Cameco Corp (CCJ) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cameco Corporation second quarter conference call.

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

Bob Lillie, Director, Investor Relations.

Please go ahead, Mr.

Lillie.

Thank you, Operator, and good afternoon, everyone.

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

Thanks for joining us.

With us is Tim Gitzel, President and CEO, and his executive team who he will introduce in a moment.

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

After his introductions, Tim will begin with brief comments on the quarter and outlook for the remainder of 2011 and comments on current industry conditions.

Then, we will open it up for your questions.

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

During the QA session, please limit yourself to 2 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 that we have made.

With that, I will turn it over to Tim.

Well, thank you, Bob, and welcome to all who joined us on our second quarter call today.

With me on the call today are all of the members of our new senior executive team who I think you are all familiar with.

This is Grant Isaac's first conference call as our Chief Financial Officer.

Grant has been a member of Cameco's senior management team for some time and is now responsible for Corporate Strategy.

His strategic insight will help us apply our financial strength to achieve our growth objectives.

The other new member of our senior executive team, Alice Wong, is no stranger to the investor community as she previously led our Investor, Corporate and Government Relations Group.

In nearly 25 years of experience with Cameco, Alice has held senior positions in both the corporate and operational sides of the Company and has built a broad and deep knowledge of our business.

Since 2008, as Vice President, Safety, Health, Environment, Quality, and Regulatory Relations, she has been responsible for dealing with one of Cameco's most important stakeholders, our regulators.

Also with us in person our Chief Operating Officer, Bob Steane, Senior Vice President of Marketing and Business Development, Ken Seitz, and Gary Chad, our Senior Vice President, Governance, Law, and Corporate Secretary.

While there has been some change in Cameco's senior management team, some things remain the same.

Each member of the team is committed to our core values, the safety of people and the environment, integrity and excellence.

And as a group, we remain committed to achieving Cameco's strategic goal of doubling our annual uranium production by 2018.

With that, let me turn to our second quarter results.

We are in line with our guidance for the year.

As we previously advised, our uranium deliveries are heavily weighted to the second half of 2011, and in particular, to the fourth quarter.

Our sales guidance for 2011 has not changed since the beginning of year despite the events in Japan.

We expect to deliver 31 million to 33 million pounds of uranium to the market this year.

We also expect revenue from our uranium segment to be 10% to 15% higher than in 2010, and that overall chemical revenues will be up 5% to 10% this year.

Most importantly, we produced 5.7 million pounds in the quarter just ended.

This brings our mine production to 10.5 million pounds, back on track for the year.

After 6 months, production at McArthur River/Key Lake has delivered 6.2 million pounds as projected in our plan.

The only variance for the first 6 months is at Rabbit Lake where the annual maintenance work began before the end of the second quarter.

This was to accommodate the second phase of work in refurbishing the acid plant at the mill.

We expect Rabbit Lake will make up the shortfall in the third and fourth quarters, and that Cameco's total production will meet our forecast for 2011.

Cameco's existing mine and development assets in North America and Australia, plus our joint venture, Inkai, in Kazakhstan, all figure highly within the corporate strategy to double our uranium production by 2018 teams to about 40 million pounds annually.

This increase, as we have noted in the past, will come from assets we already own.

At Cigar Lake, we are making progress in developing the ore processing areas underground.

The sinking of Shaft 2 has resumed, and we expect to break through to the development area on the 480 meter level before the end of the year.

We have received approval of our mine development and water management plans for Cigar Lake.

On breakthrough of Shaft 2, we can resume development of tunnels under the deposit.

This we think this reflects the confidence that our regulator has and the careful manner in which we have gone about sealing the mine, dewatering, and securing it.

It is through this well planned process that we expect to begin production at Cigar Lake by mid-2013.

Other development projects such as Millennium and Kintyre continued to progress through our stage gate progress.

Cameco's strong team in corporate development also continues to scour the world for assets that will add to our portfolio of reserves and resources.

The fact is we continue to anticipate growth in demand as we remain confident that the nuclear fuel business is growing albeit with a pause for reflection and review in some countries.

Clearly, the political decision made by Germany has had a negative effect.

It is also clear that the future of the industry in Japan is currently uncertain, both politically and on the regulatory side.

However, among almost all other, long-established nuclear plant operators in the world, the German nuclear phaseout has not proven contagious.

In the US, which remains the world's biggest user of nuclear power, the post-Fukushima review continues on a rational path.

The early, 90-day review by a special task force panel of the national regulator found no immediate safety issues with any of the 104 US plants.

Utilities have stated that implementing some of the changes proposed by the task force panel will not negatively affect long-term economics of existing plants.

Even more positive, the Nuclear Regulatory Commission's chairman stated that the technology in the new reactor designs proposed for Georgia and South Carolina with their passive backup cooling systems already addressed the main safety concerns that emerged from Fukushima.

As a result, it is widely expected that there will be at least four new Generation 3 reactors under construction in the US within a few years.

That is in addition to the construction work being undertaken now by the Tennessee Valley Authority to complete the second unit at Watts Bar.

In the United Kingdom, the groundwork has been laid for a number of new nuclear power stations that should be the backbone of the country's efforts to rebuild its aging electrical generating infrastructure.

To look beyond the headlines from Europe and Japan, it is clear that the world's fastest-growing economies are not backing away from their plans to have greatly increased nuclear power capacity as part of their energy mix.

China today has 13 operating reactors, and post-Fukushima, all have passed the Chinese safety inspections.

By October, China plans to have completed safety checks on the 27 reactors currently under construction.

There is growing consensus that because of the commonality of designs picked by China, the process for approving additional reactor sites will also resume.

In India last month, concrete was poured for Units 7 and 8 at a nuclear facility in the state of Rajasthan, using the country's indigenous heavy water, pressurized reactor design.

The head of the Indian state nuclear company has declared that plans will be going ahead for another 14 reactors of about 700 megawatts each.

India is expected to have no trouble achieving its goal of doubling its installed nuclear generating capacity by 2018.

It is true that the events at Fukushima have caused some countries to pause in their plans as they assess potential nuclear builds.

Nevertheless, we still expect the world will have about 85 net new reactors by 2020, making this decade 1 of the greatest growth decades in nuclear power history.

Our market projections for reactor builds do not yet factor in countries such as Saudi Arabia which has only recently declared its intent for a large-scale, nuclear power program.

As you know, that country has concluded it must find other ways to generate electricity rather than burning a constantly increasing percentage of its petroleum production to supply domestic power needs.

So as we have consistently said since March 11, Cameco sees solid fundamentals for the nuclear fuel business in the decade ahead and beyond.

Not only do we see bright prospects in the years ahead, our ability to generate revenue is also rooted solidly in the here and now.

With our extensive portfolio of long-term sales contracts, we are in the enviable position of being heavily committed until 2016.

This provides Cameco with financial stability as we pursue our corporate growth strategy.

At Cameco, we remain confident in the long-term fundamentals of the nuclear industry.

Countries that must find ways to rapidly increase their energy production are maintaining their confidence that the next generation of nuclear power technology can deliver the safe, clean, reliable power they need.

For that reason, we at Cameco remain focused and committed to our strategy to double production and remain among the world's leading nuclear fuel suppliers.

So with that, we would be pleased to answer any questions.

(Operator Instructions) Our first question is from Brian MacArthur from UBS.

Please go ahead.

Good morning.

I was wondering if you could just elaborate -- I noticed your forecast for production in the next five years has changed somewhat.

Specifically with respect to the US ISL operations.

Could you just go through what the new forecast shows there?

Well, thanks, Brian.

We have slightly tweaked our production forecast in the US, and I'm going to ask Bob Steane to comment on that.

The permitting and production process, we've adjusted them according to our expansion plans and the state of our current permitting progress.

So is the pushback just the fact we haven't got permits on certain sites?

Or they are taking longer?

Is this firmer than before?

Can I look at it that way?

Or is it just we are still working through the whole process?

Brian, I think you can take it as firmer than before.

It's a bit of an evolving process for us down there between the NRC and the BLM and the Wyoming Department of Environmental Quality.

It's complicated.

We have said that before.

Yet it is a place we need to be and want to be so I think it just better reflects the timing that we see now.

Great, thanks.

Maybe just a quick follow-up, again just looking at our favorite realized price chart going forward.

I noticed it looks like -- am I reading this correctly?

In the mid-pricing range of 40s through 60, 70, 80, we have knocked everything up CAD3 or CAD4 as we go through at every level.

Can I read that to be fair to say now we've worn out some of the older, historical contracts that were really weighting it down?

Brian, that is indeed the case.

I think we updated as those come off, and so those would be the new numbers you would see.

Great.

Thank you very much.

Thanks, Brian.

Our next question is from Greg Barnes from TD Securities.

Thank you.

Tim, with Japan, obviously, questioning the future of nuclear power in that country, and a lot of press reports about the potential for the reactors all to be closed by next spring if they don't get these safety checks -- I know they've been approved, but the states don't allow them to move forward.

What impact do you see on your business from that occurring?

Thanks, Greg.

First, I have to say, personally at least, I have trouble seeing how that could happen.

How Japan could take them all down at the same time and certainly on any kind of a longer-term basis.

With that said, we obviously are looking at that in looking forward.

I think, I can say and then I will pass it over to Ken Seitz to give more detail.

But Japan, going forward, if you look at our entire sales portfolio going forward, Japan would represent probably in the 17% range of that portfolio.

And so it's not insignificant, but that's what it would be for us.

Ken, I will ask you if you have any further comments?

Absolutely, Tim, thanks.

Greg, as Tim said, our overall portfolio, long-term commitments about 17% to 18%.

In 2011, Japan represents about 12% of our deliveries.

And we expect to make all of those deliveries with the exception of about 700,000 pounds which we have agreed to defer for 1 Japanese utility, and that's about 2% of this year's deliveries.

And, we still intend to be well within our guidance of 31 million to 33 million pounds.

But going forward, if your question is a permanent phaseout of nuclear in Japan, it would be a case of us working with those customers.

And depending on what that phase out might look like, 17% to 18% of our portfolio being liberated for resale.

So we would have those volumes to place back in the market.

I can tell you some of those contracts with Japanese customers would be at prices lower than today's market prices and some would be at higher.

So, it would be a matter of how that plays out, but as Tim said, that's not something that we see as realistic.

And today, we are not canceling any volumes with Japanese customers.

We are just looking at deferrals.

Okay.

Thank you.

Just a follow-up then, too.

Switching topics to Cigar Lake, you've said you're looking at various initiatives that could favorably impact some of the estimates on OpEx, CapEx, things like that.

What kind of initiatives are you looking at?

I can't give you specifics at this time, but I can tell you that similar to the surface freezing, for instance that we came up with -- our engineers came up with this.

We are always looking for better and innovative ways.

It would be in that order, things like that.

So as soon as we have a better handle on those and whether they are implementable, we will certainly provide details on that.

Okay, thanks.

Our next question is from Borden Putnam from Eastbourne Capital.

Good morning, Tim can you hear me?

Absolutely, Borden.

Good morning.

Congratulations on hosting your first call.

It's going really well.

Thank you so much.

Well deserved.

Question on McArthur River.

I am looking back at the life-of-mine plan that you provided in 2008, and I know that's a bit in the past now and things might have changed.

But it called for 300,000 pounds of production out of boxhole boring testing some time in 2011.

Have you done that?

Are you going to?

And if you do, what part of the mine will it be done in?

Borden, I don't have the 2008 piece in front of me, but I can tell you we have certainly evolved since then.

And I say evolved in the sense of our technology has gotten better -- our freezing.

We've got a better handle on how we can freeze now out into the sandstone and go above the orebodies which we previously didn't think we could do.

And so, that has negated to some extent, our need for boxhole boring and other mining technologies that are only used from underneath the orebody.

And so we've done some testing on boxhole boring, but we certainly haven't produced any pounds from it.

And the need for that is, I would say, waning.

Interesting.

Well this is not my follow-up, but that would suggest that this might be some of the advancements that might apply to Cigar as well.

So I will be interested to hear more about that.

Congratulations on that improvement.

Or that advance.

My follow-up was going to relate to your comments in the MD&A.

It says that 2013 production at McArthur River may be a bit lower as you transition into Upper Zone 4.

And again looking back at that production -- the life-of-the-mine plan.

I am not seeing -- I didn't think you had a lot of production coming in 2013 out of Upper Zone 4.

So where is there going to be a loss in production during that transition?

Because it looks like to me like you're still going to have 18.7 million pounds.

What do you think it's going to come in at now?

And where is the missing pounds?

Borden, let me ask Bob Steane to give some detail on that.

Thanks.

Borden, as we've been working through our life-of-mine plans and that Zone 4 North is becoming more and more important to us.

And that is where we are seeing the transition to that in 2013, and also that is the area where we are advancing in what we call the cathedral freezing which is what Tim talked about where we are in some very innovative ways been able to create freeze curtains around ore in places that we didn't think we could get and extend freeze curtains in the past.

So, that's definitely when we see that transitioning into that area through that 2013 timeframe.

So, is it Lower Zone 4 that is going to be slowing down at that same time, Bob?

Well, it's just going through the transition into Lower Zone 4 and Upper Zone 4.

That is the area where we will be transitioning through.

So that's a combination of those.

All right.

Thank you.

Our next question is from Ben Elias from Sterne Agee.

Hello, can you hear me?

Ben, yes we can.

Okay, thanks for taking my question.

I had a question that was already answered, but the second question.

Areva has taken some writedowns on some of their mining assets or potentially will.

If you look at your asset portfolio, and you look at the new demand outlook you have over the next 10, 20 years, how confident are you that the costs there will be reasonable and could support some of the investment you are making in these areas?

Ben, I think we are blessed with a good suite of assets that are -- and you've seen it through our technical reports that we've put out.

You've seen some of the operating costs that we're projecting life-of-mine going forward.

We watch that very close where we are comfortable with the projects that we are advancing; that they will be in the ballpark.

Obviously, we will watch where the price of uranium goes.

Right now, we are moving our suite of projects ahead to have them ready.

You know they take many years to bring on; to have them ready to go, and as the market calls for that uranium, we will be ready to deliver.

Okay, and you mentioned you've been looking for investments for the last 2 to 3 years, haven't found anything.

Has the downturn that we had seen -- what has been the change in some of those assets that are available or not available?

Or the economics of some of those potential acquisitions?

Ben, we look at a host of things when we're evaluating any kind of property.

Obviously, the acquisition cost would be just a part of it.

And you're indeed right, that I would say over the last months now, especially since Fukushima, some of those acquisition numbers have come down.

But we also look at operating costs, construction costs.

We look at the geopolitics.

We look at the geology.

It's a whole suite of factors that we will evaluate on any project.

But I can tell you that we have a dedicated team -- the business development team that, as I said, is scouring the world and will bring back projects that make sense to Cameco.

Thank you.

Thank you.

Our next question is from John Redstone from Desjardins.

Yes, thanks very much.

Hello.

Most of my questions as I always say have already been answered, but I will come back to my favorite project, Kintyre.

Inasmuch as since the disaster in Japan, I wondered if you had seen any noticeable change in the relevant authorities in Australia toward the development of that project?

John, we haven't.

We've been working hard to advance the pre-feasibility study as you know on that project.

We been working closely with the state government and state officials, and I can say they've been supportive of our efforts.

We've also been working with the Martu people, another important part of our social license, if you like.

Had them over here for a visit the first 2 weeks of July, and so that is progressing.

So, we're pressing along, I would say, on all fronts and hope to have our feasibility study in the first quarter of 2012.

So I don't think we've seen any increased requirements at this point.

Okay, thank you.

Thank you.

(Operator Instructions) Our next question is from Orest Wowkodaw from Canaccord Genuity.

Hi, good morning.

Thanks for taking my call.

My question just revolves around your spot market purchases.

Whether -- just curious what your current view is right now whether using some of that excess cash to buy material at current -- at the CAD50 mark make sense?

And whether you're seeing both the Japanese and German utilities --whether you are seeing them enter the market to liquidate inventory?

I'll just open by saying that we've been quite interested to follow the spot price and see where it is at, and it is hanging in.

I saw it even bumped up this week a bit.

So it's been in the CAD50 range.

Long-term has held pretty firm at CAD68, which is also encouraging, I would say for us.

As far as our purchases, I think we watch that very closely, and on the dips, we would get involved.

Japan and Germany, are they going to put material on the market?

Or the spot market?

Possible.

I can tell you we'd be interested if they did, and we've been talking to some of the Japanese utilities about that.

And, if they were interested, we would be interested in talking to them.

So, Ken, I don't know if you have anything to add to that?

Just that I agree, I would say that if the question was buying uranium at CAD50, we are always in the market at various price levels.

Either buying or selling uranium depending on our own commitment levels and whether we think it is a good deal.

So, would we step in?

Just as you said, Tim, with some excess inventories coming to the market?

Absolutely we would, but we also, just in the normal course, are always buying and selling uranium.

And, during Q2, specifically, would you characterize that as sort of a typical quarter from a spot market purchase perspective?

Or were you less active?

I would say we were less active in the spot market purchasing.

That's not to say that volumes weren't similar to what they were last year.

In fact, you probably saw quite similar volumes.

But we saw a lot of materials trading hands among the financial players -- among the traders to get those volume numbers up.

For ourselves, like many customers just sort of waiting to see how this market plays out going into the fall.

So, we were not active with purchases in the second quarter.

Great, thanks very much.

Our next question is from Greg Barnes from TD Securities.

Tim, if we look out to 2014, let's assume the [HU] agreement is terminated, and you're not getting any more of that material.

How do you see your volume sales profile evolving?

Yes, Greg, we intend to maintain our sales profile through those years.

We will have Cigar Lake starting up in that period, obviously to fill some of the gap left by the [HU].

We also have some inventories that will be available so we -- our goal and our plan is to maintain our sales levels.

How much do you think you will be having to sell from inventory or from material purchased?

I don't know if have that number in front of me.

It will depend on how the wrap-up of Cigar Lake goes and our production from our other sites.

But certainly, we have enough inventory -- we have significant inventory, enough to fill the need in 2014 and going forward if we need it.

Okay, thank you.

Thank you.

(Operator Instructions) Our next question is from Doug [Collie] from NBC Radio.

Hi.

I joined this discussion of the late so I just wanted to know what the name of the person is who started the call?

Who introduced the new members of the management team?

Doug, it's Tim Gitzel from Cameco.

I am the President and CEO.

All right, thank you very much.

Thank you.

This will conclude the questions from the telephone lines.

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

Tim Gitzel for his closing remarks.

Thank you very much, Operator, and thank you to everyone that's joined us on the call today.

In conclusion, I would say we certainly agree, and we've stated these are challenging times in the nuclear industry.

But we do see the fundamentals for our business as being strong and presenting an exciting opportunity for our new team here at Cameco.

Together with our talented employees and world-class asset base, our team continues to be focused on the safe, innovative execution of our business plan for the benefit of all of our stakeholders.

So, I say to all of you, thank you again for joining us and have a great 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.