Cameco Corp (CCJ) 2007 Q2 法說會逐字稿

Good afternoon ladies and gentlemen.

Welcome to the Cameco Corporation second quarter results conference call.

I would now like to turn the meeting over to Mr.

Bob Lillie, Director, Investor Relations.

Please go ahead, Mr.

Lillie.

Thank you, and good afternoon, everyone.

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

Thanks for joining us.

With us today are four of Cameco's senior executives.

They are Gerry Grandey, President and CEO; Kim Goheen, Senior VP and CFO; George Assie, Senior VP, Marketing and Business Development; and Tim Gitzel, Senior VP and COO.

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

Each of the speakers will address highlights and issues of the quarter an their divisions and then we will open it up for questions.

Today's conference call is open to all members of the investment community and the media.

During the question and answer session, we would ask that you ask one question only followed by one follow-up question.

If you have additional questions please return to the queue until others have had the opportunity to participate.

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

The Company cautions that such statements involve risks and 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 30, 2007.

With that, I will turn it over to Gerry.

Thank you very much, Bob.

Let me add my welcome to everyone other call as well.

I know that the investment community and many others have been looking for some good news from Cameco.

I certainly share that sentiment.

This morning we delivered.

Our revenue and earnings for the second quarter set new company records and our cash flow remains strong.

For 2007 we expect consolidated revenue to grow by about 40% over 2006, primarily on the strength of our uranium business.

These results are a reflection of managements long-term focus on our business and a barometer for the kind of performance Cameco demands of itself now and moving forward.

While individual quarters don't necessary project yearly totals the strength of these results is a far better indication of the Company's potential than recent news.

We fully appreciate that some investors have the burden or perhaps the luxury of a shorter term orientation.

There are of course many uranium investments suited to that short term focus.

However, as our long-term investors are aware Cameco operates in an industry that requires a long-term perspective built from a position of strength.

Now, allow me if will you to give you a few examples.

Our unmet supply strength is built on a rock solid foundation of more than 500 million pounds of uranium reserves that have proved the highest grades in the business.

We have a portfolio of exploration properties, partners and exploration staff that is second to none.

We have been building this through entire uranium price cycle.

Our profitable uranium mines include some of the best production centers in the world.

Our flagship producer, McArthur River, continues to produce at unmatched levels.

Rabbit Lake continues to show more promise.

I would also note that our U.S.

properties are setting records and gearing up for additional production.

Development in Inkai is on a positive track and we continue to make progress in remediating Cigar Lake.

I don't know of anyone who is confidently predicting the uranium price a decade out.

But I do know that we have a powerful portfolio of uranium contracts that will consistently make strong contributions to our financial returns for a decade or longer even if the uranium price is volatile.

While the uranium spot market is showing weakness during a thinly traded summer the long-term market fundamentals remain solid driven by an industry with increasingly bright prospects.

Cameco has demonstrated financial discipline which has held us in good stead.

It allowed us to pick up quality assets at a time when uranium prices were low because our contracting strategy ensured we had the cash flow to do so.

And now when the market has reached heady heights we are not forced to purchase properties at prices that would ultimately risk shareholder value.

We are interested in value not in bulk.

Financial strength built on foresight and discipline are the trademarks we will continue to use while we shop for the right opportunities to grow further in an exciting era.

I knowledge that our last three announcements have impacted the perception of Cameco.

And were another contributing factor that added volatility to our share price last week.

The confluence of these unrelated announcements shared only the unfortunate coincidence of timing.

Last week's decline was aggravated by the downdraft of the general market, the strengthening Canadian dollar and the drop in the uranium spot price.

The combination of all of these events was not help helpful from an investor perspective.

However I note that Cameco's share price did not track all the rapid increases in the uranium spot price as investors correctly understood the composition of our contract portfolio and the anticipated realized prices.

I should note as well we are starting to see better pricing take hold as the impact of our legacy contracts diminish.

Ultimately Cameco share price will reflect our core strengths including our low cost focus, contract portfolio, and our performance in the long-term.

Our operational challenges are acknowledged and we are putting the people, infrastructure, and plans in place to deal with them appropriately and expeditiously.

We understand that our operational performance must improve from the top of the organization to the people on the front lines.

Make no mistake about it, however, there are countless examples of operational excellence that are demonstrated daily within Cameco.

At Cameco we new that events like Cigar Lake would have an impact on the confidence of our regulators, investors, and other stakeholders.

Our management has renewed its commitment to excellence and accountability throughout the organization and that begins with me.

As mentioned previously I have put in place a new management structure for all of our operations led by Tim Gitzel.

This structure separates producing operations and development projects and addresses lessons learned over the past year.

A key component is the direction I have given to him to ensure renewed accountability at all levels.

This structure effects our mining and fuel services divisions.

Over time this will provide additional oversight and direction to reinforce the need for excellence in all areas.

We are also in the process of reorganizing the management team at Cigar Lake that will guide that outstanding project to production.

Tim will have more to say about this in a few minutes.

I have personally directed our operations group to strive for a new level of excellence both operationally and environmentally.

That includes revitalization plans that have been announced for Key Lake, Rabbit Lake as well as our other operations.

I'm absolutely confident these steps will pay handsome returns over time.

In the short term we will earn back the confidence of our regulators and other stakeholders one step at a time, delivering on our promises and providing consistent and clear disclosure even when the news is not positive.

Shareholders who choose to continue with us on this exciting journey into the nuclear renaissance can expect to be rewarded over the longer term.

Along the way we will strengthen Cameco as an organization.

We are resolved to couple strong operating performance with attractive market fundamentals.

So I thank you for joining us and I will now turn the call over to Kim.

Kim?

Thanking Jerry, and good afternoon.

Today I'll review the highlights of our second quarter financial results and then comment on our current outlook for the rest of 2007.

As Jerry said, our consolidated second quarter revenue and earnings were both quarterly records for the Company resulting from significantly higher realized selling prices and deliveries of uranium.

We reported revenue of $725 million in the second quarter, which is about 75% higher than both a year ago and the first quarter of this year.

As noted in our report today, in the second quarter of 2006 Cameco recorded one time reductions of 73 million related to future income taxes.

We adjusted consolidated net earnings last year to exclude those items.

Our net earnings for the second quarter of 2007 were $205 million or $0.55 a share, 128 million higher than the adjusted net earnings from the second quarter of last year.

Earnings reflected a higher tax rate amounting to 15% in the latest quarter compared with 9% a year ago as a higher proportion of taxable income was earned in Canada.

For the six months net earnings were $263 million compared with adjusted net earnings of $190 million in 2006.

Uranium operations drove the earnings increase which results in fuel services and gold differences similar to a year ago and profits from the electricity business lower due to reduced generation.

Turning to our uranium business segment, revenue increased dramatically to $458 million in the second quarter, compared with the same period last year, due to a 61% increase in the realized selling price and a 100% increase in reported sales volumes.

The latest quarter also reflects recognition of 39 million of previously deferred revenue related to two stand by product loans that were terminated in April.

Earnings before taxes increased more than sevenfold to $214 million in the second quarter from $28 million a year ago.

Looking at fuel services, second quarter revenue was ahead 12% to $64 million.

The decline in reported sales volumes was offset by an increase in the realized price including an estimate of $3 million for the porthole remediation earnings were down slightly from a year ago.

In nuclear power generation pretax earnings from Bruce Power were 103 million in the second quarter, down from $118 million a year ago due to lower generation.

Corporately, cash flow remains very strong with cash from operations of $155 million in the second quarter compared to $40 million in the same quarter of 2006.

Based on the strong cash flow, the Board has approved an amendment to our stock option program that enabled eligible option holders to elect cash settlement rather than receive shares on exercise of the option.

To the extent employees elect cash settlement this reduces share dilution from the option program.

Items to note as a result of this amendment are, Cameco will make the payment directly to employees, payments by Cameco are tax deductible and, from a financial statement perspective, stock options now become classified as liabilities instead of equity.

As a result, in the third quarter we will record a charge to earnings of approximately $64 million after tax.

Each quarter thereafter we will adjust the liability and amount expensed based on the share price at the end of that quarter.

Turning to the third quarter, we expect consolidated revenue to be about 10% higher compared with the second quarter of 2006, resulting mainly from the anticipated higher sales prices for uranium and electricity.

By segment we expect reported sales volumes of uranium to decline to 8 million pounds in the third quarter from 11 million pounds in the second quarter of this year.

Reflecting variability of quarterly deliveries within a calendar year.

Uranium revenue is expected to be similar to the second quarter due to higher realized prices.

We expect revenue to be about 15% higher than the second quarter a both fuel services due to increased deliveries and at Bruce Power due to higher generation and higher spot prices for power.

For the full year we expect consolidated revenue to grow by 40% largely the result of higher revenue from the uranium business.

We expect uranium revenues to be about 75% higher in 2007 than in 2006; due to a 70% increase in our realized price and a 5% increase in reported sales volumes to 33 million pounds.

As previously disclosed we have nearly 4 million pounds of U308.

available to sell in the spot market.

3 million pounds have been committed for delivery in 2007 and we expect the remaining 1 million pounds will be sold either this year or next year.

Turning to fuel services, revenue for the full year is expected to be nearly 5% higher than in 2006 due to an anticipated increase in the average realized selling price.

Reported sales volumes are expected to be about 5% lower than in 2006.

For Bruce Power revenue is expected to be 7% higher do to higher projected realized prices.

Our current estimate is lower than our first quarter projection for 2007 as a result of reduced expectations for realized electricity prices which are sensitive to Ontario weather patterns.

In summary, in the second quarter we achieved records for revenue and earnings and continuing strong cash flow mainly reflecting higher realized uranium prices.

We expect better overall results in the second half of 2007 than we experienced year-to-date.

For the longer term we see strong fundamentals at all our markets supporting our short term projections and positive outlook.

I will now turn it over to Tim for a review of operations.

Thanks, Kim, and good afternoon everyone.

In the next few minutes I'll comment on the restructuring of our operations division including Cigar Lake, a few operations highlights from the second quarter and also the progress and potential at our Inkai project in Kazakhstan.

Since I joined Cameco earlier this year I've been reviewing the complete management structure of our operations division which covers all uranium mining and fuel services site, the Safety, Health, and Environment group and new programs focusing on technology and innovation plus environmental leadership.

As Gerry indicated, we clearly recognize that our overall operating performance must advance to a higher level of excellence.

With that in mind my goal in reviewing the organization has been to establish a strong team of senior leaders and technical experts to successfully manage our world class asset base including the stewardship of some of the world's richest ore bodies.

Today our new senior operations team is in place.

I have the utmost confidence in the teams experience and enthusiasm for leading our sites and programs forward, to consistently stronger performance results based on clear responsibilities, and accountabilities.

And the team is moving forward already.

We are acting to add more the technical resources to support our mining and fuel services division.

Since the beginning of 2007 we have added 29 technical specialists in various fields including geology, metallurgy, engineering, safety, geophysics, quality, and radiation protection.

At Cigar Lake two new senior positions have been added to provide oversight to the development of this key asset.

As Vice President of major projects, Bob Stein has now relocated to Saskatoon and on the job.

Bob is charged with improving our systems and processes to ensure existing standards are met and new standards are developed when needed.

Also a senior technical manager has been appointed to a new full-time position to ensure that corrective actions we promised to make subsequent to the Taproot investigations are followed up on expeditiously and I can report that he is now on the job as well.

At Cigar Lake we are also in the process of hiring a new general manager and a new superintendent of health and safety.

In terms of project work I am pleased to report that the first phase of the plug (inaudible) has now commenced and is going as planned.

This phase consists of pouring a grout mixture in the area immediately downstream of the muck pile that came from the fault.

The growth that has been poured will take a few days to set and then the plan is to start to pour concrete on top of the grout.

So overall we are making good progress but not as quickly as we had anticipated due to the extra precautions we are taking.

In addition we will be evaluating the merits of completing shaft two sooner than originally scheduled and expect to have a decision by the end of this year.

As we announced earlier this month, if it were decided that shaft two was a priority it is expected that this plus the delay in dewatering the mine would shift first production into 2011.

This is a challenging mining environment and our philosophy is to do it right even if it takes a little bit longer or costs a bit more.

We are focused on the long-term success of Cameco.

And we will keep you posted on our progress with remediation.

We expect to provide the next updates with a news release on September 19, 2007.

At Port Hope on July 13, workers noticed uranium in the soil in the area of a pit dug through the floor of the UF 6 plant.

For those not familiar with our Port Hope operations, the UF 6 plant is the larger of the two conversion plants located there and it produces UF 6 for utility customers operating light water reactors.

Further investigation showed the presence of other production related chemicals in addition to the uranium in the soil.

We are presently determining the scope and the source or sources of the leak.

A set of samples taken ten days ago from monitoring wells immediately around the plant parameter showed readings all within the normal range.

So given what we know today the uranium and process chemicals appear to be fairly localized in soil under part of the plant.

We continue to bore additional test holes down to the water table from both inside the plant and near the exterior of the north wall above the plant.

After drilling these new holes have to be flushed a number of times before reliable readings can be taken.

And this process will take a few extra days to achieve.

Hence we expect to have test results from these holes in the next several days.

We are keeping the regulators informed and they have visited the site as well.

We have hired outside geotechnical expertise to complement expertise within Cameco and ensure that the independent interpretations and recommendations regarding the leak and the remediation options are available to us and to the regulators.

The next steps are to collect test data from all the new bore holes to help in defining the area affected by the leak, to confirm the source or sources of the leak, and with geo-technical consultants and the regulators, review the options available to remediate the problem.

Once we get to this point we will have more clarity on the path ahead to get the plant back on line.

At that point we will provide the market with an update.

In the meantime we recorded a primarily preliminary estimate of $3 million for remediation.

Turning to other operations, McArthur River and Key Lake and the U.S.

ISR operations all had good production results in the second quarter and we expect this to continue through the year.

At Rabbit Lake, production was below target as we made changes to the mining plant to bring on a new mining zone.

Consequently the 2007 forecast for Rabbit Lake has declined to 5.1 million pounds from 5.5 and accordingly forecast production for all sites is now 20.6 million pounds.

At Inkai, in Kazakhstan construction and test mining continue to make good progress with commercial production expected early in 2008.

Production is planned to ramp up to 5.2 million pounds of which 3.1 million pounds is Cameco's share by 2010.

George and I were in Kazakhstan recently to continue discussions with the Kazakhs on a nonbinding agreement we announced in late May.

This anticipates the doubling of future production capacity to 10.4 million pounds on a time frame yet to be confirmed.

In addition Cameco has agreed to study the feasibility of constructing a uranium conversion facility in Kazakhstan.

I'd like to report that we had good discussions with our Kazak partners on these matters.

Finally a brief comment on our most advanced exploration project, the Millennium uranium project which is located about 35 kilometers or 20 miles from the Key Lake Mill.

Organization we are advancing Millennium from an exploration project to a development joint venture with our Japanese and French partners.

The feasibility work as discussed in the quarterly report is progressing as is the project environmental assessment.

This is an exciting example of an internal growth opportunity for Cameco and, if successful, we look forward to it contributing to our future production profile in Northern Saskatchewan.

In summary we have moved expeditiously to ensure we have a very capable team of senior leaders and technical experts to successfully manage our world class asset base and we continue to make progress throughout our operations, sharing lessons learned across our sites.

Recent events have only strengthened our resolve to ensure that Cameco sets the standard for performance in our industry and realized its full potential.

With that I will turn it over to George?

Thanks, Tim, and good morning everyone.

Spot market activity in the second quarter was fairly light amounting to about 4 million-pounds and now totals about 11 million pounds in the first half of this year.

That's equivalent to about 60% of the volume transacted in the first half of last year.

The industry average spot price at quarter end was $135.50, which was up more than 40% from the $95 at the end of the first quarter and almost triple from a year ago at which time it was just under $46.

This dramatic increase was driven by relatively small spot volumes often sold by option.

Since quarter end the spot price has decreased to about $120.

We are into the summer months which is typically a period of weaker demand.

Few utilities have uncovered needs for the remainder of this year and the amount of demand that may come from the other spot marker players being the traders producers and investor funds is uncertain at this time as the large increase in the spot price in the second quarter has caused some buyers to reevaluate purchasers and move to the side lines taking a wait and see approach.

For now near spot price demand has dried up significantly.

On the supply side there were three unsuccessful attempts to option material in recent weeks and the Department of Energy is proposing to option 200 tons of you UF 6 with bids due in mid-August.

While supply may not be all that large there is presently more supply than demand in the spot market.

Previously spot sellers would only sell at market related prices.

More recently some have reportedly been willing to submit unsolicited bids with fixed price offers and some of those have been making more competitive offers that's lower than published prices in an effort to place near term quantities.

All of these factors led to the correction of the spot price which was not unexpected given how dramatically it had moved up in the second quarter on very limited volumes.

Spot activity in the third quarter is expected to remain low as is traditional for the summer months.

For the remainder of the year spot volume will be dependent upon the actions of market participants, whether discretionary buyers remain in a wait and see mode and how aggressively sellers react to the downturn in the band.

It is now expected that 2007 spot volumes will be more in the 20 million pounds rang, considerably less than in the 33 million pounds transacted in the spot market last year.

Given this outlook we could very well see further decreases in the spot price in the near term.

However, we are talking about very limited volumes of supply and demand in the spot market and any sudden increase in demand or drop in supply could change things quite dramatically.

Longer term, nothing has changed in respect to the underlying fundamentals of the uranium market.

While utilities are well covered for the next several years under supply contracts and modest amounts of inventory, their uncovered requirements increase dramatically after that time.

Meanwhile, the production response has been relatively modest given the long lead times and challenges associated with bringing on new uranium production and producers are, for the most part, very heavily committed for the next several years.

It is also important to keep in mind that the market continues to be heavily reliant on several large sources of supply and if thing do not unfold as presently forecast then we could see some very large swings in price.

In summary we expect significant price volatility over the next several years as the market responds to near term requirements and supply adjustments.

The average long-term price indicator at the end of the second quarter was $95, up 12% from the end of the first quarter and more than double from a year ago.

Historically long-term prices have been at a $1 to $2 premium over the spot price.

This was due in large part to the buyers willingness to pay a slightly higher price in order to lock in a future price at a time when there was no concern about future supplies.

The future supplies were assumed to be a given.

In the second quarter the rapid increase in the spot price fueled by options resulted in the spot price exceeding the term price by about $40.

Cameco maintains a mixed portfolio of about 60% market related and 40% fixed pricing.

We continue to sign contracts with both market and base escalated pricing with our current weighting more market related.

Generally our new contracting includes base escalated prices near the then current long term price, at least for the first four or five years of the contract, floor price protection and market related contracts, no ceilings and an average term of about ten years.

On another point investors occasionally raise questions about our deliveries being greater than our production sources in both uranium and conversion.

Let me be clear that we are well-positioned to meet our delivery obligations for both uranium and conversion from our primary production and long-term purchases of secondary supply sources, primarily HUF feed.

We also have significant protection in our contracts which allow to us reduce deliveries in the event of an unplanned reduction in our sources of supply.

We have never been in a position where we are forced to purchase product in the spot market to meet delivery commitments.

Given the high prices in the spot market we have not been active buyers for quite sometime.

Moving to the long-term market that remains active with the current estimate for long-term contracting in 2007 remaining at about 200 million pounds.

Our quarterly release provides guidance on the average realized uranium price for 2007 as well as an update on the ten-year schedule of expected realized prices.

I would like to draw your attention to the assumptions for that table and in particular the change in assumed sales deliveries from 35 to 30 million pounds annually.

This has resulted in a reduction in prices in particular for 2008 when compared to previous tables.

The reason is that it eliminates all uncommitted sales which would be assumed at the spot prices shown in the table.

We have removed any trading opportunities for the next several years.

So in that regard it is relatively conservative I'll say.

Sales volumes in 2008 are likely to be above 30 million pounds.

The impact of legacy contracts of all long-term suppliers was highlighted by the recent publication of average prices by the U.S.

Energy Information Administration and the Errata Supply Agency.

The U.S.

EIA reported that in 2006 the weighted-average price per pound paid by U.S.

utilities was $18.61 based on a total of 67 million pounds delivered.

The EIA long-term contract weighted-average price was $16.38 based on deliveries of 59 million pounds.

In the case of European utilities the Errata Supply Agency reported a weighted-average price of about $19.13 per pound on total deliveries of 56 million pounds.

And the price under multi-annual contracts which take into account deliveries of 51 million pounds was $18.55.

These prices can be compared directly to Cameco's average realized price in 2006 of $20.62.

Turning very briefly to the USX conversion market, prices in both the long-term and spot markets in both North America and Europe held steady over the last quarter as well as for the past year.

So that concludes my remarks and with that I will turn it back to Jerry.

Okay, George, thank you very much.

Operator, we will now open it up for questions.

Thank you.

We will now take questions from investors, analysts, and media.

(OPERATOR INSTRUCTIONS) The first question is from David Snow of Energy Equities Incorporated.

Please go ahead.

Yes, good afternoon.

I'm wondering if you have reviewed or planned to review the design of the steel doors for their adequacy given that they were not totally effective here?

David, I will ask Tim to answer that.

David, indeed we are reviewing both the mechanics and the utility I would say of those doors and whether we would use them going forward.

So, yes, that is under review.

The utility meaning whether or not you would have to have some other approach besides steel doors?

Just whether given what we know today, whether those steel doors would serve the push that we initialed thought of closing off the north end of the line.

So we are reviewing that as well.

What alternatives might there be?

Well, we are looking at doing more freezing, that's going to be part of our plan going forward, more pumping capacity is part of our plan.

So we are looking at all the different options.

Thank you.

Our next question is from Raymond Goldie of Salman Partners, please go ahead.

When you say that in 2007 the expected tax rate is expected to be in the range of 10 to 15%, does calculating that in the tax rate include the $39 million reduction in deferred taxes that you reported in the third quarter?

No, it does not.

Thank you.

The next question is from Greg Barnes of TD Newcrest.

Please go ahead.

Thank you, George, in the 30 million pounds for your sales guidance going forward, what source of supply are you assuming in there to get to that number in terms of volumes?

It's based upon really our share of our primary production and for the most part HCU What's been eliminated here and that's why I called it a bit of a conservative assumption, Greg, is any assumed near term trading activity as we go along.

And that caused the adjustment in the assumed sales level to 30 million pounds.

So you've assumed the elimination of the trading activity.

There just seems to be more than I would have thought you were doing.

I thought you were doing trading of 2 to 3 million pounds a year.

And you're not far off.

When we look out and come up with this table we are trying to come up with an average -- we look over the long-term what's a reasonable level of volume to be reporting on.

Because we don't want to put out prices that vary by year depending upon volume by year.

It gets too misleading.

And so we rounded down significantly here and that's why I said in my remarks that sales volumes in 2008 will likely be, will very likely be above that 30 million-pound level and more in like with what you just suggested there, probably closer to 33 million pounds.

What impact would that have on your realized price then?

Back up to the $75 level?

Well, it would have a positive impact because all of that would be assumed at the then current spot price level.

Okay.

Thank you.

You're welcome.

Thank you.

Our next question is from Bernie Picchi from Wall Street Access.

Could you explain to us just some of the parameters involved in the decision on the second shaft at Cigar Lake, when you will make that decision and also some rough idea of what the cost might be and also the approval process for that from the Federal Government and the state government?

Bernie, I will ask Tim to respond to that.

Bernie, what we are looking at is having a second means of egress or access or means of getting out of, I guess, the mine in place before we go back into the development, the mining area, the higher risk areas.

And so we are talking to our regulators on that.

It's been discussed with our project officers.

The decision really is one that needs to be reviewed by the joint venture partners.

It's a big decision to take.

We've got some joint venture committee meetings coming up at the end of the summer.

It's a big decision we are looking at and, as I say, we will be taking it at the end of the summer.

I don't have a cost estimate for you now but our people are working on it.

Could you give us also as a follow-up a little bit more information on the Millennium project and you're talking about advancing that from project evaluation to development.

And what's the time frame for that?

Approximately what period of time would that decision be made on development?

And then once the decision is made to actually go into development, how long would that take?

That's a project just, as I said it's 20 miles north of our Key Lake project, it's a nice deposit, there's 40 to 50 million pounds in the ground.

We are partners there again of the Japanese and the French.

We've been working on that.

It's been an exploration project, an advanced exploration project up till now.

We've gotten to the point where we have well delineated the ore body.

We've been working on feasibility, prefeasibility and feasibility studies.

We are working on the environmental assessment that has to go in and be completed before it can go ahead.

So that's where we are at.

We are moving it from an exploration, advanced exploration project to a development project.

Now, that in Saskatchewan probably means another eight to ten years before we will be in actual production.

There's three, four years for environmental assessment work and then probably the same for development construction.

So we are looking at the 2016, 2017 time frame to bring that into production.

Our next question is from Andy Hoffman from the Globe and Mail.

Good afternoon, maybe you could just explain to me in more layman's terms the reduction in the average, expected average realized uranium price on this chart here?

Because it looks rather dramatic, Gerry, and obviously it has a lot to do with reducing sales deliveries from 35 to 30 million pounds.

But can you explain this a little more to me?

Andy, just pretty simply you've got so many parameters that are going on in that table and forecasting what the realized price is going to be in the future that what we try to do is simplify it a little bit for everybody and perhaps weve ended up confusing people more but we tried to freezes as we have in earlier tables the volume.

So that all of the other parameters then can work.

And as George indicated we did that with a fairly conservative estimate of future sales volumes taking out trading activity which we thought led to a little bit of confusion or misunderstanding in previous tables and so that's the reason we settled on 30, understanding that in the next several years it's going to be higher than that and in some years considerably higher than that.

And once you get out four or five years it becomes kind of less meaningful because, except from a standpoint of trying to forecast what the realized price was, our production assumptions are going to get updated every several years.

We know that Rabbit shows additional promise that we are trying to expand Key and McArthur, we are trying to double production down in the U.S., bring Inkai on.

All those factors are moving but for ease of reference so that you get some sense of where realized prices are going we try to make a simplified assumption and just say, for the ten-year period it's 30 million pounds.

If I can just quickly follow-up, this is a fairly significant decline, though, in your average realized price at least according to this chart and I'm just wondering is this not unfortunately a little bit more bad news for the Company?

Remember profitability is the most important thing.

So if you assume there is trading activity in that chart, then you've got a higher cost base by virtue of what you're paying when you are trading uranium, right?

So I think the underlying message is that the changes you see in that table will have very limited effect on Cameco's profitability over the period of time.

That to us is the most important thing.

Thank you.

Our next question is from John Redstone of Desjardins Securities.

Good afternoon, gentlemen, before we go any further I really do need to clarify something.

On page 12 of your report, you mention that you have mark-to-market gains on foreign exchange contracts of $84 million.

In simple language what is the impact on your first -- sorry, your second quarter because of that gain?

Kim?

Yes, very little impact in the quarter as most of that, as it says in the following line, that qualifies for hedge accounting, the $93 million of which will be then spread over the periods against which those contracts were designated.

So that mark-to-market is a balance sheet if I can use that word number only.

It is not the current period income.

Good.

The other question I wanted to ask was actually on your production.

Could you give us a little bit more detail on plans and the status that you're at in terms of increasing production above what you have been in your production forecast at McArthur River, at Key Lake, those two to start with.

I just kind of ran down it but we still have a pending request in for taking McArthur River, Key Lake up to 22 million pounds.

That would be over several years once the regulatory approvals are given.

We intend to double our production from 2.5 million up to about 5 million at least in the United States, Kazakhstan of course goes into commercial production the early part of next year.

We will head to 5.2 million pounds as we've said in the past by 2010 and we are making good progress on taking it to 10.4.

Rabbit Lake we are very conservative because of the way in which we report reserves but happily our geologists continue to find lots of additional uranium which hopefully over the years will bring it into the reserve base and that hopefully will allow Rabbit to continue a number of more years and then of course Cigar is in the remediation progress and as Tim indicated I think we are making great progress at Cigar.

I want to say one thing to, Bernie, you had raised the second shaft.

The second shaft of course is the one that we've been, has been partially sunk probably about halfway sunk when it too experienced the water inflow event of last April, April of 2006.

And so it's been part of the mine design, it's just a question of do we accelerate the completion of that shaft.

It isn't that we, all of a sudden it dawned on us we needed a second egress, that's always been part of the mine design.

So there isn't a whole lot of extra cost in a decision to complete it early.

It just will have an impact on the sequencing that goes on in the rest of the mine.

So I just want to clarify it isn't a brand new activity, it's something that had always been part of the mine design.

Thank you.

Our next question is from Borden Putnam of Eastbourne Capital.

Good afternoon, Tim, if I could ask you a question or two about McArthur, nobody has touched on that.

Looking at the quarter you speak about, there's been some progress in one area and it's slowed progress in another as far as the advancing development for the two future mining zones.

Which zone is giving you the trouble and why?

Well, it's just we are doing a freeze/hold into the new areas, the zone four and panel 5 zone 2 and so that's, I'm not sure if it's giving us trouble, we are just slower than we had planned.

It's moving along.

We are taking like we are in all of our projects extra precaution everywhere to make sure we are doing things right, Borden.

I appreciate that, Tim.

It's just that, in the press release you are quite specific you said you are meeting targeted rates in one area and experienced some delays in the other.

Is it panel 5 zone 2 that's giving you the trouble.

I think it's the zone four that's behind but I would have to check that to confirm.

I'd appreciate an update on that.

When these come into plan, Tim, what are the mining rates, is it equal for each one, about half of the production or is there still some coming out of zone 2 in 2009 when these zones are supposed to be prepared?

We will be winding down the production from the zone 2 areas we are in and then ramping up the other 4 and panel 5 at the same time.

I don't think they are 50/50 but they will be replacing the existing zone 2 work we are doing.

Thank you.

The next question is from Fadi Shadid from Friedman Billings.

Could you expand on the potential for incog to double volumes, what, when will we hear how feasible that is?

What's it going to take.

From a feasibility perspective, Fadi, it's evidently feasible because there's lots of uranium out there.

It's just a question of getting at well fields as well as the treatment capacity, the processes that are needed to develop well fields and then collect and precipitate out the uranium.

It takes awhile, the infrastructure takes awhile to put in place but we will begin to integrate all of that into the schedule as we bring the first 5.2 million into production.

We will get after increasing it 10.4 as quickly as we can.

Okay.

Thank you.

Thank you.

The next question is from [Murray Lyons] of the [Saskatoon Star Phoenix], please go ahead.

Yes, I was wondering your partner or joint venture partner in Cigar Lake in Japan, Tefco has had some problems recently with I guess their biggest nuclear plant on the earthquake zone and I am wondering if that shut down has affected near term requirements and does it have any effect on the deferred production from Cigar Lake in sort of easing the situation in terms of what you had to supply?

George.

No, I don't think it has any impact at all.

Tefco is the largest utility and nuclear utility in Japan.

They have significant demand overall and I understand the delay that they are looking at may take them to 2008 or maybe a little beyond but we don't expect that will have any impact on deliveries or to Tefco in any respect.

And Murray, their share of Cigar Lake is 5% of the expected production.

So it would not -- given the amount of uranium they use annually it wouldn't have any real significance for them.

Very good.

The next question is from Greg Barnes of TD Newcrest, please go ahead.

I just wanted to return to that chart again, George.

If there is 2 to 3 million pounds of trading volume that you would do in any one year I guess the margins on that would be relatively thin.

Am I right?

Yes.

So that shouldn't have that significant an impact on the bottom line.

Not on the bottom line but it could show a significant impact in that chart.

And so that's why it provides a more accurate look if you will, perhaps going to the 30 million pounds by removing all that trading.

Come back to my comment about profitability over the ten-year period of time.

Okay.

Just a second follow-up, if the utilities for the next several years are largely covered, George.

Yes.

How do you think the spot market is going to develop in terms of pricing movements?

I guess it's discretionary purpose or financial players are going to drive it completely now?

I think it's going to be, as I said in my remarks I was trying to -- the point I was trying to make is that I expect it will be relatively volatile over the next several year.

While utilities are well covered, producers are fully committed.

And some of the buyers this year have been producers.

But there's not large uncommitted volumes of material available to feed into the market.

And to the extent that you have any unexpected demand or utilities want to start to accumulate material or need to, for cores, and there's any glitch anywhere on the production side you would have all utilities to the upside.

But for the time being, you're right, that if investment funds are not particularly active then that's why I said we could see further weakness over the near term.

Thank you.

The next question is from Steve Bonnyman from [McClain Budden].

Thanks, I think it's partly been addressed here, but Gerry, just like to go back to your point what you're implying then is that the margins are actually going to expand.

The two tables that we look at on this price comparison from Q1 to Q2 really aren't comparable any more because we are talking about an exceptionally different business base.

Can you give us some sort of scale or descriptive valuations as to what sort of impact we could see on the actual margins per pound of sale if we think about the table that we saw in Q1 and the table that we saw in Q2 that has 20% lower prices?

Yes, Steve, Kim is dying to answer that.

Yes, Steve, we really aren't going to get into margins for you but just to reiterate the points from both Gerry and George, trading activity historically we have done because it has been we entered trading opportunities because we expect them to be profitable and historically that's proven to be the case.

By no means should anyone get the impression that there are large margins in trading activity.

Remember, this is buying in the spot market all the while and turn around and sell it.

That is the material that we've taken out of this forecast.

Historically, Kim, some of your trading revenues per se were under long-term contract where you had opportunistically captured material at lower prices and then resold it, perhaps many years later under your own long-term contracts.

What I'm sensing from this is that those really aren't as big a part of the business as they used to be and that perhaps the trading activity really is more reflective of short term trading.

Would that be fair?

No, it would not be fair.

It is George here.

No, the long-term purchase commitments are significant and certainly as you know the HU feed agreement runs through 2013.

So those are reflected in this table, et cetera.

The point Kim is making is that historically we've always been active as traders in the near term market as well and while profitable, not to the extent that given current spot prices and our production costs.

The margins are not that large.

So that's what's been removed here is all of the near term trading margins, not the long-term purchases.

Those are firmly in place.

Thank you.

The next question is from [Shirley Louie] from [Grammerway] Capital Management.

Please go ahead.

Thank you.

I would just like to clarify one item.

Does your current EPS include any of the 84 million FX gains?

Kim?

Yes, Shirley, there is 9 million -- well, there's a number of spots in here but if you go to page 12 you will see that we've broken the 84 million into pieces.

93 million which qualifies for hedge accounting and the other, and the 9 million that will be expensed as we go along.

So a piece of that has already been reflected through earnings since inception, not all in the second quarter but since the start of those contracts.

We amortize them as we move along here.

So some portion has been included but it's a small amount.

Okay.

In that case is it possible to give me a color -- is it $0.01, $0.02 on your current second quarter EPS?

I'm sorry, I don't have that but it's not a big number, no.

Great.

Thank you.

The next question is from [Robert Delaney] of Bloomberg.

Hi, I don't want to belabor the point about the chart but it's just to avoid any kind of misinterpretation I was wondering can you give us just maybe a range for your forecast for average realized price in 2008 compared to 2007?

Robert, I think -- what we try to do is provide general guidance.

At this moment in time here we are in late July of 2007.

In our business there are moving parts.

I think it would be, I think the best evidence we can give you right now is what's in that table.

As time moves on next quarter, then we will update it with a bit more current information on what's going to happen in 2008.

George has already indicated that volumes are going to be greater in 2008 than the 30 million pounds.

We would have to dig deeper into the portfolio to figure out exactly what it does to the average realized price right now.

But we will refine it, work on it and so next quarter we will update it based upon more current information.

So then is it safe to say then, just kind of putting some of the pieces together is it safe to say that the average realized price, you're forecasting that to be a bit lower next year taking into account that a lot of the, that you will see less in the way of spot trades, taking into account that you will see that many of the utilities are well supplied for the moment?

We stripped out the trading activity.

Short term trading activity.

Thank you.

The next question is from [David Wargo] from Cormack Securities.

Hi, just a quick question, well, two quick questions.

One is from 4 million pounds of spot material you have for sale in 2007.

You state that approximately 3 million pounds will be committed for sale at spot market prices.

Have those spot prices been determined and set or are they closing at a later date within 2007?

And I guess the remaining 1 million pounds will be placed in the market under long-term contracts so you aren't effectively saying the spot really has converged with the term price?

And then on another question, what is a good effective tax rate that one should use for 2008?

In terms of the sales that were committed for this year, basically the prices have been realized or are identified already for those sales.

And the remaining 1 million pounds that we said is likely now to go into long-term contracts, if it goes into a market related contract it will be the spot price at the time of delivery.

If it goes into a fixed price contract with deliveries in '08 then it would be nearer to the term price.

Okay.

Then with regards to the effective tax rate for 2008?

We really haven't disclosed that yet anywhere.

I would have you focus back on the past few years and at this point I would not expect a dramatic change from what we've done over the past few years but it really does depend on where the income is generated, which companies and so on, and we will be giving that number later this year.

Thank you.

(OPERATOR INSTRUCTIONS) The next question is from [Morris Waukeda], with Canaccord.

Good afternoon.

Still a little bit confused by your new table on your expected realized uranium price.

Because if I look back to what you said before, $140 at next year's pricing you were previously expecting a realization of $76 on the higher volume.

But if I take a weighted average of your new table now at $140 at 58.50 and add 3 million pounds of spot at 140, that would only get me a realized price of $66 or $10 below the previous guidance.

I was wondering if you could help me reconcile that?

But you've got -- you just added 3 million pounds.

The previous guidance was on 35 million pounds.

You would have to add 5 back if you are trying to reconcile.

Even if I add 5 back that would only add my realization to 70.

The difference could be in some part related to the fixed price portion of our portfolio.

New term contracts with near term deliveries.

2008 deliveries that might be -- would be more related to the current term price.

So you basically, you've entered in more contracts versus previously would have been spot?

It's a constantly evolving table, underlying assumptions and so since Cameco is always writing new contracts that are related and fixed it's very difficult to compare one table against an earlier version and come up with a simple explanation as to why they are different.

But in effect then you are lowering your expected realized praise because you've added in new contracts then?

It would depend on what the spot price is at the time of delivery.

Thank you.

The next question is from [Stu Kenwell] of RBC Asset Management.

Thanks, the question was asked and answered.

Thank you.

Thank you.

Our next question is from David Snow of Energy Equities Incorporated.

Please go ahead.

Two questions, one, I'm wondering if you have a current estimate of world production versus last year's world production?

And secondly in the mechanics of those doors, are you considering a guillotine type of steel door?

Okay, George, current estimate of production.

Yes, on world production, our current estimate for 2007 is 115 million pounds versus last year was 103 and the year before that was 108.

The doors.

The doors, not something we consider the guillotine type but interesting thought and I will put it to our engineers.

Thank you.

The next question is from Borden Putnam of Eastbourne Capital.

Tim, back to you again if I could, before I go to my current question I want to try to finish the first one.

I asked you why the zone 4 lower was taking a bit longer.

Is there a geologic difference between it and panel 5 zone 2 that is causing the problem or how can you help me understand.

I'm not so sure it's so much of a technical problem as it is getting the machines and the people to run the machines in there.

I know I just had some notes of a Bay 12 freeze drilling where we are doing the proceeding of 37 of 92 holes completed and we are just behind on that.

When we were asked the question at our weekly meetings it's a question of more manpower than any big technical problems.

Okay.

I appreciate that.

Let me go on to the next question.

That relates to the Key Mill thing we talked about last time with regards to your remediation and hopeful expansion there.

There's a -- you put out a document to the CNSC on December 15, that was titled the action plan for remediating the (inaudible) and in there there's three phases of work and each one requires about a year's work or effort on your part.

You're in Phase I right now and I'm curious -- first of all, the question is what -- when you finish Phase 1, it looks like there's a report that's required from CNSC staff to be delivered to the commission so that they can review the efficacy of Phase I.

What time constants and what work is involved for staff to prepare that report?

In other words, when you finish Phase I how long do you sit on your hands before you know what the outcome of that is and whether it's efficacious?

Phase I involves for the most part involves putting a thickener in the bulk neutralization circuit, a thickener that thickens and settles out some of the (inaudible) that we are having trouble with.

We hope to have that done early in the new year.

We have got local contractors working on that, I think I heard early in the new year and then we want to have some results from that prior to we go back for a relicensing mid year, mid to third quarter of 2008 for Key Lake.

So we want to have some results from that to see what the effect is, is it acting as predicted, settling out some of the heavy metals that we're wanting to settle out.

So that's Phase I and depending on the success of that I think we move successfully to Phase II and III which have more to do with water handling.

Right.

So it sounds like sort of end of first quarter or mid 2008 is when you might be handed the ball again to go ahead and start Phase II which looks like another years worth of work on your part according to the chart that you submitted on December 15.

Am I reading this right?

Yes, I don't have it in front of me and wasn't here at the time.

I have seen it and your timing is about right.

It's about mid '08.

Then there's another review panel commission meeting and so forth before Phase III.

So this, and then Phase III again is another years worth of work.

So this is sort of a four-year out deadline.

I'm not sure all of those Phases, we are hoping that we may not have to get to Phase III, at least, depending on the results of the first.

Borden, my apologies but we are getting way into too much technical detail.

Operator, how about one more question and then we will end the conference call?

Thank you.

The next question is from Bernie Picchi from Wall Street Access.

Please go ahead.

Gerry, a question for you, or Kim.

Can you explain your thinking, strategically in your decision not to support the UEX rights offering funding?

George, can you deal with that?

Well, we didn't see that it provided Cameco with any advantage and in fact as you may know given our equity holding in UEX we have certain rights and so that, that offering was counter to those rights over the longer term and that was primarily the reason we saw no benefit to supporting it, or no reason to support it.

It was as simple as that.

You are saying George effectively that you mean UEX program, the capital program that was obviously the object of the funding, the rights offering would have diminished value, your value in the Company or diminished value to UEX.

I'm sorry, I thought you were referring to something else.

I must admit that I'm confused now as to what you are referring to.

This was the rights offering that UEX was going to have you own 21% of UEX and you decided not to support it, therefore the rights offer did not go through.

Are we talking about the same thing or are we talking about something else?

We are talking something totally different.

I'm sorry, I think you got us confused now.

No.

We will have to get back to you offer line on that one I think.

Sorry.

We are all shaking our head on that one.

Thank you.

This will conclude the questions from the telephone lines.

I would like to turn the meeting back over to Mr.

Gerry Grandey for his closing remarks.

Okay, only to say thank you very much for joining us.

I apologize a little bit for the confusion about the table.

I think we will make a real attempt here to clarify the questions that have been asked so it's a little bit clearer but remember there are inherent assumptions in it and I think it's better to take it as the information that is useful for trending over the longer term and not depend upon the last sentence that happens to be quoted in the table.

So thank you again for joining us and have a good afternoon.

Thank you.

The Cameco Corporation second 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.