Cameco (CCJ)

Q3 2011 Earnings Call

November 07, 2011 11:00 am ET


Grant E. Isaac - Chief Financial officer and Senior Vice President

Timothy S. Gitzel - Chief Executive officer, President and Director

Kenneth A. Seitz - Senior Vice President of Marketing and Business Development

Bob Lillie - Director of Investor Relations


Christopher Donville

Matthew Hill - Mining weekly

Ben Elias - Sterne Agee & Leach Inc., Research Division

Orest Wowkodaw - Canaccord Genuity, Research Division

Brian MacArthur - UBS Investment Bank, Research Division

John J. Licata - Blue Phoenix Inc.

Brenda Bouw

Edward Sterck - BMO Capital Markets Canada

Greg Barnes - TD Securities Inc., Fixed Income Research



Good morning, ladies and gentlemen, and welcome to the Cameco Corp. Third Quarter Conference Call. I would now like to turn the meeting over to Mr. Bob Lillie, Director, Investor Relations. Please go ahead, Mr. Lillie.

Bob Lillie

Thank you, operator, and good morning, everyone. Welcome to Cameco's third quarter conference call to discuss the financial results. Thanks for joining us. With us today are 4 of Cameco's senior management team. They are Tim Gitzel, President and CEO; Bob Steane, Senior Vice President, Chief Operating Officer; Grant Isaac, Senior VP and Chief FInancial Officer; and Ken Seitz, Senior Vice President, Marketing and Business Development. We're also joined by our colleague, Rachelle Girard, Manager, Investor Relations.

Tim will begin with brief comments on the quarter and outlook for the remainder of 2011 and comments on current industry conditions. Then we'll open it up for your questions.

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 2 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'll turn it over to Tim.

Timothy S. Gitzel

Thank you, Bob, and thanks to everyone for joining us on our third quarter call today. We're going to start with an overview of our significant developments this quarter. As you may know, we recently signed a nonbinding memorandum of understanding with our Cigar Lake partners, which will significantly improve the economics of the Cigar Lake project and sustain our status as a low-cost producer. The agreement will see all of the Cigar Lake ore processed at the McClean Lake mill, resulting in a significantly lower operating cost for the Cigar Lake partners, dropping from the expected $23.14 per pound to about $18.60 per pound. The impact of this agreement and other changes to the project will be detailed in the next Cigar Lake technical report, which will be available in February of 2012.

We also signed a memorandum of agreement with our partner, Kazatomprom, which is an important step toward increasing production from Blocks 1 and 2 at our Inkai project to 5.2 million pounds. The agreement is indicative of our strong relationship with Kazatomprom and is another step toward our Double U strategy. Looking beyond Double U, we also made an offer for Hathor Exploration, which has been extended to November 14 in order to preserve our options in relation to this potential transaction. Today, there's nothing new to report on this. We will let you know when any decisions have been made.

As to the results this quarter, they were strong and in line with what we projected, even with the volatility in the markets lately. Our Fuel Services facilities continue to operate well, and revenue from that segment was up $16 million this quarter. However, unfavorable market conditions for UF6 conversion have caused us to reduce production for this year.

In the uranium segment, sales, revenue and gross profit were all up this quarter compared to Q3 last year. However, we have revised our uranium production outlook for the year, down slightly by about 1%. Production is not quite where we wanted it to be, mostly because of maturing well fields at Inkai and permitting delays at Smith Ranch in Wyoming.

The U.S. regulator is somewhat backlogged, so we continue to work with them to secure permits to bring new well fields into production. However, we are pleased to report that we expect production at our McArthur River-Key Lake project to increase, which offsets some of the shortfall in the U.S. and in Kazakhstan.

Our sales outlook remains unchanged, and our sales volume was up 29% for the quarter compared to the same time last year. The number would have been a little bit higher, but one delivery was moved to the fourth quarter. Now over 1/3 of our deliveries are expected to occur in Q4. The higher volume of deliveries this quarter also contributed to the higher uranium revenue and gross profit we saw. Those increases are also a result of the higher realized prices we're starting to see in our contracts, as we come to the end of older contracts and move into those at higher prices.

Our contracting strategy is one of the primary reasons that our financial performance remains strong, even while the uranium market and the rest of the industry is experiencing some upheaval. Our mix of market-related and fixed-price contracts is designed to let us benefit when prices rise and protect us when prices decline. We're seeing the benefit of that approach now and will continue to do so, as we expect the current uncertainty in the uranium market to linger for the near to medium term.

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