Cameco Corp (CCJ) 2016 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Cameco Corporation second-quarter results conference call. I would now like to turn the meeting over to Mr. Cory Kos, Manager Investor Relations. Please go ahead, Mr. Kos.

Thank you Valerie and good afternoon everyone. Thanks for joining us and welcome to Cameco's second-quarter conference call to discuss the financial results. With us on the call today we have 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, and then we will open it up for your questions.

If you joined the conference call through our website Events 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 called conference call 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 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, Cory, and welcome to everyone on the call today. We appreciate you taking the time to join us to discuss Cameco's second-quarter results. I'll start with some brief remarks and then I will turn it over to our Chief Financial Officer, Grant Isaac, for additional details on our financial results. After that, we'd be happy to take your questions.

I think I can say that Q2 2016 has probably been the toughest quarter and the toughest market we've seen in the last decade, and our results for the quarter reflect just how challenging the market environment for our industry continues to be. Uranium demand remains low and uranium prices depressed. In the second quarter, the market remained quiet with contracting volumes even lower than last year at this time. As a result, we saw both the spot and long-term uranium prices fall to new 10-year lows. In fact, the spot price for uranium has fallen 66% since the Fukushima accident, including a 25% decrease since last year at this time.

It's not difficult to see why there's been no real catalyst to kickstart a significant change to the current conditions. Progress on the restart of Japan's reactors remains slow as utilities work their way through the new regulatory framework, and also due to the court injunctions imposed on several reactors in the final stages of their restart process. Consequently, there's been no change in the number of operating reactors in Japan since the first quarter. As long as the bulk of their reactors remain shut down, uranium inventories continue to grow, this at a time when demand is lower overall and supply continues to perform well. Add to this the announcements of premature reactor shutdowns, mainly in the United States, which is also adding extra pressure to the supply-demand equation.

Within that context, we at Cameco continue to look for ways to remain competitive. Our strategy is to keep our production flexible and focus on our lowest-cost assets. That strategy is what led to the production curtailments we announced last quarter. The benefit of those actions will not be evident in our financials this quarter. Instead, as was expected, we saw an increase in our unit cost of sales and our administration costs, partly as a result of workforce restructuring and care and maintenance costs. As well, we incurred a write-down at Rabbit Lake, which was one of the primary drivers of our net earning results in the second quarter. But over time, we expect these decisions will help us remain competitive in an uncertain market where we simply don't know how long the weak conditions will persist.

On the production side, I'm happy to say our operations continue to perform well. We had no major operational issues to report for the quarter and production volumes were all on target or slightly better. As a result, we remain on track to meet our target of 25.8 million pounds of production for the year.

When it comes to sales volume, our deliveries have been light for the first half of the year, which is normal. We have contracts to deliver 30 million to 32 million pounds in total this year, but just when they are delivered is based on when customers call for them. As usual, those deliveries are heavily weighted to the second half of the year.

For the rest of our outlook, we are on track with our revenue and cost guidance, although there were some changes to NUKEM's outlook this quarter. We have revised our sales guidance for NUKEM down, which will of course affect the segment's revenues. This combined with the write-down to NUKEM's inventory this quarter will impact gross profit for the year.

The reason for the adjustment is the same as we noted for NUKEM's decreased sales volumes last quarter; we're just not seeing opportunities in the market. That's the reality of the market we are in today, but over time we believe that will change.

China's newbuild program is going strong, as is South Korea's and India's. So far this year, five new reactors have started up, including three in China, one in South Korea, and, notably, one in the US, the first new one in 20 years. Those new reactors and the many more that are expected to come online over the next decade will drive an increasing demand for uranium.

So over the long-term, we remain optimistic. We know that investment in new supply will be needed, but at today's uranium prices, that investment is just not happening. So, we are continuing to focus on our strategy to deal with today's very real challenges, to sustain our business through this extended downturn and to remain flexible so we can respond when the market improves.

So, with that, I'm going to turn it over to Grant Isaac for a further discussion of our results. Grant?

Thanks Tim. I wanted to take a moment to put our financial results into an appropriate context and to disentangle our core performance from some of the other notable items affecting the quarter.

It might be useful to think about two types of notable items, those that are marked to market driven by the fall in the uranium price, and those that are charges resulting from strategic decisions that we have undertaken, for example production curtailment and restructuring.

As Tim noted, this was probably the toughest quarter in the toughest market that we have seen in the last decade. Market activity was light and uranium prices continued to face downward pressure. Some of the market related contracts we delivered into during the quarter were affected by the weaker uranium market prices, but overall our contract portfolio continued to provide good protection for us, delivering an average realized price almost 60% higher than the average spot price for the quarter.

Our earnings this quarter were affected by our uranium segment sales, but this was more a function of the timing of deliveries, which is dictated by our customers. As we had guided, our contract deliveries were low for the quarter, following the lumpy delivery pattern we expected. Our deliveries are again heavily weighted to the end of the year, and that is when we will deliver the bulk of the 30 million to 32 million pounds of uranium specified in our annual guidance. This is uranium that we have under contract to deliver. It is not uranium that we have yet to sell.

Looking at costs, we were able to lower our unit cost of inventory primarily as a result of lower production costs. The decrease in production costs can be attributed to our strategy to focus on the lowest-cost operations, which saw us curtail production at our higher-cost operations last quarter. Of course, the remarkable progress at Cigar Lake is also a significant contributor to the reduction in production costs. However, that good news was hard to distinguish since curtailment does carry with it some costs. Those costs are accounted for in the cost of goods sold for the quarter, which increased. We charged almost CAD39 million in care and maintenance and severance costs directly to cost of sales.

So despite what looks like deteriorating results, at the core, our uranium segment remains solid. Our contract commitments for the remainder of the year will see us deliver between 19.5 million and 21.5 million pounds of uranium. Our contract portfolio will continue to provide price protection from weak market prices, and our annual cost guidance remains intact despite the noise in this quarter. So once we work our way through these restructuring activities, the strength of our core business will be more apparent.

I also want to touch on NUKEM's core performance as well as other notable items impacting the NUKEM segment in the quarter. Like our uranium segment, NUKEM sales are affected by the variability in customer requirements. In addition, the ongoing weakness in the uranium market has meant fewer profitable opportunities available to them. As a result, sales revenue and gross profit to the end of June are lower than a year ago, reflective of the weaker market conditions. This has led us to reduce our sales and revenue guidance in that segment.

If we look at NUKEM's gross margin, cost of products sold is up for a couple of notable reasons that fall into the mark-to-market category. As we sell inventory acquired when we purchased NUKEM in 2012, we have to allocate a portion of the premium we paid to acquire those pounds to cost of sales. There is no cash impact from doing this, but it does impact the reported margin in the quarter in which those sales occur.

The other item affecting cost of sales was the mark-to-market adjustment of NUKEM's inventory in the quarter as a result of the weakening uranium price.

I want to cover a number of other notable items as well. These remaining notable items are best characterized as charges that impact this quarter as a result of strategic decisions that we have undertaken. While admin costs appeared to increase, both for the quarter and year-to-date, if we back out a number of these notable items, the actual run rate of our administration spend has decreased as a result of the cost-cutting measures we have implemented. These notable items are related to the signing of a collaboration agreement which provides us with ongoing support from the communities closest to our operations; the restructuring of NUKEM; legal costs as our CRA dispute progresses toward trial; the consolidation of corporate office space; and corporate office changes resulting from the curtailment of production at Rabbit Lake and in the US. These decisions will benefit our costs over time and we are continuing to evaluate corporate office functions to look for further cost-saving opportunities.

Combining our mark-to-market related notable items with the strategic notable items results in approximately CAD0.25 per share of negative impact to our earnings. As such, our core quarterly performance may be thought of as approximately CAD0.11 per share of earnings, which is in fact a performance consistent with a quarter that saw low deliveries of 4.6 million pounds, as guided.

Finally, I'll quickly touch on the CRA tax case. As our MD&A demonstrates, there is really not much change. We are continuing to prepare for trial starting in October. To date, neither party has requested a court mediated settlement discussion, although we continue to anticipate that such discussions will take place before the trial begins. Our view of the case has not changed. We continue to be confident that we will be successful and look forward to presenting our case at trial.

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

Thank you, Grant, for that update. Operator, we are delighted to take any questions that anyone might have.

(Operator Instructions). Rob Chang, Cantor Fitzgerald.

Good afternoon everyone. Two questions. First off, details on the canceled contract. I haven't seen many of these and I was just wondering what the details on that are, and can we -- would we be expecting to see more things of that nature?

And the second question being could I get a little more detail on the increase in the tax recovery guidance? It jumped quite a bit, and I saw a small note on it, but I was wondering if there could be more detail provided on that as well.

It's Tim. I'll take the first one then pass it over to Grant. So, that was a customer that we had that decided they didn't want future delivery under their contract, and I think chose the strength of our portfolio. They came to us to crystallize it in the near term, and paid it out in cash. So a good news story for us.

Absolutely. On the tax recovery guidance, it really is, as the note says and I don't have much more detail other than this, it's just a function of where our earnings occur. In a year where we have Canadian production ramping up with Cigar Lake and in a year where we are taking significant cost curtailing another Canadian production of Rabbit Lake, we end up with some losses, if you will, that we book against our Canadian filing position, and then that ends up translating into a recovery for us. So, that's what's changing that recovery outlook.

Edward Sterck, BMO.

I've got a few questions. Just asking of the termination of contracts and the payout from that, I'm just wondering. Is that revenue going to be reported as an exceptional item, or is it just considered normal course revenues? I guess, in that case, it would be paid out the full contract. And what would the impact on future delivery commitments be then? And also in terms of the utility, is this a Japanese utility we are talking about?

Grant, do you want to answer that?

Yes. Let me start with the last. As part of the settlement, we committed to not disclosing who the utility was, and so we won't be doing that, nor will the utility be. It will be reported in our Q3 earnings. And the precise segment that it will appear in is yet to be determined but it will be a benefit to that segment. And what I mean there is whether it's uranium or our fuel services division. And the impact on future deliveries effectively it's a take or pay. And so they are out from under the obligation to take those future volumes, but we are okay with that given the value that we were able to get in the near term. So, yes, it will open a bit of our contract commitments, but not materially as you've seen in our disclosures.

Okay. Thank you. Then just to ask a follow-up question, the unit cost of sales guidance for the uranium division for the year, which is obviously unchanged, I'm just wondering if that guidance includes the CAD38-odd million of care and maintenance costs that were included in cost of sales in the current quarter.

Yes, it does. So that's the average unit cost of sales guidance, so it would include care and maintenance costs. That's one of the things that gets added back above just the run rate production costs. And on an annual basis, that guidance has remained. So we are looking to that up to 5% increase over last year's average unit cost of sales and holding to that at this point.

Thank you very much.

Orest Wowkodaw, Scotiabank.

Good afternoon. I guess, getting back to the same issue, the contract termination for CAD47 million, have you had -- does this open up kind of Pandora's box now? Have you had other inquiries from your customers to try to I guess cancel these take or pay contract? And what -- do the utilities have any ability to defer their deliveries beyond this year? Obviously it looks like they deferred them to late this year, but is there anything that allows them to just defer those deliveries into next year or the year after, given how weak the market is?

This is Tim. This is a bit of a one-off. This certainly isn't any pattern that we are seeing. As Grant explained, we were able to crystallize it, which worked pretty well for us. We talked about in the past on calls that the Japanese, in the early days, we did some deferrals, but we haven't seen anything lately in that regard. So, it's just a bit of a one-off.

Yes, there would be -- it wouldn't be unusual in a uranium contract to have some flex where customers can defer a bit of the commitment out to future years. But ultimately over the end of that contract, they have to take that full volume typically. And so yes, there might be some in-year movement, but the overall effect on our contract portfolio tends to be negligible.

It's not a surprise that there are some utilities out there that are either delayed in construction programs or maybe early shutdowns of their reactors might find themselves in a position where they want to talk about those volumes. But I think, ultimately, you are seeing the strength and our contract portfolio, that it doesn't turn into a conversation about cancellation. And we would only defer if it made sense for us, if we were able to see the value for it and it made sense, and in this case, it did.

But just following up on that, how do you get comfortable that you can still maintain that guidance of 30 million to 32 million pounds deliveries if there is some wiggle room in terms of contract delivery timing?

In fact, you are actually hitting on the reason why it is a range. It is a range because there is that wiggle room, if you will, on an annual basis. But as we look at what's left in this year, the 10.5 million that we have delivered so far and the remainder for the rest of the year that's under contract, that guidance hasn't changed because we remain confident that we will deliver those volumes. And just to emphasize the point, to achieve that level of sales does not require us to go out and sell a bunch of material. This is already under contract for delivery.

So this guidance assumes no spot sales?

Yes. So, if we made discretionary end-year sales, it would be additive to that. It's just in a market like we see today, we are not desperate to jam material into it.

Okay. Could you comment on what you're seeing in terms of recontracting? It seems like there's a bit of a stalemate in the market right now between producers and utilities. Any comments you could provide? Thank you.

Yes, it continues to be a very quiet market for us, as Tim had mentioned. So far year-to-date, you're looking at about 21 million pounds contracted in the term market and about 18 million pounds in the spot market, so tracking to another particularly low year.

And you used the term stalemate. It is a good one. I think we are still facing a fuel-buying community that really believes there is a price-off bias. And quite frankly, they have been right. If you watch the fall in the uranium price, Tim had mentioned 66% down since Fukushima, 25% just since last year. So we do see this sense of a price-off bias. We on the other hand look at the long-term fundamentals and we say new supply has to be incented. We've got a contract portfolio that protects us. We are taking steps to ensure Cameco's profitability through these difficult markets, and we just are not ready to part with our uranium at today's prices.

Thanks very much.

Paul Luther, Bank of America Merrill Lynch.

Thanks for taking my questions. Could we start -- I wanted to get a sense of uranium health and inventory, how it's changed in the past quarter and if there's a risk of an inventory write-down there.

When we think about inventory, obviously you see and have seen over the last little while, NUKEM's inventory is sensitive, is quite sensitive, to the uranium price, and so we have seen some NRVs associated with that. And of course, they get reversed when the uranium price increases.

But I think I suspect you're talking about the overall uranium bucket. We have a different accounting approach, so NUKEM has specific identification and therefore has that vulnerability to the uranium price.

On the Cameco side, we have single-bucket inventory. So all our purchases and all our production go into the same bucket. When we focus on Tier 1 production, obviously we end up with some attractively costed pounds going into that bucket, helping keeping that level or that value in the bucket even in a good position in today's market. So from a risk point of view, that's not a risk that we would be prepared to identify.

Great, thanks for explaining that. And then you showed a great cash production drop this year, year-over-year 40%. I just want to get a sense. Is that really from Cigar Lake coming on and the mix shift in terms of where production is? Is that level do you think sustainable?

Yes, absolutely. That Cigar ramping up to the levels it is, it's performing very well and taking Rabbit Lake out of the mix, the combination of those two is going to put us in a good path. And yes, we believe it is sustainable going forward.

Great. Thanks for taking my questions.

Ralph Profiti, Credit Suisse.

Good afternoon. Thank you. Grant, based on six months of sales and inventory as kind of the long-term goal, the carrying value that we are seeing on the balance sheet on inventory, the revised guidance and seasonality, how long would it take for you to return those inventory levels to what you would consider kind of long-term optimal levels?

It's a great question and it's absolutely tied to market evolution. This is not a market where we are interested in mobilizing those inventories. They arose from a couple of different things as you will recall. In 2014 when we saw some attractively priced pounds in the market, that was a time when I think Cigar Lake was at about 400,000 pounds of production and of course, the following year, it hit [11,000] and then this year just excellent performance. So we were thinking about material back in those days differently, and also knowing that curtailment was something that was possibly coming to Rabbit Lake and US ISR. We saw pounds that we thought were priced cheaper than the tier 2 cost of production and carried no operating risk. We acquire those pounds. We still think they are attractive. They are a key part of operating leverage when the market starts to be demand-driven, and that's exciting for us. At the moment, we have no plans to mobilize it until the market starts to incent us to do so. So when you say how long, it really is all eyes on the market watching those factors that are going to turn around and make this a demand driven industry.

Grant, the second question. Would you venture to sort of take an estimate? Because when we think about inventory leakage and this inventory flow back into the market, how much uranium do think is sitting in the hands of those less long-term oriented players, be it traders and hedge funds and whatnot, financial players. Do you have a sense of that amount?

I wouldn't have a good number. If I made a few general comments, they would be along the lines of -- and you see it with NUKEM -- you might have some of the intermediaries in the market actually being slightly longer than they are comfortable with being. And that's just a reflection of folks believing that there would be a turnaround and a transition to a demand driven industry a bit sooner. But these are small amounts in the hands of those types of groups. We are not talking about massive inventories.

I think the sentiment, if you will, really points to Japan. As long as those Japanese reactors aren't running, it's creating real material in the market through deferred demand and through enricher under feeding, and then it's creating the sentiment overhang because we know that they have a big inventory. And I think folks are just wanting to know a little bit more about that restart process and a little bit more about how long it takes to get up to a reasonable run rate number. And until then, it looks like they are really long on uranium. So that's probably more of the sentiment driven piece than the intermediaries at this point in the market.

Got it. Thanks Grant.

David Wang, Morningstar.

Thank you for taking my question. I have another one on the contract. So you guys mentioned it was a take or pay. Would your profit still have been higher if the contract was fulfilled? And I'm trying to get a sense if that contract pricing was higher or lower than the average in your portfolio.

That is not something we would disclose. Obviously, there was negotiation associated with it. We looked at what the value would have been had it run out, and we wanted to make sure we retained that value, and we did. So that's what I can tell you on that contract.

Okay. And then, on the secondary markets, I was wondering if you could give us a little -- some details on what you are seeing there in terms of volumes and supply. It seems like the market is still a little bit oversupplied currently, maybe in part due to secondary volumes. Do you see that continuing at that current pace going forward, or do you see those volumes coming down a bit in coming years?

Hard to say. We watch Japan, again two reactors running there now. I think we had anticipated quite a few more being up and operating by now, so that's having a big effect.

There's good news. China is a good news story. India is a good news story, South Korea. So the demand is there and we see that increasing over time.

Supply has performed well through this period. I would say we haven't seen a whole lot of supply come off, and so then you've got the secondary material. You've got enricher under-feeding that's going on, especially while Japan is down. You've got governments putting material into the market, the DOE comes to mind.

So, right now, there is certainly sufficient supply to fill the demand. But we see over time that demand continues to grow. Supply I think stays flat and starts to fall off, just the natural decline. And then we are going to need some new pounds at some point, and today we are not investing at all in any new production. And so you know it takes us a long time to bring any new production online. So we do see better days ahead, but right now I would say the market is well-supplied.

Thank you.

Jim Ostroff, Platts Nuclear Publications.

I do appreciate the time here. I did have a few follow-up questions on that contract and the settlement. Can you provide any detail as to about how many pounds were enrolled with this (technical difficulty)

No, Jim. Unfortunately, under the terms of our agreement and settlement, we are not allowed to do that.

Okay. Let me ask you if you can characterize a bit the settlement value. And that is if in any way it is tied to the amount of material that was not sold, and therefore income not realized, or you might say simplistically if that represented -- if the pounds times a certain spot price yielding CAD46.7 million. I'm just trying to get some idea about what that represents, that total.

You are going along the right lines. The methodology for considering something like a contract cancellation is simply to look at the price that you would have achieved under the contract, and look at it relative to if you took those pounds and diverted them into the market instead. And it's that gap that you need to crystallize. That's a pretty common methodology. It's the one we used here, and as Tim said earlier, that then results in a negotiation, and we are very happy with the way it resulted. And I daresay the counterparties are happy with it as well. So it's not something that -- we don't have a lot of other examples of it, but this was a very specific circumstance and a good conclusion.

Right. And one other. Of course chemical took an impairment for suspension activities at Rabbit Lake. And given the outlook as you both have described here where people might ask as to whether it is likely there will be further curtailments later this year or into next year.

We obviously took the steps we thought we needed to. Our Rabbit Lake facilities and US facilities were higher cost operations. We wanted to, in this low-for-longer scenario that we talk about, focus on our tier 1 assets with the low cash costs, all of them, McCarthy River, Key Lake facility operating very well, Cigar ramping up nicely, Inkai outstanding. So that's our focus. And so we have given guidance on our production for the year and that's what we -- we plan to meet that guidance.

Thank you. That should do it.

Edward Sterck, BMO.

Thanks very much. Just a couple of follow-up questions from me. The care and maintenance costs going forward for rabbit Lake and the US ISL operations, I think, for the remainder of the year after closure costs, you have guided to around CAD15 million. And I'm just wondering how that might look for 2017 and beyond.

And then in terms of a follow-up question, the depreciation charge on NUKEM, CAD54 million -- sorry, CAD53 million -- I presume that's related specifically to the material sold during the quarter, or does that also include the CAD14 million inventory write-down?

I'm going to do this to you again. I'm going to start with your second question first. You're absolutely right. It is an adjustment under the purchase price allocation pertaining to the particular sale from NUKEM's historic inventory, and that's what's driving it. The mark-to-market write-down on the inventory of NUKEM is a separate charge, and all going into that bucket of things that I added up and said are quite notable and impacting the quarter, and actually distracting from what the core performance was on that.

Thank you.

Sorry, you're going to have to remind me of the first question.

Sorry, it was (multiple speakers)

(multiple speakers) yes, perfect. Thank you. So we don't have guidance for 2017. Rabbit Lake, the status of Rabbit Lake is also tied to market outlook, market view. We'll continue to make sure that that's a secure and safe site, but in terms of what the overall cost would be to put it in that, we are doing that work now as part of preparing for our 2017 budget targets anyway. So, nothing to guide. I don't have any direction to give you other than Bob is constantly working very hard to make sure those numbers are as low as possible.

Fair enough. Thank you very much.

Paul Luther, Bank of America Merrill Lynch.

Thanks for taking my follow-up. I just want to talk a little bit more about Rabbit Lake, kind of what your thought process would look like to consider permanent curtailment of that facility, or given your positive long-term view if that's unlikely.

It's Tim. We just made the decision in April, so it's a bit early, and since then we've seen the market deteriorate a bit, but that hasn't changed our plans to put it into a care and maintenance mode. And we are working on that. We've got the mine being secured in the mill facilities. And what comes with that is the reduction, big reduction, of the workforce, which I can tell you we are not -- we regret, but it's necessary for the long-term viability of the house. So we are taking all of those steps now.

We will watch the market through the course of this year and into next year, and see how it performs. There is still a significant resource base there that could be gone after should the market improve, but it would have to improve significantly from where it is today before we would think about bringing it up again.

Grant, do you have any else (multiple speakers)

I would just add as well that any decision we would make there would be tied to a broader portfolio decision, and we would look to say, if the market was incenting us to produce more, we would look to all of our sources of potential production. That includes McArthur River expansion; that includes Cigar Lake. And so there would have to be a process to determine what the best way and most profitable way to meet a market that's incenting that supply would be. And Rabbit Lake would be part of that evaluation.

Understood. That makes sense. Thanks. And then Grant, if I could, just one housekeeping question. Can you give us a sense for working capital for the balance of 2016? Do you expect to get some release?

Well, what happens when we have sales heavily weighted to the end of the year, you see this buildup in our inventory position because we are producing material but we are not placing it into contracts. And then through Quarter 3 and Quarter 4, when we deliver what is going to be the balance of our contract portfolio, you see that come down and then that flows through obviously to the cash position as well. So that annual flow that we've seen for the last I think it's five years now is just how we expect 2016 to end up.

Perfect. Thanks again Grant.

Daniel Horner, Nuclear Intelligence Weekly.

Thank you and thank you for taking my question. Last year, you were quite active in buying uranium. I was wondering what the situation with that was with that this year, if you're continuing that practice or if you could tell us a little bit about that with regard to your inventories and future plans. Thanks.

We do have some purchase commitments in place for this year. I think it's to the tune of about 9 million pounds, just under 9 million pounds. Many of these commitments we made some years ago while we were watching Cigar Lake ramp up and they wanted to make sure we were well slide, and seeing that there are some real decently priced pounds available in the can without any operational risk. So we have some purchases for this year. I'd say last year and this year were the two big years and it trails off from there. So, we are always in and out of the market.

Just to clarify, so there were some that had been made previously and some that you made recently, is that what you said?

Yes, they are mostly previously. We have commitments for, as I say, I think it's just under 9 million pounds of purchases this year.

Okay. And it trails off after this year.

Yes.

Thank you.

Orest Wowkodaw, Scotiabank.

Thanks for taking my follow-up. Two more things. You've disclosed that you have EUR469 million of uranium purchase commitments for the second half of this year. You've already purchased I think close to 6 million pounds. I'm wondering how we should think about that in terms of volume that will show up in the uranium segment as purchased material for the year.

Yes, in terms of volume, as Tim just said, we were looking at purchase commitments of 9 million for the year. And so we have a few more of the commitments that we entered into in a prior period that are flowing, that will be flowing in, but it's that remainder of the purchases that are coming. So if I am looking at the six-month year-to-date number, we are at 5.7 million now, and so we have 3-and-a-bit million more left to buy. That number that you saw in the purchase commitment table actually covered the whole gamut, not just what's remaining. So, we don't have 3 million pounds priced at CAD459 million.

Sorry, that CAD469 million is for the year, not just the back half of the year?

Yes, that's the commitments. Yes.

Okay, my mistake. And then in terms of understanding your sensitivity table that you put out for realized price, when we start to move in time into the, say, 2018 to 2020 period, and for example, if I just look at the CAD40 level of price realizations, what does this assume in terms of volume? Does this only capture what you currently have contracted in those years, or like are you still assuming something close to 30 million pounds even if it's uncontracted?

Yes, so if you sneak down to the assumptions that are under that price-sensitivity table, you'll see in there the first bullet under sales, sales volumes on average 27 million pounds per year with commitment levels in 2016 through 2018 higher than in 2019 and 2022. In other words, that price sensitivity table is following the contract portfolio. It's the known contract terms and conditions that we have today. To the extent that, for example, we see a demand driven industry begin to transition, then we will have the leverage to that higher pricing mechanism and that table would improve as an example.

Okay. So, in the years of 2019 and 2020, this assumes volumes, contracted volumes, below 27 million?

Yes, it would, because the average for all those years is 27 million. But it's not like our contract portfolio falls off a Cliff at that period. It's a slow transition. So when we say we are well protected to 2019, and in fact into 2020, it's just a reflection that when we look at our Tier 1 production, it has homes in an attractively priced contract portfolio and gives us good protection from this weak market for a period of time still measured in years.

Can you give us a sense of when that contract portfolio would drop below 50%, how far in time?

We haven't disclosed that, but it's probably fair to say that, as we get out into the 2022 window, there are a lot of pounds that we would have to place. We are actually okay with that, by the way.

As we think about the market transitioning, the cumulative demand that's out there that has not yet been procured, the fact that a lot of term demand has been deferred in the last couple of years with really low term replacement contracting, that's actually the period where we want some exposure. We want that price and operating leverage to reward our owners. So that for us is a timing that's consistent with our view on the market outlook.

Okay. Thank you very much.

Jacqueline [Moria], Goldman Sachs.

It's Andrew here by the way. Sorry about this. It's a busy day on the conference calls. It's a frantic 24 hours. I just have sort of a holistic question. I don't actually know all the questions that have been asked. But it seems to me that the spot price is just in the doldrums because no one is transacting and people are looking at that for future performance, which we know is not true.

What my question to you is what do you see or how long do you think this stalemate between, say, the producers and the utilities can last? Because I think it's lasting longer than people would have thought. Is this something that might not let up until the end of the year, or is this more of a 2017 story, or could be it even later than that?

You're right, it is a busy day for calls. We know that, so we sympathize with all of you that have three phones on the go at the same time. Listen. I wish I knew the answer to that.

Here's how we look at it. We look at it -- I think we've been consistent in saying it's tough in the near term, no question about that. We base that on some assumptions, and clearly Japan was a big one. We would have said a few years ago that there would have been a lot more reactors operating in Japan today than the two that are going. And so we think that has given some comfort to the utilities. There's no pressure to contract, no sense of urgency that there's going to be a shortage in the near term, and so it's just dragged out longer than we ever thought it would. So, we've had to adapt the Company into this lower for longer.

I think watch Japan, keep an eye on that, see how that progresses. I think we are looking at another unit starting up this summer, in fact in the next week, which is good. There is a court case going on for another two that had already been going and then back. So if you can get some momentum going in Japan, I think that would be good. China carries on with this aggressive play, South Korea. The Russians, the Indians are building.

Supply, as I said, has kept pace. That's something I think I said a few years ago. Keep your eye on supply because I quite frankly thought there would be perhaps some other curtailments or supply disruptions. We haven't seen a lot of that. Supply is performing quite well.

So there's a lot of factors out there. It's something we talk about when Grant and I, when we are out on the road, kind of a compass that we are guiding the Company by. So we don't know. I'd say watch those things. When you see those things start to come into play, then I would say there has to be an improvement.

Demand, again, go back to the fundamentals, the economic fundamentals, demand is growing, supply flat or coming off. There's extra supply today that we think is getting chewed up. But if you looked out 10 years even, which in our world isn't that long, we see -- and these are Cameco numbers -- demand in the 220 million pound range, and supply is something less than that. It could be considerably less than that. So you could make an argument that we should be looking at new projects or investing today and we are not. And so at some point, that's going to come to a head and we're just going to have to drive some pricing.

And sort of the noise around the shutdowns of power plants in the US, I think there's a couple of them, that is small because they are actually building too, I mean it is not going to have much of an impact long-term, is it?

It's not particularly helpful, I would say. It's been -- the US market, there hasn't been a lot of electricity growth. And then you get these single units in merchant markets competing with $2.00 gas and heavily subsidized wind and solar, and they are having trouble bidding into the auctions and winning. So, it hasn't been helpful I would say, but there are five new ones in the US. One just fired up. Two more we just visited, a pair of units at Vogel with our board a few months ago. So there's some good news. Those are bigger units, I think about 1,200 megawatt units, and some of them going down are smaller. So it's not a great story, but there is an offset there. And we are hoping that the world starts to live up to its commitments, the COP21, the Kyotos, keeping the temperature down increase to 2 degrees, and moving fossil fuels -- we have the answer for that, quite frankly. I say we and the bigger nuclear (technical difficulty) have the answer to that. So we are hoping that catches on, as it has in some of the Asian countries.

Okay. Thanks mate.

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 very much operator, and thanks to everyone who called in today. Obviously, a busy day for a lot of you.

Here we are in challenging times; there's no doubt about that. However, at Cameco, we remain confident that we have the strategy, the assets and the talent to deal with this, and we are going to do that. And we're going to be able to sustain our business through a market that could stay lower for longer. Again, I want to say thanks to all of you. Enjoy your summer. Be safe. And we will talk to you sometime in the fall. And have a great day. Thank you.

The Cameco Corporation second-quarter results conference call has now ended. Please disconnect your lines at this time. We thank you for your participation, and have a great day.