Cameco Corp (CCJ) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cameco Corporation first-quarter results conference call. I would like to turn the meeting over to Ms. Rachelle Girard, Director Investor Relations. Please go ahead, Ms. Girard.

Thank you, Donna, and good afternoon, everyone. Thanks for joining us. Welcome to Cameco's 2015 first-quarter conference call to discuss the financial results. With us today on the call are Tim Gitzel, President and CEO; Grant Isaac, Senior Vice President and Chief Financial Officer; Ken Seitz, Senior Vice President and Chief Commercial Officer; Bob Steane, Senior Vice President and Chief Operating Officer; Alice Wong, Senior Vice President and Chief Corporate Officer; and Sean Quinn, Senior Vice President, Chief Legal Officer, and Corporate Secretary.

Tim will provide comments on our financial results and the industry, 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 question-and-answer session, please limit yourself 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 Tim.

Thank you, Rachelle, and welcome to everyone who has joined us on the call today to discuss Cameco's first-quarter results. We certainly appreciate you taking the time to join us, and I would tell you it's an exciting day here at Cameco, as its Ken Seitz's birthday today. So we will be celebrating by having some cake after the call.

I would like to start with our most recent and exciting news, the signing of a long-term supply contract with India. I was in Ottawa for the signing with Prime Minister Modi, Prime Minister Harper, and our very own Premier Wall, and I can tell you this is a landmark agreement for our Company.

The agreement itself is for 7.1 million pounds of uranium delivered through 2020. More importantly, it's the first step in what we hope is a long relationship with India, a country with one of the fastest-growing nuclear programs in the world. They currently have 21 reactors operating and 6 under construction, which should come online over the next five years.

Beyond that, they have many more planned as they grow their nuclear fleet from today's 6,000 megawatts to 45,000 megawatts capacity. That's a huge amount of growth over the long term, and we see it as a big opportunity for fuel suppliers like Cameco.

I'll talk more about the market in a moment, but first, let's talk about our results. Net earnings were down from this time last year, when we saw the benefit of the sale of Bruce Power. But for the most part, the decrease was just a result of an accounting treatment.

In order to minimize the effect of changes in foreign exchange rates, we enter into foreign exchange contracts. According to accounting rules, we must report the value of those contracts as though they were settled at the end of the quarter, though in most cases, they are not.

This quarter, the strengthening US dollar resulted in a reported loss on those foreign exchange contracts. When we remove the impact of the exchange rate, as we do in our adjusted net earnings, we were up from this time last year. That's largely because of the strong performance of our fuel services and NUKEM segments.

On the production side, we were down somewhat from this time last year, but we remain on track to deliver on our guidance for the year. The reduction this quarter was primarily a result of an unplanned outage at the Key Lake mill. The good news is the strong performance at Rabbit Lake and Cigar Lake was able to make up for much of it.

Cigar Lake continues to be a highlight for us. The jet boring system is performing well and as of April 25, we have mined 2.7 million pounds and the McClean mill has packaged 1.5 million pounds. We are still in the learning phase at Cigar Lake, but we are very pleased with the results we have been getting and are on track to reach 6 million to 8 million pounds by the end of the year.

Of course, we all continue to watch the market closely and there was not a great deal of change there in the first quarter. Japanese reactors remain shut down and the path to restarts remains challenging.

That was especially evident with the recent court injunction seeking to prevent the restart of the two Takahama units. These are reactors that have been approved for restart by the Nuclear Regulatory Authority under their new stringent safety rules.

However, similar attempt at an injunction to block restart of the two Sendai reactors, which are currently poised for restart this summer, failed. So overall, the mix of positive and negative developments brings a little more uncertainty to the process, which we will continue to watch closely.

And for yet another quarter, contracting remained modest, as fuel buyers remain well covered for the time being. However, we have been happy to see the uranium price increase from the low of CAD28 we saw last year, and show some strength around the CAD40 range. But it still remains far below where we think it needs to be to both sustain and encourage new production.

With that said, the long-term fundamental still looks bright, with clear progression of growth on the horizon. Today, there are 63 reactors under construction around the world, representing billions of dollars of investment and significant growth in future uranium consumption.

Nuclear energy continues to be an integral part of the world's energy mix, particularly in countries with the most rapidly expanding economies. China and India are the global front runners, with a combined 29 reactors under construction today.

I'm happy to say that Cameco has uranium supply agreements with both of these countries that are so integral to the nuclear industry. We hope to build on these opportunities as these countries continue to grow and add even more nuclear capacity to their grids further out in time. So you can see why we remain excited about the future of the uranium market and the future for Cameco.

So with that, I'll stop there and we would be happy to answer any questions you might have. Thank you.

(Operator Instructions) Ralph Profiti, Credit Suisse.

Good afternoon. Thank you for taking my question. Firstly, is there anything that we should read into what seems to be a slowing in the rate at which the CRA has issued notices of reassessment? It was around this time last year that an accelerated rate was anticipated; doesn't seem to have played out that way in terms of rate. Just wondering if you agree with that and why.

Thanks, Ralph. I'll ask Grant to answer that question.

Yes, it was our expectation last spring when we had received the 2009 reassessment quite early. In the past, we had always received it in quarter four. We received 2009 early last year and we were -- it was indicated by us -- to us by the CRA that they would increase the rate of reassessments.

As a result, we said we expected 2010 to fall in last year. It didn't show up; it didn't show up in quarter one this year. At the moment, we are just waiting for it to arrive. In terms of what to read into it, I think I'd have to redirect you to the CRA.

Understood, no, thank you for that. Secondly, since the signing of the supply agreement with the Department of Atomic Energy of India, has there been any change in behavior of the utilities towards long-term contracting? Understanding that these volumes are relatively small, but could a few more deals like this create a greater sense of urgency to bring forward contracting activity?

We are certainly hoping so, Ralph. But it's a little early. We just finalized that deal 10 days ago. And so we are -- it's an important one. You saw the pounds -- 7 million pounds, which is important in our portfolio, but not going to overly move the needle.

It's the fact that we got our foot in the door in India and now have relations with them, government to government, company to company. They were over here; we had great meetings with them. I know some of our folks are heading over right away and will be regular visitors to, well, either Mumbai and Delhi and Hyderabad.

So that was the important part for us. So you saw the coverage it bought, which we felt was important, and yes, we think the nuclear world will take notice of that.

Understood. Thank you very much.

Greg Barnes, TD Securities.

Thank you. Since it's Ken's birthday, I'll ask Ken a question. Ken, what do think the market opportunity is in India for you? 7 million pounds, like you said, is a start. But where do you think it goes?

By every indication, we are one of the first currently Western suppliers of uranium in India. We've been there for about 10 years now trying to evolve those relationships. I would say now we do have now very strong relationships.

So if you look at how demand is growing in that country, with eventually 45 gigawatts probably over the next 20 years, we expect that we'll at least be able to maintain our market share in India that we do in every other part of the world.

So can we occupy 20% of the Indian market? Yes, I think we can. This is, as Tim said, a great start, 7 million pounds, but we will be heading over there in the not-too-distant future. And looking to add volumes to that as well. So the short answer is I think there's immense opportunity there, Greg.

Okay. Just as a follow-up, you said in the report that utilities are well covered through 2015 globally. And I'm wondering where you think utilities sit beyond that? Obviously, this comes back to the long-term contracting question. I think in the past, you said for the next several years, but how is that evolving in your view?

Yes, it's evolving every year in that we see utilities, in a sense, continuing to sit out of the market. So far this year, we are at about 15 million to 20 million pounds worth of long-term volume that been written. Of course, 7 million pounds of that is ours in the Indian deal.

For all intents, the numbers once again for the fourth year in a row here are quite small, which tells you that utilities are not layering on the long-term volumes. If you look at our own commitment levels, we say that we are well covered through 2018. And again, I think that fairly well mirrors -- we're heavily committed through 2018, which I think mirrors the way utilities are sort of covered.

And we have seen some activity over there this year, I would say, albeit small. And last year, where I would say if utilities are stepping in, they probably are covering off-year term volumes, where people are willing to sell in that time frame.

Further out, [with 2017], a lot of that activity. So if we look to 2018 and beyond, Greg, we start to see those uncovered requirements starting to open up. And of course, over time, they open up substantially.

Okay. Thank you.

Brian MacArthur, UBS.

Good morning. Just on the CRA -- I suspect this is for Grant. This table in here, where you've got a minus CAD44 million, it looks like -- are you getting money back on this payment? Or why is that a negative number? Because I thought you had to keep laying cash out at the end of the day.

Brian, thanks for the question. The amount that we put in is always a net amount. So of course, as they reassess us, 50% of that reassessment amount has been due. As transfer pricing penalties have come along, 50% of that amount is due.

But it's always netted against tax loss carryforwards that we have. Subsequent filings for other years that might have driven a refund would be netted off against that. So all that we are reporting is the net number, because that's ultimately what we end up parking with them.

But is that -- I thought the whole purpose of this is they didn't like your structure. So now you're creating negative cashes to get some back. Is that forward-looking, that -44, or is that actually matched to stuff that you've already done?

So perhaps the other way to look at it is we support our structure and we continue to file taxes on the basis of that structure. And when we file those taxes, you will remember that in Canada, they drive net operating losses, which then drive a refund position.

So this is a refund that's assigned to a later period that we've already filed. They have recognized that and then they will have to go through the process of reassessing it. So it's a year that they haven't yet reassessed, but have accepted the filing under our current structure.

So when you give us these forward numbers, because I don't know if I'm doing this right. But when I look at the CAD143 million that you've done, 2003 to 2014, it kind matches up with what this chart says.

But then does that mean of that CAD165 million to CAD190 million you're forced to pay in 2015, you're crediting back CAD44 million? I'm just trying to figure out what the cash at the door is?

No, we haven't forecasted on the net. So the years for which we haven't filed, we haven't forecasted a refund, if you will, for those years. So this just reflects what's actually been filed, netted out against what's due as a part of the dispute process.

Okay. That helps. Thanks very much, Grant.

Orest Wowkodaw, Scotiabank.

Hi. Another question on the CRA. When do you think you will get some visibility on whether you can use letters of credit to fund these 50% payments on the CRA amounts?

Well, the process is one where we will wait for this 2010 reassessment to arrive. When it arrives, we will attempt to use a letter of credit to secure the 50% reassessed amount on that.

So as I said earlier, we don't know when it's going to show up. When it goes up, that's when we can hopefully enact that instrument to cover the reassessed amount.

Okay. But it sounds like that's fairly imminent.

Yes, I don't know. It could be; it's maybe not. We thought that the 2010 was going to show up at the end of last year and it didn't. So that's where we are right now.

Okay. Is your expectation that the CRA would give you an answer on the letter of credit pretty instantaneously when you try to submit payment with that?

I suppose our view is there really isn't an answer to give. I think it's pretty clear we are entitled to use this instrument for reassessed amounts. So when the 2010 year arrives, we would seek to secure that right.

Okay. Thanks very much.

David Talbot, Dundee Capital Markets.

Good afternoon, gentleman. Sales guidance remains at about 31 million to 33 million pounds so far. But you have suggested that earlier deliveries into India might start this year. So essentially, would those deliveries be designed to test shipping and custom brokerage logistics and not really significant enough to move guidance?

Thanks, David. Yes, we continue to say 31 million to 33 million pounds is true, that we have a delivery in 2015 to India, which, if we were maybe in the lower end of that 31 million pounds to 33 million pounds, we are now somewhere in the higher end of the 31 million pounds to 33 million pounds.

Could we surpass 31 million to 33 million pounds in 2015? That remains to be seen. So for today, 31 million to 33 million pounds. Fair point about making and delivery to India and test the shipping routes and all those things. Yes, we will be doing that later this year.

Yes. Okay, thank you for that. Secondly, McArthur River production, down year-over-year due to problems at the calciner. Are those issues behind you right now, at least until the new calciner can pick up the slack? And really, do you think you can make up this lost production by year end, so again, production guidance remains intact?

Bob Steane is here and ready to answer that question.

The short answer is yes, that the problems are behind us. There were a couple of mechanical issues with the existing calciner that we had to take an outage to deal with the problem appropriately. That's done; it's back online and doing fine.

So that's -- and we still -- we believe we will meet our production by adjusting the production schedules going forward. So we will meet the production for the year.

Okay. Thank you very much.

Daniel Rohr, Morningstar.

Thanks. Could you talk a little bit about the provincial approval process for the McArthur expansion? And then how quickly you could ramp to 25 million pounds if the market conditions warrant it?

Yes. So we have got the provincial approvals for expansions in the past. That it requires an application to the provincial government. They review it. It's normally been certainly a fair process that moves along quite quickly. So I can't give you the exact timeline, but we don't think that will be a roadblock in our efforts to move McArthur forward.

Okay. And then just switching gears a little bit, what's your sense on the, I guess, longer-term prospect for inland reactor developments in China?

Ken, do you want to take that one on?

Yes, I think what we would say is that the Chinese are on a program to have their 58 gigawatts by 2020 and have another 30 units under construction after that. Where those reactors [located], both inland and coastal.

But those are the numbers that we continue to work with. And in fact, we are just at a nuclear conference last week, where we had our Chinese colleagues at the podium reaffirming those.

All right. Thank you very much.

Oscar Cabrera, Bank of America.

Thank you, operator. Good afternoon, everyone. Just was wondering if you can provide a little bit more context on the increasing CapEx around the McClean mill. It's a CAD20 million increase in 2015, but in your comments, you said that that [revised] is expecting additional expenditures after 2015. Wondering if this is just debottlenecking or if you are expecting a larger sum than what happened in 2015?

The capital this year, AREVA has advised and we put the -- they -- in -- as construction has been progressing and advancing, they have -- it's been realized that there was additional material, additional piping, and electrical that needed to be added to the plant. That needed additional labor.

So that's the cause and that's what's happening at the mill. And the biggest construction piece is this year, but they are going through an estimate to see what would the impact and what may be the impact on work next year.

All right. Sorry, just to clarify -- the additional work required in 2016, is there an estimate or a figure that you are working with in terms of an amount or a percentage of the project?

At the moment, we are waiting on AREVA to come forward with their new numbers, if it changes at all. We are waiting on AREVA.

Okay. Understood. And then secondly, your comments with regards to the supply side and there had been a number of mines with issues in different continents. In the past, you had supplied what your expectation would be of a deficit. I was wondering if you'd be willing to share that amount, based on your current expectation of demand in China with the additions that you talked about in India.

Just on a global basis, Oscar, we are looking this year at production somewhere in the 155 million pound range. Now that will depend on a lot of things. We talked about some supply disruption to include our own in the first quarter.

I guess if you were just looking at that, we were down a bit at Key Lake. We think we will make that up. But some of our competitors have had issues with different circuits in their mills as well, which tells you this isn't an easy [thing].

But overall, we expect production probably to be in the 150 million pound, 155 million pound range consumption. 165 million pounds, I think, is our number. So there's that structural deficit. And then it's the secondary market, of course, that no one knows exactly what that number is that it's [covering] so far.

The good news, from our perspective, is that the consumption line continues to rise. And we were just talking about it this morning. We are looking at a demand of 230 million pounds in that range by 2024. And in a market where there's not a lot of new production coming on, you've got [hustab] that everyone knows is out there. We are waiting to see how that's going.

But other than, that there's not a bunch. And we're all working hard to keep our existing production where it is. So that is what we are working toward every day here, trying to get through these more difficult times, but knowing things are looking better going forward.

Yes, they are. Thanks a lot, Tim.

Steve Bristo, RBC Capital Markets.

Thanks for taking my question. I was just wondering if you could remind me if there's any Cigar Lake sales volumes included in your overall consolidated guidance for uranium?

Yes, we have a couple things. One, we have some fairly baseload contracts which are in place. But of course, for any Cigar Lake production over and above that, that just goes into our bucket of mine supply and purchases and all those things. But yes, I think it's fair to say we would be moving some Cigar Lake volume.

Okay. But they only flow through the income statements after commercial production, is that right?

The accounting treatment for it right now, Steve, is a bit interesting. Keep in mind that Cigar Lake is -- has an operating license with it, so while we are marching up towards commercial production declaration, the accounting treatment is as follows.

The revenues from Cigar Lake are recognized. And the operating expenses are recognized up until the point of our average cost in our inventory. Costs above that are capitalized.

In other words, there's no depreciation happening for Cigar Lake. So once commercial production is declared, really the only change that you will see is the addition of depreciation. The non-cash costs from Cigar Lake will start coming in.

Perfect, that helps. Thank you.

Graham Tanaka, Tanaka Capital.

Hi, guys. Just wondering if you could give us a little bit more color on potential incremental supply out there at what kind of cost levels. It's kind of hard for us to get a feel for that, the areas where supply is maybe shut down or a higher cost that have had some other issues.

So if you could just give us a little color as to what current supply is. And then how high a price it might have to go to sort of be market clearing for additional capacity. Thank you.

I would just probably turn to what some of our friends and competitors have said, if you've been following them. To incentivize new production, clearly the prices where they are today aren't in the ballpark for that.

I'll give you our example -- Kintyre, which we looked at back in 2012, I think at that time, we were looking at about a $67 US price just to breakeven. Now that's three years ago, so you can -- I tell you where that's gone.

From there, I think you saw some of the others in the $70 -- north of $70 range. Some of the bigger African mines that we've heard $80 to $120 for others.

That just gives you some perspective. Yes, there is some incremental production that can come on at some of the bigger mines in Canada and Kazakhstan, but that's not going to be enough to cover. And after that, you're looking at significantly higher incentive prices being required to bring on new production.

I'm just trying to get a feel if relative to those costs that you just sort of breakeven levels you gave, how much volume percentagewise are we talking about? Are they still thin or incrementally talking about how many millions of pounds? Just roughly, if they can sort of put a band on it. Thank you.

I'm not sure I can do that. We look at projects in terms of what tier they are in. I talked about the Canadian and some of the bigger Canadian production, I think of the McArthur Cigars. And then of course, some of the projects in Kazakhstan that would be in the bottom tier. Those are up and going; there's not another Cigar out there in Saskatchewan waiting to go. There aren't. It's not in our portfolio or in anybody else's.

So you know, incrementally, we've talked about moving McArthur up a few million pounds. Cigar, we are just trying to get it up to design capacity over the next few years. Kazakhstan, that would be a good question for [because adam from].

We know there's room for some incremental production, but again, they are at over 20,000 tons. They are not doubling that production there. They can have -- there's probably some incremental production there in the lower tier of projects.

After that, it goes up the curve pretty quick. Your African production; we've seen some of AREVA's projects and other projects that are out there, where they've stated, like I say, probably north of $70 to get excited about moving those forward. And I daresay the money would be higher now also.

There's a fairly healthy spread between projects, but like I say, today's prices, I think I saw the spot the [$38] range this morning. It is going to have to move significantly from there to get people excited about spending capital on new projects.

David Wang, Morningstar.

Hi, thanks for taking my question. I just wanted to see if you had some color to add on your ranking of which new mines you could bring out eventually in the long run. I know you've been moving forward on environment approval for Kintyre and compare that with Millennium and your other projects. How would you rank them in order of coming online and when do you see those being needed for the market?

There's a whole lot of factors going into any one of those decisions and especially when you're operating in different countries. You know, you're looking at the geopolitical situation, the infrastructure, whether the local community supports you, what the environmental approval process is -- all of those things go in and none of them are simple in any country.

So you weigh those. In our case, we talked about McArthur. We think that is a huge bonus for Cameco to have received now this approval to go with 25 million pounds at McArthur Key Lake. We still have to get provincial approval for that, but we think that project, where today, we are produce in the 19 million, 18 million, 7 million, 19 million pound range, to have the approval to increase that by 5 million or 6 million pounds.

I can tell you if you had to go out and buy a project, get it up running, get it to 6 million pounds of capacity, that would be a significant piece of work for you and a significant expenditure. So we are -- we think we are in very a good position with that project.

After that, as I say, it depends. We just get approval for Kintyre and environmental assessment approval to move that ahead. However, as I said earlier, it's not in the money, not even by quite a ways at this point.

We've got a Yeelirrie project. We like a lot; it's in WA as well. You got a supportive government there today, but no market to go to work on that. Millennium here in Saskatchewan is a nice ore body, close to existing abilities, which is a real bonus again.

And so I can't tell you, really, what ordering. If things completely turned around on a dime, we would weigh all of those factors -- royalty, tax rates, all of those things -- and decide if you did one project, which one it would be. So -- but those are the factors that will go into our decision.

Thanks. And as a follow-up, do you see contracting volumes in China changing much as to -- so to bring their fleet online? How far out do see these reactors contracting sort of [in] right now?

Yes, I think suffice it to say that we believe that the Chinese like the balance of our customers. They're fairly well covered at the moment. But of course, have a growing program. And for every reactor that they start building, they go and put cores in behind that and however many years of inventory, four years of inventory in behind that.

So we do see well coverage at the moment, but we also -- I can tell you see the Chinese in the market all the time. And so I expect that it will just be normal course contracting with the Chinese as they continue to grow their fleet.

Thank you.

Greg Barnes, TD Securities.

Thank you. What kind of capital cost is required to get you up to 25 million pounds at Cigar?

Probably --

At McArthur, sorry, yes.

Greg, we knew [your voice]. It's McArthur. Bob, do you want to just comment on that? The capital cost on moving things to --

The biggest -- we haven't sat down and done an assessment as to what the cost would be. But there will be incremental costs or incremental changes, we've got, at McArthur. We will need to put in additional ventilation and growing that ventilation capacity, support that production. Excuse me -- that's probably the biggest piece that McArthur.

At Key Lake, we've been on the Key Lake revitalization train for some years now. And probably the biggest bottleneck in the Key Lake circuit today is the calciner, which we have been working on and should have a new calciner later this year up and going.

There's a few other things that we would need to adjust in the solvent extraction plants from small modifications and [utilization]. But I haven't done a real detailed cost estimate, but it's not a big quantum, like building a new mine. It's the delta.

Sub-CAD100 million, do you think?

(laughter) It's always -- I don't know, Greg. I don't want to put a number on it, but it would be in the smaller numbers, especially when compared with a new facility to get the additional production.

Okay. Just a follow-on. Grant, on the IRS versus the CRA disputes, I've heard you suggest that the IRS -- you're actually encouraged by the fact that they are not disputing the transfer pricing methodology. Do you want to explain that relative to IRS and the CRA and the methodologies and what is and isn't being disputed?

Yes. We do have a bit of a table in the disclosure back from February trying to outline the differences between the two. And when we look at the IRS, the notice of proposed assessment followed up by the revenue agent's report, which essentially confirmed the note, but that we had already disclosed.

What we do find very interesting is looking at the 2009 year, and we have a reassessment from the CRA for the 2009 year, we find two tax authorities drawing very different conclusions on our corporate structure. Because you'll remember, at the heart of the CRA dispute is a belief that our structure is not appropriate.

We haven't seen that criticism in the IRS NOPA. Instead, there seems to be support for the structure. And in fact, it's just the pricing within the structure that is the basis for their assessment.

And I guess at 30,000 feet, we just think that's very interesting, that an equally legitimate tax authority looking at international structures through the same OECD transfer pricing guidelines would draw a different conclusion about our structure.

Does that come down, though, to different tax rules in the different countries or not?

I'm sure ultimately it would. But as I say, there is a set of guidelines out there, the OECD guidelines, that govern the way transfer pricing and these global structures are -- should be arranged.

Now of course, every country has the ability to transpose them into their own domestic legislation. But they are international guidelines in order to create a bit of harmony around the world, and what we find is two different interpretations sitting side-by-side for the same 2009 year.

Okay. Okay, thanks, Grant.

(Operator Instructions). Orest Wowkodaw, Scotiabank.

Thanks for taking my follow-up. Just again digging a deeper on Greg's question about McArthur moving to 25 million pounds a year. Two more questions around that.

What uranium price do you think you would need for you to push the green button on that one? And how long do think it would take to develop it to get the capacity up to be able to produce 25 million pounds?

We wouldn't -- we won't go on that one on the uranium price. I can tell you what we want to do is maintain flexibility in this market. And that was the change, you will remember, to our strategy: rather than just increasing our production, we said we wanted to be flexible. Flexible up and down.

And so this is McArthur's, the upside, if you like, as far as that goes. We will watch the market to see which way it's going. We had talked in the past about going to 21 million or 22 million pounds by 2018. So this approval now to go to 25 million pounds requires us just to go back and see, as Bob was talking about, what's required for capital; what timelines are required to get it to 25 million pounds.

So we will be doing that work over the next month. Because we want to be ready. And Grant said earlier to me this morning, you know, at McArthur, we are in a position to spend a bit of capital that you saw and that's for us to be prepared for the future, which we think is going to be pretty good. So we will be doing that work over the next while and to the extent we can keep you posted on that, we will.

So does that suggest that you might actually put the capacity in place before you actually plan to turn it on?

I think I would say we'll take -- we are, as you've seen on our CapEx chart, trying to reduce capital or capital spend as much as we can during this difficult time in the market. And we've had some success on that.

That doesn't mean, though, that we -- where we see an opportunity to spend some capital to help us prepare for the future and be ready, we will do that. That doesn't mean that probably today investing in a new mining project, we wouldn't go there, I don't think.

But where we can, especially at our Tier 1 asset -- McArthur and Key Lake -- if we can spend some capital. Now where it makes sense to have the place prepared for the future, we will do that. And that's a little bit of what you saw with some of the capital this quarter.

Great. Thanks very much.

(Operator Instructions) Brian MacArthur, UBS.

Just following up on Orest and Greg's question. So should we -- is it 18.7 to 25 at McArthur, like for [sata] capital, or can we do an intermediate one, where you go for a lot less capital, from 18.7 to 22 million pounds, like we sort of talked about before.

Are they exclusive or is it a ramp thing? Obviously, different development at different levels, but is there something else that changes the relative function there?

I don't know if it's exactly linear 18.7 to 25 on the CapEx. But I think Bob explained sort of what the bottlenecks are. And I would just say we are working our way through that, Brian.

I'm not sure we have precise enough information for you today to give that out. But I don't think there's any big fundamental tickets on your way from 18 to 75 -- or 18.7 to 25.

So I would just say we will -- as we see the market evolve, we will certainly give more indications of where we are going with that. But just today, as I say, if we can take small steps that help us be prepared for the future, we are doing that.

Great. Thanks very much.

This concludes the questions from the telephone line. I would like to turn the meeting back over to Mr. Tim Gitzel for his closing remarks.

Thank you, operator. I'll just close by saying that at Cameco, we continue to execute our strategy and pursue the goal you heard from us at the start of the year. We want to find ways to remain a profitable, low cost producer in a challenging environment.

And we think we are being successful. We continue to achieve strong production. Cigar Lake is performing well and we believe will be an excellent source of low-cost pounds.

Our contract portfolio returns an average realized price that outperforms the spot price. And we continue to pursue market opportunities that will serve us well now and into the future, like the ones that we signed with China in 2010, and of course, our recent agreement with India.

So with that, I'll say thank you to all of you for your continued interest in Cameco and have a great day. Thank you.

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.