Cameco Corp (CCJ) 2005 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Cameco Corporation third-quarter results conference call. I would now like to turn the meeting over to Ms. Alice Wong, Vice President Investor Relations and Corporate Communications. Please go ahead Ms. Wong.

Thank you, operator, and good morning, everyone. Welcome to Cameco's third-quarter conference call to discuss the financial results and thank you for joining us today. 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 CFO; George Assie, Senior Vice President, Marketing and Business Development.

We're very conscious of everyone's time today, and I just want to note that we'll touch briefly on the highlights of the quarter and then get right to your questions. 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 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 the applicable securities laws and regulations. The Company cautions that such statements involve risk and uncertainty 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 15, 2005.

With that, I'll turn the call over to Gerry.

Thank you, Alice. Let me extend my welcome to everybody that is participating on the call today. Yesterday you would know that Cameco announced strong third-quarter results. I mentioned in the news release we're certainly pleased with the higher earnings from Bruce Power, higher realized uranium prices. We anticipate that both factors will be significant contributors to our bottom line in the years ahead.

I would like to spend a few moments talking about one of my favorite topics, and that would be Cameco's vision. If you've been on this call before then you would have heard many times that Cameco wants to be a dominant nuclear energy company, producing uranium fuel and generating clean electricity. We continue to pursue that vision in all of our business units.

Rather then run through the many initiatives that are underway at our various facilities, I thought I would review with you today the rationale for the decisions we have recently announced, and in doing so, explain some of the principles that guide our decisions as we move toward our vision.

The most significant of these decisions was deciding or declining to participate in the $4.25 billion program to increase output and extend the lives of the four Bruce A reactors at the Bruce power site in Ontario. Investing in nuclear generation certainly falls within our vision. And if a different deal would have been available, I may have well been talking about our new investment.

However, one of the principles we follow carefully is that we will only pursue disciplined growth guided by our investment criteria. And after looking at all of the risks and all of the rewards, including the fixed-price revenue stream that effectively would have capped earnings out of the investment, we made the decision to decline the only offer that was on the table. Simply put, it did not meet our investment requirements.

The response to that decision from the investment community was overwhelmingly positive. In part, I believe it is because investors know that they can trust us to make disciplined decisions. We have done this in the past and we certainly plan to do so in the future.

We also announced a plan to sell our interest in Energy Resources of Australia. As a leader in the uranium industry, Cameco strives to obtain interest in uranium operations where we can exercise some control, and preferably a majority position. When the opportunity arose to redeploy a passive investment more strategically into other operations, we jumped at the opportunity.

Finally, Cameco recently announced negotiations to acquire Zircatec, an Ontario-based nuclear fuel fabricator. We have not finalized the agreement, but we hope to make a decision within the next two months. The reasons for this initiative are clear. We want to grow in the nuclear energy business and fuel fabrication is the only step in the Candu fuel cycle in which we don't participate. If this deal closes, we will be part of the entire Candu fuel cycle from exploration to electricity generation.

Opportunities like Zircatec come quite infrequently in the nuclear business, and one of our guiding principles is that we will be ready to move quickly when opportunities arise. While Zircatec would not be a large investment for Cameco, we are ready to capitalize on attractive opportunities large or small. We have the people in place and a conservative capital structure that provides the financial flexibility to make this possible.

It will not be a surprise -- or it will not surprise you to hear me conclude by saying we are committed to our vision. And you know we are pursuing this vision with discipline and prudence, positioning ourselves to capitalize on the opportunities that meet our risk reward profile.

I will now ask Kim to make a few remarks about our financial results. Kim?

Thanks, Gerry, and good morning, everyone. I plan to touch on the key results for the quarter, mention a few other important milestones we reached, and conclude with a brief comment on the outlook for the rest of the year.

Financial results for the quarter largely unfolded as we expected, other than when it came to power prices in Ontario, where prices were much stronger than we had hoped for. Overall, the results reflected a very good quarter. In fact, our earnings of $0.45 per share was one of the best quarterly results during the past 10 years.

Another positive result was our year-to-date gross profits. All business segments have matched or are ahead of the gross profits generated during the first nine months of 2004. So, we're pleased with the results to this point in the year.

Looking at important events in the quarter, we completed a successful debenture offering in September, raising $300 million. Our timing was very opportune as rates were near the low point on the curve. The issue was very well received in the market and the funds were used primarily to repay commercial paper. And as Gerry has mentioned, we are in the process of divesting our 6.7% interest in Energy Resources of Australia, which we acquired as part of the acquisition of Uranerz in 1998. Those proceeds, plus the cash from the Bruce A restructuring transaction, will be used to increase corporate liquidity in addition to helping fund our near-term cash requirements, notably our uranium mine construction projects and the purchase of Zircatec, if that proceeds.

I know many of you are interested in our approach for employing cash going forward. As we have mentioned before, we will focus on three key targets to create and preserve value for our shareholders -- first, prudently and patiently growing Cameco into an integrated nuclear energy company; second, maintaining our world-class asset base; and third, distributing cash to shareholders through dividends and our share buybacks when we cannot effectively reinvest.

Taking a look at the fourth quarter, bottom-line results are expected to be similar to Q3 with two significant and compensating shifts within those results. First is the revenue and earnings impact of the large volume of uranium and conversion deliveries scheduled in the fourth quarter. And second, we expect our share of Bruce Power's earnings to decline from the third quarter, even though the Ontario spot price has averaged about $80 per megawatt hour during October.

Another major shift in the fourth quarter is that as of November 1, we expect to start proportionately consolidating Bruce Power's financial results. In the past, we have accounted for Bruce Power using the equity method. The move to this new method of accounting is driven by changes to how decisions will be made by the partners. All key decisions will now require the consent of Cameco, TransCanada and Borealis. As I have mentioned in a previous conference call, this is not that different from the past structure, but there are a few added elements that are enough to require the accounting change.

Looking ahead to 2006, we expect growing margins in our nuclear fuel businesses driven by a continuation of sound uranium and conversion fundamentals, plus the expiring of older contracts. And at this point, I think it's worth stating once again that uranium demand is largely insulated from economic cycles.

With that, I will turn things over to Terry.

Think you, Kim, and good morning, everybody. I would like to add a bit of color and context to the information about the operations that was presented in the quarterly news release. I will address uranium mining first, talk about development projects, then follow-up by fuel services.

Uranium mining in Saskatchewan is right on target for the year-end forecast. We will achieve our license limit of 18.7 million pounds at the McArthur River-Key Lake mill. We had hoped we would be able to increase that production this year with our application to increase to 22 million pounds, but approvals for the increase are still under review with the regulator. The federal regulator is considering the appropriate process to complete its review of potential impacts associated with the proposed expansion. Once that process is identified, we will then be in a better position to estimate the time required for the regulator to reach a decision.

The Rabbit Lake operation is slightly ahead of target for the year and we expect to achieve plan or slightly above by year's end. Exploration in and around Rabbit Lake and the Eagle Point mine continues to hold promise for us to be able to bridge the gap between the depletion of reserves at Eagle Point and the receipt of the uranium rich solution from the Cigar Lake project beginning in 2009.

In the U.S., our ISL mine at the Smith Ranch-Highland complex in Wyoming is falling a bit short of its annual target of 1.5 million pounds. We constructed new well fields as part of the expansion effort this year, and while they came in on time the flow rate and early head grades have been a bit disappointing. Remedial procedures are underway, but we expect to fall short about -- and end up with a total of about 1.3 million pounds from Smith Ranch this year.

In Nebraska, the Crow Butte mine will produce as expected, probably exceeding a little bit, just over 800,000 pounds.

On to the uranium mines in development. The Cigar Lake project, scheduled to begin producing in 2007, is on track for an on time start, although some construction efforts are slightly behind schedule for the moment. Shaft sinking is only slightly behind the schedule and will not be a hindrance to start-up. Underground development work that has to precede (ph) the infrastructure construction is the furthest behind schedule, but to mitigate that situation critical path development is being done on a priority basis, and we have devised a plan to continue development mining while the underground construction is underway.

We have been hampered somewhat by available skipping time for development -- for taking the development ways to the (indiscernible), but we expect that we can eliminate this shaft time competition that has been a bottleneck to date.

As to the project costs, I'm sure everyone knows of the critical shortage of tradespeople due to the high level of activity in the industrial construction sector. We are impacted, as are our contractors, competing for tradepersons against the oil sands and other mine development projects not only in Canada, but also in the Western U.S. As a result, some contracted costs have risen substantially. That same competition for skilled workers is causing some concern at our U.S. operations as well. Higher labor rates have resulted from increased activity in the coal, oil and gas activity in the Western U.S. And also, the cost of chemicals and petroleum-related products like well casing and pipe have increased substantially

Consumable products -- fuel, propane, cement, and other things -- have experienced substantial price increases in the last year, as has fabricated steel. We use cement -- a lot of cement in Saskatchewan, not only for construction at Cigar Lake, but we use huge amounts of it for back-filling raises and stopes at the other operating mine. In Saskatchewan, we have an excellent supplier; however, the cost is increasing due to energy costs in their business. Of course, all transportation-dependent businesses are, too, hurt by increasing fuel costs. The bottom line of this dissertation is that the Cigar Lake project estimated costs have increased to about $520 million on the 100% project basis, about 15% higher than planned going in.

The Inkai project in Kazakhstan is going very well. Approval of the final design and Environmental Impact Statement was received in August. We have commenced foundation excavations and some early infrastructure works for the main processing plant. The expansion of the test plant in Block 2 is also underway, taking that plant's capacity to 700,000 pounds per year. And we expect that Inkai will come on stream commercially in 2007 at nearly 2 million pounds, then ramp up to 4 million pounds 2008, and ultimately to 5.2 million. The capital cost estimate of 83 million made for an allowance of the rising steel prices when that estimate was put together. So, this has cushioned us against some of the recent price increases. At this time we are comfortable with the revised estimate, but price inflation on all fronts is a concern that we keep our eye on.

In the fuel services division, we have mixed results from operations. First, at the Blind River refinery, with production capacity to build inventory and ultimately to produce an additional 5000 tons of UO3 for the Springfields plant, we are ahead of target for the year and will finish far in excess of the original plan at a good average cost.

In the conversion business, while the UO2 production for Candu fuel is going well, the start-up of the UF6 plant after the summer shutdown did not go particularly well. The main problems had to do with hot, humid weather throughout the summer and with inadequate fluorine generation that supports the making of UF6. Restarting the plant was challenging, with material flow and instrumentation issues and personnel heat stress concerns resulting in lower productivity. Once some of those issues were resolved, there were technical issues surrounding fluorine cell performance that limited fluorine generation capability. The causes are being investigated and being improved, and fluorine generation capacity is slowly being restored to normal. We are planning a shutdown earlier next year to avoid the summer heat problems. (inaudible) the shortfall expected this year compared to the original plan will be about 1900 tons.

And with that, I will pass the discussion over to George.

Thank you, Terry, and good morning, everyone. As was expected, spot market activity in the third quarter slowed considerably from the previous two quarters, amounting to about 2.5 million pounds. This volume is reflective of both the traditionally slower market during the summer months and the limited quantities of uranium available for spot sale. However, given the large volumes in the first half of the year, spot market activity year-to-date totals about 23 million pounds, which is higher than the annual total for any of the last five years.

Discretionary purchases -- those purchases that are not necessarily for specific near-term needs -- continued at a higher rate than in 2004. This demand is largely due to utility inventory building and traders and investment groups taking positions to hold uranium.

The majority of transactions in the third quarter were the result of informal requests from buyers. Sellers continued to increase their asking prices for each successive offer and some resorted to simply bidding the market price at the time of the spot delivery rather than fixing a price at the time of offer, thereby retaining market upside.

So, in summary, despite the reduced level of activity in the spot market in the third quarter, the tightness in supply resulted in the spot price continuing its upward trend and the industry average price rose 9%, from $29 at the end of June to 31.63 at the end of the third quarter. At September 30 of last year, that industry average spot price was $20. So, year-over-year this increased almost 60%. Since the end of the third quarter, the spot price has increased further to $33.25.

Looking to the fourth quarter, the level of spot demand is expected to increase from last quarter and will depend upon a number of factors, including whether utilities perceive additional discretionary purchases to build inventory as a hedge against further price increases and future supply uncertainties, whether uranium producers continue to make some spot purchases as they did in the third quarter, and whether investment funds continue to purchase additional quantities.

Moving now to the long-term market, the average of the long-term price indicators ended the quarter at 32.50, up 8% from the $30 at the beginning of the quarter. The average long-term price has increased further to 33.75 since the end of the third quarter.

The term market in 2005 has been extremely active. We now expect long-term contracting volume to be well above 200 million pounds this year, significantly more than the 90 million pounds that was contracted in 2004. This high level of long-term contracting also maintains upward pressure on the spot market price.

In comparing volume contracted in today's long-term market with that of previous years, one must take into account that contracts have increased significantly in duration. In the past, term contracts were typically shorter in duration, more in the order of three to five years. In today's markets they are much longer duration, more in the order of 10 years or so, as utilities look to cover at least some portion of their requirements for the longer term with reliable suppliers. Suppliers, including Cameco, are willing to accommodate these buyers to the extent we can obtain market-related prices with solid floor price protection and market upside, or alternatively, attractive base prices which escalate over time. We expect the activity in the long-term market to continue at a strong pace in 2006.

Turning now to the UF6 conversion market, industry average spot prices for both North America and Europe ended the third quarter at 11.50 a kilogram, down marginally from the end of the second quarter. The slight decrease in the spot prices for conversion can be attributed to the form of uranium that buyers looked to purchase in the last quarter. There have been limited supplies of U3O8 available, but small pockets of excess UF6 supplies. If a buyer desires to purchase uranium in the form of U3O8 and a seller only has UF6 available for sale, the seller may discount the conversion price in order to complete the sale in the form of UF6. Alternatively, a seller may be able to sell the U3O8 and conversion components separately, again, discounting the conversion to move it at the same time. This activity has been fairly limited and we do not expect it to be a significant factor going forward.

In the long-term market, industry average prices increased over the quarter for both the North American and European markets to $12 and $13.13, respectively, and increases of 1 and 4% from the end of the second quarter.

In summary, the markets for both uranium and conversion services remain very strong and we see that continuing through the end of this year and well into 2006.

That concludes my remarks and I will pass things back to Gerry.

Okay, George, thank you very much. And with that, we will turn it over to the operator for questions. Operator?

(OPERATOR INSTRUCTIONS) Lawrence Smith, Blackmont Capital.

I guess the question is for George relating to your strategy in contracting now. When you are looking at contracts falling off and putting new contracts in place, what are you targeting in terms of base plus escalating reverses (ph) market-related contracts?

Lawrence, overall our targeted split between the two has not changed, although we continually look at it. But it is still today generally 60/40. So, 60% market related at the time of delivery, and the other fixed-price.

George, I know this is a sensitive topic -- could you give some indication of what type of terms you're looking at? And when I say terms, what type of floor prices you are looking at, what type of ceiling prices you are looking at?

What we, I think, have indicated in the release -- that generally we referenced floor prices in the mid-20s. So, they're all of that. And we look to avoid ceiling prices entirely.

Greg Barnes.

George, another question on the floor prices. You say in the press release that the percentage of price-insensitive contracts would not change significantly, down to a $20 U.S. price range. For 2006 then, does that mean or can we infer that you believe your floor price on your realized price in 2006 will be around $20?

No, I don't think we're saying that at all, Greg.

It just means, Greg, that it's not sensitive to changes. Remember, we have ceilings and floors in there. So, it just means the sensitivity doesn't change. If you go back and look at previous releases, you would know that the sensitivity kicks in at certain ceilings.

Yes. As an example, if you had a $25 base price, it's not sensitive down at 20. So, any of the contracts with floors above that level wouldn't be sensitive at 20.

For 2006 -- you had in 2003 and 2004 a number of contracts that ceilinged out at $14 or so. What percentage of your contracts in 2006 would have a floor in the $20 range?

I don't have that information in front of me. I would guess that it would not be that significant at this point. Because in 2006 we're still working off contracts from -- that were entered into some years ago, 2002 and 2003. So, I don't think there would be an exceptionally large percentage of our contracts, market-related contracts that would have even $20 floors in 2006.

Are you ceiling out on the number of contracts in 2006 then, on the opposite end?

We would still have, certainly, a number of ceilings, a significant percentage that would be ceiling -- capping out.

At what kind of level?

Again, I don't want to speculate or just guess at that price. I don't have it in front of me, Greg.

Can I just ask one further question? At the end of the report, you say you agree more or less with the World Nuclear Association's supply and demand forecast, but the only difference in their analysis versus yours is the consideration of prices required to bring on new capacity. What kind of prices do you think are required to bring on new capacity?

We really don't speculate on that, and it's dependent on so many factors, including exchange rates. You have to look at HEU 2 new production from Jabiluka, Olympus Dam, all the rest of it. So, Alice is here ready to kick me if I were to suggest forecasting a price grade, so I won't.

I knew she would be.

Terence Ortslan, TSO and Associates.

On ERA, what's the net gain after taxes and all?

The cost base for the shares or the book value of the shares, Terence, is in our report. But we really aren't going to speculate as to what the proceeds will be. So, that depends on how the marketing efforts go and so on. So, I really can't answer that question until the deal is done.

It will be secondary to the marketplace, correct?

Correct.

But there's no (indiscernible) is by the brokers?

We are working with our advisors on that, yes.

And you expect that to be happening this quarter, obviously, right?

Yes.

What is the final capital cost going to be all-in for Inkai to get to the full production?

What we said in the press release is 83 million, and we expect we'll be right in that ballpark.

With all the loans and everything else on the opposite side, that $83 million still holds?

Yes.

And in view -- how would you judge that -- it's an interesting (indiscernible) the marketplace of another competing company in Kazakhstan with respect to the in situ leaching. And they have got a, from what I have seen, quite a reasonable endeavor (ph) but high maybe market cap. How would you rank your asset value in relation to that?

Terry, are you talking about Inkai relative to other projects in Kazakhstan?

Right. And there's one public issue right now in Canada which has received quite an attention. And to me, if that's the guidance, then your asset value in Kazakhstan should be quote extensive. Would you agree with that, and would you use it as a yardstick as a matter of fact?

I haven't gone back and done that calculation, but I would say that Inkai is, in our view, quite an attractive property. It was one of the properties that as we surveyed the universe of properties to invest in Kazakhstan caught our eye. It was one that was undeveloped, which was one of our criteria. And so, it's very difficult for us to do a complete comparison, but we know that there's extensive drilling from the Soviet era that we continue to confirm as we do our test mining and the work on the development of the new commercial mine. We believe the Soviets did a very, very good job in delineating resources. And as I said, historically, this is a property that has got extensive resources, even though we can't show them today on our balance sheets as reserves. We carry about 114 million pounds as all. But those are just right around our test mine and our commercial development. So, we think Inkai is a very good property and we will be there for many, many years. And beyond that I can't make any comparison with others.

Gerry, the fact that the other one's also got some ISL -- was it an opportunity for you that you declined, or is it too much of (indiscernible) open exposure in Kazakhstan that others at the (indiscernible) would be competing with you?

We didn't really have an opportunity in the recent past to pick it up. But as I said, Inkai is a very large property. I think it will keep us occupied for many years, not just in the areas that we're presently developing, but we are doing and will be doing in future years additional drilling and test mining in other areas of that property. I think Inkai is big enough to keep us occupied for a while.

I agree. Just for us to gauge, though, beyond the 5.2 in the ramp-up process -- what do you think in a global sense that potentially Inkai may be?

There's no reason why in the next 10-year horizon you couldn't double the production above 5.2. But that is market-dependent, dependent upon getting permits and regulations. Remember, Terry, we have a 40% owner in -- or joint venture partner in Inkai. And ultimately it's going to have to be a mutual agreement on just where it goes.

A last question on Inkai. As the production gets ramped up, what are the costs going to look like in terms of the percentage decrease in the operating costs?

Really, Terry, we don't like to speculate on costs.

But I'm not talking dollars per pound. I'm saying from a base of 100, let's say, (indiscernible) then you're starting to go in the (indiscernible). How do you decline the cost?

Go ahead, Terry.

Terry, just because of the economies of scale. But the unit cost does go down as production ramps up.

Yes, but what is it? Like 100 base goes to, what, 50, 40, 60?

If you take a look at where we are today on the test mine and you ultimately project that to commercial production, it will go down by probably half.

I think I'm done. Thank you very much.

Bernard Coutier (ph), Summitt Ventures.

First, I would like to congratulate Gerry and your team for all the good work you're doing at creating shareholder value. My question is last September 16, you made positive comments about UEX, a junior exploration company, where you hold a significant stake. You talked about significant assay results at Shea Creek. Since then, more astonishing assay results were announced there at Shea Creek. So, what can you tell us about your involvement with UEX and the Shea Creek prospect to become a major mine at the Athabasca Basin?

Bernard, we continue to hold, I think it's around a 22% interest in UEX. And on certain properties our geologists provide consulting advice, not on Shea Creek because that is run by their joint venture partner AREVA or COGEMA. UEX in that project is earning by spending money a 49% interest. And you're right; the results have been quite interesting -- high-grade results over some pretty good intersections and thicknesses. But like any of these exploration plays, particularly in the Athabasca Basin, given the depth and the geologic environment, there's a lot more exploration drilling that needs to be done before anybody could conclude that it is a discovery that has got economic potential. It's quite encouraging from an exploration perspective. But in the Basin over the last 30 years there has been lots of drill holes that have looked encouraging that haven't panned to be full discoveries. So, we watch with great interest as they try to put lateral extent on this drilling that they have done and vertical extent on it. So, encouraging, but a long way from an economic (indiscernible).

Lawrence Smith, Blackmont Capital.

Just a follow-up question. And unlike Terry, I will limit myself to one question. Other income -- I guess this is a question for Kim. There's a write-down of portfolio investments of around 6.3 million. I was just curious what that is. Thank you.

We had a few small investments in General Hydrogen (indiscernible) and another small one that when we looked at them, they didn't really pass the test to keeping them on our books. So it was time to take them off.

Alex Latzer, Merrill Lynch.

A question on Bruce Power as we look ahead to the fourth quarter. I know that the comments were made that it's significantly lower earnings there, but the spot price, as you pointed out, still is holding up in the $80 range. I was just wondering to what extent can you further detail that for us with respect to the impact of the new accounting, the fact that two of the A units that are operating are no longer on a go-forward basis, I think, as of November 1. What is going on in the market and trying to get a sense of the ongoing earnings potential.

There are several aspects to that. Certainly you identified that A3 and 4 -- we no longer have an interest in those units and that will have an impact. But there's also at unit B5, it's on a scheduled outage right now and will not be back, I believe, until early December. So, that has a big impact on the quarter-to-quarter comparison.

With respect to the accounting, it's just pretty much the same thing; it's proportionally accounting it you'll be --

The distinction between the two really is we highlight it just so that people aren't surprised when the revenue and expense lines change, but the net earnings impact is no different whether it was proportionate accounting or equity accounting.

(OPERATOR INSTRUCTIONS). Steve Bonnyman, CIBC.

Within interest and other items, you have got foreign exchange loss and some losses on derivatives. Can I assume that all of those are non-cash and that the derivatives are strictly your FX?

That is correct.

And second question on sort of SG&A in exploration. Good operational results, but if we look back over the last couple of years, we're getting some really substantial creep in SG&A. Can you give us some guidance going forward as to what those numbers should look like and what sort of expenditure rate we should be looking at on an annual basis?

One of the items you have to pick up and be appreciative of is that in those SG&A items we have a stock compensation charge. And that is a very big impact. Through nine months of this year it's $11 million. And certainly that is one aspect of enjoying very high share prices as we are today. So, I wouldn't want that one overlooked.

As to other activities, certainly, what were built into those G&A costs, there's a fair bit of business development expenditures. And what we are thinking of doing is pulling that one out to identify for people going forward. It does certainly look like there's increases year-over-year, but we have the creation of Centerra. That is a separate G&A burden that was not there before. We have these stock compensation charges which are a significant item. And then, again, we have these business development activities, which have increased and are really buried in there and not identifiable at this point.

Last question, if I may. This is for George. And I apologize if it sounds like we're beating a dead horse a little bit. But as we go out to '07 and '08 and we talk about price-insensitive contracts, of the -- for 2007 or 2008, the 71 and 54%, how many of those are completely spot insensitive, i.e. you've always said that these market-related contracts are price sensitive at the spot of 33. What percentage of those have absolutely no relationship to the spot market?

I just don't have that number in front of may me, Steve. I'm sorry.

I'm thinking in order of magnitude. Is it a small portion or a large portion?

Are you talking about those years in particular as a percentage?

I'm thinking as we go forward, because certainly one of the key challenges that we are facing is trying to determine what sort of price realizations you deal in there. So, if you're writing long-term contracts at this point, which would make those completely price insensitive, then I think the market can look and say the long-term contract price is x now plus some escalator and use that as guidance. Would that be appropriate?

I think the target so far -- the target that we have had is still in that 40% fixed, which would be escalated by inflation. So, if you use that in your model, I think that's probably a safe bet. We are even on that side trying to preserve some upside, but that is a function of how much the market has changed. And remember, we're just into the second year of this changed market.

Gerry, on that question then -- you know, preserving some upside is an interesting statement given the bullish comments that we continuously hear about the uranium market. Why is it not possible within the market to preserve all of the upside? As a leading producer of an exceptionally scarce product, why do we continue to seek caps in this market at all?

I don't think you are seeing caps so much any longer on the market side of the portfolio. We are a pretty significant presence in the market. We think it is important that we are on that responding to some of the desires for fixed prices as time goes on. But as you point out and we are continually reviewing that, where does that proper weight between predictability and total exposure to a very thin spot market make sense?

We still point out that the spot market is not without risk, given the fact it's only 10 to 15% of the total volume moving. And it's basically our judgment as to where we ought to be in that balance, given the risk reward profile and, obviously, trying to capture as much value as we can and protect it, now not just three or four years, but for 10 years in duration in some of these contracts. It's not -- we know that the market is not unidirectional; it's not going to go up forever.

Understood, certainly. I think the agreement from most perspectives is that we have a serious structural problem here. And it would be very disappointing to get out four or five years and see contract prices again locked in at half of where the market is. Anyway, thank you very much.

Robert Senit (ph), RSS (ph) Securities.

Congratulations on a good quarter. Future acquisitions of small exploration or juniors out there -- there are a lot of exciting things happening with the very, very small uranium exploration companies as far as stock price goes. I wanted to find out what Cameco's vision is as far as acquisition, mergers and acquisitions in the uranium mining?

If you look, Robert, historically we have been active in acquiring uranium properties and companies engaged in uranium mining. We point to Uranerz back in 1998, Smith Ranch, a number of properties in Wyoming and Nebraska. So, over the past decade we have been quite active in doing that. We are at a point now where there is just a limited number of opportunities because of the lack of exploration drilling that's gone on for two decades. And the opportunities that we see out there right now are not all that interesting. We, obviously, continue to watch all the time. And as we talked about with UEX earlier, those that we think are quite interesting we try to engage with.

Over time, as you point out, there's now a lot of junior exploration companies that have appeared the last two years. And they are spending money for the first time. They can go out and raise capital and take the risk of exploration. We watch them all the time. And we have got quite a number of experts on our geological staff that have been with us for many, many years. And we're augmenting that group. And so, they watch world developments all the time. And my guess is that as the juniors succeed in the future and have a discovery that might be interesting, then you will find Cameco becoming more active. But I would say that's several years down the road. We have got to get into this next exploration cycle enough that the monies that are being spent produce results.

So you're saying that right now there are really no attractive possible acquisition targets at this time?

Right now we continue to watch.

I know that there's some recent exploration announcements coming out of Australia that are pretty exciting. And a few companies come to mind; Laramide being one. You know, if the political environment changes there, Laramide could become a very exciting company to look at. What is Cameco's thoughts on something like that?

As I indicated, we continue to watch and we are, obviously, quite aware of the political situation in Australia. We have got our own exploration efforts. I think we probably are the biggest explorer for uranium in Australia, spending about $6 million a year, and have met here in August with the Australian government and testified before Parliament. So, we continue to watch to see what is going on and watch the political environment. And when we think it is opportune, then you'll see Cameco looking for possible acquisitions.

Ian Howat, National Bank Financial.

I think you used to provide -- or it just is my failing memory -- as far as some guidance of how much poundage you actually had under contract and some sort of aspect of when it was rolling over.

We had the pounds disclosed at the quarter-end -- I'm sorry -- fourth quarter the year-end. We do that at a year-end report, Ian.

But you don't update it quarterly?

No.

Your memory is not failing.

What was it at year-end?

Now you're testing our memory.

I believe that in the past we said we had in excess of 100 million pounds under term contracts. I think that's generally what was included. Who was that Terry Rogers?

Thank you. We will now take questions from the media community. (OPERATOR INSTRUCTIONS).

Bernard Coutier, Summit Ventures.

Just a quick question for Terry Rogers. What are the challenges that you're facing with the processing of the Cigar Lake or when it comes to the mill head of the Rabbit Lake plant, like in terms of diluting the high concentration ore to the mill head concentration requirements?

Bernard, the ore from Cigar Lake actually goes to the mill at McLean Lake for leaching. The solution coming to Rabbit Lake is the leached product. And we start from that aspect at that mill. So, it's no challenge as far as the concentrations at Rabbit Lake.

Tom Doubt (ph), private investor.

As a former resident of Port Hope, I've followed with interest the story of the slightly enriched uranium project as it's unfolded. And then the startling announcement (technical difficulty) with that initiative. And I really just have a question in my mind as to -- you talk about the vision of the utilization (ph) in that. What implication if any did that have for the vision going forward of Cameco as to uranium and its vision as a company?

Tom, could you please repeat the last part of your question?

What I just don't really understand is it seemed to be a significant project. You made a determination that you could not provide the required product in time. But what does that mean for the Company going forward in terms of its vision, if anything?

Not a thing, Tom. We are, as I indicated in my preamble, absolutely dedicated to the vision that we have of being in the nuclear energy business and being vertically integrated, expanding our uranium production. You have seen in the last year we have increased our conversion capability with the Springfields opportunity by almost half. And that meant almost doubling the amount of UO3 we produce at the Blind River operation. So, I wouldn't look at the SEU decision in Port Hope as anything other than a recognition that given that the process that we had to go through and the interest of the community, it was simply a recognition we could not deliver fuel, SEU fuel in time to meet Bruce's needs. And in the meantime, we found some attractive commercial opportunities that could meet the time schedule, because they're already licensed and permitted in the U.S., at attractive economic terms. And in consultation with Bruce, we decided that that was the proper way to go and meet their needs.

So, I wouldn't read anything into it. In fact, we're sitting here right in Port Hope right now having had -- absolutely -- having had just a wonderful evening last night with community leaders, the town council, Cobourg, a lot of business leaders and some people that were opposed to SEU. So, we're with our Board of Directors here taking a tour of the facility and enjoying the community. I don't know why you moved away. Why did you move away? It's a very nice place.

Other than your company, there wasn't a lot to do.

We're happy to have you as a shareholder.

Just one follow-up then. To say then that there wasn't a big market, that there was (indiscernible) market for this product? Is that correct?

Only Bruce power.

Tim Rice, Rice Voelker.

My question is kind of a follow-up to the previous question about potential acquisitions. How would you characterize the relative attractiveness or unattractiveness of properties in the United States, relative to other geographic areas?

I guess if you take a look at our operations in Wyoming and Nebraska using the in situ leach technology, these are low-cost operations. And as long as you can use that technology in the right environment -- shallow enough and permeable -- than ISL operations, even though they're quite low-grade, can be competitive. When you look beyond that, well, you have got a couple of categories. You have got those that perhaps are a co-product with vanadium. And as long as vanadium prices stay high, then uranium will be quite cheap. There's a very limited number of those, and unfortunately there's only four uranium mills left standing out of the 26 that existed at one point in time.

Other properties that you look at it in the U.S. that are not co-products were all built in a market environment where uranium prices were 30 to $40 a pound. So, you need to keep in mind what the cycle was like, what the price was like when a lot of the -- when the U.S. was producing, as it was back in the late '70s, 43 million pounds a year. Today they produce about 2.5 or 3.

Thank you. This concludes the questions from the telephone lines. I would now like to turn the meeting back to Alice Wong for her closing remarks.

I will just interject and thank you all for joining us, and Alice says the same thing by the way. We appreciate your interest in Cameco, and have a good day.

The Cameco Corporation third-quarter results conference call has now ended. Please disconnect your lines at this time.