites would have been considered 3 to 5 years of actual consumption. Is that still the case and when you talk about uncovered demand in '08, does that assume that in fact inventory levels remain where they are at this point in time?

I'm sorry. If you look historically, you would say that in North America generally utilities would have carried inventories of 1 to 2 years. In Europe, you were probably closer to 3 and in Asia you were closer to 5. I'm going back quite a few years. In more recent years, the very recent past, it's fair to say that North American utilities generally were at just in time, European utilities were down to 1 to 2 years, and indeed your average supply agency which oversees them was providing them with guidance that that was too low. And Asian utilities as well had worked their inventories down significantly and were probably more on the order of 3 years.

So what you have now is some of those utilities with the lower inventory levels, particularly if you will let's say in North America, some of them are looking to build inventories and in Europe. I guess the short answer here is that utilities are nowhere near -- I'm sorry inventories are nowhere near their historic highs of ten years ago. And indeed, some utilities are looking to rebuild to hold more in the way of strategic inventories.

Thanks very much.

Brian MacArthur of UBS.

Just to follow up on Steve's question. Did I hear you say, George, that you've seen utilities in all regions start to create strategic inventories, i.e., in North America, Europe and Asia?

No, no, no. I don't want to imply that. And I want to be careful here. What I was trying to give a sense of is the fact that some utilities are looking to build strategic inventories. I know for a fact, for example, in North America we see utilities -- some do some quiet buying -- but others exercising upward flex under long-term contracts, which makes sense in light of the ceiling prices or the base prices they have today, and putting that material into inventory. And these are utilities two years ago that would carry no inventory. So there is some building going on there.

In Asia. if you look to Japan for example, as little as 18 months ago, I can think of a utility that made some material available through a trader to the spot market. That same utility today is looking to go out with an RFQ with the view that it shouldn't have done what it did and wants to replenish its strategic stocks.

I don't want to leave the impression that there is a ground swell movement here of utilities building up huge inventories. All I'm just trying to give you a sense of is the fact that for the first time in a lot of years we are seeing utilities, some utilities, move to build strategic stock.

Thanks. That is what I was trying to clarify.

Ian Howat at National Bank.

Last year, you gave the amount of uranium you had contracted going forward. Do have that number or will you make that available, how many pounds you actually have under contract going forward from 2005?

It's not in the press release, Alice?

No. It will be in the MD&A.

It will be available.

Just not yet?

Operator I think we are going to have to bring it to a close now.

This will conclude the questions from the telephone line. Now I would like to turn the meeting back over to Ms. Alice Wong for her closing remarks.

Just let me say to everybody that has been on the call, thank you very much and we certainly appreciate your interest in Cameco and your interest in these calls. We look forward to more in the coming year. And we wish everybody a good weekend.

Thank you, everyone, for joining us today. we appreciate your interest. Bye.

The Cameco Corporation fourth quarter results conference call has now ended. Please disconnect your lines at this time. We thank you for your participation and have a great day.