Cameco Corp (CCJ) 2006 Q4 法說會逐字稿

Please be advised that this conference call is being recorded.

Good morning, ladies and gentlemen.

Welcome to the Cameco Corporation fourth quarter results conference call.

I would now like to turn the meeting ever to Mr. Bob Lillie, Manager Investor Relations.

Please go ahead, Mr. Lillie.

Thank you, operator.

Good morning, everyone.

Welcome to Cameco's fourth quarter conference call to discuss the financial results.

Thanks for joining us.

We're pleased to have four of Cameco's senior executives with us today.

They are Gerry Grandey, President and Chief Executive Officer;

Kim Goheen, Senior Vice President, Finance and CFO;

George Assie, Senior Vice President, Marketing and Business Development; and joining us on the call for the first time is Tim Gitzel, Senior Vice President and Chief Operating Officer.

Also with us today is our colleague, Alice Wong, Vice President of Investor Corporate and Government Relations.

We're conscious of everyone's time today, so we will touch on the highlights of the quarter and the year, including a few comments on Cigar Lake 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 session, we will take questions from the investment community first, followed by questions from the media.

Please note that statements made during this call by the Company regarding its objectives, projections, estimates, expectations, or predictions may be forward-looking statements within the meaning of applicable securities laws and regulations.

The Company cautions that such statements involve risk and uncertainty and that actual results may differ from those expressed or implied.

Important risk factors are outlined on the Company's annual information form dated March 17, 2006.

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

Thank you very much and let me add my welcome to everyone on the conference call this morning.

I am particularly pleased to have Tim Gitzel joining us on the call today.

He's been on the job now for about one month, but even so, he's a familiar face to many of us at Cameco from his time at [Ariva].

Ariva, you may know, is a joint venture partner of ours in a number of northern Saskatchewan mining operations.

He's completed his move from France where he was recently Ariva's Executive Vice President, Mining Business Unit, and is now leading our Operations team.

I'll have Tim give us a little update here in a few moments.

Terry Rogers, who was our Chief Operating Officer for the last several years had planned to retire at the beginning of this year.

We're pleased that he's agreed to remain with Cameco for the next few months in order to provide executive oversight to the remediation work underway at Cigar Lake.

Last evening, we issued our financial results for the fourth quarter and the year end results for 2006.

It's particularly gratifying to announce another record-setting year for Cameco with new records for revenue, earnings, and cash flow.

This performance is an appropriate reflection of the confidence we share in our Company and the future of the nuclear industry.

Kim will discuss these results in more detail in a moment, including the specific results of the fourth quarter.

During the last few months, a significant amount of our attention has been focused on the Cigar Lake project.

I report that we're making steady progress in our remediation efforts and, barring unforeseen developments, we expect to complete the work required to seal off the inflow in the second quarter of 2007.

Cigar Lake is an extremely valuable deposit.

It will play a pivotal role in Cameco's future.

The importance of Cigar Lake draws a lot of investor interest and at times, speculation.

Hence, we will continue to provide updates on the remediation with the next scheduled update to be issued around March the first of this year and a subsequent update after the completion of the technical report in late March.

We will provide preliminary capital cost estimates and an estimated time for production startup as we have previously announced.

While we work on Cigar Lake, the uranium production for our existing operations ensures that we remain the largest producer in the world and we are planning for the future production increases as well.

We expect to start production at the Inkai project in Kazakhstan late this year.

We're working to increase our U.S.

ISL production.

Efforts continue to get approval to increase McArthur River and Key Lake production, and of course, we will bring Cigar Lake onstream.

While these initiatives are underway, our exploration program continues.

It continues from the leadership position we have carefully constructed over the past many years.

We are increasing uranium exploration expenditures from $32 million last year to $45 million this year.

We're focusing our exploration efforts in northern Saskatchewan, the Northwest Territories, and Nunavut as well as Australia.

We're also active in the United States, Mongolia, and Africa.

In the past quarters, I have drawn attention to the operating performance of Bruce Power and it continues to be notable.

The Bruce B reactors achieved a capacity factor of 91% during 2006, up from 79% during the previous year.

During the fourth quarter, two of the Bruce B reactors operated at 99% capacity and unit 6 at 100%, placing them all among the industry's top performing reactors.

Market fundamentals for uranium continue to strengthen in 2006.

The spot market price nearly doubled during the year, and it is expected that demand will remain strong in 2007.

Supply will remain tight, sustaining upward pressure on the price and further enhancing our financial performance.

George will comment on the market and our marketing activities a little later.

Cameco entered 2007 with strong cash flow and a solid balance sheet.

In the year ahead, we anticipate further strengthening of our Company with increased revenue in each of our business segments.

We continue to see growing support of our industry around the world.

The nuclear industry is indeed gathering momentum.

Progress continues toward construction of a new generation of U.S. reactors with planning underway for up to 35 new units.

Both China and Russia are accelerating their construction programs.

Importantly, the U.S. and other countries are now moving to include India in the world nuclear community, providing a new market for uranium suppliers.

These are exciting times for the nuclear industry.

I can tell you in the 30 years I've been in this industry, I've never been more optimistic about the future.

Cameco is well positioned to take advantage of emerging opportunities and we intend to do so.

On that, I'll ask Kim to comment on our financial results.

Kim?

Thanks, Gerry, and good morning to you all.

Today, I will review the quarter and the year, add some comments on the outlook for 2007, and then close with a note on our financial position.

Fourth quarter earnings were down from the same period in 2005 with three points to focus on.

Notably, uranium deliveries were lower in the quarter as we expected, and in Ontario, more moderate temperatures led to lower spot prices for power and weaker earnings at Bruce Power.

In addition, we took a $20 million pretax charge at Cigar Lake for ongoing remediation work and to write down equipment lost in the mine.

Looking back over 2006, as Gerry mentioned, we achieved a number of records including revenue, earnings, and cash flow.

Our earnings included an income tax recovery and a gain on the sale of a noncore asset.

However, these aside, adjusted earnings were still at record levels reflecting the favorable pricing dynamics present.

Recognizing our growing cash flows, we increased the dividend late in 2006 for the fourth time in five years.

We managed our financial position, focused on supporting our growth strategy across the nuclear fuel cycle, but with an eye on increasing dividends to shareholders.

Turning to 2007, better realized uranium prices this year will trigger the need to pay tiered royalties to the Province on the sale of Saskatchewan-produced pounds.

The bank of capital allowances currently near depletion will be replenished with Cigar Lake's capital allowances once production begins.

At that point, our sales will again be sheltered.

The timing of this process will become clearer once a technical report is completed in late March.

Rising cash flows in 2007 will help fund our capital expenditure program, which includes about $300 million in sustaining capital, including revitalization projects at the Key Lake and Rabbit Lake Mills and the Port Hope conversion plans.

At Cigar Lake, funding requirements to remediate the mine and resume development will be presented in the technical report.

Suffice to say, our financial position remains very solid with an excellent credit rating and a conservative net debt to capitalization ratio of 12% at the end of 2006.

Our long run target is to keep this ratio around 25%.

We're building Cameco for the long-term and plan to invest significantly more in the coming years in global exploration projects, new and existing production capabilities, and in other attractive growth opportunities.

We believe that by conservatively managing our financial structure, we will succeed in supporting Cameco's vision to become a dominant nuclear energy company.

With that, I will turn it over to Tim.

Thank you, Kim, and good morning, everyone.

Before we begin this morning, I would just like to say that I'm really delighted to be back in Saskatchewan and delighted to be part of the Cameco team.

This Company is a real recognized leader in uranium mining and processing and has the assets, experience, and vision to become even more successful in the future.

I'm gratified by the warm welcome I've received and I'm certainly looking forward to contributing to Cameco's success.

So turning to operations, I am pleased to report that we are making good progress on our preferred remediation plan for the Cigar Lake project.

As you know, we are currently working to seal the source of the water inflow from the surface.

Since overcoming some initial problems, drilling from surface is now proceeding smoothly.

In total, we have completed eight of 14 required holes for the remediation program.

We have completed the four holes required to pour concrete to reinforce the nearby tunnel below and east of the inflow area.

We've already poured 300 cubic meters in this area and are encouraged by the results.

The concrete is building up from the floor in layers as anticipated.

To complete the reinforcement of the ramp, we estimate we'll have to pour about 1,000 cubic meters of cement.

Over in the area of the rockfall and inflow, we've completed four of the 10 holes planned.

Two rigs are now working in this area.

One is drilling an observation hole that will allow us to lower a camera into the tunnel to monitor the activity.

We're now able to complete a hole in about 10 to 12 days and are hitting our drilling targets precisely.

To create the plug in the development tunnel on the 465 meter level will require about 650 cubic meters of cement.

Filling the void where the rockfall occurred will require about 900 cubic meters of a thin mixture of cement to squeeze in as much as possible.

We anticipate that sealing off the inflow area should be completed in the second quarter.

We hope to begin work on drilling the dewatering holes down to the lowest point of the mine workings this month.

These holes are larger diameter, so we will have to acquire some more experience in order to provide reliable time estimates, but we know it will take substantially longer.

The drilling equipment and crews have been sourced.

Once these dewatering holes are complete, we will lower submersible pumps, each with capacity to move 250 cubic meters of water per hour.

Required approvals for this stage of the work are not yet in place.

Finally, as Gerry mentioned, we will continue to provide regular updates on our progress.

Turning now to our other operations, we were very close to our production targets for 2006 and made significant progress on many fronts.

At McArthur River, the license annual production limit was reached 10 days before year-end.

The progress of freeze hole drilling for two new mining areas has improved since the third quarter, but technical challenges related to drilling through frozen ground continue to slow us down.

In October, we started on a path toward revitalization of the Key Lake Mill.

This project will apply new technology to the process to simplify operation and increase capacity.

In November, we concluded a new collective agreement with our unionized workers at McArthur River and Key Lake, assuring labor stability at our largest production center through the end of 2009.

Fourth quarter production at Rabbit Lake was less than expected, but our reserves replacement program continues to produce encouraging results.

New estimates have been calculated and we have sufficient ore to produce until 2011.

We are optimistic that we may be able to reclassify some of the resources to reserves and add production in the latter years.

Our ISL operations in the U.S. achieved record production in 2006, exceeding their targets.

Smith Ranch-Highland produced 2 million pounds of our ISL production in 2006, which is the highest production achieved in the history of ISL mining in the U.S.

Our Inkai project in Kazakhstan progressed steadily toward production during 2006.

Construction of commercial processing facilities is underway with commissioning expected this year and commercial production in 2008.

The Blind River Uranium Refinery also achieved record production in 2006 to meet the requirements of the Port Hope and Springfields conversion facilities.

We're also seeing positive results at Port Hope.

UF6 production was short of target for the year due to difficulties in fluorine generation, but the plant had a solid fourth quarter and achieved record production in January.

Our Zircatec fuel manufacturing operation, acquired in February 2006, fell just short of its 11 month production target.

Integration into the Cameco group of companies has been smooth and we expect to make up the shortfall early in 2007.

So with that, I'll turn it over to George.

Thanks, Tim, and good morning, everyone.

Spot market activity in the fourth quarter amounted to about 5 million pounds, bringing the latest estimate for 2006 to 33 million pounds.

By the time additional transactions are confirmed over the next several weeks, we expect that to rise by another 2 or 3 million pounds, which would put it at or very near the same level of 36 million pounds contracted in 2005.

Discretionary purchases -- and those are purchases not used to fill actual near-term feel needs -- accounted for 73% of total transactions on the spot market last year.

That's a record level and an increase from 2005, when discretionary purchases accounted for 66% of spot volumes.

Utilities and investment groups accounted for about 50% of spot volumes as utilities continued to build inventory and investment groups continued to take positions in the rising market.

Over 80% of spot transactions occurred offmarket as buyers stayed away from public requests for quotes in order to avoid increasing visible demand and driving prices up more quickly.

About half of the 2006 onmarket activity was sold by auction.

Those auctions were important in adding significantly to market transparency.

The industry average spot price at quarter end was $72 and that's 30% higher than it was at the end of the third quarter and about double from a year ago.

The spot price increased in every month of 2006 with the largest increase coming in December, when it increased by 13%.

The first several weeks of 2007 has seen the spot price remain flat at $72.

This plateau was a result of unwillingness on the part of spot sellers to offer fixed prices.

With the expectation that spot prices are still under considerable upward pressure, sellers have been reluctant to commit to a fixed-price, which would have them leaving money on the table.

Now, last week the spot price resumed its upward trend and now stands at $75.

Moving to the long-term market, the average long-term price indicator at the end of the fourth quarter was also $72, about double that of year-end 2005.

As in the case of the spot price, the long-term price has moved up since then this year and also stands at $75.

As was the case with spot offers, sellers were reluctant to offer base escalated pricing under term contracts, fearing that they would miss upward momentum in the market.

I doubt that there were many, if any, pure base escalated offers made during 2006.

For the most part, the reported long-term price was based on offers where the seller was willing to fix a small percentage of the price going forward, generally something less than 25%, with the remainder of the price being market-related.

The current estimate for term contracting in 2006 is about 210 million pounds.

That may yet increase by another (technical difficulty) [5 or 10] pounds as additional transactions are identified.

So while it was lower than the 250 million pounds contracted in 2005, it was still a very active year when compared to pre-2005 levels.

The high level of contracting volumes can partially be attributed to the longer contract terms in excess of 10 years, and that was also the case in 2005.

For 2007, we expect another very active year in the long-term market.

I would now like to comment on the Cigar Lake situation as it relates to our customers.

As noted in the Q4 MD&A, Cameco has unplanned supply interruption language in approximately three quarters of our current contracts.

Of course, the other contracts, the other legacy contracts, do have forced mature provisions in them.

The unplanned supply interruption language allows us to reduce, defer or cancel volumes pro rata in the event of a disruption in planned supply.

So since that event, our marketing team has met personally with each customer that is potentially affected by the disruption in planned supply to explain the potential impacts to their delivery volumes, both near-term and potentially longer-term.

To date, we have really focused only on deliveries originally scheduled for 2007.

And for the most part, we're looking to defer the affected quantities by a period of five to seven years, and in a few cases, longer than that.

We are extremely pleased with the response of our customers to this disruption in our planned supply and to our application of the unplanned supply interruption provisions under our contracts, and we thank our customers for their support and cooperation in this regard.

Turning now to the UF6 conversion market, at year-end, the North American spot conversion price increased to $11.75 and the European spot conversion price increased to $12.38.

Now, in the month of January this year, the North American spot conversion price weakened slightly to $11.63 and the European price decreased to $11.15.

The reason for this price weakness is that a holder of UF6 was looking to break the UF6 down into its component parts, in effect de-converting their UF6 so as to be better positioned to deal only with the U03 weight component.

UF6 conversion component was then placed into the market at a time of low demand.

At this time, we do not think that this spot price weakness in the conversion market is part of a longer-term trend.

In the long-term market at year-end, the industry average price for North American conversion held at $12.25 and for European conversion, increased to $13.75.

So far in 2007, that long-term price in North America has remained at $12.25 and the European conversion price has dipped only slightly to $13.50.

So that concludes my remarks and with that, back to you, Gerry.

Okay, George.

Thank you very much.

And operator, we will now turn it over to questions from the investment community.

(OPERATOR INSTRUCTIONS).

Terence Ortslan, TSO and Associates.

Very pleased to hear that McArthur is bumping against the permitted limit.

Where are we with respect to the issues of trying to expand McArthur permitting-wise and also engineering-wise and any progress has been done in the quarter and progress planned for the 2007 period?

Thanks.

If you recall, we were bumping up against an environmental issue with our regulator and we've proposed a solution to the selenium and molybdenum issues that we've discussed in prior conference calls.

That is now under consideration by the regulator.

We expect, I think, a decision here in the next little while.

We believe we've offered a solution that should resolve the problem and then we will be able to once again commence the licensing amendment process to increase production.

It isn't going to happen quickly.

It's not going to happen in 2007, but we're hoping it will be 2008.

Once we get approval, there will be then a wrap-up period.

We won't step into increased production immediately.

But these things typically took about more than a year -- sometimes two, three years with respect to the licensing issues.

You're absolutely correct.

Why would it be different this time, Gerry?

Because they've got a precedent of history?

Well, there's a lot of background work that's been done.

We're hoping that we can just take advantage of that.

So the earliest we can see McArthur being able to do more tonnage or more pounds will be 2009 or 2010 period?

Well, you ramp up, so we're going to try to do a little bit better than that, but we're not going to increase from 18.7 to 21 or 22 instantaneously.

Next question is in respect to your partner in Cigar Lake.

Could you just elaborate upon how cohesive or homogeneous the approach is to -- do they have different views about the whole engineering and structuring aspect of the Cigar Lake issues?

Or are you working in a joint program or by the independents are taking over?

Well, it is a joint venture.

And we have a steering committee, so every facet of what we do in terms of remediation plan is vetted with that steering committee and I would say that thus far there's been unanimity in the approach that we're taking.

A lot of ideas contributed, but we're all coming down in the preferred solution here quite well.

George, are they doing the same as you have with respect to the customers on Cigar?

I don't believe they have the same sort of language in their contracts that we have in ours.

Beyond that, I'm just not able to comment.

Greg Barnes, TD Newcrest.

George, I was just wondering, the wording about deferring deliveries of five to seven years with the supply interruption clauses that you have in the contracts.

Why so long?

We wanted to move it out far enough to allow us to -- well, given where the impact was and given that nobody knows with absolute certainty as to when Cigar Lake will start, et cetera, we wanted to put it out into a time frame when we were very comfortable that it would not impact our portfolio unnecessarily.

So we had the right to terminate those deliveries.

Instead, we chose to say, look, we will defer them out that five to seven year period and deliver it then.

We thought that was a reasonable compromise for us and frankly our customers have seen it that way, as well.

So the inference being that seems to be a realistic time frame for you to get Cigar Lake back up and running?

I wouldn't read that into it.

No, we wanted to simply push it out far enough so that we didn't feel it was going to be a factor.

The last thing in the world we wanted to do was take any chance that we were going to defer it and then have to go back and defer again, and that sort of thing.

So we wanted to push it out a long ways so that wouldn't be an issue.

Just a follow-on.

You've also said in the release that you may terminate a portion of the uranium loan arrangements in 2007, which seems to be a counterargument of five to seven year delay at Cigar.

So, are you more comfortable with your uranium supply position, then?

That's why I wouldn't read anything into the five to seven years in terms of our expectations for Cigar.

We're certainly looking at the loan agreements to see whether we need to keep them in place and that will be under consideration during the course of the year.

Just quickly, the last question.

On the tiered royalty in Saskatchewan that's kicking in, in 2007, is that based on your realized price or the market price or on sales volume?

How does it work?

It's driven by realized price.

By your realized price?

That's correct.

In Canadian dollars?

Yes.

Could you provide us with the new tiers where it kicks in?

Yes.

I can get you those later.

Roughly, if you'd like them now, the first level that the first tiered royalty kicks in is CAD$16 a pound and there's an incremental 6%, and then moves up to CAD$24 through the next year and CAD$32 for the tier after that.

Of the following tiers, the middle one, there's an incremental 4% and the last one is an incremental 5%.

And that incremental is on top of the base royalty of --

Of 4% net, yes.

So above CAD$32, you pay a 9% royalty?

No, the cumulative would be a 19% royalty on the above CAD$32 component.

19%?

Cumulative, yes.

So it goes -- 4% then the first six cumulative 10, cumulative 15 on the increments above each level.

So then above CAD$32 you're paying, what, CAD$30, you're paying a CAD$6 royalty to the Saskatchewan government?

Roughly.

Fadi Shadid, Friedman, Billings, Ramsey Group, Inc.

More on the product launch facilities.

Is there more visibility now from the time those first set up in terms of how things will play out in terms of production?

Especially in view of maybe more visibility from Rabbit Lake?

Necessarily as time goes on, I think we get increasing comfort.

Rabbit Lake is certainly a factor in that.

We have great confidence in the fact that Cigar Lake is going to come back.

We'll know better the timing in a month or two.

All of those factors as you might expect go into a judgment about whether we need those product loan arrangements and likewise, just dealing with our customers in terms of flexibility that we have and that they have is a consideration too.

Just generally on mining costs, you talk about a 20% year-over-year rise, do you think that will continue beyond this year or what's the major component there?

Is it the royalties or --?

That was not just mining costs.

That was cost of sales which would include purchases.

So that's all in accumulative cost of goods sold number, which would include purchase material, royalties as we move higher.

Actually of all the components driving that, mining costs themselves are the smallest piece.

I think we've done a pretty good job of controlling mining costs.

I just want to add quick point back to Greg's comment on tiered royalties for all on the call.

In 2007, those royalties are fully tax-deductible, which will be the first year for that.

Just to add that point for you.

Orest Wowkodaw, Canaccord Adams.

Two questions, if I may.

Do you have a sense of what sort of capital you'd be looking for to expand McArthur River?

And secondly, you gave us a nice chart in Q3 that outlined what your expected price realizations were on uranium, given certain spot pricing.

I'm wondering has that changed materially now that you've deferred the Cigar Lake contracts?

You want to take the last one first?

There would be some slight changes there, in particular in respect of '07 and that chart will likely appear, I think, next quarter.

Is that right, Alice?

Yes.

But I think for now, I think if you use what we reported last quarter, that would be the appropriate thing to do.

Okay, but we won't get an update until next quarter?

That's right.

Okay.

And we'll see if we can get a specific figure.

We may not be able to, but on McArthur River.

It isn't going to be all that much frankly.

There's going to be a lot of reinvestment done over time in Key Lake, but expanding McArthur River production over time isn't going to be all that much money.

It's just a little bit more tunneling and a little bit more [raise] boring, but the machines do their job pretty well and actually finished, as we said earlier, finished the year early, producing [18.7000] as it is.

Borden Putnam, Eastbourne Capital.

A couple of questions for Tim Gitzel, if I could.

Tim, you were moving a little fast in the first part of your presentation, I wasn't quite ready and you talked about 1,000 meters of cement going into the reinforcement area.

I'm looking at a diagram that Cameco used in their discussions with the CNSC during late October.

I'm trying to understand where the reinforcement area is relative to the inflow area.

There's a ramp that goes up from the 480 level to the 465 level that comes within about five or six meters from the area where the rockfall occurred.

So before we dewater and pressurize up that area, we want to make sure that tunnel is plugged solid, that it's not going to break through or something into the area -- the ramp area that where filling.

So we're going to fill that first and then we will move up into the default.

How far is that from the inflow area?

I think there's about 5.5 meters of solid rock between the two.

So it's actually a separate area from the main drift.

It's a ramp that we no longer use.

But it is connected right now and you're going to try to block it off?

Is that -- I'm confused.

It's 5 meters below and to the east of the area where the rockfall occurred.

So there's just 5 meters of basement rock between the two and it's really a precautionary measure on our part that we think that's close, so we want to really plug that ramp area off, make sure it's solid in there before we start grouting and pressurizing the pressure grouting in the area where the rockfall occurred.

So it's really a precautionary measure on our part.

But it is a separate area.

It's not physically presently connected --

It's not physically connected.

No, it's an unused ramp.

Yes, I'm looking at the cross-section.

I think I see where you're speaking of.

And you said it was 650 meters of cement needed for the inflow area and another 900 meters of you mentioned a slightly lower viscosity, more liquid, as a grout?

Yes, so we'll put the 650 cubic meters in to create the plug and we'll put that a little bit back, a few meters back from where the rockfall occurred, and try and create that plug and plug it off.

Then you've got a mound of the fallen material in there.

Then we want to put the 900 cubes in there and it's a different -- it's not a real cement like you pour your driveway cement.

It's a lighter material that goes up into the cracks, it's a grouting type material that we can pressure grout and it will seal the cracks and really solidify that area.

So that's the difference between the two.

Interesting.

I'm running my own estimate of a little over 2,000 cubic meters, so I'd be interested to see how much you require.

I've tried to rough it out from these survey diagrams you shared with us.

Moving to McArthur for a second, you speak about this slow drilling for the future mining zones.

Which zones are impacted by this?

Well, some of these Zone 2 areas that we're going to be moving into, we're drilling through some of the previously frozen ground, so that's taking us a little bit longer.

It's a little bit more complicated, so that's where we are now.

Is that what you call Zone 2 remnants or the Panel 5?

Well, we're moving toward the Panel 5.

I apologize, I'm not sure if I know the terminology on remnants.

It's from your -- it's from Cameco's project description proposing the -- it's the EASR for the expansion of McArthur River, Key Lake in late November 2004 and 2005 and it uses those terms.

I'm not real clear where they are either.

I've tried to get a map that shows where they are, but I mean Zone 2 remnants --

What's left over so far from the mining operation?

Yes, it looks to be important later, but back on the Zone 4 bit, you speak about the upper Zone 4 is starting in 2012 with the boxhole boring.

When does Zone 4 lower come into the mine plan?

I don't have that information in front of me right now.

I apologize.

I guess Terry's not in the room.

Not that you couldn't answer it if he was there or wasn't, I was just curious.

But the mining method for Zone 4 lower, is that also boxhole boring?

No, that won't be boxhole boring.

That will be, I believe the [raised] boring.

Okay, because that -- I don't know, Gerry, you and I talked about this.

It looks like that's supposed to come in at 2007 at a little bit of tonnage, maybe late in the year and then ramping up to sort of 6 million pounds in 2008.

Is that still the plan --

We'll have to get back to you on that.

I frankly don't have the -- I think that might be a little bit early, though, from my recollection.

I think the last thing I got is on the -- have you actually used the boxhole boring method?

It says that you progressed on the planning of this method at McArthur River and that a boxhole bore is to be delivered in early 2008.

How much actual mining with the boxhole method have you done at McArthur River?

We haven't applied the boxhole method yet at McArthur.

That will be in the works over the next few years.

On the 7 million pounds you buy a year through the ATU agreement, Gerry, you and I talked about this when you were out here and I apologize.

How much does that price escalate with reflecting or how much does it reflect the spot price at the time of the purchase?

As you move -- you've talked about, you've got 7 million pounds in tranches 2007 through 2011.

What are the costs of that look like?

The costs, of course, are somewhat confidential.

Yes, okay.

As you can well imagine, there's no linkage to the spot price.

Okay, and this is not material that involves your long-term contracts in any way?

No.

We deliver in to our long-term contracts like we do -- all of our other productions commingle, so it simply gets delivered to our customers under existing long-term contracts.

Right, I probably didn't phrase it right.

I'll try to rephrase it and get back.

Thanks.

[Ralph Saer, Saerco Investments].

I have two questions.

The first is once you plug the current inflow, what are the chances of a second area of flooding?

And why do you think there would not be a second inflow at a different site?

I think based upon what we saw before the inflow, there really isn't much of a risk of instability and other parts of the mine, but it is an underground mining operation and so you can't fully predict what's going to happen.

We won't know what has occurred until we get it plugged up and dewatered.

But right now we've got a lot of confidence in the remediation plan and program that we have in place.

The one other question is I am concerned as you said this five to seven years, I know you said that's pushing it way out, but I think a median investment community can latch on to that time period and I guess the question would be at what stage of the remediation would you be able to give some date for a startup at Cigar Lake?

We're saying and have said in the release that in late March there will be a technical report that is going to be issued.

And to the best we can, we will answer that question.

Ian Howat, National Bank Financial.

Couple of questions.

How come production is falling off at Smith Ranch in 2007 is the first question.

It's more a function of just moving to different well fields; production, it's kind of the development schedule and the movement to other well fields and probably a function, Tim, of grade, as well.

It's the grade stone of it.

[I can see you] just got approval for grouping Reynolds ranch with all that, is that correct?

Reynolds Ranch, yes, is fitting into the plans and I'm not sure of the approval you're referring to.

I guess I read it somewhere else.

With regards to Rabbit Lake in your production profile, is that sort of conservative depending on whether you convert those other pounds to reserves?

I hope so.

And then on the deferred pounds you're pushing out with Cigar Lake, those would have been older base price contracts.

Has there been any change in the pricing mechanism for those as they're being deferred and pushed out?

No.

No?

Did I miss that, Gerry?

Yes, you heard it correctly.

Okay, you said no.

Thank you.

[Jack Akin], Private Investor.

Yes, your gold company that you're involved with, I think you said for 2007 that that's going to -- you're going to be ramping up production in that and doing more sales?

Could you repeat the question, Jack?

Yes, the gold company that you're a partner of.

That we own 53% of?

The Centerra?

Yes.

Jack Akin.

Right.

I believe that you said that in 2007, your going to be increasing production about 20%?

Production will increase over 2006 -- in 2007 because in 2006 the production was affected by the [pitwall] slide in July.

So we didn't meet budgeted production in 2006, hence, when you look year-over-year at production, yes, will increase.

And do you have an overall price for your uranium for 2007?

Like do you have with all your uranium sales, is it a $20 price, a $30 price?

Your overall price or you don't have that?

We've said around $30 or -- but it will come out in the next release or the quarterly release that we do where we give you the same kind of a table that we gave you last year.

And going forward, is that price going to increase dramatically?

Like when does it catch up to what the market price is?

That will all be in the table, Jack.

And when is that out again?

I think, Alice, in how many --

We're looking at after in the second quarter because we want to see the impact of what happens with Cigar Lake supply interruption contracts, so we need to factor that in and we're not quite sure; we're still in discussion, so we're not quite sure with that so we want to make sure we have the most accurate prices at that time.

So in the meantime, Jack, you have what we released last year which will kind of give you an idea of year-over-year increases.

And it will get, as George indicated, it will get adjusted in the next release, which will be in the second quarter.

But obviously it will be adjusted upwards.

Well, the spot price has gone up, so --

Jeff Coviello, Duquesne Capital.

My question was answered already.

Thank you.

Lawrence Smith, BMO Capital Markets.

Another question on the deferrals of contracts.

I was reading the release.

I don't see anywhere where you mentioned the volume of sales that's been affected by the deferrals.

If you could also clarify -- you mentioned sort of two sets of deferrals.

One relates to the Cigar Lake base load contracts that you're deferring to the end of the contract life, and the second relates to sort of other.

Could you just explain what the distinction is?

And also, I hate to ask a supplementary question to Ian Howat's.

Did I understand correctly, when you defer to the end of the contract, if it was a fixed-price contract at $30 a pound, does that mean that $30 price is pushed out to the end of the contract?

Thank you.

I'll answer the last one first.

In terms of the price, the pricing mechanism that exists in the contract today remains in there until the deferred delivery is made.

So if it's market related, it will be market at the time of delivery.

If it's a fixed-price contract, then it would continue to escalate based upon the escalator used which as I've indicated in the past is most often the GDP IPD, so that price would escalate over time and be whatever it is in years five through seven.

And then, in terms of the volumes under the contracts, we have not released information in terms of the volumes.

And frankly, as I indicated in my notes -- or in my remarks, we continue to work with our customers on the situation.

We think we have a pretty good idea about how it's going to all come out, but those negotiations are not final yet, and so we haven't released any of that information on volumes.

Sorry, George, just again, the distinction between the deferral and the Cigar Lake base load contracts, is the distinction that those are going to the end of the contract, which presumably is a longer time period than the five to seven year deferral on the others?

Is that the distinction you're making there?

That is true.

Brian MacArthur, UBS.

Sorry to ask the same sort of question maybe [another way of] following up on Ian and Larry's question.

When you defer the Cigar material, you mentioned like 2007 is going to be an impact on that table, but if we also -- without telling us obviously the volumes, have you deferred like '08 and '09 material as well?

The reason for that is in '09 in the original chart, you had the big fall in realized prices due to the mix of contracts and the way they came in.

Is that all being restructured so that may not be the case going forward?

Can you comment on that?

The way it works is that we're focusing on impact in 2007 today.

That's where the discussions and negotiations are [for] discussions and work is ongoing with our customers.

In respect of what the impacts might be in '08 and beyond, we're looking at that to give some guidance with them as we discuss it.

But the fact is today we don't know exactly what it will be.

Rabbit could produce more, it depends on what happens with the other production centers.

So the entire focus of our discussions for the most part is on the 2007 impact.

And that's what will show up in that table ultimately when we get there at the end of the second quarter.

So is it fair to summarize that effectively what we've restructured then is just the whatever it was, 3 million pounds that were going to be delivered in 2007, those are the ones that are pushed out five to seven years, everything else is being negotiated right now.

That's right.

For today, we're only focusing on the 2007 pounds that are impacted; need to address 2008 and beyond as we get closer to that time period.

As you get more information after March, whatever, margin into March.

Xavier Majic, Passport Capital.

I wondered if you could comment a little bit on your relationship with the Kurdistan government with your gold company there.

We've, for years and years and years dealt with the Kurdistan government and, of course, it's changed periodically, and with some political instability, but with each government, with each change, we've managed to establish pretty solid relations and have very candid, businesslike discussions to the mutual advantage of both parties.

So we have a new Prime Minister.

The President, of course, has been there for a while.

The new Prime Minister we have yet to meet with since he's only been on the job for about a week, but we intend to do so here in the next little while and talk about the issues that frankly have been raised in past years and will probably be raised again and again and again as time goes on.

So, but, you know, we've worked very well with the Kurdistan government.

We still find it a very good place to do business.

Would it be out of the realm of possibility to look for uranium in Kurdistan?

They did historically produce uranium from my recollection and I was there years ago looking at some of the operations.

There was a very, very large uranium mill there at one point in time.

In fact, I think it still exists at Kara-Balta.

But the deposits were mostly small and the economics would be somewhat suspect I suppose even at today's prices.

Having said that, I know there are people that are looking at them, so who knows what might happen.

They may become a producer of the future.

You have no trouble doing business in the country?

No.

(OPERATOR INSTRUCTIONS).

Greg Barnes, TD Newcrest.

Kim, back to your points about the tiered royalties being tax deductible, the guidance of the tax rate in 2007 is 15% to 20%.

Is that inclusive of the tax deductibility of the royalties?

Yes, it is.

So at the end of the day, the tax deductibility of the royalties will offset the bulk of the negative impact on your realized price, I assume?

That's pretty big; too many pieces in there for me to just give you an absolute yes or no on.

Yes, okay.

I'm struggling with that too.

I guess we'll talk afterwards.

Thank you.

Orest Wowkodaw, Canaccord Adams.

In terms of how many years forward you have already secured purchase agreements for the additional uranium above your production to meet your existing delivery contracts?

The largest of those and the longest of those would be the HU agreement and that runs through 2013.

There are some other longer-term purchase arrangements that, off the top of my head, run for at least the next several years, but beyond that --

What would be the earliest that you'd have to answer the market to make up a shortfall?

We're under -- we're not in a position where we have to enter the market to make up a shortfall.

We manage our portfolio in such a way that we're never in a position where we have to do that.

Now we do choose, as we shared in the past, to always position ourselves so that we're able to enter the market when we choose to.

Robert Sinnott, Private Investor.

I guess this question is for Gerry.

Gerry, in your press release this morning, you mentioned that you're going to be exploring up in the Northwest Territories.

Is there any specific sites that you have in mind up there?

Are you -- got identified staked mining areas?

That's almost beyond my capability to answer, Robert.

I apologize, but I think, what, the Hornby Basin straddles -- the northwest Basin and Nunavut and the Thelon Basin.

If those make a -- if those geographic names mean anything to you, but I believe those are the ones that we talk about in the territories as well as in Nunavut.

Thank you.

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

Murray Lyons, Saskatoon Star.

Gentlemen, if I may, I have a couple of Saskatchewan-centric questions.

The first relates to a follow on Greg Barnes' questions about the tiered royalty and I'm wondering, Mr. Grandey, whether you've -- or what is the lobby position of the uranium industry with regard to tiered royalties in light of the obvious challenges in mining uranium in Northern Saskatchewan?

Are you pushing to get a more understandable flat rate?

The whole tiered royalty, royalty regime was revisited probably about four or five years ago.

The uranium industry had discussions with the government and there was a considerable change that was made at the time.

Acceptable to the uranium industry and to the government, we're now living with it and it's what we assume will be the regime going forward.

But is it unique to uranium versus other natural resources?

In this province, it's a unique royalty regime different than any others, yes.

And my other question, I know the Cigar Lake capital cost hasn't been tabulated or revealed yet and that will be done, I guess, in March, but I'm wondering earlier or last year, there was news reports that you were looking at the possibility of looking at whether your head office is adequate here in Saskatoon and I'm wondering whether Cigar Lake capital demands would impact on the planning within your Company for looking at perhaps a new head office or expansion of your existing?

Well, that's an interesting linkage.

One that frankly Murray, I hadn't made.

No, there's no question that as we grow, we have an issue about the head office and what we do here and that's been looked at and we'll continue to look at it as time goes on, but it's not linked at all with what's going on at Cigar Lake.

Chris Donville, Bloomburg News.

Could you give us a quick summary of where you were trying to increase production, ramp up?

I'm thinking of extending reserves at Rabbit, what you're doing at Inkai and the ISL operations in the U.S.

How significant in terms of magnitude would an increase be there sort of post-Cigar Lake?

Well, obviously, Inkai is now in the construction phase, and should go into production by the end of the year, commercial production early 2008 and we intend to take that from where it was this year to about 800,000 pounds up to 5.2.

By 2010, ISL in the U.S. ultimately from the 2.5 to -- it's around 2.8 I guess this year, we intend to take that up to about 5 million pounds by 2010, 2011, that period of time.

McArthur, Key, we've talked about going from 18.7 to 21, 22 over a period of time and you could kind of use the same 2010, 2011 period for that.

And we have the millennium deposit that we're doing a feasibility study on, that's in the Basin as well, and of course, Rabbit Lake, we continue to have success finding pockets of resources around the Eagle Point mine.

So, all in all, I think it's quite positive from the reserve replacement perspective.

And in the meantime, exploration, looking for the next big one.

There's been a lot of talk lately about how global uranium production declined last year despite all the activity that's going on in the industry.

What are your expectations for global production this year?

Would you expect that it would exceed 2006 or fall back again?

No, I think it will exceed 2006.

We have -- finally the increasing prices have resulted in junior exploration companies that had deposits found a number of years ago succeeding to get into production.

We saw some toward the end of 2006.

Others that will commence production in 2007.

Some of the problems that the major producers encountered a year ago which were grade and typhoons and mining conditions, you can always have those because everybody's operating pretty close to capacity, but I think as time goes on, there's a little bit more robustness built into the production schedules.

Our expectation is production will increase.

I'm not sure we know how much, but it will increase over 2006.

(OPERATOR INSTRUCTIONS). [Robert Hart, Newcomb].

I just wanted to get back to Rabbit for one second.

You mentioned that you've had some good luck in finding pockets around Eagle.

In view of a possible delay in Cigar, I'm wondering whether I can count on Rabbit producing in the area of 5 million or 6 million pounds for, say, until 2010, 2011?

Well, Robert, we can only talk about reserves that we publicly disclose, and hence the table we disclosed is what we are saying is the production schedule for Rabbit.

Somebody asked a question earlier whether that was conservative, we believe it is, but it would be speculation on our part, which we don't do, to give you any different guidance, so you'll have to fill in your own numbers.

Oh, I'll fill some in.

Thank you very much, Gerry.

Fraser Phillips, RBC Capital Markets.

Kim, could you just remind me again?

I apologize.

I didn't catch the numbers.

The breakpoints or the pricing points for the graduated royalties, could you tell me, did those escalate?

Yes, they do escalate, Fraser, as we move out each year, they are reset.

And that's -- you said 16, 24, 32?

Is that right?

In round numbers that's correct. 16, 24, 32.

This will conclude the questions from the telephone lines.

I would now like to turn the meeting back over to Mr. Jerry Grandey for his closing remarks.

Operator, thank you very much and we'll just simply say to everybody out there thank you for joining us today on the conference call and we wish you a good day and we'll go on about Cameco's business, so thank you very much.

Bye, bye.

Thank you.

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.