Cameco Corp (CCJ) 2016 Q1 法說會逐字稿

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

I would turn the meeting over to Ms. Rachelle Girard, Director of Investor Relations. Please go ahead, Ms. Girard.

Thank you, John. Good afternoon, everyone.

Thanks for joining us. Welcome to Cameco's first-quarter conference call to discuss the financial results. With us today on the call are Tim Gitzel, our 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, 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. The slides are also available for download in a PDF file called conference call slides through the conference call link at cameco.com.

Today's conference is open to all members of the investment community, including the media. During the QA, please limit yourself to two questions and then return to the queue. Please note that this conference call will contain forward-looking information, which is based on a number of assumptions and actual results could differ materially. Please refer to our Annual our Annual Information Form and MD&A for more information about the factors that could cause these different results and the assumptions we have made.

With that, I'll turn it over to Tim.

Thank you, Rachelle, and welcome to everyone who has joined us on the call today to discuss Cameco's first-quarter results. We appreciate you taking the time to join us.

The most significant news this quarter is the announcement we made last week that were suspending production at our Rabbit Lake operation and that Cameco Resources is deferring further well field development in the US. These were difficult decisions to make because of the impact on people and on their communities, but they were necessary to maintain the long-term health of the Company in today's challenging market.

It's no secret to anyone that times are tough for uranium producers today. The market has been depress for over five years now, with low uranium prices, very little long-term contracting and more supply than the market needs. In the years following Fukushima, we had anticipated that things will gather the better sooner. For a variety of reasons, that didn't happen and we are yet to see a recovery in uranium prices. And although we continue to breathe there's a bright long-term future for nuclear, we have to prepare for a market that could remain low for even longer.

So far, Cameco has remained somewhat insulated from the effects of low market prices thanks to our solid portfolio of contracts. But over the next few years in a world where the timing of recovery in the uranium market continues to be uncertain and where there is global financial uncertainty, we have to be conservative to remain a strong balance sheet and focus our resources where they will add the most value. We believe the decisions we have made are the best way to do that. We expect these changes to help us continue to control costs and to stay competitive in a market that could remain low for longer.

The operational changes at Rabbit Lake and in the US were also, not surprisingly, result in decreased production for the year. However, the MacArthur Key Lake operation is also contributing to this decrease. There, we decided to reduce our 2016 production target from 20 million pounds to 18 million pounds, equivalent to 12.6 million pounds our share.

We will put the additional downtime at the mill to good use. We plan to do work needed to eventually increase production capacity so that we will be ready when the market signals more supply is needed. This includes changes to the solvent extraction circuit, bringing work on the crystallization circuit forward from 2017, and transitioning to the new calciner. Overall, our total production outlook has decreased from 30 million pounds to 25.7 million pounds for the year.

For the quarter, our results were reflective of a very quiet quarter in the market and the variability in our delivery schedule. Production volume was higher than the same period last year, which is due too the continued ramp-up at Cigar Lake. We are very pleased with the continued strong performance at Cigar Lake which we will continue to ramp up over the coming months with the expectation of achieving full annual production of 18 million pounds in 2017.

Our sales volumes were down somewhat from this time last year, which is common for us. You've heard us say before that our quarterly deliveries are often what we call lumpy throughout the year. Customers decide when in the year they want their material, and as is often the case, their requirements are generally more heavily weighted to the latter part of the year. We are seeing that again, but we are on track with the annual delivery guidance released last quarter.

We recorded an adjusted net loss for the first quarter compared to adjusted net earnings in the first quarter of last year. That's partly to do with foreign exchange continuing to have an effect, as well as lower gross profit from our uranium and NUKEM segments tied in part to lower deliveries.

When it comes to NUKEM, we had much lower sales volumes than in the same period last year. That is purely the result of a lack of good opportunities in today's market. Overall, market activity in general was extremely light during the first quarter of this year. We simply didn't see the kind of profitable opportunities that meet our requirements and until we do, we won't be selling those pounds.

Putting it all together, what we are seeing is a difficult market that has been low for longer than anyone expected and could remain that way for some time yet. We have to prepare for that possibility, and we have. We've refined our strategy to focus on assets that return the most value, while remaining flexible so we can stay competitive in any market conditions. We've put that flexibility into practice to focus on our tier-one assets.

Of course, over the long-term, we believe good things are in store for the industry. We know there's a huge amount of growth in reactor construction being led by China, India and South Korea, all of which have reactors under construction. We know there's 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 cancelled, and existing supply is being curtailed. So over the long term we remain optimistic.

I think with that I will stop and we would be happy to answer any questions you might have.

(Operator Instructions)

Orest Wowkodaw, Scotiabank.

Good morning. I was wondering if we could get a bit more color in terms of -- it seems there is a big change in your tone in regards to the near- to medium-term outlook for uranium. Just sort of curious, in your view, what has changed in the last three months to formulate that view?

Orest, I don't think there has been, really. If it sounded like that, might have had do with the difficult decisions we had to take last week. That was tough for us -- for all of us. Anything that involves our people is a tough thing to do. But I don't think our view has changed. We still see it tight in the short to medium term. Longer term looks good.

We're watching the usual things. Japan, China, I was just over there a couple of weeks ago. Really nice story over there. Good growth. I think there's about 32 reactors operating now, which is up from last time, 22 under construction. Japan is still slower than we had hoped. We're waiting for a return to long-term contracting. That's probably the biggest story over the last couple of years.

I don't think there's a change in our tone. Just that last week maybe was a tougher week for us, and one that we had to do.

With your Japanese customers, since they're sitting on a lot of inventory, are you seeing them take a pause from re-contracting as those current contracts run off? Is that fair?

Yes, clearly. Clearly, Orest. They have been sitting it out. We've been seeing them continue to respect contracts that were signed in the past, which is good, but nothing new coming out of Japan.

I see. Are you still expecting to buy 9 million pounds this year, from a purchase perspective? Or is that -- I guess you did 5 million in Q1 alone. Is it possible that number could even be higher than that?

We talked about 9 million and there is no change from that, Orest.

Okay, thank you very much.

Thank you.

Greg Barnes, TD Securities.

Tim or Grant, can you put the production curtailments you've announced into some kind of context, relative to where the oversupply sits in the market currently?

Greg, I'd just say that this is going to take us a few months. We've stopped the mining activities at Rabbit. Our plans were to produce around 4 million pounds there. US, it's little bit of a different story. We have to gradually wean that off. You are talking about taking 4 million pounds or 5 million pounds of production -- steady, reliable production out of the market. We will see what effect that has.

It was just the right decision for Cameco. We -- with the ramp-up of Cigar Lake, McArthur is running well, our Kazak operation is running well. We had access to pounds there, low-cost pounds, and in connection with the inventories we're carrying and some of the purchase pounds, we can fill our supply requirements with those pounds. So, that's the move we made. We will see what happens going forward, but it was the right call for Cameco.

The various industry consultants seem to suggest that the oversupply annually right now is somewhere around 25 million to 30 million pounds. So, your curtailments of 7 million pounds of total capacity still is a long way away from enabling the market to rebound. Is that fair?

You know, it's something that, as I say, you can probably do your analysis on that. What you'd have count in there is the growing demand as well. Demand is going up. We see it going from around 165 million, 170 million pounds today to 220 million. That's going up by 2%, 3% a year. Supply has been flat. We've made a move now that was the right move for Cameco. So we will see where things go.

We know there's pent-up demand in the system. And so -- but we just don't know the timing of when that's going to come forward. We like the supply/demand fundamentals over time, but right now it's still an over-supplied market, and we are preparing for the low-for-longer scenario. If it's not as long, then good for us. We will do very well.

Okay. Thanks, Tim.

David Wang, Morningstar.

Thank you for taking my question. Just a question on the cost. You are taking out some of what we would consider to be maybe higher-cost tonnage from the US and the other operation, but you haven't changed your guidance for average unit cost of sales for uranium unit. Is there something that is offsetting those higher-cost tonnes coming off line, or is something else going on?

David, I will let Grant speak to the --

It's a great question. Obviously, over time, replacing higher-cost pounds with lower-cost pounds will have a positive effect. Right now, you see our average unit cost-of-sales guidance for the year remain where it was. The key driver there is, yes, we will be replacing some pounds from those tier-2 production sites. But we have purchased material in there as well. It's not just produced material that gets in that average unit cost of sale or that overall inventory cost that we have there for it. So, on balance, not enough to shift that cost-of-sales profile. But to the extent the market remains soft and to the extent we continue to produce for our committed volumes but produce exclusively from tier-1 assets, then you would see a positive effect there.

Great. What sort of pricing environment would we need see before you think about bringing back Rabbit Lake in the US operations to where they were before? Would we just have to get back to what we saw last year, or would things need to be even better than that?

David, it's Tim again. We said, I think the word we used was, significantly. And you can use that with a capital S. Probably significantly higher prices than you are seeing, certainly on the spot market today, even on the term market. We've seen others speculate that you are going to need a price that starts with a seven in there. We saw with some of our Australian assets a few years ago, where there was a CAD67 price. Like I say, that was a few years ago. So, you're talking in that range. We wouldn't quibble with any of those numbers. It has to be significantly higher than it is today.

All right, great. Thank you.

Thank you.

(Operator Instructions)

Edward Sterck, BMO.

Hi there. Thanks very much. Let me ask -- I will start with a starting question. The CRA dispute has been -- in terms of going to court, has been delayed by a month. Can you provide any color around that?

Yes, Ed, it's Tim. I'm going to pass that over to Sean. Maybe you can just give bit of an update to Ed on where the CRA piece is at -- the litigation?

Sure. There was a modest delay ordered by the court and when the trial starts, Ed, I think we went from September 26 to the first full week in October. So, it's not a full month by any stretch. The trial is still scheduled to run throughout the fall, with closing arguments now scheduled for March of next year. So, no significant changes in the trial schedule overall. And, just as an addendum to that, we continue to prepare for trial and that's where our efforts are concentrated right now.

Thanks very much. Just a follow-up question on the CRA dispute. Can you give us an indication of how the timeline pans out between now and then going to court in terms of events? And then, I guess it's fairly open after that but possibly how long things will take thereafter?

Sean?

Sure. As I mentioned already, we continue to work to prepare for trial. Significant efforts required with that in connection with preparing expert reports and testimony and all of the other stuff that goes along with that. The trial will run, as I said already, from October through March of next year, and then we await a court decision. It's a bit speculative but we're guessing anywhere 6 to 18 months for a court decision. But we really have no control over that.

Okay, thank you.

Thanks, Ed.

Chelsea Laskowski, MBC.

First question is a two-parter. First of all, I talked to a supplier -- the trucking company that works with Cameco's Rabbit Lake and your other mines in the area -- earlier, and they'd said that you usually do a five-month shutdown at this time of year. Can you confirm that?

Chelsea, it's Tim. We have four different sites that we operate in Northern Saskatchewan. Each one of them takes different maintenance shutdowns. So, wouldn't be unusual for us to have a shutdown at one of the sites during this time period. So that would be normal.

As a follow-up to that, with that in mind, do you see that Rabbit Lake closure making a big change in the next quarter?

Well, it's going to take us a while at Rabbit Lake to wind things down. We think, over the next several months, that we'll -- we want to put the assets into safe care and maintenance mode. We're going to need our people to help us do that. I was up there last week, Thursday, talking with them and just explaining what the process looked like going forward. That will take us some months to do.

Okay, thank you very much.

Thank you very much.

(Operator Instructions)

Graham Tanaka, Tanaka Capital Management.

Hello, a couple of questions. First off, just want try to get a bit of a read or [a fix] for next year. With the wind down in the operations, it appears that the cost per pound would be going down. Is that correct? And roughly by how much?

Grant, do you want to talk to that?

We don't have any guidance for the costs for next year. We will put out guidance for next year in our average unit cost-of-sales line of our outlook table, but we haven't put anything out there for the 2017 period.

The other thing, also related to that, is the maintenance cost to keep (technical difficulty) the operations for Rabbit Lake -- I mean, in the US. What is that annual? I saw a number of CAD40 million. Does it cost that much to maintain the operations while not producing?

Graham, that's our at Rabbit right now. I think we said CAD45 million. We'll see. We're going to need I think about 150 people. Obviously, we will try to reduce those to the extent we can while keeping the assets, as I said, in a safe care and maintenance mode. We will do what we can to reduce those costs.

I guess I was wondering if, with the contracts -- the long-term contracts and then with the lower-cost tier-1 assets producing, if that benefit of lower-cost per pound being produced is going to be more than absorbed by the -- or more than offset by the maintenance cost with no associated revenue. In other words, everything being equal next year, assuming no price change, would profit be -- roughly be flat?

Graham, it's Grant. Sorry to be evasive on this. We don't have guidance out for 2017, which is in part the problem of not being able to answer this question. When you step back and think about our flex strategy and what we were up to here with focusing on the tier-1 assets and being able to replace tier-2 costs with tier-1 cost, it was to focus on that gross margin and try to improve that. Obviously, taking assets off is not costless. If it was, you'd see probably see more production come off right around the commodity space. It does cost to do that, so you have to -- careful analysis, obviously, have to go into that. When it comes time to put out our 2017 guidance, we absolutely will, but at the moment we just don't have any numbers out there for you.

Thank you.

Thanks, Graham.

Orest Wowkodaw, Scotiabank.

Thanks for taking my follow-up. Just curious, your guidance here for the CRA, the CAD1.5 billion to CAD1.7 billion liability, just curious why the bottom end of the guidance actually decreased? If you can give any color to that, we would appreciate it.

Just a bit of context that you know, Orest, but just a reminder, I guess. In order to arrive at that number, we have a lot of voluntary disclosure out there, because we have actually only been reassessed for 2003 to 2010 with 2004 sitting in a bit of procedural limbo. What we've done to arrive at that number is make assumptions about 2011, 2012, 2013, 2014 and 2015. It's just going through the process of trying to make sure those assumptions are accurate and figuring out best estimates on what we think the CRA may or may not do is what affects that end number. And it does move around a little bit as we change our assumptions. Nothing substantive, I would say. It doesn't represent a fundamental change in what we think the CRA is doing from a reassessment point of view, but perhaps a bit of a reduced financial exposure in those outer years.

Okay. Following on that, I think you previously mentioned there could be an option for non-binding arbitration. Is that -- can you remind me who has the right to trigger that and whether that's something you are considering? Thank you.

Sean, do you want to answer that, please?

Sure, I'd love to. I don't think we mentioned non-bonding arbitration. There is a provision under the Tax Court rule, where this dispute is being heard, where either party, the Crown, CRA, or us can invoke a court-mediated, not arbitrated, but mediated, settlement discussion before a judge who would be other than the judge who hears case. It's kind of a formal mediation process before the judge who listens to both sides and then makes some suggestions. It becomes mandatory if either party requests it. It is not imposed on the parties otherwise. We haven't requested that process to date and obviously the Crown hasn't. That process is there but it hasn't been invoked by either side to date.

Thank you very much.

Thanks, Orest.

Edward Sterck, BMO.

Are you there, Ed?

I am. I'm sorry. I must have been on mute. Can you hear me now?

Yes, we can hear you, Ed.

Firstly, with NUKEM, obviously the course was quite different to previous ones. Is there any change to the market conditions or business model that are making it more challenging than in the past?

No, Ed. You know that we think of NUKEM as being an opportunistic player in the spot market. In order to be that, there has to be opportunities. Q1 was very quiet. We did not see the right opportunities for NUKEM and therefore did not pursue them. As a consequence, their quarter ended up very quiet.

You will see, though, that the annual guidance for their sales has remained. In other words, we think we still see some demand opportunities in the remainder of the year. Therefore, we haven't changed that overall annual guidance, just reinforced that the opportunities weren't there for NUKEM.

Okay. Thank you. In terms of a follow-up question, should market conditions allow, how quickly can Rabbit Lake be restarted and the US ISL operations be ramped up again? And between now and a potential future point, should we expect an increase in D&A for the US ISL operations or possible write-downs of Rabbit Lake?

I will take the first part and then I will pass it over to Graham. When we ramped down and put things in a safe care and maintenance, it takes us a while. We would estimate -- I'm looking at Bob Steane, 12 to 18 months, probably, to bring those assets back into production. Something like that. It's not a -- this wasn't a decision we took lightly, for sure. We looked long and hard at this. We will put them in safe care and maintenance but it would take us about long to bring back. Grant, do you want to talk the --

Obviously, the announcements on those assets are subsequent events to Q1 so that gives us some work to do in Q2 here to look at the carrying value of those assets. With respect to Rabbit, we actually have taken a few impairment charges -- one on the mine, one on the mill -- in the past, so we'll do the work necessary to find out if there is any further impairments there. Similarly, for the US, we'll have a look at the carrying value and assess the resources that are available and the productive capacity that's available against market expectations and determine if an impairment charge is warranted. We will continue to do that work and that will be revealed in Q2.

Great. Thank you very much.

Thanks, Ed.

(Operator Instructions)

Andrew Quail, Goldman Sachs.

Afternoon, guys. Thanks for taking my question. I got a couple. I think the action taken last week was prudent and necessary. I think it's the right decision for shareholders. If we see that uranium price is obviously stable at CAD30, what do you guys think you could do next in terms of capacity cuts if it came to that?

Andrew, we're not looking at that at the moment. I think as Grant just outlined, we are pretty content where we are at as we move to production from our tier-1 assets. These assets some of the lowest cost in the business. With those and the pounds we have, we are able to fill our contractual commitments. That puts us in a really good space.

I would just say I think were we are where we want to be. We're filling our sales commitments from tier-1 assets. We see demand growing, production being curtailed in some spots, secondary supply hopefully diminishing. We're on a path, as Sean talked about, to resolving the CRA case. And so -- and the Company is still strong and healthy in a weak uranium market. We are where we are at. We will continue every day to watch the markets, see where things are at, but we're in a pretty stable place at the moment.

So, no more cuts?

Not at the moment. We had a, as I say, a tough week last week. We've brought off the production. If we thought we had more, we probably would have done it last week. We're comfortable where we are at. Thanks.

Okay. Next one is on M&A. I suppose you guys obviously are the big player here. You mentioned at the start of the call that you had been (inaudible) unlike many of your other peers. Do you see this down market as an opportunity maybe to take advantage of any external opportunities that might present itself?

Well, we are not aggressive on that, Andrew, at the moment. I think we got a great suite of assets. We're focusing now on our tier 1. We've got some room to ramp those up when the time is right. We're preparing for that. We like the space we are in. Quite frankly, there is nothing out there that really whets our appetite at the moment. We're holding steady to where we are at.

Yes, I would add to that as well, Andrew. You've watched Cameco quietly acquire some material in the market in the last couple years and those are pounds that have come in cheaper than the cost of tier-2 production, cheaper pounds than anything we could have bought at the asset level, carry no operating risk with them, and are there to deploy when we think the market is going to reward us for those pounds. In some way, that has been our approach there. Those have been very attractive opportunities, especially relative to anything that might have been available in the M&A space.

Okay. Thanks, guys.

Thanks, Andrew.

Fai Lee, Odlum Brown.

It's Fai here. I'm just wondering about your foreign exchange hedging strategy. It looks like you've hedged out most of the exposures through this year. Does that go beyond 2016? Just wondering how the strategy works?

Fai, I'll let Grant talk about our long-term hedging strategy.

I don't want to launch into a huge lecture, but you're asking about the strategy. Let me start from the top point, which is we hedge for cash flow certainty. Obviously, one of the challenges we have is trying to tell a cash flow story through an earnings lens. The reason we take this approach, obviously, is the US dollar-denominated revenues and mostly Canadian dollar costs and we want to build the certainty around our spending activities on an annual basis, not be caught short because of foreign exchange fluctuations on those spending plans.

As a result, from a strategic point of view, we employ a smoothing and trailing approach to our FX, which the vast majority of the time serves us very well. But, in times of rapid changes in FX values, like we have seen over the last 12 months, there's obviously a divergence and it takes time to catch back up to that divergence, which then results in an IFRS treatment, which is simply mark-to-market. You just take that entire derivative book and you pretend that it's going to wind up today. And you say, what's your exposure? Is it a gain or a loss?

Of course, we don't think that really captures the core performance of that hedging strategy, so we have a few adjustments built in there. What we do is not explicit hedge accounting but we proxy for it. In true hedge accounting, we would match up every single FX contract with a specific uranium sales contract. We don't do that. Instead, we proxy or designate a certain amount of those FX contracts for the current period. The current period reflects both the cash settlement of the contracts in that period plus what we would consider realized that we designated to this period. We pushed the rest out over time, because as you say, we layer them on over time, out as far as three years.

In this designation, we do it on a percentage basis, and every current period not only captures the realized for this period but it would also have to capture the designations we have made in the past for this period. There's this constant roll forward. If there's a strategy, it's one of cash flow certainty. And if there is a challenge, it's telling this cash story through an earnings lens. That's where we find ourselves.

Okay, great. That explains why the CAD0.01 change has a different impact on the cash flow versus earnings, then.

Absolutely, yes.

Okay, thank you.

Thanks, Fai.

Greg Barnes, TD Securities.

Thank you. Grant, your response to Andrew's question about M&A and acquiring pounds in the market is interesting. Does that mean that you've built up more inventory than you'd normally carry over the last couple of years?

We have not made purchases that would be beyond what is normal. If you look at the purchases we've committed to in the last several years and look at that over the past five years, there's nothing unusual about it. What is a bit different, obviously, is that the HEU material was coming in before and we had sales volumes well above our produced volumes. But with the performance at Cigar Lake, for example, our produced volumes have gone up.

Now, with the decision we've taken on our tier-2 volumes, we have the opportunity to replace our term commitments, our contract commitments, with produced material from a lower-cost asset like Cigar Lake but also to replace it from pounds we acquired in the market that are cheaper than what our tier-2 costs would've been. So, for us, it's been a good opportunity to acquire what we think is real value in the market with only cash costs, no non-cash costs, and no operating risk attached to that as well.

So, you normally carried about six months of inventory on hand. Is that still the level that you are working with now?

We are above that right now, as we have taken advantage of some of these good opportunities. But, of course, our inventory is also subject to the lumpiness that we have in our normal markets. When sales are below production and purchases, our inventory goes up and it's working its way through over time. Of course, acquiring NUKEM has also added inventory to our balance sheet that we wouldn't have had in the past. We still have that target of that six months' forward inventory. We've seen a few good opportunities to add to that but now that we've made a curtailment decision, we see a way to replace some of those pounds under the contract commitment.

Okay, thank you.

Thanks, Greg.

Graham Tanaka, Tanaka Capital Management.

Just wondering if you could elaborate a little bit on your outlook from the reactors coming on stream and whether there was a change in your outlook for how fast the China and India reactors come on and whether US shutdowns are happening any differently, as well as the Japan resource? I know there's a lot there, but wondering if those three things affected your decision? Thanks.

Not much changed, Graham, in that regard. The numbers changed because there's been some new reactor startups. I think our numbers show about 441 operable reactors today, 61 under construction. One's gone up and the other one's come down a bit. As I said, I was just in China a couple of weeks ago. Good news there, 32 operating, 22 under construction.

The important part was we talked to the big utilities and they are still on track for their 58 units or gigawatt, if you like, by the end of the decade, by 2020, with another 30 under construction. That's the good news story. We were just sitting the other day calculating the uranium requirements in China. If you want to go to those numbers and have several we're not sure what their inventory policy is but first cores plus inventory, and you keep building, bringing six to eight per year on in China, yes, they're going to need some inventory and it's going to be obviously a really important place to play. We're talking a lot, let me say it that way, with the Chinese.

Japan's been slow. They got the first Sendai unit going last August 2015. Two of them now, and then had some more units approved and come on and now have backed them off. There's some legal challenges. That's just going slow. We know there's, I think, 26 reactors in the queue to come on. Those are good numbers. Over time, that many come back, we think even a few more, that will be a good news story for Japan, but it's just taking a long time.

The last piece I think you said was US flat. We see it flat. 99 reactors. Today, a lot of them getting a 20-year life extension. In fact, just about all of them. A few at risk in merchant markets. Competing with gas is tough in those markets. But also some being built. Some big new units being built down in the southeast corner of the country. And so, we'd say the US is flat right now.

Overall, not much change to our picture. It's a growth story. It's a good story that growth requires more uranium at a time when you saw some curtailment. You've seen a bit in the past, and not a whole lot of capital going into new projects. We like those fundamentals going forward.

Thank you.

Thank you.

(Operator Instructions)

Orest Wowkodaw, Scotiabank.

Thanks for taking so many questions today. Just a little bit more clarity on the care and maintenance costs at Rabbit of CAD40 million to CAD45 million. What happens if Rabbit's on care and maintenance for several years? Can you give us a sense of how those maintenance costs trail off over time? Do you think they're going to stay at that level indefinitely until this thing restarts?

I'm going to ask Bob Steane -- Bob's with us -- to answer that question. Bob?

The outlook today is we will get through the shutdown this year and get into that care and maintenance state and see what the costs are. Then they will probably be fairly stable. The reason is -- that the state of the mine and with the state of the Rabbit Lake operation that we are keeping is, one is, there's always water. Our water treatment capability has to keep operating. We will always be pumping and treating water so a portion of the mill is running which is treating the water.

We're keeping the mine de-watered. We're not flooding the mine, so we've got water being pumped from the mine. We also need ventilation running in the mine to keep the mine so it's accessible. Those are the leaders and what drives the care and maintenance cost is keeping a mine de-watered, ventilated, and available, and then treating all the water and so on. Unlike one would think perhaps you shut something down and all you're doing is walking around watching. There is things happening. Once we've reached that stable state -- is it CAD45 million, is it CAD35 million -- we need to work that through. But when it gets there it would stay at that level.

Are you suggesting it might stay at that CAD40 million level indefinitely?

Well, until we make another decision.

Okay. Fair enough. Thank you very much.

Thanks, Orest.

Edward Sterck, BMO.

Thanks very much. I note that Orest got his third question in before me but I think -- (laughter) I was just asking -- I was just interested in a bit more information on the term market. From my view here is that price discovery is somewhat limited. Also in terms of transactions when they occur, the information there is somewhat challenging as well. All of this anecdotal evidence is that transaction volumes are declining or at lows in the term market. I was just curious as to whether Cameco is still signing term contracts right now. I know you probably won't give a price indication, but the long-term price is CAD44. Is that sort of where things are really happening?

Ed, Grant's been spending a lot of time on the market side over the last nine months. Grant, do you want to talk about the term --

The term market has been quiet. You referenced it. It is a fact. Over the last three years there has been enormous amount of deferred demand that would normally have been in the term space. Over 450 million pounds of uranium consumed in that period, and only about 35% of that replaced in the term market.

It's just -- it's really a function of a strong price off sentiment that fuel buyers continue to have. They look at some of the factors that Tim outlined and they see some of the short-term challenges to the market which, for them, are opportunities, obviously. They're looking (technical difficulty) other end of the telescope. They don't feel like there's a need to kick-start the term market yet. We've seen this deferred demand be pushed out into the future and we've seen a very quiet market.

You asked about price discovery. Are their deals getting done at that price? We can't point to a lot. Certainly none by us. The only term business that we did of any significance was the announcement with the Indians last year. And that was on market-related terms, it wasn't on fixed-price terms because we've said and consistently to our customers, these are not prices that we think are indicative of uranium going forward and so we're not willing to part with our uranium.

And as long as we have our contract portfolio protection, we don't have to chase the market down. That I think is reflected in Tim's point that we are where we want to be, meeting our current commitments with tier-1 production, and not being forced to chase this market down.

Thank you. My follow-up question then would be, if we think about those legacy higher-priced contracts, when should we think about those beginning to roll off and, I guess, other producers making similar decision in terms of shuttering production as they don't have the high-priced contract to deliver into anymore?

Ed, I think our price table gives a bit of an indication where we are at. I think we're well covered through 2018 into 2019. We've got a few years in front of us. We're watching that closely and we think in that period of time we will see some better days ahead. That is, as I say, we're covered through the 2018 period.

Okay, thank you very much.

Thanks, Ed.

David Wang, Morningstar.

Thank you for taking my follow-up. I wanted to ask a similar question related to the markets. With the decline in prices, have you seen any indication from other producers that they are going to delay or put off projects that would add supply in the future? I'm just trying to get a gauge of when you see the sort of surplus leaving the market. I would imagine with lower prices you are not the only one that's considering taking some volumes out and how that impacts the market balance in the out years.

Yes, David, obviously, you would have to check with them to see what their plans are going forward. We took decisions that we thought were in the best interest of Cameco. We're -- those are tough decisions when you're in a company [with] a lot of people and those affect people, those are tough decisions, so we took those. What other producers will do, you may want to check in with them.

All right, thanks.

Yes, thank you.

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

Thank you, operator. I'd just close by acknowledging again that times continue to be tough for our industry. These challenges are real and, at Cameco, we are and we have to remain proactive to remain competitive. We will do that.

We also think that the positive outlook over the longer term is also real and, in some ways, each passing year makes that long-term story even more positive. The longer we think investment in new uranium project suffers, the less supply there's going to be to compete with the likes of McArthur, Cigar, and other projects in a rising market. That's what gets us up and keeps us excited about this business. We will carry on and I want to say to each of you, thank you for your continued interest in Cameco. Have a good 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.