Cameco Corp (CCJ) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cameco Corporation fourth-quarter results conference call.

I would now like to turn the meeting over to Ms. Rachelle Girard, Director Investor Relations.

Please go ahead, Ms. Girard.

Thank you, Mary.

Good morning, everyone.

Thanks for joining us.

Welcome to Cameco's 2015 fourth-quarter and year-end conference call to discuss the results.

With us today on the call are Tim Gitzel, President and CEO; Grant Isaac, Senior Vice President and Chief Financial 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 begin with comments on our financial results and the industry, followed by Grant, who will comment on a few items, including our tax cases.

Then we will open it up for your questions.

If you joined the conference call through our website event page, you will notice there will be slides displayed during the remarks portion of this call.

These slides are also available for download in a PDF file called webcast slides through the conference call link at cameco.com.

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

During the Q&A 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 that 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 annual and fourth-quarter results.

We appreciate you taking the time to join us.

Before we get started, I just want to take a moment to express our sympathy to the people of La Loche, Saskatchewan.

While this kind of tragedy is, sadly, not uncommon in our world, it's particularly shocking because it happened in our own backyard.

And what makes it hit home even more is that we have people from that community working at all of our Northern Saskatchewan sites.

Our hearts certainly go out to the people of La Loche, the neighboring communities, and to all of Northern Saskatchewan.

In the months ahead, we will continue to engage with community leaders to discuss how we can best help.

And I would ask you, as well, to keep the people of La Loche in your thoughts.

Now let's turn our attention to the business of today's quarterly conference call: our fourth-quarter update.

I'll start with some brief remarks, then turn it over to Grant to give additional detail on some of our results and an update on the CRA case.

After that, we'll spend the majority of the call on your questions.

In our view, this is the most important reporting period for Cameco.

A lot may happen during the year, but the important piece is what we achieved after everything is taken into consideration.

In 2015, we continued to perform well, despite being in what is a very difficult industry to be in right now.

In particular, we achieved record annual revenue and record revenue from our uranium business.

That was largely driven by a higher average realized price in all of our business segments as a result of the weak Canadian dollar.

The performance of our NUKEM segment was also a significant contributor.

There, we saw higher realized prices and higher sales volumes, which led to an almost 60% increase in its revenues.

However, while the weakening of the Canadian dollar helped our average realized prices, it negatively affected our earnings as we incurred losses on our foreign exchange derivatives.

Combined with higher unit costs and a number of one-time unusual items in both 2014 and 2015, it meant earnings were down from last year.

The better news for 2015 was on the production side, with the biggest headline at Cigar Lake, where we produced 11.3 million packaged pounds.

This far exceeded our initial expectation of between 6 million and 8 million pounds.

And the team at Cigar Lake achieved this safely and responsibly, ensuring we continue to get it right at each step in the process.

So we are very proud of the work being done at what is one of the world's most technically challenging mines.

Having those pounds is very important for our Company.

It provides the material we expect will be needed to meet rising demand and it will do so at a lower cost than other sources of supply.

And with this exceptional performance, we now expect to achieve our target of 18 million pounds of annual production in 2017.

The rest of our operations also performed well, either meeting or beating their production targets.

The only exception was McArthur/Key, where unplanned maintenance outages to repair the calciner caused production to be slightly below target.

The shortfall, however, was more than made up by the other operations.

In fact, in 2015, Cameco achieved record production of 28.4 million pounds.

Looking ahead, our plan is to continue to pursue our strategy of focusing our capital on Tier 1 assets.

This means continuing our production plans at Inkai, ramping up at Cigar Lake, and preparing for expansion at McArthur River in response to market conditions.

We believe this is the right strategy to ensure we are positioned to respond when the market calls for more production.

It's also a great risk mitigation strategy in the event that the uncertainty persists, and it could.

Now almost 5 years post-Fukushima, I don't think anyone expected these conditions to last this long.

And there are a number of reasons for that.

First, the pace of reactor restarts in Japan has been much slower than anyone anticipated.

Having to establish a new regulatory authority and process has meant that the path to restarts in Japan is first of its kind and, understandably, slow.

However, the first restarts have now occurred, Sendai units 1 and 2 as well as Takahama unit 3, and we are expecting more to follow.

We hope that the lessons learned on these initial restarts will help pave the way for others to follow more quickly.

Another factor contributing to the slow recovery of the market has been the extent to which some countries have moved away from or reduced their reactor fleets.

And in some places, there have been unexpected reactor closures.

These have generally been in electricity markets, where reactors have become less competitive as a result of deregulation and low natural gas prices.

Added to that are global events that have combined to further challenge our industry, things like a sluggish global economy, a variety of geopolitical issues, and flat electricity demand.

All of these factors mean that today we are still waiting on a recovery that had been expected to come sooner.

We've learned to put those expectations aside and instead focus on preparing for whatever comes our way and watching the market closely so that we are ready to respond.

Because over the long term, we know good things are in store for the industry.

We know there is a huge amount of growth in reactor construction being led by China, India, and South Korea, all of which have reactors under construction and brought new reactors online in 2015.

We know there is going to be growth in uranium demand as these new reactors come online over the next number of years.

And we know that supply will struggle to keep up as investment in new projects is just not happening, existing projects are being deferred or canceled, and existing supply is being curtailed.

So over the long term, we remain as optimistic as ever.

However, navigating the current market conditions has become a more prolonged and challenging effort.

But I believe we have continued to perform well and have the right strategy in place to ensure we continue to do so.

We continue to be a competitive, low-cost uranium producer.

We continue to have one of the best asset portfolios in the world.

We continue to have an impeccable track record of safety and we continue to deliver strong results.

So with that, I'll turn it over to Grant.

Thanks, Tim.

I just wanted to make a few brief remarks on our financial results and provide an overview of the update to our tax disclosure, including the CRA and IRS cases.

First, and for the most part, our results fell in line with the outlook we provided during the year, which you can see on slide 8. In many of the cases where we were outside of the range provided, foreign exchange played a significant role, as Tim noted.

On the revenue side, we saw a significant benefit.

However, that benefit was largely offset on the expense side as a result of the foreign exchange hedging activity we undertake.

I am not going to get into all of the mechanics, as we do cover it quite thoroughly in our MD&A.

But there are a couple of points I want to make.

First, the reason we undertake hedging activities is to provide certainty and predictability to our cash flow as we carry out our operating and capital expenditures.

It's a prudent measure that generally serves us well.

But in periods of rapid currency fluctuations, the average exchange rate under our hedge position will lag the market.

For example, the average US-Canadian exchange rate for our 2015 hedge position included exchange rates for periods prior to the rapid devaluation of the Canadian dollar.

As a Canadian dollar reporter, the gap between the average exchange rate under our contracts and the average exchange rate for 2015 caused us to report significant losses on derivatives in 2015.

Over time and as we add hedges at current market rates, we expect to realize the benefit of today's weak Canadian dollar as the average exchange rate under our hedge contracts increases.

To arrive at our adjusted net earnings measure, a portion of the losses reported in 2015 do not apply in that period, as the hedges were put in place to protect future foreign currency exposure.

The goal is to better reflect our actual underlying financial performance.

In that adjustment calculation, you will see one-time items that are not representative of our ongoing operations as well as adjustments to match the benefits of our hedging activities with the expected foreign currency exposure to which they apply.

So that illustrates the impact our hedging activities and the rapid devaluation of the Canadian dollar had in 2015.

To help you understand how we expect fluctuations in foreign exchange rates will affect our cash flow and net earnings based on our hedge position at the end of the year, we provide you with a sensitivity analysis.

So those are the areas I wanted to touch on regarding foreign exchange.

But I also want to quickly cover a couple of updates on our taxes.

I'm going to start with the outlook for our tax rate and then move in to our tax cases.

For the past couple years, we have been indicating that a transition in our tax rate will begin to occur in 2016.

With this being the year of transition, we felt a bit more information was warranted.

This year, many of the intercompany purchase and sale arrangements we have in place expire, meaning we need to negotiate new arrangements.

We have started to replace the contracts and will continue to put new arrangements in place.

As with the past arrangements, they are generally reflective of third-party transactions and will reflect the market at the time they are signed.

As a result, in 2017 on an adjusted net earnings basis, we expect our consolidated tax rate will transition to a modest expense and then trend toward approximately 20%.

Of course, the actual rate will vary from year to year depending on the distribution of earnings among jurisdictions and the market conditions at the time transactions occur under our intercompany and third-party purchase and sale arrangements.

For 2016 on an adjusted net earnings basis, we expect a tax recovery of 25% to 30%.

I think that sums up the tax rates and I'll move on to our tax disputes.

I'm not going to provide a lot of updates on the numbers, as those are very clearly laid out in the MD&A.

I will just run over some of the more significant changes.

In terms of our CRA case, there is not much new.

First, as we do every year, we have extended our analysis to include the expected impact if the CRA were to reassess our most recently concluded tax year: 2015.

Next, as expected, we received a 2010 reassessment and have put letters of credit in place to secure the amounts owing for cash taxes and related interest.

We paid the remainder owing in cash.

Finally, I want to draw your attention to the tax provision we reported at the end of the year, CAD50 million, which really represents the pricing uncertainty in our intercompany contracts.

Unlike most quarters where you typically have seen us increase this provision to reflect the analysis of contracts delivered into, this quarter you have seen that provision almost cut in half.

This was the result of some additional contract information that we acquired.

With a larger sample of contract information, we concluded that the pricing uncertainty in our intercompany arrangements was less than originally determined and reaffirms our confidence that we will be successful in our case.

As noted last quarter, a court date has been set for our 2003, 2005, and 2006 tax reassessments.

We expect the trial will start the week of September 26 of this year.

We expect final arguments in April of 2017 with a decision 6 to 18 months after the trial concludes.

On the IRS side of things, we received reassessments as expected for the tax years 2010 to 2012.

Like the 2009 reassessment, these challenge the transfer pricing used in some intercompany transactions for certain of our US subsidiaries.

Our view has not changed.

We disagree with the stance taken by the IRS and continue to dispute it.

While in the dispute process, you will recall we are not required to make any cash payments.

And with that, I'll turn it back to Tim.

Thank you very much, Grant.

Operator, with that, we are happy to answer any questions.

(Operator Instructions) Orest Wowkodaw, Scotiabank.

My question really has to do around the uranium business.

I'm a little surprised by the guidance for 2016 in regards to sales, considering where you expect your production levels to be at 30 million pounds and your disclosure talks about purchase commitments of 9 million pounds.

So that would imply another pretty large inventory build this year.

Can you please walk us through how to think about the strategy here in terms of your volumes being materially above your sales expectations?

I'm just going to open with a couple of comments.

Just on the purchases piece, we have always been in the market.

You know that.

Through the HEU deal for many, many years we had those pounds available to us.

And we like CAD35 pounds today that are in the can.

We think those are good pounds.

So over time, we've purchased some of those pounds.

We haven't perhaps been doing as much selling.

You see, I think our guidance is 30 million to 32 million pounds in 2016.

You've heard us say before: we are not interested in locking in today's prices.

We've been saying that for a couple years going forward, so we haven't.

So that's probably why we are down a bit.

Going forward, we will watch the market to see how it evolves in 2016.

But our guidance for now is 30 million to 32 million.

So we're going to hang there.

And should we anticipate that your inventory levels continue to rise beyond 2016?

Or like where do you get -- at some point it is obviously consuming your working capital.

Where do you get comfort in terms of not pushing your inventory levels too high?

Grant Isaac is going to answer.

I think there's just a bit of color that can be added.

If you flip back to 2015 and you think about our guidance on Cigar Lake, at the outset of 2015, it was 6 million to 8 million pounds of total production.

So of course, thinking about where Cigar Lake was going to end up, we saw some attractively priced pounds in the market that were below, in many cases, the Tier 2 cost of production.

As Cigar Lake performed very well and ramped up very well, it has obviously changed our perspective.

We are not very active on the purchase front now going forward.

We will look at opportunities as they arise, but we will be simply opportunistic.

We are not looking to grow that inventory position in a material way.

Okay, so that 9 million of purchase commitments for this year, it sounds like you are suggesting that was largely entered into before you realized how well Cigar was ramping.

Is that a fair assessment?

Yes, you can think about it that way.

Yes, that's right.

Okay.

And this 9 million pound purchase, is that distorting your expected cash cost then for 2016 in terms of putting it into the inventory?

Well, it would, of course.

Those pounds only carry cash cost.

They don't carry non-cash costs.

Those are pounds that are priced in US dollars.

We hold them in Canadian dollars.

We will eventually sell them in US dollars, but there is a moment there where you hold them.

And with the Canadian dollar the way it has performed, it does create, to use your word, a distortion there that needs to be thought of.

But eventually, when the opportunities arise to place that material in the market, it will be placed again in US dollars.

And we just think those were very attractive opportunities.

And is it your expectation that all those 9 million pounds would be profitable if you had to sell them this year?

Absolutely.

Absolutely.

Okay.

Thank you very much.

Greg Barnes, TD Securities.

On the write-down on the Rabbit Lake mill, you imply that you don't expect to have enough feed sulfurs to keep the mill full.

But Eagle Point mine is going to run, I think, through 2021.

I just want to understand what the thinking was behind the impairment.

Yes.

So as part of our year-end processes, obviously we look at the carrying value of our assets.

And I would say that as we have really honed in on this Tier 1 strategy, there are some consequences.

And one of the consequences here has been on Rabbit Lake.

We wouldn't consider it one of our Tier 1 assets.

There are resources that are available, but our attention is focused on McArthur, Cigar, and our Kazakh assets.

We think that's the best place to put our attention in today's price environment.

And what you are seeing here is just a reflection of that lack of attention on what is a Tier 2 asset in our portfolio.

This follows on the heels, obviously, of the mine impairment that was in 2014.

So I guess largely no surprise that there would be a mill impairment when you look at it from a carrying value point of view at year end.

Ultimately, we are watching a market that we think needs to transition and we'll make decisions accordingly going forward.

But at December 31, that was the view.

And on Crow Butte, I know you are not putting any more capital in there in well fields.

Is that expected to just wind down over the next year or so or two years?

Well, right now, we will make the investments in operating those assets, but not looking to grow them.

You've seen us pull back from growth expenditures there, again as a consequence of this Tier 1 strategy.

Okay.

Just one follow-up.

You've reduced your provision for the tax implications of the CRA transfer pricing discussions.

I assume that means the goalposts between you and where the CRA stands are very wide and there's no chance of a settlement here before you go to court?

Yes.

Well, it's hard to even begin to speculate on what the chances might be.

Our view has always been that the risk to the Company perhaps rests only on the pricing that was done in those intercompany arrangements.

The provision coming down just reflects our growing confidence that as we've added more contracts that are representative of the period at the time we signed those bulk sales arrangements, it really represents -- the actions taken were really indicative of the market at the time.

Whether we have a prospect for a settlement would depend on a number of factors, but not least of which is probably having the CRA move away from the structure argument that they are currently advancing.

As we get closer to the courthouse steps as well, there probably will be a few opportunities, process-wise at least, to talk about that.

So we'll see where that turns out.

But I think Grant has hit the nail on the head.

The gap remains wide today.

What are those opportunities, Tim?

Well, I can let Sean speak to the -- I think there's some mandatory arbitration -- or not arbitration, but mediation steps that need to be taken before you get to the courthouse.

So Sean, do you want to speak to that?

Yes.

Very briefly, the Tax Court rules do have a court-mediated settlement discussion process that can be invoked by either side.

It hasn't been invoked yet, but I would suspect that it will be invoked at some point and that there would be some sort of formal settlement process in front of a judge sometime prior to trial.

So over the summer time frame would be likely?

Yes.

Or before, yes.

So probably in that range, Greg.

Okay, good.

Thank you.

(Operator Instructions) David Wang, Morningstar.

Thank you for taking my question.

My first one is on the capital expenditures guidance.

It looks like you are guiding to a lower sustaining and capital replacement expenditures in 2018 versus 2017.

And I was wondering what's driving that, especially with production having -- probably increasing between now and then.

Clearly, as Grant pointed out earlier, our focus here now is on our Tier 1 strategy.

And that's just requiring less capital going forward.

I think we have some spending to do this year related to Cigar Lake, especially with respect to the McClean mill.

And then after that, as I say, we are focused on our Tier 1 strategy and that sees our capital coming down.

Okay.

But this is just regards to the sustaining capacity replacement capital.

So do you expect that to be less intensive going forward or is it just that there's going to be less spending on the non-Tier 1 assets?

I think it should be both: less spending on -- I think it will be less intensive.

It should be.

A new project like Cigar Lake, once you get it up and running, you would hope you get a little bit of a break on sustaining for a while.

So I think it's just less intensive, yes.

All right, great.

And I was wondering if you have any updates on the contracting level so far through 2016 and your outlook for the rest of the year.

You've iterated that we've seen pretty weak contracting over the past three years.

But I was wondering if you've seen any change toward that or if there are any potential catalysts that would increase contracting either this year or next.

Yes, David.

I can look at Grant, who is running our contracting and sales and NUKEM piece now.

But I can tell you in the month of January, we watch it very closely and there hasn't been a whole lot of activity so far this year.

We will see what the rest of the year, especially the back half of the year, brings.

But to date, it has been slow.

Grant, anything to add to that?

There have been a few of the important industry conferences occur already in the first half, in January.

So good opportunity for us to get in front of our customers, both current and potential.

And really, we just see a lot of discretion right now; a view that they don't need to move very quickly.

Perhaps more interest in the second half of the year, but certainly not in the first half of the year.

This is consistent with this price-off bias that we've seen from fuel buyers for a couple of years as they look at a spot market that is oversupplied for a couple reasons and a spot market that has, obviously, a sentiment overhang that you would probably refer to as the fog of Fukushima.

And quite frankly, just the fact that while there is a great reactor construction story on the planet today, those construction projects are not consuming uranium.

And that's all coming together to help the fuel buyers feel like they have a bit more elbow room.

And so as Tim said, we're just continuing to see a discretionary market right now.

All right, thank you very much.

Oscar Cabrera, Bank of America Merrill Lynch.

The first question relates to Cigar Lake.

In your disclosure for the outlook in 2016, you mentioned that the package production for the asset is subject to regulatory approval of McClean Lake.

So when are you assuming that you will be getting this approval?

And can you just comment on is that proportional to the 8 million pounds you are expecting?

Alice Wong is in charge of our, among many other things, the safety-health-environment licensing.

And so she has been working with AREVA on this.

So Alice, I'm going to ask you to comment on that, please.

I think that we have to be clear that it is AREVA who has submitted the license increase.

They did late last year submit a commissioning report, which basically talked about the performance of the McClean Lake mill to date for up to December.

Then the report provides the background for the license increase.

Then last week, AREVA submitted a written application to the Canadian Nuclear Safety Commission to increase the license capacity.

Now, to provide a little background, AREVA has already got the required environmental assessment approval, and previous license documents have considered this increase.

So that does simplify the process somewhat.

But the CNSC does have a very thorough process for reviewing applications of this nature to increase licenses.

And so there's a possibility of clarifications that might be needed or additional information that might be asked for.

So that does add some uncertainty to the timing.

So we have -- that's in their hands.

We think that -- we expect they will have it in time for us to meet our guidance on production.

I'm sorry to just press you now, but when do you assume that that will be received?

Is the 8 million pounds assuming that they receive that in the first quarter or second quarter this year?

Well, they just submitted their license application.

So they don't need to have the increase in hand.

They have enough production capacity to get to 13 million pounds as an approved license.

So they don't need it this early.

Oscar, we'd like to get it -- we would certainly be happy if they got it in the first half of the year.

But if it's even in the back half, we have approval, as Alice said, to go to 13 million pounds and we would need that in place to do the 16 million pounds that we've budgeted for this year.

Okay.

No, that helps, Tim.

Thank you very much.

And then if I may, just a follow-up.

In your CapEx growth capital for 2017 and 2018, obviously the levels that we've seen before -- this is much lower.

But just wondering where these dollars are earmarked for?

Grant?

Yes; they are principally earmarked for McArthur River and Cigar Lake -- again, consistent with that Tier 1 strategy.

Jim Ostroff, Platts.

I would appreciate if you could talk a little bit about Fox Lake.

It's rather sort of interesting.

And certainly you had talked here about focusing on Tier 1 production, etc.

But this appears to be rather large.

I'm just wondering if there's any color, as they say, you could provide about Cameco's intentions for moving ahead with this asset at some point in the future?

Thanks for the question.

It is a nice piece of work by our exploration group, who now report to Sean Quinn.

So Sean, do you want to say a few words about Fox?

Sure, just a couple of words.

First, it is a validation of the good work done by our exploration group.

Also a validation of our continuing interest in the Athabasca Basin in Northern Saskatchewan, which continues to be a prolific source of uranium for the world.

It's a very encouraging find to add to our portfolio.

It will be evaluated in the context of our Tier 1 strategy and looked at in due course.

There are no immediate plans to take it any further down the development road at present.

Is there any time frame at all that you all could provide about the decision on doing any sort of actual exploration and production there?

We are pretty happy with what we've got going at McArthur, Key, Cigar.

We are wrapping up now at Kazakhstan.

We've got enough we think on our plate for the time being.

The fact that it's right next door to McArthur is very helpful, I would say, for the future.

So we will continue to work on the property to find the project.

So it's in our longer-term plans.

Thank you.

Chelsea Laskowski, MBC Radio.

My question actually goes perfectly with the previous one.

I was going to ask about Fox Lake as well.

And on the heels of you saying that with the fog of Fukushima, it could take a while for the need to ramp up again, but it should, at some point, exceed what's available.

So is there any comment that you can have on how that might fit into things changing in the entire marketplace and Fox Lake possibly having a role in that?

Let me give you just our two cents on the longer-term picture.

We remain very optimistic about the future.

We look at the demand in the uranium space.

We see it growing: a significant number of reactors under construction; I think 64 reactors under construction in the world today.

There's about 439 operating.

We see growth on the demand side, and it's pretty transparent.

We have a good sense of how much there is.

On the supply side for uranium, not quite as transparent.

It's flat; not a lot of new production coming on other than Cigar Lake.

The question is how long can people hang on at these prices.

So if you look down the road 10 years from now, we see over 200 million pounds of demand and significantly less than that of supply.

So something is got to happen in the meantime.

So that's what gets us out of bed and into work in the morning, knowing that a brighter future is coming in that regard.

A project like Fox Lake just plays into that.

This is a long-term game.

We started up Cigar Lake last year; ramped up production.

We are still ramping up.

That's a project that will be decades in the operation.

McArthur, same thing.

This is a long-term game, but we always have to be thinking ahead.

Reactors, when built, run for 40, 60, now 80 years.

And so we need to have reserves and resources in place for a long time.

So that's what Fox Lake really does for us.

It's a part of the future for us.

We've got good production today, as you've seen.

But we need to build for tomorrow.

And so the Fox Lake project will be a project that will come sometime in the future in Saskatchewan, but not today.

Certainly.

And just as a follow-up, I wanted to see -- you guys had mentioned that this was due to good exploration work that this was found.

Is this a very rare find?

Well, I like to say they are all very rare finds, for sure.

We have an exploration team that focuses on different areas in the world.

Probably our biggest focus is right here in the Athabasca Basin in Northern Saskatchewan.

And so, over years of line cutting and geophysics and then drilling, you hope that you put a drill hole in the right spot.

And this one seems to be a nice advanced exploration play.

I certainly can't call it a mine today.

But it's a nice one and we will continue to work on it.

So they are not easy to find.

We spend many millions and hundreds of millions of dollars, as do many others, looking for ore bodies.

And we are happy with this discovery to date at Fox Lake.

All right.

Thank you very much.

Graham Tanaka, Tanaka Capital Management.

I appreciate your frank answers.

We are also puzzled about the supply-demand situation.

We are just wondering, from your vantage point and your contacts in the industry, is the extra supply really coming from the supply deliveries to Japan under the contracts not being used?

Or is it from Kazakhstan?

We are puzzled where it's coming from.

That is a good question.

Certainly, to talk about Kazakhstan, we were talking about it this morning in a different context.

And looking at the numbers and seeing that today, 40% of the world production comes out of Kazakhstan, which 15 years ago would be at least single digits, even if that.

So Kazakhstan has played a big role.

We see a little bit of production coming perhaps this year from Husab, Namibia.

The Chinese are moving ahead.

Our Cigar Lake project already factored into the supply now.

But after that, it is pretty skinny, I would say, as far as new projects go.

And so, yes, the supply side is to keep your eye on supply.

I've said that for a few years.

I would reiterate that.

There's some inventories out there that are still being washed through.

And so right now, I think we are in a bit of an oversupply situation, but I'm not sure that will continue.

And I'm just looking at Grant.

Grant, do you want to say anything on that?

Yes.

In terms of the spot market today, I think we would identify four sources of material that come splashing into the market.

Tim identified the first one.

Primary production has actually been performing very well.

These are primary production decisions that were incented in the 2010 price run-up, when the Chinese stepped into the long-term market.

And now we are seeing the consequences of those investment decisions in pretty steady primary production.

Of course, primary production today that's only getting sustaining and replacement capital, not growth, is going to run a depletion curve.

But at the moment, it's there.

And we see some of that in the spot market.

I think the second source that we see is the enricher underfeeding probably to a greater degree than we normally would.

Enricher underfeeding is something that happens when there becomes a big difference between the SWU price and the uranium price.

And it makes sense for enrichers to use some of the UF6 that's being delivered to their facility to sell into the uranium market.

That adds to the oversupply.

We continue to see some strategic inventories coming into the spot market, in particular the US Department of Energy inventories that they use to essentially pay some cleanup bills.

And probably the last source of material that we see coming into the spot market today is from early shutdowns.

We've seen a number of reactors in the US shut down due to economic conditions, the price of shale gas, for example, as Tim highlighted earlier.

And this has led to inventory liquidations.

We are not talking big volumes, but we are talking volumes being added to an already oversupplied spot market.

So when you say where are they coming from, that would be the four buckets that we look to and track very closely as we look at this spot market.

That's really great perspective.

How many early shutdowns are we talking about, say, in the last 12 months or maybe even in the next 12 months, if possible?

Just to get a feel for if it's going to meter down?

We can certainly look up this number and confirm it for you.

But I think that the US had about six early shutdowns that were unanticipated at the beginning of the year.

In terms of what might be coming, it's hard to say.

Certainly, there are some reactors in merchant markets in the US that are under pressure.

But I wouldn't dare put out a forecast on how many might be shut down.

Thank you very much.

Fai Lee, Odlum Brown.

It's Fai here.

Tim, in terms of the long-term growth fundamentals and assuming this plays out the way you think it's going to play out, I'm guessing you are going to get a hockey stick recovery.

That seems to be what your pricing history has suggested.

Given the difficulty of predicting an inflection point if you do get a hockey stick recovery, how do you go about planning, for long-term planning purposes, around that?

You could easily sit on our Board because they ask us that every time they come in.

And I'm talking about the downside.

What if things don't improve as quickly?

We are optimistic for the future.

We look at the supply-demand fundamentals.

We can see that, as I said earlier, demand growing, supply flat at best, and inventories being consumed.

There has to be some reaction.

But we also have to look at what if we are not right or what if it takes longer.

And so that's really part of our Tier 1 strategy is we wanted to have a correlation to the price and operating leverage to be able to put more pounds out when it does start to run.

But we also wanted protection on the chance that things don't improve as quickly as they can.

And as Grant tells me many, many times, the market will pay for Tier 1 production.

And we believe that.

And so we are working hard to bring our costs down, our unit costs of production down, and really be operating from Tier 1 assets so that however the market turns out, Cameco will be fine.

So that's really part of our strategy.

Okay, great.

Thanks.

This will conclude the questions from the telephone lines.

I would now like to turn the meeting back over to Mr. Gitzel for closing remarks.

Thank you very much, operator.

I'd just like to close by acknowledging that times continue to be tough for our industry.

The challenges are real and we must be proactive to remain competitive, which I think we've done and which we will continue to do.

However, the positive outlook over the longer term is also real.

The challenges we see today do not affect the if the market will transition from being supply-driven to demand-driven.

They only affect the when that will happen.

In some ways, each passing year makes the long-term story even more positive.

The longer investment in new uranium project suffers, the less supply we think there will be to compete with the likes of McArthur River, Cigar Lake, and our other projects.

And that's a prospect that really keeps us excited.

So with that, I'll say thanks to everybody for being on the call today.

Thanks for your continued interest in Cameco and have a great day.

Thanks a lot.

Thank you.

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