Cameco Corp (CCJ) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the Cameco Corporation first quarter conference call.

I would now like to turn the meeting to Mr.

Bob Lillie, Director, Investor Relations.

Please go ahead, Mr.

Lillie.

Thank you operator.

Good day to everyone.

Welcome to Cameco's first 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 Vice President and CFO, George Assie, Senior Vice President, Marketing and Business Development and Tim Gitzel, Senior Vice President and Chief Operating Officer.

Also with us today is our colleague, Rachelle Girard, Manager, Investor Relations.

Gerry will open the call with comments on the Q1 operating results as well as updates on our operations, development projects and global markets.

Then we'll open it up for your questions.

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

During the question-and-answer session, please limit yourselves to two questions and then return to the queue.

Please note that this conference call will include forward-looking information which is based on a number of assumptions, and actual results could differ materially.

Please refer to our annual information form and MD&A for more information about the factors that could cause these different results and the assumptions we have made.

With that, I will turn it over to Gerry.

Okay, thank you Bob, and welcome to Cameco's first quarter conference call.

Cameco's financial results for the first three months of 2010 show how we continue to reap the benefits of our long term strategies.

A strategy aimed at taking advantage of our stellar assets and the solid long term fundamentals of nuclear power by doubling our production of uranium.

Financial results may vary from quarter to quarter.

The year is unfolding as expected, based upon our consistently solid operational performance.

Uranium production in Q1 achieved or exceeded target levels at all operations, and was 27% higher than the first quarter of 2009.

Sales were lower this quarter compared to a year ago.

As we've indicated previously, Cameco expects uranium deliveries to be more heavily weighted the second and fourth quarters, and the financial picture for Q1 reflects that schedule.

Fuel services showed exceptional progress in returning to historic production levels.

This segment benefited from higher realized prices, thanks to our contracting strategy.

As well, Cameco continues to enjoy the benefits from our ownership position in Bruce Power, Ontario's leading source of clean, low-carbon electricity.

The ongoing success of our operations and investments helps distinguish Cameco as we move forward as a pure play nuclear energy company.

With that singular focus, we are concentrated on uranium fuel.

We believe this is an excellent long-term business to be in.

The nuclear renaissance is unfolding in Asia, gaining traction in the developed world, and emerging in many other countries.

At last count, there were 53 plants under construction with many more planned.

In response to this, Cameco is on the path to double uranium production by 2018, solely based upon the quality of our asset base, our expansive reserves and resources, our contracting strategy and our solid financial position.

Cameco's ability to draw upon all of these strengths to pursue the doubling of our production is unmatched.

And here is how we intend to reach our goal.

First and foremost, there is Cigar Lake, the world's second largest high grade deposit.

While there's been an understandable focus on the increased development and operating costs projected for this deposit, let me be clear.

Cigar Lake remains a robust project that has an attractive net present value to Cameco and its partners, not to mention significant upside potential.

If we didn't own it, we would be trying to acquire it.

Because of the grade and size of the deposit, it remains an enviable asset among the uranium projects in the global development pipeline.

We are confident in our mining plan for Cigar Lake and its schedule for production.

As always, we look as alternatives that could improve Cigar Lake's timeline to commercial operation.

At Inkai in Kazakhstan, we are convinced that together with our partner Kazatomprom, we have a very attractive ISR operation.

Inkai was built with care and an eye to long term operation in a safe and environmentally responsible manner.

Government authorities this past quarter gave their final approval to the main processing plant and the operational performance and output from Inkai has been exceptional so far this year.

We believe we can work with the government of Kazakhstan to meet licensing requirements to steadily increase our mine production.

Cameco also has a pipeline of other projects that are part of our plan.

These include Millenium in Canada, Kintyre in Australia and properties approximate to existing operations in the United States.

Also out on the horizon is the potential to extend the life of Rabbit Lake and significantly expand at McArthur River.

We are focused on advancing these and other projects for the simple reason that Cameco wants to be ready to supply a growing market for nuclear fuel, a market that will grow in lockstep with the almost 90 new reactors that we expect will be operating worldwide within a decade.

Among uranium producers, we are in a unique and enviable position to pay as we go in developing new supply.

This is because of the cash we generate through strong operational performance within our existing low cost assets, our flagship, the McArthur River mine, provides evidence of how Cameco has learned from a decade of experience with some of the most valuable and challenging mine geology in the world.

Launched at a time when uranium prices were discouragingly low, we have gained and adapted new knowledge along the way as we move into new mining zones.

Mining at McArthur River means planning well ahead to prepare and freeze ground that will be mined later.

Not only have we gained expertise in installing freeze piping, we are now bringing in new techniques to access new zones within the ore body, leaving very little behind, all the while maintaining historic production levels.

Our financial strength and our planning for the long term explains why Cameco was in a position in 2008 to be a patient investor with our partners in global laser enrichment.

So far, the technology to enrich uranium with lasers has met key performance criteria.

GOE has recently indicated it will continue testing to gain further information and move forward with a design of the first commercial production facility.

As with our investment in GOE, Cameco is prepared to be patient, waiting for other opportunities to emerge where we can use our financial and expertise to gain added value.

But be assured, we will not deplete our cash resources in an undisciplined fashion.

In today's uranium markets, we know weak spot prices make headlines.

The spot market reflects the fact utilities are well covered in the next few years.

Demand is discretionary, supply less so.

However, one positive has emerged in recent months, the decision by the US Department of Energy to back away from putting additional stockpiled uranium into the spot market.

In today's nuclear power market, utilities like to see spot market bargains, but their main goal is to seek security of the uranium supply, and that comes through long-term contracts.

The ever increasing projections regarding size and scope of nuclear power generation in China and India are driving the global nuclear renaissance and will create great opportunities for the suppliers.

We expect these countries, like others, will sign long-term contracts for future needs.

This of course includes China, which so far has not been very active in the long-term market.

China is not the only story out there contributing to the growth potential we see.

Many countries have examined their options for generating large base load power for their burgeoning economies and populations.

Time after time, those countries see nuclear as their best option.

They include Vietnam, Poland, the United Arab Emirates, Jordan and Kuwait.

In Europe and the US where nuclear power development has been on a long hiatus,, things are changing.

There and elsewhere, nuclear power is increasingly seen as the right answer to a supply and energy hungry world, while at the same time reducing energy's carbon footprint.

Cameco's strategy couldn't be clearer.

Our goal was to double production organically by 2018, to meet the demands of the nuclear renaissance.

We are in a strong position to realize our goal and deliver increased value to our shareholders.

With that, I will turn the call over to the operator for your questions.

Thank you.

Operator?

Thank you.

(Operator Instructions).

Our first question is from David Snow from Energy Equities.

Please go ahead.

How do you do?

I'm trying to figure out are you underground yet with people at the Cigar Lake?

Yes we are.

We've been underground for several months.

There doesn't appear to be too much damage.

They are in good shape.

Both Tim and I have been underground for five weeks.

Things surprisingly look very well.

We have the electronics and ventilation that has to be redone and we have to rehabilitate but aside from very small places where shock-crete need to be replaced, things look pretty good.

What country are you contemplating to bring forward 10 million pounds if you follow that route?

We are projecting to get the 18 million pounds production beginning in 2013 at a three to four year ramp up period, 18 million pounds per year.

Thank you.

The next question is from Lawrence Smith from Scotia Capital.

Please go ahead.

Good afternoon.

A couple of quick questions.

One on the market, probably a question for George relating to disarmament and further HEU supplies.

What are the real constraints on down-blending of HEU, and the second question is an accounting question.

Tim would be the one to talk to.

You continue to capitalize reasonable shrug of interest in the quarter, $12 million.

I'm wondering that's obviously like a notional amount, given your net cash now.

Can you run what projects that relates to, presumably Cigar Lake almost exclusively, and how that's calculated?

Thank you very much.

Hey George do you want to tackle the first one?

Sure.

In respect to HEU, for the most part, the HEU that is blended down is under the Russia-US arrangement and the real driver for that was a result of trade restrictions that the Russians faced back in the early 1990s.

Under that agreement, what I would say is it is a government-to-government agreement.

It will run through 2013.

The Russians have been adamant that it will not extend beyond that.

Commercially, I think it makes a lot more sense for them to pursue the sale of their enrichment services around the world and they made inroads in Europe and in Asia, Japan and now they have a quota in the US beginning in 2014 and beyond.

Beyond that, if you are talking about like weapons material or, for example the most recent arms deal, those arms deals result in the delivery systems being taken apart from the weapons, but people preserving their highly-enriched uranium.

The US is not destroying any of the highly-enriched uranium.

That's the answer that I have for you.

George, just a follow-up.

What I'm getting at is, I recognize what is happening now with the taking war heads off the delivery systems, but God forbid, that peace reigns in the world.

If we decided to blend down all of those war heads, is there any physical constraint in the ability to do that or would it in fact flood the market?

There are limited physical facilities for doing it, particularly in North America and the US.

the amount of blend down that the facilities can handle that today are very limited but beyond that, you have to look at the desire on the part of the US to dismantle HEU or blend it down and I'm not sure that that's there.

We have not seen any indication of that.

Thank you.

The next question is from Orest Wowkodaw from Canaccord Adams.

There was a part two to that if we can cover the capitalized interest.

A quick comment on you.

It is related to Cigar Lake and it is prescribed.

We still have and see from note seven in the financials there, there's a long-term interest related to the two debentures outstanding and we are required to capitalize it, and it does relate to Cigar.

Thanks, Tim.

Next please?

The next question is from Orest Wowkodaw from Canaccord Adams.

Please go ahead.

Two questions.

Just on the conversion services business, your price realizations has really moved higher this quarter, have been volatile on a quarterly basis.

Can you give us some color on the mix of product there and where you see that going.

The second question relates to Bruce Power.

You had a very good first quarter, but you are only guiding to 90% capacity for the year.

Can you give us some color on a quarterly basis, when you expect some of those maintenance to happen so that we can see just what the quarterly profile looks like?

Orest, I'm not sure that we have the outages mapped out for us here.

My recollection second quarter and maybe third straddling fourth in that area of time.

It would be one unit out sometime in the second and another one straddling third and fourth.

That's what generates the 90% capacity factor.

Okay.

It's true Bruce Power first quarter has done remarkably well and we hope it continues certainly.

The first part, I wasn't quite sure that I caught all of the words about the fuel services performance.

Just look at your realization at $26 a pound, and I looked back to last year and you were typically doing somewhere around $15 to $17, $20 a pound.

You did have a strong first quarter last year.

Just wondering what is driving the fluctuations and the realization.

I assume it's the mix of product.

I wonder if you can give us some color where you see that going.

I think you are probably seeing an aberration in a little bit.

It's an aggregate of all the activities that we do.

It varies quarter to quarter.

So I wouldn't,tim you can pick it up.

But I wouldn't read too much into it.

The guidance that we have on page 12 of the MD&A is still the same.

Volume up 15 to 20% in the overall revenue up between 5 to 10%.

So realizations should come down to more normal levels, going into the rest of the year, then.

Yes.

The next question is from Simon Tonkin from Thomas Weisel.

Please go ahead.

Good afternoon.

Just a couple of questions on the McArthur River.

In terms of the Key Lake mill, any scheduled maintenance for say May and the second question, how long does the union agreement at McArthur have to expiry and what is the progress on that?

Okay.

Tim?

Simon the Key Lake mill is down.

They've been down for about a week and they are planning to be down most of May for maintenance.

That is our normal maintenance shutdown.

The union agreement.

The union agreement expired at the end of June, and so we are currently in good faith negotiations with the union right now.

Okay.

Do you think the shutdown of Key Lake could affect Q2 production at all?

No.

I don't think so.

Production has been going very well up to the point of the shutdown.

A little bit ahead.

So we had some experience last year bringing it back up and will apply that this year.

We don't foresee any problem at all.

Thanks.

Thank you.

The next question is from Greg Barnes from TD Newcrest.

Please go ahead.

Thank you.

Gerry, and George, I noticed in the release that you lowered your forecast for long-term contracting this year from 150 million down to 100 million pounds.

I am somewhat surprised given the growth in nuclear power, particularly in Asia.

I wonder what is going on.

George, do you want to tackle that?

Greg all we were doing there is recognizing in terms of long term contracting so far in the first quarter of this year that it's been first four months, it's been relatively slow.

To be prudent, we should adjust our volume down a bit.

It doesn't shock us that it would be lower given that the last few years you had record volumes of long term contracting take place, and as Gerry said in his remarks, utilities are well covered for the time being and the next several years.

The thing that could change all that of course and that isn't in our estimate of 100 million pounds is any significant volume of contracting, long term contracting from China and India.

Neither of which have done much in terms of long term contracting.

So that could result in our estimate being low and maybe we'd closer to the 150 that we estimated earlier.

Second question.

Gerry, your 40 million-pound target by 2018, I can get you to about 30 million-pounds of the existing assets and then Inkai, Millennium all start to come into the picture by 2015, 2016, I'm assuming.

What kind of production levels do you think will come from those assets individually?

Obviously 9 million of it will come out of Cigar Lake, Greg.

So that, and we start with 21, 22 which is our starting point right now.

Right.

A little bit more, McArthur River, maybe 10, 15%.

And we are looking at McArthur to see whether indeed with the expiration results both north and south, whether it might be able to do even more but that is simply being looked at.

If you go to the US where we are about 2.5.

We will double that between 4 and 5.

Double by when Gerry?

That will be over the next four, five years as well.

And then looking at Inkai, we are going to go from the current 2 million-pounds a year, 60% which is ours of course, up to 522 and then 10.4 out of blocks one and two.

So really the 40 million then you add Inkai and mIllennium will come out of those.

Block three, it doesn't factor into that in any material way.

Millennium, is there any kind of numbers you can put around that in terms of production levels you can achieve?

We are a little ways from that now.

We still have to go through partner consultation and permitting, licensing and these kinds of things.

Thank you.

The next question is from Borden Putnam from Mione Capital.

Please go ahead.

Good morning.

I would like to go back to the question that Simon was asking about Key Lake mill.

Maybe this is to you Tim.

In the filings you mentioned that the selenium and molybdenum levels are down but you didn't quantify what those were and whether you were in compliance and maybe you can tell us where you are out there with the whole phased work program to get those metals further down.

Thanks.

We've been working hard on both of those constituents for the last number of years.

We spent significant capital at putting new circuits in the mill.

With respect to the molybdenum piece that is off the board.

It's down to levels below we thought we can get to.

That is not an issue with the regulators.

Selenium was a bit more complicated, we talked about getting to ten parts per billion.

We are close to that.

So we are going back to the regulators with the progress we made and they are satisfied with where we are at now.

We are very close to that limit and we continue to work on fine-tuning that to try to bring it down as low as we can.

That's good.

Thanks.

Congratulations.

Next question I guess is to you perhaps but to continue with dialogue that Greg and Gerry were having about increasing production at McArthur and there was a discussion of looking at some of the resources to zone B and zone A, and in press release, you mentioned that you will drive an expiration drift up toward zone B.

Can you tell us a little more specifically about zone B, what its character is and grade and the configuration, if anything, you can share?

700 meters to the north and I think about 70, 60 to 70 million pounds at an average rate of 28% based on a limited number of surface drills.

So all we need to do is drift out, tackle from the side, do our underground exploration drilling and when we do that we'll pass by zone A and we'll take a look at all of that.

And that is all inferred at this point, is that correct?

I believe that is correct.

Thank you very much.

You bet.

Thank you.

The next question is from [Alan Ladac] of Desjardins Securities.

Please go ahead.

Good morning.

Given the recent news from Australia, that the government is intending to increase the taxation in the mining project, from 30% to 40%, has that impacted your decision or any of your ideas on Inkai going forward?

Like everybody else we read it yesterday in the newspaper.

All I can say is that it's a proposal and as we look at Inkai we'll have to factor in whatever the taxation regime is into the economics, the feasibility study and see where it all lands.

Early days but obviously you have to take into account.

Okay.

Thanks.

Thank you.

The next question is from Duncan McKeen from Macquarie Capital.

Please go ahead.

A couple of questions for George with regards to China, wondering if you have any ideas why they wouldn't have been active in the term market up until now.

Seems like they've been active in spot and active in direct investment as well and also just a second question.

If you have a confirmation how much China has bought in 2009 and if you have an idea how much they've bought year-to-date in 2010.

First of all, I should be clear.

It's not that they haven't done any purchasing in the long-term market.

They have done limited amounts, but very limited, and for the time being their focus has been on securing the uranium for the initial cores for the new reactors that are starting up.

They haven't been active in signing significant volumes of long-term contracts.

I would expect that that should be, that should change here over the near term and believe it will.

And I'm sorry.

You have to remind me as to your other question.

I was asking about how much China bought in 2009 in the spot market and if you have an idea of what they've bought in 2010.

So far in 2010 they probably purchased between, I'd say under 2 million-pounds.

We estimate that they our view is they will purchase in the order of 5 to 6 million-pounds this year.

That is a reasonable estimate.

And off the top of my head I don't recall for sure exactly what they purchased last year but I believe it was something in the order of 12 to 14 million-pounds.

Thank you.

Thank you.

(Operator Instructions).

The next question is from is David Snow from Energy Equities.

Please go ahead.

I'm wondering if uranium equivalent, how much will the Russian supply to the US enriched uranium amount after 2013 annually?

George, any estimate?

I think we would forecast it to be 20%.

They have a quota to supply, they can go up to 20% of the enrichment in uranium in the US market and we would expect them to target to supply all of that as enriched uranium product.

It would be about 20% would be about 10 million-pounds.

10 million a year?

Yes.

Thank you very much.

Thank you.

This will conclude the questions from the telephone lines.

I would turn the meeting back over to Mr.

Gerry Grandey for his closing remarks.

Thank you very much operator.

Nuclear power is a business requiring a long-term horizon, and companies wanting to be long term suppliers have to deal with that, adjust and plan on that same kind of horizon.

Cameco plans to double uranium production by 2018 is the right strategy, target for delivery at the right time.

Thank you very much for your continuing interest in Cameco and for participating in today's conference call.

Have a good day.

Thank you.

The Cameco corporation first 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.