Cameco Corp (CCJ) 2008 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen.

Welcome to the Cameco Corporation third 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, operator, and good afternoon, everyone.

Welcome to our third quarter conference call to discuss the financial results.

Thanks for joining us.

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

They are Gerry Grandey, our President and CEO; Tim Gitzel, Senior Vice President and Chief Operating Officer; and Kim Goheen is Senior VP and CFO.

We are also joined by my colleague, Rachelle Girard, Manager Investor Relations.

Gerry will start things off with a few opening comments around Cameco's stable and predictable revenue streams and then pass it over to Kim for remarks on our financial approach to working through these unusual times.

Then we'll open it up for questions.

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

During the question-and-answer session, please ask one question, plus one follow-up, if needed.

Please note that statements made by the Company during this call including statements regarding its objectives, projections, estimates, expectations, or predictions contain forward-looking information and statements within the meaning of applicable Canadian and US Securities laws.

The company cautions that such information and statements involve risk and uncertainty and that actual results could differ materially from those contained in them.

In addition, certain material factors or assumptions were applied in drawing the conclusions or in making the forecasts or projections reflected in them.

Additional information about the material factors that could cause actual results to differ materially or the material factors or assumptions that were applied are contained in the company's annual information form dated march 28th, 2008, and the company's most recent management discussion and analysis dated November 10th, 2008, both of which are available on SEDAR and Edgar.

With that, I'll turn it over to Gerry.

Okay, Bob.

Thank you very much.

Let me add my welcome to all those that are on the call as well as to those listening online.

I'm going to be making a few comments about Cameco's strength in troubled times.

I will then ask Kim, our Chief Financial Officer, to update all of you on the financial condition of the company and the approach that we're taking over the near term.

I expect one of the first questions on an investors' minds is the financial state of the company, given the continuing global economic turbulence that we've been witnessing in the past couple of months.

Put simply, Cameco stands apart, I believe, from many other mining and energy companies.

We have a solid balance sheet, excellent credit rating, as well as strong cash flow.

Our utility customers generate low cost base load electricity from their nuclear plants.

They too have solid credit ratings.

Often they are government owned, having a regulated rate structure or just simply large financially stable organizations.

They will continue to consume the same amount of uranium, whether the economy is weak or strong.

As we have described previously, nuclear is used to generate base load electricity.

It is their lowest cost form of electricity generation and it is not sensitive to economic cycles.

In short, our revenue is stable and predictable.

It is underpinned by long-term contracts, which we have been negotiating all the way up the price curve as the price was strengthening, and while about 60% of our contracts reference market prices, in many of these we have down side protection with attractive floor prices.

The remaining contracts in the portfolio, about 40%, have fixed prices that are adjusted by the annual inflation index.

So along with our low cost sources of production, Cameco has consistent long-term revenue from a solid customer base.

While our market position remains solid, we are not immune to the uncertainty that is unfolding around the globe.

And it shouldn't surprise anybody that in such times, we've become more cautious.

We're taking prudent measures, particularly on the expenditure side, to make sure that our footing remains secure until markets return to a more normal state.

I'll have some comments a little bit later, but right now I'll turn it over to Kim to talk about what Cameco is doing.

Kim?

Thank you, Gerry.

And good afternoon, everyone.

We all find ourselves living through challenging times.

No one working today has previously experienced the magnitude of this level of global financial turmoil.

All of that leaves the future uncertain and makes me thankful I am CFO of a strong company like Cameco.

I expect you will have all had a chance to review the financial results we released yesterday.

So I will not repeat the numbers on this call.

I will, however, repeat our normal caution, that our quarter-to-quarter results do not follow a pattern, as they are significantly affected by the timing of uranium deliveries, which are scheduled at our customer's discretion.

Year-to-date earnings remain strong, and as Gerry mentioned, our revenue stream, virtually all from long-term contracts, is a source of strength for the company.

Our consolidated revenue outlook for the year remains on track to increase by 10% to 15% over 2007.

While annual revenue is strong, Cameco typically uses the short-term debt market to fund working capital fluctuations.

The timing of expenditures is fairly consistent, but the timing of revenue does vary considerably.

This working capital variability has been particularly evident so far this year.

In order to manage this, we have a C$500 million line of credit that matures in 2012.

It is backed by a consortium of banks that are solid financially and that had been key relationship banks to Cameco for many years.

We have sufficient access to capacity under this line to meet our ongoing requirements as we see them today.

In addition to this line of credit, in June 2008 we took out a C$470 million short-term facility to initially cover off the acquisition costs of Kintyre, Global Laser Enrichment, and GoviEx.

This 364 day facility matures in June 2009 and we are confident in our ability to refinance this amount.

It is not due for some time yet.

Our balance sheet remains healthy with a net debt to capitalization ratio of 25% at the end of the third quarter.

After including the three acquisitions I just mentioned, we are at our long-term target of 25% and we do not anticipate moving much beyond this ratio going forward.

Our financial structure can certainly withstand the current economic turmoil.

Nevertheless, we have approached the 2009 budgeting process with even more vigilance as we adjust to the world around us.

That means taking a more cautious approach to expenditures until we see more certainty in the markets.

Though I would reiterate that even when debt markets become liquid, we do not intend to significantly change our debt load.

As we prioritize expenditures, we will continue to grow and fund capital projects, but at a more measured pace.

Put another way, now is the time to put prudence first in setting our expenditure plan.

We are currently reviewing our spending priorities for 2009.

In 2008, our capital projects budget was more than C$500 million, a 75% increase over 2007.

We will continue with upgrades at our facilities in northern Saskatchewan next year, but at reduced levels.

We will also continue with our global exploration program, as we have done throughout our 20-year history, but also on a more selective basis.

This approach will ensure greater balance in uncertain times, preserving Cameco's strong financial base while we continue to move forward.

With that, I'll turn it back to Gerry.

Okay, thanks, Kim.

Now just for a few closing comments.

I'd like to emphasize that Cameco will continue to pursue its long-term goals.

The long-term fundamentals of uranium markets remain strong.

New production is needed to meet growing demand.

Certainly if the turmoil in today's markets persists, the lack of investment will delay new uranium production, and it will certainly strengthen prices in the longer term.

Current financial uncertainty may also present opportunities.

Opportunities for partnerships, acquisition of assets at discounted prices, will certainly materialize as time moves on.

We have been monitoring for many years the market and understand the value of potential acquisitions in our industry.

That's precisely why we refused to overpay for properties in 2006 and 2007, when uranium prices and market valuations soared.

Because of the way we've constructed our portfolio of contracts, and the cash flows we will be generating over the next decade, we expect to be able to take advantage of future opportunities that we see and that we find attractive -- future opportunities that the economic circumstances are going to present.

Finally, turning to the prospects for new reactor builds.

In the US, where there is also great financial uncertainty, we still expect that four to six of the reactors, and that's not much different than what we were assuming many months ago, four to six of the -- some 20 applications for construction licenses will actually proceed in the next two to three years.

And we certainly remain optimistic about the prospects for new reactor construction in countries such as China, India, and Russia, that have all reaffirmed their nuclear construction programs and indeed where China recently began debating increasing their nuclear power construction program by about 50%.

So with that, operator, I'll turn the call back over to you to entertain and engage in questions.

(OPERATOR INSTRUCTIONS) The first question is from David Wargo of GMP.

Please go ahead.

Thank you, operator.

Just a quick -- couple quick questions on the effective tax rate.

What effective tax rate should we use for the company as a whole over the next three years?

And then more specifically, on a divisional basis, what should we use for the uranium division?

David, we don't give you rates three years out.

We will provide a rate for '09 when we come up with our fourth quarter report.

I would suggest that it's not much different than what you've seen year-to-date and what we have projected for this year.

So 5% to 10%.

Could you maybe give some clarity on the uranium division itself?

Well, the uranium division itself is the biggest group, by far.

I really have not done that in the past and hesitate to give you individual divisions like that.

Certainly, you would be able to --

Backwards calculate.

Reverse power ones.

Yes.

The uranium division is a catch-all for the whole company as well.

Okay.

Thank you very much.

Thank you.

Our next question is from David Snow of Energy Equities.

Please go ahead.

I'm wondering if you could comment on the comment that I heard from another uranium company that the costs in Kazakhstan are getting up into the 30s per pound for ISR?

We can't really talk about the experience of others.

No, this was just an industry comment.

So I don't know from our own perspective.

We would have been doing test mining for a number of years.

We've launched off now with construction of the commercial facility, which has yet to go into commercial operations.

So we ourselves don't have direct experience, but I think we would expect it to be considerably below that number from our own perspective.

One of the input costs, obviously, that has swung wildly with other inputs is sulfuric acid.

For a good bit of the past year, everybody's been on rations and it's been expensive.

Recently we've seen the cost of acid in that part of the world and in other parts of the world come down, and I think that trend will probably continue.

But we would not put ourselves in that range for Inkai and that's really all I can comment on.

I don't know, Tim, whether you have any other things you want to add to that?

No, I think you hit it exactly on the head, Gerry.

And then I'm curious, seems to me that although in your projections out through 2012 that you have increases in 2009 through 11 for Rabbit Lake.

You're decreasing your US ISR and your Inkai out through the 2009 to 11 period.

Seems to be taking a longer time to get things back to normal.

Could you give us a little color on why those are not rebounding more rapidly versus prior forecasts in?

I think we find that in this industry, everything takes a little bit longer, and that's true whether you're building reactors or trying to increase production.

But I'll let Tim address the specifics.

I think 2008 has been a bit of a watershed year for us.

Our dealings with the WDEQ in Wyoming where we've had to put a lot more emphasis on restoration plans, ongoing restoration, and the regulatory system in Wyoming and Nebraska for that matter is just becoming more complex.

There's more participants.

The regulators are asking for a lot more information, a lot more studies to be done and the whole process is just taking longer.

When we look going out, we're being more prudent in our forecasting as to how long we think it will take us to bring our -- some of our Smith Ranch fields and some of our other fields around Smith Ranch into production.

How about Kazakhstan?

In what sense?

Well, it seemed to be that at the start of the year you were looking at this going up to [3.6] by I think it was 2011 and I believe I had that right -- or [3.0] by 2010.

It's [2.3] now.

Has it taken that long to get the sulfur shortages and delivery worked out?

The difficulty in Kazakhstan of course is we just don't know about the acid supply.

And I can tell you in October we had probably our best month for acid.

I think we had about 5,000-tons of acid which is about half or a little bit more of what our needs were, but in November we don't know.

So again, we're being prudent in our forecasting and we're being -- with our partners shortly and we're talking to both, whether we can rely on the Kazakhstan supply going forward or whether we have to built our own supply.

Just one last question --

Make it short, please.

Yes.

I heard that in the last week or so we had seen China go up to expectations of 70,000 megawatts of capacity installed by 2020 compared to 45,000 previously, and India was also looking for a big increase of 40,000 by 2020.

Do you concur with those numbers?

David, I -- it really isn't so much a question of concurrence I guess as healthy skepticism.

You see, both governments needing electricity supply greatly and that's just simply the reality of being in that part of the world where a lot of people still don't have electricity.

So they want to do it without producing additional greenhouse gas emissions or air pollution so they turn to nuclear.

I think the world looks at the increased numbers with a little bit of skepticism.

If you look back in the 1970s and 1980s, in France alone people were -- they were building five units a year.

In the US they were building five to eight units at a time.

So clearly, if the infrastructure, human capital and other resources needed to be to build those plants -- if they're there, then there's no reason why they could not achieve those numbers.

Thank you very much.

You bet.

Thank you.

The next question is from George Topping of Blackmont Capital.

Please go ahead.

Thank you.

Good morning, -- afternoon, everyone.

Could you give me an update on the inflows of water into McArthur River that was press released last week?

You want to go ahead?

Sure, George, last week on Tuesday, November 4th, we got notice from the site in the morning that they had some water coming in on the 590 level at McArthur River that's just south of zone 4.

It's an area where we're drifting around to provide mostly ventilation for when we get into zone 4.

So we obviously take that -- those things really serious and dealt with it.

We put our pumping into place and started pumping it.

We calculated the flow at about 100 to 150 cubic meters per hour, which is clearly manageable, and so we've been managing it since then.

Normally it wouldn't be a reportable event but in this case, as we said, we -- it's a sensitive issue and we wanted to quash any rumors out there.

So we are handling it.

We are going to plug off that area.

We're in the process of building a bulkhead in the middle for a concrete plug in there, like we've done in other places, Rabbit, for instance, just to plug that area off and I think we'll take a different route.

Okay.

So you're not concerned by that at the moment?

No we're not concerned by it but we're always concerned when we hear water at our mines.

So as I say, we treated it with all seriousness, but we've got it clearly in hand.

Okay.

And just secondly, on the capital expenditure, I couldn't see a breakout of the CapEx between uranium division and the gold -- sorry, the fuel services in Q3.

And also I was wanting to see if we could get an idea of the reduced levels of CapEx you envision for next year?

Tim, you want to handle that?

George, we really don't split it out by unit like that.

We will see that in Q4 when we come up with the full year's results.

We haven't been in a practice of doing that throughout the year.

I would tell you that the capital and fuel services has not been that significant, though.

As to what we meant by the general comment going forward, again, we will give you details in Q4, but at this point all I would really come back with is that for '09 expenditures will not be near what they were in 2008.

We are trying to finalize those pieces, so really not the point to come up with something yet until we have finished that process.

Okay.

Thank you.

I'll pass it on.

Thank you.

Our next question is from Greg Barnes of TD Newcrest.

Please go ahead.

Wondering if you could discuss this new area at Cigar, the 420 level that you talked about in the press release as being a potential source of water inflow there?

Greg, that's the area we're really focusing on now.

The 420 level is a level that we -- it's an old access drift, really.

It was an attempt to get above the ore body at some point, which would have given us a different option for mining method, perhaps raise boring like McArthur rather than just being able to access underneath and use jet boring like we're going to use at Cigar.

It's an old access drift that got into some bad ground and was indeed abandoned.

And so we've just been using it for some storage of ore and we've also got some pumping facilities and some electrical substation stuff on there.

So that appears to be, from some of the indications -- like I say, we don't have a smoking gun, but the indications are that the flow is coming from that level, that's from some drawdown testing work we've been doing.

So we're focusing on that.

We've got our ROVs, those remote operated vehicles, we've got several of them there now, and they're looking around so we expect within the next few weeks to have more information.

We get more information daily and be really trying to pin down where the flow's coming from, and then we'll put in place a plan to deal with it.

So can I infer from that, then, you're not seeing any water inflow coming from the main rockfall area?

From the original?

Yes.

No, we're not.

You're not seeing flow from there.

That's relatively good news.

I think it is good news, but I will caution that we're still looking in other parts of the mine, just to rule them out.

All indications are 420 looks like it's a problem, but we don't want to just assume that and move forward and be surprised again.

Just one quick further question for Kim.

If you can't roll over or term out the C$470 million facility, the 364 day one, what options do you have?

Greg, I guess -- a little early for going down that road.

They are key banks to us.

They've been relationship lenders for a very long time.

I really don't have any concerns about rolling that.

If the world were to go in some very strange direction, then we will find another avenue which has been our history.

There will be other alternatives out there, real speculation at this point, so I -- I'll answer your question but I don't put much worry behind it.

Okay.

Fair enough.

Thank you.

The next question is from Borden Putnam from Eastbourne Capital.

Tim, back to you if I could.

At McArthur the production, or at least the salable uranium was below the trailing 12 month average for the period.

I realize some of that or all of that relates to the mill, so my question is what was your mining rate during the period?

Was it about your normal mining rate, and if so, you've been stockpiling the ore and what percentages, what were the percentage breakdown of sources of ore by zone, if you could?

I'm not sure that I have all of that information here with me today where I am, but I can tell you that mining at McArthur has been keeping pace and runs to the pace that QA can handle it.

Nothing out of the ordinary from McArthur.

The mining's going on at the same time as the development and I'll have to -- if you want those numbers I can get you those specific numbers, but I don't have them in front of me.

Thanks.

To follow up on Greg's question on cigar and the 420-meter level, I was curious what proportion of that -- let me read my wording here so I don't misquote myself.

How much support in this area came from maintaining freeze walls?

What, support on 420?

Yes.

I'm not sure I understand your question.

No freezing -- ?

It would have been none, I think was the answer, Borden.

I'm just curious as to why there would have been a failure there.

I'm looking for sort of the reason why it would have started leaking now.

The theory is that they recognize there was some clay seams running through a couple areas on 420.

I think with the inflow, the other inflow, some of those clay seams may have come loose and watched.

That's just some theories and some thinking, but that's part of it.

Are you really able to distinguish between where the inflows -- I mean, are you certain that the plug is holding or can you not really tell until you get this sorted out and try to pump out again?

As Gerry said, we're looking everywhere.

We're going back and reconfirming what we have done with the plug and in some of those other -- the other areas of concern down a little lower in the clarifier room and then (inaudible) storage.

The indications we have is that the 420 level is the culprit.

Okay.

Thanks.

Borden, it might help.

We have been inducing flow by reducing the head.

Right.

And as we do that, what we can clearly see flow on 420, but we can't see any flow in the -- where the plug is.

Okay.

Thanks, Gerry.

Thank you.

The next question is from of Manisha Thakor of FBR Capital Markets.

Please go ahead.

Hi.

First question is on the CapEx estimates.

I know you guys will be announcing your '09 guidance when you announce your Q4 results, but just in broader terms, you have mentioned that growth may be lower and stuff like that.

So just wanted to see your thoughts on would there be any material impact with your growth plans at Cigar Lake and other expansion projects?

At this point, as I mentioned, we really are working those details through.

Priorities, as you would expect, are the next couple years' production, which we do not in any way expect any impact on.

Beyond that, we want to make sure of exactly where and what it might be.

It is premature to give you anything at this stage.

It's not far until the fourth quarter report comes out, and gives us time to come back and present a more complete answer for you.

If I'm allowed, can I have a quick follow-up on this?

Yes.

Just your -- I'm seeing your production amounts for the fourth quarter and that is from all your existing mines.

Is there anything specific, why we are seeing this bounce in fourth quarter?

Yes, I can -- I'll start and then Tim can complete it for me if I miss something.

What was happening is that at Rabbit Lake, there was very little production in the third quarter.

The mill at Rabbit Lake has really been operating for this year -- it will be operating effectively in the second and the fourth quarters.

So what you're seeing is a big stockpiling of ore at Rabbit Lake that will be put through the mill in Q4, and that's a large part of it right there.

Sounds good.

That helps.

Thank you.

The next question is from David Snow of Energy Equities.

Please go ahead.

Wondering if you could give us a macro number for world production this year versus last year, '08 versus '07?

I think the macro number that we've been talking about was somewhere around 125 million for production in '08.

'07, my recollection was it was around about 107 million to 109 million.

My guess is that for '08 it will actually be closer to 120 million, David.

Do you have any idea, early idea for '09?

I think the trend is up, but not as strongly as would have been estimated even four or five months ago.

We've seen Kazakhstan come down a little bit in its estimate of production, what it's going to meet for 2009.

You've seen our own numbers, I guess.

There's probably a few of the juniors that will come into production.

I think you'd see the trend up.

It would not be a dramatic jump, maybe 6 million to 8 million pounds.

Okay.

Thank you very much.

Thank you.

The next question is from David Wargo of GMP.

Please go ahead.

Just a quick question on hydrofluoric acid.

How much inventory do you have at Port Hope and how close are you to signing another contract with another supplier?

You can't keep a big inventory of that stuff around.

You can keep about a two week supply on hand and then have you to get new railcars or trucks and railcars.

That said, you place orders about every two weeks for HF.

With respect to new contracts, we're looking -- we've been on this now for some months, scouring the world for HF to see with who the potential suppliers are.

We're in discussions with at least three of them, and so looking at diversifying our supply going forward.

Okay.

And then one last question, just on the Global Laser Enrichment program.

I guess Gerry, this is for you.

I mean, when do you expect to have first results from the test from GE?

I thought it was supposed to be -- ?

My recollection, David, was it was intended to be a 12 month test.

Again, I surmise that it will probably go a little bit more slowly than that.

I think we look into 2010 for the first results coming out of it.

First results?

Okay.

All right.

Thank you very much.

Thank you.

The next question is from George Topping of Blackmont Capital.

Please go ahead.

Thank you.

Just a follow-up on the difference between production and sales.

Could you tell me how much of that delta was inventory, how much was HEU and how much was spot transactions?

I don't have the pieces, I'm sorry, George.

Even roughly.

Well, the inventory, we're actually building.

Do you mean year-to-date or Q3 specifically?

Q3 specifically.

Well, very little would have come out of inventory.

In fact, we were adding inventory in Q3.

Small amounts.

The splits between HEU, that continues to be the largest source of third party material.

I really don't -- and then the balance would be the other.

I'm sorry, I just don't have that detail in front of me.

The one I would rule out is a drawdown of inventory.

Okay.

And so, third quarter, roughly have an idea of how much was from the HEU?

I don't, I'm sorry, I just don't have that.

Okay.

Just a follow-up as well, back to just on the line of credit.

Has there been any discussion was the banks to see if they're comfortable being counterparties?

Absolutely.

Of course.

And --

From both sides.

And yes, I have absolutely no problems with any of my lenders, with them being counterparties for me or vice versa.

I've had those discussions going now for some time, and no concerns have been raised on any front.

Okay.

That's great.

Thank you.

Thank you.

The next question is from Borden Putnam of Eastbourne Capital.

Please go ahead.

Thanks.

Hey, Tim, back to you for a second.

On the Key Lake mill, you mentioned that the molybdenum circuit is working better it seems than the selenium.

At least one can infer that from the wording.

Can you tell us which ethylene product -- is it moly, selenium, or the isodecanol is the most problematic?

Still selenium that we're trying to get a handle on board.

That's the one the regulatory agencies have been watching most closely.

I would say the first phase of the moly-selenium circuit that we've put in did quite a good job of bringing the moly down to where we're close on moly but the selenium not.

That's why we're doing the Phase II work.

We're spending a few more dollars to change things a bit so we can get a better handle on the selenium.

That's what we're doing now, and by the end of the first quarter of '09 we've committed to have that in place.

It seems that things have worsened since Q2?

I'm not sure they've worsened.

We've been testing the circuit.

It hasn't been operating to our liking, especially with respect to selenium, so that's why we had to go back and do some reengineering on that.

And we're now trying to get that constructed and put in place.

Back to the comment you made to my comment on Greg's comment about the 420 level, you mentioned clay seams -- are those subvertical?

Because on some of the diagrams on the 43-101 report and looking at some other documents you shared with CNSC, it looks like there could be a subvertical fault that may run through the 420 area of failure and also could connect to the 465 level of failure.

They're only 45 meters apart vertically and these could be big structures.

Is that what you're thinking as a possibility?

I think that's what the geologists are chasing down.

I think there's some seams that cut the drift as it runs north, so.

Right.

That's what they're looking at, and I think we'll have some more information on that in the next days and weeks.

Okay.

Thanks.

Thank you.

Thank you.

(OPERATOR INSTRUCTIONS) The next question is from Duncan McKeen of [Macquarie] Capital.

Please go ahead.

Just a couple questions, guys.

I'm wondering on the acid situation in Kazakhstan if you could expand a little and let us know if it's a production issue specifically or if it's a transportation issue of getting the acid to the mine sites?

Second question maybe for Kim, noticed the big increase in accounts receivable in Q3, just wonder if you could comment on that and just guide us what a better run rate might be for accounts receivable going forward?

Tim, why don't you take the first one?

Duncan, I'll -- had this call been next week we'd have better information relating to Kazakhstan, but as I understand it, the Kazakh plant [bulk ash] is up and running.

It's not fully running, so there is still some production concern.

But it's more transportation concern, getting the acid to the sites.

We have -- and we talked about this before, we purchased some tanker cars of our own.

We have I think 20 of them that we're using to transport some of the acid over to our site.

So we're using those, but it's not enough yet so it's coming back.

As I said, our best month in the past year was October.

We'll see what November brings us.

But it's a concern going forward.

Okay.

Thank you.

And Kim?

As to the receivables, Duncan, it does vary up and down quite dramatically.

If you're looking on the balance sheet, you would see that it's only about C$50 million.

That's absolutely been the pattern.

If you're looking at working capital changes, and what factors in there, it's actually the other one coming out of the '07 period.

We had a very huge receivable at the end of 2006 that was collected in early 2007.

And that throws your working capital comparison year to year or year-to-date compared to year-to-date out of whack.

That's really just a good symptom or evidence of my earlier comment about fluctuations in working capital and really there being no pattern for receivables.

It's all driven by when customers choose to take their material.

Okay.

Thank you.

Thank you.

The next question is from Borden Putnam of Eastbourne Capital.

Please go ahead.

Sorry, you guys, I'll quit pestering after this, I think.

Kim, if I could have a question for you.

In the first quarter you guys adopted the Handbook Section 3031 on inventories, and you started breaking out the different components of the inventory which is interesting.

In your comment just a minute ago, I think it was to George, you were talking about you added a little bit of inventory in Q3 and I'm wondering was that in concentrate or broken ore?

It's listed, Borden, in the financials itself.

And where if I could -- we're talking about one of the notes has that material broken out for you.

Right.

I think it was in broken ore was a big volume increase.

There was a slight increase, actually on page 10, note 3.

You'll see the big increase is in broken ore.

It's in dollar amounts and I can't see the tonnage or pounds.

No, you can't see the tonnage.

But it's the dollar amounts are roughly 3.5 times what they were at the same period last year.

So we can assume -- but this is net value, so that's revenue minus costs, right?

That's what inventory is?

That's how you book it?

No, no, you book it at cost.

Just at cost.

Yes, you book it at the lower of -- yes, you book it at cost.

Material coming in at cost.

What you see in broken ore there is my earlier comment about the Rabbit Lake mill not being really in service in Q3.

I see.

And material being stock piled there.

That's a large piece of that.

Someone had asked earlier too about the river, whether it was keeping pace or getting -- with its prior year's experience and I think Tim's answer was yes, that also would add to some of the broken ore material.

I see.

Is there a chance you could add to this breakdown or provide to us the pounds or the tons of ore or something that so we can help track this, rather than a dollar amount or cost amount?

We'll think about that.

We haven't done that specifically in the past for a variety of reasons, but I will certainly look at that for the next time.

Next question is from Simon Tonkin of Thomas Weisel.

Please go ahead.

Good afternoon, a couple of questions.

Could you please comment on the draft tax changes in Kazakhstan and also secondly, the Kazakhstan reduction in production in 2009 -- will that affect Inkai at all?

Tim, on the tax side?

Really, it is early to -- they have come forward with number of tax changes, far too many for me to try to recite here in any particularly useful way.

We are watching.

We are analyzing the impact on those.

And again, as soon as we have something, which I'm assuming by Q4 we will have more information for you as to what we think the impact on our operation will be going forward.

Secondly, the reduction that was announced by KazAtomProm for Kazakh production won't have any effect on Inkai.

Okay.

Thanks.

Thank you.

The next question is from Ted Ford, a private investor.

Please go ahead.

Hello.

In your news release of two days ago you mentioned that you had been buying product on the spot market and that it affected your cost of sales for the quarter, if I had that correct.

And I'm wondering what the amounts were there, if it was material or not?

Ted, I'll have to rely on Kim or somebody to look at it in a quarter, but year after year Cameco buys a modest amount of material on the spot market.

And that's usually to develop market intelligence to find out who's selling and how aggressive they are and these kind of things.

So every year, between 1 million and 3 million pounds over the course of the year we buy.

And usually when you do it, the deliveries get scheduled out, not according to any particular patterns.

So they would just show up based upon the deal that was negotiated between Cameco and the seller.

So I wouldn't read anything into whatever happened in the third quarter.

And then generally they're sold or sold by Cameco into trading opportunities, so that you can look at these as a way of taking advantage of the opaqueness of the uranium market.

One follow-up question.

In the -- one of your competitors, Paladin, announced results two days ago, and their CEO, Mr.

Borshoff I believe, had some very optimistic comments about what he expect the future of the uranium market to be towards the end of the year and into next year.

Is that something that you comment on or would you ever comment on?

We really don't forecast pricing, if you will.

What we do see is that a lot of projects are getting deferred, delayed, others with their own suite of operational problems.

That is -- in today's environment, putting a little bit of upward pressure on uranium pricing.

We've seen prices go from C$44 to C$46 to C$48, in that range.

So there's a little bit of upward pressure as we approach the end of the year.

More importantly from our perspective is the long-term fundamentals for the industry, given its production level and the growing demand, remain quite robust from our perspective.

And so in the longer term, we think uranium prices will be just fine.

Thank you very much.

Thank you.

The next question is from David Snow of Energy Equities.

Please go ahead.

I'm just trying to get a little color on the Kazakh government's preparing new subsoil and subsoil use regulations.

Is this regarding sulfuric acid injection, or can you give us some idea as to what's going on there?

No, it has really nothing to do with sulfuric acid injection.

It would be all about the tax regime, stabilization agreements, approaches toward environmental compliance, those types of things -- but not the underlying mining methodology.

Tim, do you have anything to add to that?

Just to be clear that the subsoil agreements -- that's your operating permit and that's the initial agreement you sign with the government which sets out the rules for operating.

So the name of it is perhaps a bit misleading, but it's your generic permit to operate in Kazakhstan.

Have you already got that permit in place for most of your operations?

It's Tim Gitzel.

Yes, we do have one that dates back to the late '90s, I believe it's '99 when we signed, but they can be reviewed from time to time as well.

Do you see any problems in that regard?

Well, that's what we're watching now and that's what we're working with them to understand what if any changes are being contemplated by the Kazakhs.

Thank you very much.

Thank you.

(OPERATOR INSTRUCTIONS) The next question is from Ian Howat of National Bank.

Please go ahead.

Hey, good afternoon.

Just on the outlook for uranium in the market, with I think it was Duke Power announcing that they saw escalation in capital costs to like $11 billion for less than a 900-megawatt reactor.

At those capitol costs, are nuclear power plants really viable in the longer term in the US?

I'll go back and look, but the $11 billion would have been for two, I believe.

Okay.

And they wouldn't have been 900.

They probably haven't settled on the size, but 1,100 or larger.

No, I think that there's lots of issues behind those numbers, but what we see is even in light of those increased capital costs, a number of utilities in the United States still moving forward quite aggressively.

Site preparation, ordering long lead time items, getting approvals from their Public Utility Commissions, expenditures put into the rate base, so there are -- I referred to it in my opening remarks, three, four, five utilities that understanding those capital costs are moving forward.

And frankly, the alternatives are probably more risky.

All right.

Thanks, Gerry.

You bet.

Thank you.

This will conclude the questions from the telephone lines.

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

Gerry Grandey for his closing remarks.

Operator, thank you very much.

I just would leave everybody with some of the thoughts that I opened up with, and that is we're in a -- I think in an enviable industry in that customers need the uranium, they need it to power their reactors.

And Cameco I believe took advantage of the price runup period, wrote contracts that were quite favorable.

And it's really the only time that you can write favorable contracts is when the price is going up, because when it rolls over and begins to come down.

It is a lot more difficult, even to get a contract because the utilities who remain well-covered just simply postpone the time when they want to write the contract and cover.

So I think we've positioned the company quite well.

We'll now take advantage of the market turmoil out there, look for opportunities, but we've got tremendous opportunities just within the company that we're paying attention to.

So operator, with that I will thank everybody that's joined us on the conference call and for their interest in Cameco and wish you a good afternoon.

So take care.

Thank you.

The Cameco Corporation third quarter results conference call has now ended.

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