Cameco Corp (CCJ) 2009 Q2 法說會逐字稿

Good morning 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 of Investor Relations.

Please go ahead, Mr.

Lillie.

Thank you operator and good morning everyone.

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

Thank you for joining us.

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

They are Jerry Grandey, President and CEO, George Assie, Senior Vice President, Business and Marketing Development, Tim Gitzel, Senior Vice President and Chief Operating Officer, Kim Goheen, Senior Vice President and CFO.

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

Jerry will start things off with a few opening comments on the results and updates on Cameco's operations and the global markets.

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 conference 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 could cause actual results to differ materially and the material factors or assumptions that were applied are contained in the Company's annual information form dated March 27, 2009, and the Company's annual management discussion and analysis dated February 16, 2009, both of which are available on SEDAR and EDGAR.

With that I will turn it over to Jerry.

Okay and thank you Bob.

Welcome to all who have joined us for Cameco's second quarter conference call.

Cameco is once again reporting solid financial performance.

Besides another quarter of strong revenue, cash flow from operations was also robust.

So far cash flow from the first six months of 2009 is up more than 20% compared with 2008.

Considering what has gone on elsewhere in the metals and energies sector, the fact that our business units continue to generate cash at such consistently healthy levels is notable.

Cameco's revenues and ultimately our earnings hold up over time because of our long-term uranium contract sales strategy.

So far this year we are reporting strong volumes in revenues from uranium sales while production volumes are on track to meet our targets for the year.

Favorable exchange rates in the first half of the year have helped offset the effects of an active market that has caused volatility in the uranium spot price.

Another factor at play in the second quarter is improved results from our investment in Bruce Power.

With higher realized prices for electricity during the April through June period.

These results were achieved despite a drop in Ontario electricity demand, as a consequence of economic weakness, particularly in manufacturing.

The longer term future of the Ontario power market is an emerging story.

Much has been made in recent weeks of Bruce Power's decision to withdraw its applications, to consider new reactors at two sites in Ontario.

In light of current and expected conditions in the Ontario electrical market, we support Bruce powers decision to focus on potentially refurbishing the existing units at the Bruce site.

We see the possibility of refurbishing these units as positive if it can add another 20 or more years of reactor life at reasonable cost.

This will ensure nuclear remains a strong component of Canada's total electrical generation.

Looking elsewhere at the state of the industry, in the United States there are clear factors at work that favor new nuclear plants for several utilities especially those serving the southeast where more momentum towards new nuclear construction is greatest.

Cameco remains confident that four to eight reactors will be will be constructed in the US during the next decade.

This new capacity will build on what is already the largest nuclear power capacity of any country in the world.

We've also always said that the prospects for a nuclear renaissance have to be seen in a global context as countries in Asia gear up to meet the surging electrical demand of their growing economies.

Indications out of China are that they are committed to their program and are likely to increase the number of reactors being considered.

So far this year the China watchers in our industry including us have raised the unofficial count to 13 of the number of reactors that are under construction.

As early as May this number has been pegged -- had been pegged -- at 11.

There is no reason to doubt that a country with the intellectual base, educated workforce, population and energy appetite of China can do what the west did during the first nuclear building program.

In addition to China we expect India, Korea and Japan to build more reactors while making deals with mining companies to secure reliable uranium supply.

As well for other countries, the United Arab Emirates, Jordan, Egypt and Turkey appear determined to become first time operators of nuclear power plants.

All this activity means that global uranium supply will need to increase over the next decade.

Be assured Cameco is taking the steps necessary to remain among the world's top suppliers.

Here at Cameco we believe we have made considerable progress in ensuring consistent and growing production from our operations in Saskatchewan, Kazakhstan and the United States.

As we reported today our methodical approach to secure consistent production continues at McCarthy River.

At the same time our confidence in our ability to remediate Cigar Lake grows.

This is demonstrated by our progress in recent weeks in beginning to seal last summer's inflow areas.

This is another step toward dewatering the mine.

We expect the remediation work that will allow to us get to the dewatering stage will be completed by the end of the year.

Also on the operational front in June we had a successful start up of our UF6 facility in Port Hope.

This start up was ahead of our original schedule by a few weeks.

A second supplier is now delivering hydrofluoric acid to the facility.

And late in July we received an update regarding progress on the laser enrichment test loop designed to validate technology employed by Global Laser Enrichment.

This is a venture in which Cameco has a 24% stake.

Laser enrichment holds the promise of offering customers a competitive source of diverse and secure enrichment to fuel today's customers and their expanding fleet of nuclear plants.

Thus far the results coming out of the test loop are encouraging and GLE expects to have sufficient data by the end of the year to be in a position to make a decision on whether to proceed to full scale commercial facility.

As we contemplate the economic landscape this August, we are reminded that it was August of last year when the rumblings of a global credit crisis were felt and all companies were told credit facilities might be frozen.

Cameco charted a cautious course so we could weather the trying months that followed.

Ultimately renewed confidence was shown in us by our financial partners and the equity markets.

Today we can report on the next step we intend to take to further solidify our financial flexibility.

Our intention is to file a shelf prospectus and that will allow to us take out more substantial long-term debt if we so desire.

Cameco watchers may see this filing as a sign that we have identified a specific acquisition target.

Let me merely restate that Cameco intends to maintain the financial flexibility to take advantage of opportunities when they might emerge.

But as we have started consistently Cameco is not going to overpay for an acquisition.

Indeed there is no need to do so.

Cameco has more than one way to achieve future growth production growth.

Our exploration and acquisitions over the past decade or so have given us a number of substantial organic growth targets that over the next decade could double our production to 40 million pounds annually.

Acquisitions must compete against these existing portfolio assets.

And we know that the number of potential targets for acquisitions are few.

With those thoughts of the future in mind we will now take your questions.

Operator?

Thank you.

(Operator Instructions) The first question is from Orest Wowkodaw from Canaccord Adams.

Please go ahead.

Hi, good morning.

Just a couple of questions.

I was wondering if you could provide us some details on the floor prices that you are getting from the OPA at Bruce, specifically what price that would kick in.

Okay.

Remember that those have been in place for quite a number of years now and I'll turn it to Kim for the detail.

Sure, Orest.

The contract under which those came about was from 2005.

It started out at $45 a megawatt hour adjusted annually by inflation.

The number right now is $48.76 per megawatt hour.

Okay.

Thank you very much.

Thank you.

The next question is from Raymond Goldie from Salman Partners.

Good morning and thank you.

I notice you increased guidance for sales of uranium this year and wondered if you could give us a little flavor of that.

Why do you think people are coming to you to buy rather than buying from other suppliers?

George, go ahead.

Ray, they are not just buying from us.

Volume year to date in the spot market is some 33 million pounds.

And as you can see by our guidance I think our range is up roughly 2 million pounds.

There's lots of other places for them to get uranium.

Thank you.

Thank you.

The next question is from Greg Barnes from TD Newcrest.

Please go ahead.

Thank you.

I'll follow on from Ray's question -- so where is all this demand coming from, George?

Who is doing all the buying?

The estimates are that about half of it is coming from utilities and then you have traders, brokers -- well, traders really, I guess, for about a third -- and the remaining one sixth would be producers including ourselves.

The utilities that are buying seem to be in fairly large volume.

Are they North American, Chinese, Korean?

Where are they coming from?

It's fairly widespread but it's absolutely true that as an example China has been a very significant buyer in the spot market this year.

I would expect the single largest buyer would have been China.

Any volume estimate there, George?

I don't think we are probably too far off 8 million pounds or so.

Did you have a sense on how far they are going to push this in terms of the volume they are going to buy this year and next year?

No, I don't.

One follow on question for you, the Cigar Lake, you sound a little more optimistic.

In the press release you note that you've applied for a four-year extension to the construction license and hope that you can do everything you want to do within that time frame.

Does that suggest you believe by 2013 you can get Cigar Lake into production?

Greg, you see the intersection between the need to give the regulator defined terms because they demand a defined term for the license so we try to give an outside date.

We are not trying to change the earlier guidance we've given.

We still need to get the mine dewatered, to get underground to look around with any confidence to relate to you and others what the time schedule of Cigar Lake is going to be.

Don't read anything into the four years other than that's the outside limit that we gave to the regulator.

I think that jives where most people sit and where they think Cigar Lake can come online around 2013 so I think it's a relatively positive statement.

Okay?

Thank you.

Thanks, Jerry.

Thank you.

The next question is from John Redstone from Desjardins Securities.

Please go ahead.

Good morning, gentlemen, given your earlier comments about organic growth going forward, I wondered if you could give us a bit of an update on where Kintyre fits into all that.

It's been sometime since you purchased this project.

What is the status?

Briefly and I will turn either to George or Tim, they both have input into this thing.

We've been working with the Western Australian government which obviously had changed -- became pro uranium mining.

We've got to get their regulatory structure in place.

We've been moving forward with re-establishing the infrastructure, camp facilities, road network, working with the aboriginal groups down there to make sure they are plugged in and supportive, which they are.

So we will begin confirmatory drilling in the next little while.

That's going to go on.

While at the same time we begin to do the prefeasibility work, environmental work, environmental permitting that needs to be done.

So we are looking now over the next couple of years to get all that done, John, so we can begin to make decisions as to where Kintyre would fit in the organic production profile.

I don't know either either one or --.

I have nothing to add.

Nor do I.

There's no firm -- when would you expect to maybe go to full feasibility on that project?

Let me ask you the question that way.

Once we have the confirmatory drilling done and we understand as best we can the nature of the ore body and its potential then we would move right to that stage assuming it's positive.

You are looking around 2011, perhaps.

Or there?

I think that's a fair guess.

We have a lot of work to do between now and then but, yes.

Thank you.

Thank you.

The next question is from Borden Putnam from [Mirin] Capital.

Please go ahead.

Tim, I hear you're on the line.

I'd like to ask you a question about Cigar Lake if I could.

The diagram that you have provided today only shows one inflatable bag for the area of the inflow and in February you talked about using two.

Can you tell us a little bit more about what you know about that fissure and what's changed your minds as to the amount of cement you need to put into that input area.

Thanks Borden.

We have had a bit of a change of strategy since the last call.

In fact we are on that 420 level going to use just one of those bags to provide the bulkhead and we are going to put it right by shaft number one.

The change has been that we've decide to do backfill completely that 420 level.

We want to take that right out of play.

That fissure is right at the corner where the drift turns north.

So what we did over the past couple of months is we've drilled some extra holes from surface right to the end of the 420 level.

We drilled three extra holes.

We started -- in fact we poured about 1,000 -- a little over 1,000 cubic meters of concrete of the back end -- the north end -- of that 420 level.

We are going to plug the entire drift.

The back end of that is already filled with concrete.

We are just getting to the point now where we are going to put the bag down.

That will take us some weeks to do and get that in place and start by putting that bag -- that bulkhead if you like into place -- and then we'll pour in between that bulkhead and where the other concrete is in.

Good.

That's very helpful.

Thank for the detail.

On the Key Lake and McArthur River you have not had a quarter where the mill -- the plant mill maintenance caused this low of a production level.

The only one I found that was close was third quarter last year and that seemed -- the low level production of Key Lake seemed to be exacerbated by some difficulty in restarting equipment that was shut down during the mill maintenance.

I wonder could you give additional color on what was involved in this mill maintenance period and also if you could how the remediation is going for the environmental issues you have going there for Key Lake.

Thanks.

The difference this year and we were quite happy about it is we took the mill shut down in the middle of spring or summer, May, rather than in December or at the end of the year as we often do which really caused a lot of restart problems when you try to start up in January and the temperature is quite low.

The mill shut down and the maintenance was pretty routine maintenance, nothing too special that we did.

The restart -- a few glitches on restart really not too much.

Some of the production issues that we had had to do more with power bumps, lightning strikes that we had up in the north which is typical for us in the spring.

Our numbers are close.

We are not concerned.

We are still on track to make our production target for this year so things are going quite well at Key Lake this year.

Okay.

Good.

Thanks.

Thank you.

The next question is from Ian Howat from National Bank Financial.

Please go ahead.

Good morning.

Just some more clarity on the whole Bruce Power and the agreement with getting paid above the spot price.

Is that for every megawatt of power produced out of Bruce Power or is it only the material -- the power you're delivering into spot sales?

Ian, the way to look at Bruce is that the full output from the four B reactors is sold into the Ontario grid and all of that output receives the $48.76 per megawatt hour.

Okay.

The wording in the release implies that it's for this year only now and it's not going to continue after this year?

No, no.

What happens with that is there's a settle up or true up mechanism built into this.

These payments, the difference between the floor price and spot -- payments are made each month by the OPA to Bruce.

What happens at year end is we'll go through and instead of doing a monthly we will look back at the annual average, the difference between the floor price and the annual average spot price.

And depending on how that math works, Bruce may be in a position of being required to refund money to the OPA, in this example, January 2010.

Okay.

Now, so next year we have a good market and a spot price goes to 100.

Do you owe them money back or is that taken out of the deal?

That is the difference.

What happens now as we come to January 2010 we will do the one calculation based on the -- as I said the average price for the year, 2009 -- it's a one time calculation, any amounts not repaid then, the calculation is over with, there's no obligation going forward.

Okay.

So it just starts again next year and keeps going forward like that.

One year at a time.

That's the difference, it used to be a cumulative calculation but the reality is given the demand destruction we are not -- and Bruce is not expecting the situation that you described materializing in 2010.

One more, on the refurbishment, when is as far as the expiree for each of the four reactors?

When do they have to be refurbished or --.

For the B units, still being looked at every time there's an outage.

But for the latter half of the next decade is when the units would be coming up for the refurbishment and that stretches out between, say, 2015 and 2020.

It's obviously dependent upon how well they perform over the next several years.

Before the end of the next decade.

Thanks very much.

Thank you.

The next question is from [Christina Gavas] from Prince Albert Daily.

Please go ahead.

Yes, hello.

Good morning.

I just want to do ask you about the -- a little bit more about the Cigar Lake remedial that's going on there.

You said you expect to have the work done by the end of 2009 but I also know that this is a mine you've been running into problems with.

Do you think you are free and clear of the problems as you've been going forward with this project?

I think, Christina, we have increasing confidence that we are moving forward on the right path here.

What we say is that by the end of the year we should be in a position of -- in commencing the dewatering of the mine.

I think we have pretty good confidence in that.

Then that will allow us to get underground and then understand what the condition of the underground is.

At that point in time we can be a lot more confident in terms what have schedules will be.

We've said to everybody we'll relate that once we have that understanding and that's going to take a little while obviously.

But hopefully we will be in a position to dewater by the end of the year.

As a follow-up question to that you still have to go underground to see the condition.

Have you had any preliminary looks under there or anything?

Do you have an idea of what to expect?

Not really.

We haven't been able to put anybody down there because it's flooded.

Okay.

Thank you.

Thank you.

The next question is from [Trish Saywell from The Northern Miner].

Please go ahead.

Hi, thanks.

I believe, Mr.

Grandey, visited India early this year and I wonder what his view is on when Canada may actually sign the [Silia] Nuclear Cooperation Agreement with India and why it's taking so long.

The US signed its agreement a year ago and if I'm not mistaken Russia and France already have agreements in place.

Does he think the delay has hurt Canadian companies and if an agreement does get signed, how do you see your business unfolding with Indian buyers?

It's true.

I was in India earlier in the year.

I've been there a number of times and I would say both governments -- both India and Canada are working hard on advancing the nuclear cooperation agreement.

These things tend to take quite awhile.

Obviously we are urging that everybody pay attention and move it along as quickly as they can.

And I truly believe that the governments are putting a lot of effort into getting it done.

Russia and France do have agreements in place.

The US has an agreement in place but in the US there's still more to be done.

They've still got to do a supplementary agreement before trade can take place between the US and India.

So Canada is moving its NCA somewhat in parallel, not tied together -- somewhat in parallel with what's going on in the rest of the world and obviously addressing concerns that India and Canada have in their particular bilateral relations.

We are anxious and ready to move forward just as soon as that's finished.

We think it will be done in the -- in a reasonably short period of time.

But how will it effect -- in terms of your business there -- are you looking at, do you have any sort of ballpark estimates on who you might be selling to or --?

Well, it's a government owned corporation so it will be a state owned enterprise that we will be dealing with.

We've got a lot of contacts, a lot of relationships that we've built up over the years so I'm quite confident that -- because India has a program , a nuclear program that is somewhat based on the can do technologies.

I think there will be a lot of opportunities for Cameco and India to mutually

Okay.

Thanks.

Thank you.

The next question is from George topping from Blackmont Capital.

Hello everyone.

I'm interested in the Inkai production, the full year forecast is 0.9 million pounds for the full year but in the first half only 0.2 has been achieved.

Just wondering if, what's going to change in the back half to achieve that.

George, it's Tim Gitzel.

In fact, our production from the Inkai well fields has been going quite well this year.

What we report in our quarter is the pounds in the can if you like.

Right now our main processing plant is up and running.

We've produced from the back end the first cans of uranium.

So that's starting to come online.

What we've been doing is sending the [elluet] out for final processing at some other [Kasak] facilities and we only count production when it's in the can for purposes of our quarterly reporting.

That's the difference.

In elluet e have considerably more production than we've reported in the can.

So you'll see our numbers go up as the year goes on.

You can look at it as in circuit inventory in some respects but it might be in circuit in a number of different facilities waiting for our own plant to get up and running which it is now.

Are you able to give us a break out or some idea of the break out of the source of uranium between the sales of 35 million and production of 20 million?

Are you talking about the difference, George, between the two numbers?

Yes, well, HEU would be a predominant contributor as well as some recycled product and then just opportunistic purchases in the market -- by and large I think would be the, HEU that's been a consistent source for a number of years.

By HEU you understand I'm talking about the Russian -- I'm sorry, I'm using acronyms.

I have that in the model, I'm more interested in that which is over and above the HEU agreement.

So is it 50/50 between trading and recycling, or --?

George?

Well, beyond HEU we did have in place or do have in place through 2009 another long-term agreement where we are buying material out of a European enricher and the rest of it is simply opportunistic spot market purchases.

Okay.

Thanks.

You're welcome.

Also I was interested in whether you are seeing sovereign stock piling by India and China and particularly the latter has been obviously bringing in -- importing an awful lot of other metals.

Are you seeing the same surge beyond that which they are using in China on the India suggesting that there is sovereign stock piling going on.

I don't see that much in respect of India.

In respect of China I think there is a bit more of that going on.

Keep in mind as Jerry noted in his remarks we have 13 reactors under construction so to -- the initial cores for those reactors require them to buy a whole lot of uranium, stockpile a whole bunch of uranium that they can begin enriching and fabricating into fuel to get those reactors up and running.

So the stockpile is there for a very specific reason and that is to feed those reactors under construction.

I see.

Okay.

Not so much from India yet?

Yes, I don't think -- we don't see as much from India.

Good.

All right.

Thanks.

You're welcome.

Thank you.

The next question is from Raymond gully from Salman Partners.

Good morning again and a follow up to Mr.

Howat's question on Bruce Power.

Noting that you've changed the guidance from three months ago looking for this year declining revenues from Bruce Power to now looking for increasing revenues, I wonder what you know now that you didn't know three months ago and a related question is -- wondering how long that floor price will be in effect, how many years in the future.

Reverse order, Ray, the floor price mechanism lasts for the life of our contract.

The Bruce Power contract with [UMPA] which I believe goes to roughly 2020.

That's what's in the contract right now.

Quarter one versus Q2 we noted in Q1 that these floor price payments were being made but they were not being reported as revenue.

At that point in time our partners and Bruce had expected, we are not sure where the market in Ontario is going and we are expecting that those months would have to be repaid.

The market in the second quarter Ontario generation market did go through some pretty significant deterioration.

We now do not expect those amounts to be repaid and that's the reason for recording the amounts in revenue.

Thank you very much.

Thank you.

The next question is from Duncan McKeen with Macquarie Capital .

Please go

Thanks, gentlemen.

You've indicated your intent to file the shelf prospectus and I'm wondering if you are going to look at refinancing some debt which components of debt may you look to refinance.

Duncan, when we made the acquisitions last year our standard practice would have been to term out that debt anyway.

So when you ask which components we have a fair amount of short term commercial paper and such that that's what we will be looking at to follow through what we didn't put in place last fall.

Okay.

Do you expect to come out of this with more available debt capacity then?

I'm not quite sure of I don't have question in the sense -- the line of capacity that's driven is certainly driven by your credit perspective and what lenders are prepared to lend to you.

I don't think that that number will change in any way from what we are doing here.

This is really in an overt action this is debt for debt, we are just extending the term on some existing debt.

How old are you looking to extend the debt for out this time around?

That will depend on what the market circumstances are when we come to the market.

Thank you.

The next question is from Simon Tonkin from Thomas Weisel.

Please go ahead.

Yes, good morning.

Given the maintenance shutdown at Key Lake what do you think the distribution of production will be in Q3 and Q4?

We will be producing at our regular rate.

In our back up, we are somewhere between 1.5 million and 2 million pounds a month.

So just normal operations so that we hit our 18.7 million pound limit by year end.

Basically by the end of the year you guys will be producing at 18.7 million pounds from McArthur and for the next few years?

That's correct.

Okay.

Thanks.

Thank you.

The next question is from Dan [Dalias] from Sterne Agee.

Please go ahead.

Thank you.

If we could just switch to gold for a minute, I've noticed over the last few years the spread of the difference between what you produce and what you sell is pretty narrow, sometimes you sell a little less, sometimes a little more.

Given that the -- you have revised your production down even if we look at the [warn moon] end of that range, 680,000 ounces, it's -- it is an additional 475,000 ounces that you are going to produce in the back half of the year, in the last six months.

That is fairly sizeable.

Do you think the amount sold is going to be -- with the same spread it's been historically?

Let me try that one for you, it's Kim.

Two parts, first of all the spread really is just in circuit inventory and when it comes out there's no more to it than that and we do expect those numbers to stay tight as they have historically.

As to the back back end loading of production, yes, we do believe that will be achieved.

It's a repetition of the same profile that we had and delivered upon in 2008.

Just how they are getting at the ore and the pit.

So, no, we are comfortable on both of those.

Okay.

If we could just switch to fuel services I don't know if I missed this but did you disclose the average realized price for the second quarter?

No, we do not.

Okay.

Okay.

Thank you.

Thank you.

Thank you.

The next question is from Orest Wowkodaw from Canaccord Adams.

Please go ahead.

Thanks, just a question for Kim.

I'm just trying to reconcile your debt to your balance sheet.

Kim, I was wonder if you could walk me through where everything is sitting on the balance sheet.

He's looking for it right now.

I'm not quite sure of your question.

My question is, you've got outstanding letters of credit of [516].

Where exactly is that broken out?

Is it just included in the long-term debt line?

The letters of credit themselves are -- they are noted in the notes.

They are not actual debt obligations that we put on to the balance sheet.

Okay.

Thank you.

And, Orest, just to finish that up, what they are is -- to use a different phrase for you -- they are like surety bonds that you post with different regulatory agencies, just a financial support for your obligation to do something in the future.

Got it.

A reclamation obligation.

Got it.

The liabilities are shown --.

The liabilities are included in the different aspects of our decommissioning and so on.

But they are not anything more than that.

You don't put it on your balance sheet until you've completed the liability part of it.

And this is a future -- what regulators do is they will go through and say, Cameco, we trust you today but what happens at some point in the future if you are not there, we need some financial assurance though cover that off and that's what those represent.

Got it.

Thanks, Kim.

Thank you.

The next question is from Edward Sterck from BMO Capital Markets.

Please go ahead.

Thanks very much.

Just a very quick question.

Most of mine have actually already been answered but with respect to the senior debt facility that's maybe up to $1 billion I think putting in place -- if that is put in place would you then no longer have access to the current credit facilities or would they still be available for short term financing needs?

There is three facilities -- the direct answer to your question it will be up to Cameco whether we would like to cancel any of those facilities.

There's no lender requirement or anything like that that we are facing that's mandating this.

We will then make a decision once we come to market with this whether we want to keep those facilities available to us or terminate them and put them in place at a future date if needed.

Excellent.

Thank you very much.

Thank you.

The next question is from Andy Hoffman from The Globe and Mail.

Please go ahead.

Good morning, thank you so much for taking my question.

You were talking about how active China has been in the spot market and I believe a few months back you said that you were in talks for -- with China concerning an output or supply agreement.

Can you give us an update on that?

We've done some business with China and our discussions continue as regards to longer term arrangements.

Can you give us any sense in terms of size of potential deals or how significant this would be for your business.

And also has China done any supply agreements with any other producers that you're aware of you?

Well, the answer to your first question is we don't disclose information like that and so I have no comment in respect to size or term.

Then have they didn't agreements with other suppliers -- yes, they have, and they certainly are in discussions with many of the larger suppliers.

Thank you.

You're welcome.

Thank you.

(Operator Instructions) Next question, John Redstone from Desjardins Securities.

One follow-up question regarding Cigar Lake.

I wonder if you could clarify for me the status of any contracts you may have, delivery of material from that operation.

In other words, are you obliged to deliver material and if so what would be the source?

We have a -- we do have several contracts that are specific for Cigar Lake product but under those contracts we have protection to the extent that Cigar Lake wasn't producing.

So those deliveries, now in this case we've elected to do move the deliveries way out in time to the end of the contracts.

We've just rolled them out.

Can you give me some idea of what time frame we are talking about?

These are rolled out quite a distance.

These were very long-term contracts.

Off the top of my head I think it's well into I'd say the middle of the next decade.

Okay.

All right.

That makes sense.

Thank you very much.

You're welcome.

Thank you.

The next question is from David Snow from Energy Equities.

Please go ahead.

Hi, I came on a little late so you may have already talked about this but the increased costs of -- for purchasing uranium in the spot market was that related to the principally to the increased sales that you had increasing your expectations to 34 million to 36 million pounds this year compared to previous expectations of 32 million to 34 million pounds?

Or was it also opportunistic and in that regard what is your feel for the overall uranium market price going out from here?

I'll answer the first part of that David.

You are correct, the higher costs are associated with this incremental material that we've purchased that we first identified for you in quarter one and we found more opportunities as we moved into quarter two so that is what those are related to.

I will let George answer what he thinks for the rest of the year.

In terms of the outlook for the spot price right now we are right in the midst of the summer doldrums.

So in the near term here I think you could see price move either way, I think you could see further price weakness.

Longer term nothing has changed our view of the strong fundamentals of the market.

If you are looking out six to 12 months I think it's generally pretty firm and positive.

That's the way I would describe it.

Okay.

Thank you very much.

Oh, and one more, could you give us an update as to what your estimate of the production capacity for the industry was in million pounds last year and this year again.

Yes.

Let me check my numbers here.

This year I think we are forecasting, I have it hear, we are forecasting 125 million to 130 million pounds in terms of world production.

And last year we were at 114 million pounds.

And then you also referenced the -- in the elimination of the Kazakhstan tax stabilization or the new tax code could be material in the future.

Is that one of those agreements that in the past held existing arrangements unalterable and now they can be altered, is that what you're referring to?

That is what we're referring to, yes.

Thank you very much.

You're welcome.

Thank you.

The next question is from Greg Barnes from TD Newcrest.

Please go ahead.

Thank you, Jerry, the new or amended agreements, McArthur Key production I think is 24.4 million pounds a year if you have a production shortfall below 18.7 million pounds.

And you could catch up from any production you've missed since 2003, how much catch up room do you have?

I think around 5.2.

Tim tells me about 5.2 million pounds.

Coming out of 2003, 2008, and so we have that flexibility, it's something that we hope to take advantage of over time.

You won't be able to do that over the next couple of years.

We are predicting 18.7 million pounds.

We will certainly do our best to eke out a little bit more from time to time if we can.

Is this the first step towards giving you approval to move up to the 22 million pounds?

That's correct, Greg, yes.

Any time frame on when you might be able to do that.

No, we still have to get through -- we still have to satisfy everybody on the moly-selenium issue and demonstrate it is controlled -- which we believe it is -- and once that happens we will move to the next stage and it takes time to move through that next stage.

Just one final question if I may, Kim, on this OPA agreement.

Previous to this did you not include the support payments in revenue, is that correct?

Yes, and, Greg, these payments from the OPA were not included simply because we did not expect that we would keep them.

We thought the market would recover and they would be repaid and therefore.

And indeed that's the way it paid off.

That is how history has turned out through 2008.

So, the $70 realized price you reported for Q2, does that include the $35 million that was carried over from Q1 as well?

The $70 does not include that.

Okay.

So what were the support payments in Q2 then?

Well, YTD of course payments recognized in revenue 100% basis were $172 million.

Quarter two by itself were $137 million.

And your share of that is the 31% --?

31.6% or $54 million year to date.

Got it.

Thanks.

Thank you.

(Operator Instructions) The next question is from Ivan Obolensky from Shields & Company.

Please go ahead.

Very interested in your picking a very unusual technology for enrichment, i.e., laser enrichment versus the much-touted and very effective gas centrifuge technology.

Just want to get a little read on the efficiency of laser enrichment and I assume it requires a very extensive plant construction.

Could you fill us in on this?

Ivan we spent a number of years a decade or longer -- saying to everybody that we wanted to be in the enrichment business and looking at the various technologies and talking with the various parties in the deed we formally and informally had been part of a number of laser -- of enrichment projects -- using the centrifuge technology.

Finally we teamed up on laser enrichment with General Electric and Hitachi through GLE.

The feeling is, yes, it's break through technology and we always have to qualify it to say that it is in the piloting stage, the testing stage and it's intended to demonstrate that ultimately it can be commercialized and be competitive.

I think so we all feel that if it works as anticipated it will be quite competitive and will be there for the long, long-term.

It is in that stage and so we think from a capital and operating perspective it will be quite good if it works.

I have a follow up on that.

Any estimates on construction costs and possible completion date?

Not at this stage.

Thank you.

Thank you.

The next question is from David snow from energy equities.

Please go ahead.

Hi, that made me think of another question.

The denial of the loan for USEC enrichment.

How do you say that playing out across the uranium industry?

Well, I think that's still a fluid situation.

We see that first there was a denial and now the extension and the government is working with USEC.

So beyond that we really don't -- we are not in a position to really speculate about what's going to happen.

I think that's all we can say.

Okay.

Thank you.

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.

Jerry Grandey for his closing remarks.

Operator, thank you very much.

As noted before Cameco's success is based on the diligence, planning we are doing today and just as the current success amidst all the financial turmoil we see is a product of the financial planning and diligence that went into building our long-term uranium portfolio.

I think we are taking advantage of that operationally.

I think we feel quite confident this year.

So with that I'll conclude the conference and thank you all for joining and certainly thank you for your interest in Cameco.

Take care and have a good day.

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.