Cameco Corp (CCJ) 2010 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, Investor Relations.

Please go ahead, Mr.

Lillie.

Thank you, and good morning, everyone.

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

Thanks for joining us.

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

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

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

We'll start with Jerry and Kim providing comments on the quarter's business results, updates on our operations and development projects, as well as our plans to transition to international financial reporting standards next year.

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 Q&A session, please limit yourselves to two questions 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'll turn it over to Jerry.

Thank you, Bob.

Let me add my welcome as well.

I'll be providing an overview today of our operations, the milestones as well that we see in implementing our growth strategy.

But before I do that, I'm going to ask Kim to comment on Q2 results, and provide some early observations on Cameco's progress in adopting the new International Financial Reporting Standards, or IFRS.

Kim?

Thank you, Jerry.

First of all, financial results we reported this morning are consistent with our earlier guidance for the year, where we expected delivery to be strongest in the second and fourth quarters.

Adjusted net earnings for the quarter at CAD0.29 per share compares to CAD0.41 a year ago.

However, as noted in the MD&A, we now expect uranium sales for all of 2010 to be down between 10% and 15% compared to earlier guidance.

This is a result of some customers deferring deliveries until 2011, plus a reduction of the spot market sales we expected to make this year.

For the balance of 2010 then, deliveries and revenue from uranium will be heavily weighted to Q4.

Cash flow has remained strong over the first six months.

At Cameco, a strong balance street helps to underpin our Double U strategy.

Going forward, our contract portfolio will continue to provide us with steady, predictable revenues that will support our pay-as-we-go approach to growth.

One sign of how our contracting strategy is working can be found in the quarter just past.

Our realized prices in US dollars per pound were up 2%; this despite the spot market remaining flat.

Moving to the progress we have made in adopting IFRS, we have provided an initial report on expected changes to our opening balances as we reached the halfway point of the transition year.

Cameco and other Canadian-based companies will begin reporting under IFRS in the first quarter of 2011.

As part of the process, we are preparing parallel financial statements for 2010 under IFRS.

This will enable us to provide direct quarterly comparisons next year.

I encourage you to read this quarter's MD&A, in which we disclose for the first time the well advanced quantification of our January 1, 2010 balances under IFRS.

Some of those balances reflect changes in the value of assets such as property, plant and equipment, that come into play under the new accounting rules.

For example, unlike under Canadian GAAP, in certain circumstances IFRS will require the reversal of impairment charges on assets previously written down.

Further communication on our progress and moving forward with IFRS will be provided in subsequent quarters.

As well, we intend to provide specific investor communications later this year, including a new section on our website.

What I'd like you to remember about IFRS is that it represents a change in the language of accounting.

It will not impact our growth strategy, financial resources or operations.

Now back to you, Jerry.

Thank you, Kim.

As you know, Cameco has an ambitious target to double uranium production from the existing asset base by 2018.

In Q2, there were two significant signposts on this journey.

One, of course, is the signing of our first long-term sales agreement with a Chinese utility; the second is more immediate, and can be found in our production success at our various worldwide operations.

These operational achievements are laying the groundwork today for even greater production success tomorrow.

Some of the highlights of our operational success through the first half of the year include production from McArthur River.

It hasn't missed a beat in mining from underground resources.

It continues with development of new zones, especially zone 2, panel 5.

We're on schedule with the development plan as well for lower zone 4.

Key Lake continues to operate smoothly, following its annual maintenance cycle and restart, and that Springtime outage has become a regular Q2 activity.

This continued operational improvement occurs at the same time projects are ongoing, as part of the mill's extensive capital renewal program.

Looking ahead, we now have regulatory approval to allow McArthur River to produce up to 21 million pounds of uranium annually, until past production shortfalls are made up.

Both McArthur River and Key Lake now have this flex provision in their licenses; our opportunities to make use of this flexibility, as we did at Key Lake last year, will depend on maintaining our ongoing operational excellence while we are renewing our facilities.

In fuel services, the Port Hope conversion facility is again producing at routine and consistent levels compared to the first half of 2009.

We expect these production norms will continue into the future, thanks in part to a new three-year labor agreement reached with our employees.

As a result of this mutual agreement, our fuel services division is well positioned to benefit from increased sales and revenue opportunities this year.

Another signpost to future success occurred in June, when Inkai had its official opening ceremonies.

I and others here today, including Tim and Bob, joined our partners and government officials in celebrating this milestone.

Inkai is ramping up steadily quarter by quarter.

Management at the joint venture are preparing the way to reach full design capacity of 5.2 million pounds, when final permits and approvals are received.

We expect production at Inkai to be an important slice of the pie as we grow our uranium production.

This will be achieved through the strength of our partnership with Kazatomprom, and the relationship we have established with the Kazakh authorities.

Important to our long-term goals, we have an agreement in principle with the Kazakh government on a block 3 expiration license amendment.

This will provide the joint venture with a five-year appraisal period to continue the necessary delineation drilling, operate a test leach facility and prepare a feasibility study.

Turning to Cigar Lake, we're fully engaged in the underground assessment work, freeze drilling for shaft 2, and restoring infrastructure needed for underground development to resume.

We continue to target initial production from Cigar Lake in mid-2013.

The Cigar Lake development plans call for installation of freeze piping to surround the ore body to be done from development tunnels at the 480 level.

But as we've advised earlier, we're exploring other approaches, as mentioned in the technical report.

We are field testing freeze pipe installation from surface as an alternate way of freezing the ore body, with the goal being an accelerated production ramp up.

As you know, Cigar Lake is a major component in our pipeline of projects to achieve Double U.

Elsewhere in the pipeline, we are busy advancing the case for development projects such as Millennium in the Athabasca Basin, and Kintyre in western Australia.

As well, we'll be seeking approvals to expand our US production through the development of new ISR well fields to supply our processing facilities in Wyoming and Nebraska.

So why all the activity on three continents and four countries; our goal of doubling uranium production from our world class assets is our response to the rapid expansion in installed global nuclear power capacity that we're seeing, especially in Asia.

For Cameco, our market focus in the second quarter was on two significant milestones, immediate in China and looming in India.

As you know, Cameco signed two important agreements in June that will prepare the groundwork for long-term uranium sales to China, a country that until recently had done most of its procurement in the spot market.

Our agreement with CNEIC, a subsidiary of China National Nuclear Corporation, will see Cameco supplying 23 million pounds of uranium concentrate through 2020.

At the same time, we have a Memorandum of Understanding to pursue a long-term uranium deal with the China Guangdong Nuclear Power Holding Company.

There is also the potential of joint development opportunities.

This is a utility that is currently managing one of the largest reactor construction programs in the world.

Meeting China's future electricity demands means deals must be made now, to ensure there will be fuel for the country's rapidly-expanding reactor fleet.

Cameco is well positioned to supply China and other Asian markets into the future.

Our goal is to strengthen these relationships with the new customers, so that we remain a supplier and partner of choice.

We remain optimistic that in coming quarters, we'll be able to announce the same type of arrangements with customers in India.

The important first steps were taken in June, as the Prime Ministers of India and Canada signed a Nuclear Cooperation Agreement.

We're hopeful that the final steps to move this NCA through the Canadian Parliament will occur this fall.

The commitment of these countries and others to building nuclear energy capacity is the biggest growth opportunity for suppliers of nuclear fuel in more than 30 years.

These dynamics underpin our belief in the strength of the long-term fundamentals of our industry.

Cameco's strategy is clear; we intend to remain a leader in helping to meet the growing global energy demand.

So with that, Operator, I'll turn it over to you for questions.

(Operator Instructions)

The first question is from Orest Wowkodaw of Canaccord Genuity.

Please go ahead.

Good morning.

Questions around McArthur River.

You've got the permit, or I guess the amendment to increase production to 21 million pounds to make up for lost production; how quickly do you think you could actually increase production beyond the current level?

The press release seems to suggest you don't plan to do that for a couple years; I was wondering if you could provide details in terms of what the limiting constraints are, what the timeline might be to get production up?

And could you also give us an update, I thought you were also applying for a permit to permanently increase the capacity at McArthur, beyond just making up for lost production?

Thank you.

On the second part, you're absolutely correct.

We're in the process of doing that, so that the ability to go higher than the current 18.7 million pounds becomes a license amendment.

On the first one, which is the capability, plans are still to come in at 18.7 million pounds but we look for opportunities year by year to increase, which is precisely what we did in 2009, between the combination of the mine and the mill, going over that 18.7 million pound level.

So I'd look for in the near term for it to be a little bit more opportunistic, depending on how everything is running, and really mostly the capability of the mill to put the material through.

And then over the long term, all that gets rectified with the revitalization of Key Lake and more development centers at McArthur River.

Okay.

So we shouldn't anticipate any sort of additional production really of a material sort for a couple years; is that correct?

Yes, the plans are we continue at the 18.7 million pounds, and look for opportunities to do better.

Okay.

And what do you think the timeline might be to permanently increase the licensed capacity to 21?

Tim, you've got a timeline on that?

It will be a few years out yet, Jerry.

Okay.

Thanks guys.

Thank you.

The next question is from David Snow of Energy Equities, Inc.

Please go ahead.

Yes, hi.

The China story that was just recently -- Neff of MIT saying they would buy 5,000 metric tons, I guess, isn't that about -- this year.

Isn't it about in line with what you had said they bought in 2009?

I think you said they'd bought 12 million to 14 million pounds and then about at 13 million the Neff article says they would buy this year?

George, you want to handle that?

It's -- you're correct in that our estimate of what they purchased last year was in the order of 12 million, 13 million pounds.

This is only our estimate, is that this year it will be about half that amount.

Dr.

Neff, as you pointed out, suggested it would be significantly more.

That's his view.

Okay.

And I'm wondering if you can give us any idea of what the pricing and delivery schedules might be of your 23 million pounds going out to China through 2020?

Well, our pricing was, you know, it was competitive with current market conditions, if you will; in other words, it was favorable to market.

In terms of delivery schedules, obviously it's weighted to the latter part of the contract period.

Then does that mean you're market related on this?

It's a combination of both.

Okay.

That's as far as I'm able to go.

And do you have an update as to what you expect out of Kazakhstan this year?

I think you had last said 40 million pounds, versus 35 million to 36 million.

Does it look like they're going to do better than that or --

Our view is that they'll do a little better than that.

It will be more in the order of 45 million, 46 million pounds.

Any end in sight to their --

Thank you, David.

Thank you.

The next question is from Greg Barnes of TD Newcrest.

Please go ahead.

Thank you.

George, the Chinese.

Is it your impression that they've moved out of the spot market then, and they are focusing on the longer-term contract market now?

No, Greg, I don't think that they've necessarily -- they're not abandoning the spot market by any means.

As I said, we expect them to still purchase at least six million pounds this year.

I think, as I said in a previous call, it was only natural that they would start to turn their attention to fueling their program over the longer term.

In the initial period, they needed to accumulate material for those initial cores.

But they still have more to do in that regard.

So I expect them to be a significant player for the next several years in the spot market, as well as in the term market.

On Cigar, the ability to freeze [the surface], how quickly would that speed up the ramp-up period?

Bob, do you want to respond?

Yes, sure.

It provides two opportunities, one is it can probably bring -- we anticipate bringing production on a couple months earlier, and then at the other -- the bigger piece to that is it allows us to bring production forward.

So the ramp-up will be much shorter, because of the freezing done ahead of the start of production.

How much forward?

We start production, we think, about two months earlier than otherwise.

But -- with the -- our schedule is showing probably bringing up to 10 million pounds forward into those first couple of years.

Okay.

Thank you.

Thank you.

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

Please go ahead.

Good afternoon.

Just one question for me today, which is on the McArthur River, and the amount of material available for capture.

Obviously, you amended the license there, so you can catch up with production losses in future years.

How much material at the moment is available at your discretion to catch up in terms of production?

Yes, we tried to cover that off a little bit.

It's more opportunistic.

It depends on how the mining sequence is going, what the mill is capable of doing in the remaining part of the year or next year, or the year after that.

Pretty hard to sit here and predict.

There's plenty -- we all know there's plenty of reserves at McArthur.

It's just a function of how quickly you can cycle your mining machines.

I guess my question was more, how much -- what were the shortfalls in the past that are available to be caught up on?

If that (multiple speakers).

Tim, do you have that?

Just over five million pounds, Jerry, at Key Lake; it's really based off of Key Lake, a little over five million pounds.

We had a little bit last year, and so we've got about five million pounds of space.

I'm sorry, I misunderstood your question.

That's all right.

I didn't phrase it very well.

Thank you.

The next question is from Duncan McKeen of Macquarie Capital.

Please go ahead.

Thanks very much.

I was wondering just about your comments about the spot market and how it continues to be sort of discretionary in nature, and you commented the spot prices being low.

Just wondering about your decision to defer some of the spot market sales; do you feel the spot market is too thin at these levels and that you couldn't deliver the size you wanted, or are you simply holding back material with a view that prices will be higher later in the future, say into next year, thanks?

I would say it's all of the above, but I'll let George maybe give a little bit more color.

Yes, I think what it boils down to is that our sense is that -- as we've seen over the last few weeks, the market is pretty thin at these levels.

The prices were, you know, fairly low at CAD41.50, you saw it move up quite dramatically up about CAD5 on not huge volumes.

So our -- in part our view is that there's likely to be more favorable -- the market will be more favorable in the future than it is today, so why increase sales in this period.

In other words, uranium is a good buy right now.

So it can go up on very little volumes, and likewise it could go down on very little volumes, so you make judgments accordingly.

Right.

Just as a quick follow up, I mean, we essentially sat down around say CAD42 for quite a long time, and it seems like now we sort of jumped up and are sitting at CAD46; short term, do you think it's at a level where it's comfortable or may we see it sink back down?

Our crystal ball is pretty cloudy.

Okay.

Thanks, guys.

Thank you.

The next question is from Ben Elias of Sterne Agee.

Please go ahead.

Thank you, good morning.

Ben Elias from Sterne Agee.

I have a question about the contract with India.

If, you know, we look at what the contract with China was, about 23 million pounds, and as you said, deliveries would be towards the latter half, closer to 2020.

India in the past, at least with Areva, has signed 60-year contracts.

Do you think -- I mean is the contract you're signing duration over the next 10, 15 years, or is it more likely over the next 40 or 60 years, and if that's the case, like the China contract, do we expect about four million to five million pounds delivery?

The agreement we talked about first was the bilateral agreement between Canada and India.

That's the agreement that was just signed.

That allows or facilitates trade between Canadian companies and India.

Ultimately, it has to sit before the Canadian Parliament for another 21 days before it becomes ratified or effective.

So we don't yet have a supply contract with India.

We're hopeful, and that's what we said in the opening remarks, but it's way too early to talk about the details of that.

Okay.

Thanks.

Second question, there hasn't been a lot of public comment about GLE, whenever I talk to GE, either people don't know about it or they say it's top secret.

A couple months ago they said they don't like talking about nuclear because it's a money-losing business, but then again recently they said they have reached milestones, but we don't know what those milestones are, because they're top secret.

What can we expect on this venture that you have with them?

Within those parameters, and recognizing that we're not even privy as well to some of the top secret material, George, you want to provide a little bit of guidance?

The first phase of the test, the Phase I that proves up the technology has been successfully completed, and so at this point where we are is they're doing additional operation with that test loop, and testing will continue into 2011 with the intention to provide additional inputs to the project as it moves forward into advanced engineering and design.

During that period, you'll continue to evaluate the project and ultimately you'll come to a point when you have to make a decision as to whether or not commercially it makes sense to go forward.

So that's where it's at right now.

We would expect -- at this time, it looks as though a commercial decision is likely going to be sometime in early 2012.

Okay.

Thank you very much.

You're welcome.

Thank you.

The next question is from Borden Putnam, Mione Capital.

Please go ahead.

Good morning, Jerry.

During your discussion about the McArthur River expansion possibilities, you likely noted that there's some critical path issues relating to Key Lake, so I'd like to ask Tim Gitzel if he could update us on the remediation of the moly and selenium and the effluents, and how that's going?

You bet.

Go ahead, Tim.

Good morning, Borden.

I'm happy to report that's going and gone very well.

We've got the circuit in place.

As I think I reported in the past, we've taken moly off the table.

It's down to levels below what we said -- where we said we would get to.

Selenium, same thing, we've got that down to levels that are acceptable to the regulator.

We're still -- we'll never stop trying to take it down to non-detect.

We're not there yet.

But we're at levels that we're comfortable with, and the regulator's comfortable with.

So we've really taken those issues off the table.

Are you at a position now where the Key Lake mill is able to keep up, if you were able to increase capacity production from McArthur River, or is there still some remaining works to be done?

We've got a few things to do, first we have to get environmental approvals to increase production; second, we have to do some work on the mill.

We're doing some of it now.

The acid plant work is going well.

Acid/oxygen plant is underway now and going well.

Then we'd have to do some other work to some of the circuits before we could increase production.

One follow up, if I may, Tim.

A couple of years ago, there was disclosure during one of these hearings at the CNSC about isodecanol that was produced as a by-product of the processing of backfill, which was a necessary component of some of your mill [feed].

Has that issue gone away?

I haven't heard about it in more than a year.

Borden, I'm going to pass you to our Chief Operating Officer, Bob Steane on that one.

Isodecanol is not produced as a by-product, it is used as a modifier in the solvent extraction plant that allows the organic and aqueous phases to separate more effectively.

Okay.

So that's the role of isodecanol in the process, it's a reagent we add to run the circuit.

Okay.

I see.

That was misunderstood.

Thanks very much, guys.

Thank you.

The next question is from David Snow of Energy Equities, Inc.

Please go ahead.

In Cigar, do you have people underground yet?

David, yes, they've been underground since February doing some very, very good work.

It's looking very good.

Okay.

So the walls are pretty sound, as a result of their inspecting?

Yes, very little damage.

There was a few small -- very small areas where we've had to go back in and sort of fix up some [shot creek] and these kind of things.

But most of the activity has been cleaning up the cement and sand and slimes that over the period of time the mine was under water accumulated.

So that's been the big activity, is just getting everything cleaned up.

Okay.

And then I was wondering on the net of the expiration of the HEU contract, what -- given that Russia is going to supply some of the material from its own mines when that expires, what will be the net effect to the West, do you think?

George, on the HEU transaction.

Well, the way I think of the HEU transaction is a high-grade mine producing 24 million pounds annually.

So in 2013, you know, that agreement ends, as we've said -- relayed in the past, the Russians have been quite adamant that they'll be no further blending down of HEU after that time.

We, in our analysis, make a conservative assumption that it will continue at half the current rate.

But that material doesn't come into the US under -- there's no longer an HEU agreement, it's just material that under our analysis would impact world markets.

But again, just to be clear, Russians have always been quite adamant that there will be no further blending down of highly enriched uranium after 2013.

You're assuming that their own mines will supply about half that rate?

Yes, they'll have to make up the amounts they need from their own production in Russia and Kazakhstan and elsewhere.

Is that in addition to what they're doing now?

There may be some confusion.

I think the industry, David, is assuming that the HEU transaction, even with what Russia insists is, that it will not continue.

Industry analysts kind of assume it will just drop down to about 12 million pounds a year from 24 million.

In addition to that, then Russia through its own production and what they've now picked up over the years in Kazakhstan, and the recent deal with Uranium One, will supply their customers out of both HEU at half the level and uranium mine production from Russia, Kazakhstan and wherever else they procure.

With those other sources it will be about unchanged?

They're going to have to meet their customers' requirements.

So -- the big uncertainty is at what level, if any, will the HEU transaction continue post-2013.

It's either 24, 12, zero, or somewhere in between.

Okay.

Thank you.

Thank you.

The next question is from Aleem Ladak of Desjardins Securities.

Please go ahead.

Hi, good morning.

My first question is for Kintyre, aside from what you've given in your outlook, do you have other -- more information that you can provide?

Bob, you want to comment on Kintyre?

Yes.

Kintyre, the activities that are going on there now are delineation drilling to prove up the ore resources, and work on a pre-feasibility study, and all that work is proceeding on schedule, and we anticipate having drilling done later some time in Q4, and the pre-feasibility study sometime mid to -- mid-next year to Q3.

Other than that, I [already commented] the work is all progressing on schedule as we planned it.

Okay.

Thanks very much.

And I think this was -- may have already been addressed before.

But what exactly was the re -- why exactly did you reduce your estimate for spot market sales this year?

George?

It simply relates to our view of the market at this time, and our view of how prices are likely to move.

So our sales were reduced for two reasons, as was noted in the report.

There was a deferral of some quantities by customers to 2011, and we made a decision to sell less into the spot market.

Okay, so the decision to sell less.

Okay, thanks very much.

Thank you.

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

Please go ahead.

Thanks very much, gentlemen.

Just a couple more follow-up questions.

The first is in relation to the labor dispute which is impacting [Combodine's] ability to deliver to its customers' requirements.

Have you seen, and do you expect to see, any pickup in the fuel services business to you guys as a consequence of that?

George?

Yes, we've seen, I'd say, a modest pick up where some customers that were concerned about being impacted with near-term deliveries have come to us for increased quantities.

But it's been, I'd say, fairly modest at this point.

And then the second question just in relation to the GE laser enrichment program, you may not be able to answer but this, would it be fair to say that the potential cost improvements that the process might offer in relation to perhaps gas centrifuges, it's a similar magnitude of savings versus gas centrifuges as it is between gas centrifuges and gaseous diffusion?

Probably too early to say, Ed.

Thank you very much.

Actually, one further question, you talked a bit about Kintyre, just in terms of the work that's ongoing, can you comment briefly on the sentiments around the project?

Are you pleased with the possibilities it offers?

Sentiment is as good or better than when we bought it, and obviously politically much better.

So we're quite enthusiastic, as is our partner, about Kintyre.

Thank you very much.

Yes.

Thank you.

The next question is from Orest Wowkodaw of Canaccord Genuity.

Please go ahead.

Thanks for taking my follow-up.

It's actually a question for Kim just on the unit costs in the uranium segment.

I was wondering if you can give us some color on how the cost of purchased uranium dropped so much?

When I look at Q1 versus Q2, it looks like they dropped by about CAD5 a pound from Q1.

It seems like a lot when I believe you're using an average cost inventory system?

It really is a matter of how much we purchased it close to spot prices.

That impacts -- it is, you know, it is an averaging system with that, that's the factor, is just how much we buy at spot versus how much under previously entered into long-term contracts and HEU, and so on.

Okay.

So it just a function of the mix in the quarter or --?

Well, no, mix in the sense of -- on the purchase side it is how much -- how much we would have purchased earlier, and how that gets expensed over time, and then any new purchases at lower prices, and it really is how an averaging -- a big pot and how you put stuff in and take it out, and how the average works, yes.

So is that a function of essentially low-cost HEU offsetting higher-cost spot material?

That's how it's always been, yes.

Okay.

Thank you.

It's a good question, too, because buying in the spot market is something that we kind of do as we judge -- it's more opportunistic, we want to find out how deep the market is, who the aggressive sellers are, and we may or may not buy.

Likewise, we may or may not sell.

It's really much more of a judgment that management makes, as we look at the spot market.

Thanks, guys.

Yes.

Thank you.

The next question is from Duncan McKeen of Macquarie Capital.

Please go ahead.

Just on zone 2, panel 5, it seems like you have had some good success there; I'm just wondering if you can give us a little bit of color on what was it in particular about that area that's gone particularly well?

And are there also still some challenges ahead?

And just overall, do you think that sort of the risk profile of that area has come down since you've had some good experiences in there so far?

Thanks.

Bob, you want to take that?

Yes, the big success there was our ability to get the freezing pipes in, and a very efficient and effective geometry that actually opened up and allowed us to transition in and accelerate the mining to get the production.

That was the huge change in McArthur last year.

And now that we're in there, and developing and actually [raise boring], Duncan, I would say the risk profile has gone down dramatically.

I mean, what we see, given how that development worked, the protection of the freeze wall, the fact that we're now opening up a second panel, or will be, we've got great confidence now in the way in which that, as Bob described, the geometry, the freeze wall geometry, works to allow you to get on top of that very rich zone.

Okay.

And can you give us a little bit of color on how the set up of a freezing system from surface would work at Cigar Lake?

I'm just trying to imagine, actually, where the heat exchanging units would be, and then how do you sort of overcome the fact that you -- you're traveling down such a long distance, and there will be heat losses going on on the way down?

Good question.

Bob, can you answer that?

That's -- the uniqueness of this whole test is exactly that.

You can freeze the ground, but we didn't want to freeze 400 meters of ground, so it's been -- the whole testing that we've been doing is to focus the freeze on the 40 meters, 400 meters under the ground where the ore is.

That's achieved by running a cased hole down into the ore, and then running a freeze pipe through the center of that casing, so you have an air annulus that is insulating and preventing -- you get a little loss of heat but very little, and so then we have a packer arrangement that keeps the brine then -- allows the brine to go to the outside of the casing in that 40 meters of focused zone, and then return back to the surface to a return pipe that brings it again up through that air annulus, which air is a very effective insulator.

The results to date have been as we hoped and very effective.

So we're very pleased with the outcome of this.

Each plant, of course, is the same freeze plant, no need to expand it to do both the surface freezing and the underground freezing that will be done.

So it's the surface freeze plant that's providing the low temperature brine.

And the heat exchangers would be on surface?

Everything stays on surface.

If -- we don't have the same set up that you have when we're running the freezing underground, we run the primary brine circuit, which is your higher pressure brine, goes down to a heat exchanger underground, and then we run a low pressure brine circuit underground.

When we are running from surface, it just comes straight out of the freeze plant and down the pipes and back up again.

We don't need that heat exchanger setup.

Okay.

That's great.

Thanks very much.

Guys.

Thank you.

The next question is from Brian MacArthur of UBS.

Please go ahead.

Good morning.

In your 10-year uranium outlook, you talk about now you expect 75% of the supply to come from current mines, up from 67%.

Is that all -- just roughly, what are the main changes?

Is it all Kazakhstan, did you change Olympic Dam, just redefining what was a new mine versus old mine?

Just what some of the major changes were in there?

Brian, all but one or two were new mines in Kazakhstan.

I think a total of six or seven, and all but one or two were in Kazakhstan, right, George?

That's correct.

And the other one or two?

That was one, and that was the Malawi operation that [Palonet] had.

Okay.

Thank you very much.

You bet.

Thank you.

The next question is from Cassandra Kyle of StarPhoenix, please go ahead.

Hi, good morning, everyone.

I have a bit of a more localized question about the supply deal with China, and any potential supply deal with India.

How will this effect the Saskatchewan economy?

Will this lead to more jobs?

Cassandra, absolutely, the more material we sell, and whether it's delivered out of our operations in Canada or even in the US or Kazakhstan, it means more production people, more marketing people, more engineers to make sure the mine supply comes online.

So every bit of business we write, and of course most of our sales are abroad, every contract we write ends up in increased production, and ultimately in more employees that service those contracts.

Any idea of how many more people you might have to bring on board to --?

Not currently, no.

Thank you.

Thank you.

(Operator Instructions) The next question is from David Snow of Energy Equities, Inc.

Please go ahead.

Could you help a little bit in quantifying the Cigar, where you said you would bring it forward a couple of months, and bring 10 million into the early years?

It was going to start up in mid-2013, so it would be a couple months earlier than that?

Today's -- at today's scheduling, David, mid-2013 is -- a couple months here or there is still mid-2013.

Then bringing 10 years into the earlier -- 10 million pounds into the earlier years, could that be 2014, 2015?

It brings -- it's over the first three, four years, so the ramp-up we had anticipated over from 2013 through 2015, we'll progressively increase that by 10 million over those few years.

From what you had said for 2013 to 2015?

Yes.

Okay.

Thank you.

Thank you.

This will conclude the questions from the telephone line.

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

Jerry Grandey for his closing remarks.

Thank you, Operator.

In the nuclear energy sector, we've obviously looked beyond the immediate horizon.

We know very well that the planet and its inhabitants are going to need ever-increasing supplies of clean energy; and nuclear, we believe, is well positioned to deliver on those needs.

At Cameco, our horizon includes looking out 10 years and beyond, certainly, as we plan our future.

The years of prudent investment in exploration, along with the key acquisitions that we've made in the past, have built an asset base in uranium reserves and resources that is truly extraordinarily.

That asset base provides Cameco with a diverse portfolio of projects from which we can pick those that make the most sense to advance.

The goal, of course, is the Double U; the strategy is clear, our focus is on a portfolio of projects that will enable us to achieve safe, clean and reliable production, while providing an attractive return to our investors.

So we thank you very much for being on the call today, and certainly for your continued interest in Cameco.

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.