Cameco's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Cameco (CCJ)

Q1 2012 Earnings Call

May 01, 2012 1:00 pm ET


Rachelle Girard -

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

Kenneth A. Seitz - Senior Vice-President of Marketing, Exploration and Corporate Development

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

Robert A. Steane - Chief Operating Officer and Senior Vice President


Orest Wowkodaw - Canaccord Genuity, Research Division

Greg Barnes - TD Securities Equity Research

Greg Barnes - TD Securities Inc., Fixed Income Research

John Hughes - Desjardins Securities Inc., Research Division

Anthony Young - Dahlman Rose & Company, LLC, Research Division

Tyler J. Langton - JP Morgan Chase & Co, Research Division

Borden Putnam

Oscar Cabrera - BofA Merrill Lynch, Research Division

Brian MacArthur - UBS Investment Bank, Research Division



Good day, ladies and gentlemen, and welcome to the Cameco Corp. first 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.

Rachelle Girard

Thank you, Matt, and good morning, everyone. Welcome to Cameco's first quarter conference call to discuss the financial results. Thank you 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 and Chief Operating Officer; Grant Isaac, Senior Vice President and Chief Financial Officer; and Ken Seitz, Senior Vice President, Marketing and Business Development. Tim will begin with comments on Cameco's results for the first quarter and 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 committee, including the media. [Operator Instructions] 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.

Timothy S. Gitzel

Well, thank you, Rachelle, and welcome to everyone who has joined us on the call today as we discuss Cameco's first quarter results.

I'm pleased to say that we had a good start to the year, continuing our strong financial and operational results from the fourth quarter of 2012. Most importantly, this was achieved safely and responsibly. Safety, of course, is always a top focus for us and is really key to our success as a company.

Revenue, gross profit and net earnings were all up significantly in Q1 of 2012 compared to Q1 of last year, primarily as a result of higher sales volumes and a higher realized uranium price.

We're seeing this increase in realized price occur even as spot and long-term prices have declined. Some of our older contracts that were signed at lower uranium prices are coming to an end and newer contracts are coming on. This has contributed to our strong financial results for the past few quarters, since 70% of our business comes from our Uranium segment. However, as we noted in the MD&A, our deliveries are not evenly distributed throughout the year. We expect deliveries to be the lowest in our second quarter.

Production was also strong this quarter, up 2% from this time last year. Our McArthur River operation is largely to thank for this increase as it was up 21% from Q1 of 2011, while production at Inkai and Smith Ranch-Highland was down. The challenge is that these 2 operations are the same as those that we outlined in our annual MD&A, but we are making progress.

At Inkai, our current wellfields are maturing, which leads to lower grades and therefore, lower production. However, this is expected with in-situ operations, and we're working hard to bring on additional wellfields in order to add new higher-grade wellfields to our production mix.

At Smith Ranch-Highland in Wyoming, our production has been affected by an increase in the timelines for regulatory approval of new wellfields. However, I'm pleased to report that we recently received approval for the new K-North wellfield, and production rates were starting to increase near the end of the first quarter.

We also saw a steady progress at Cigar Lake, which is now about 75% complete. Although the details are in our MD&A, but I'll just touch on a couple of developments.

In January, we broke through with shaft 2 on the 480-meter level. It's expected to reach its final depth of 500 meters by mid-2012. And there's been enough infrastructure development that we're now at the point where we can start putting the jet boring system in place to begin underground testing. The first components are now on site, and as more arrive, we'll be lowering them into the mine and assembling the unit. So the progress at Cigar Lake has been excellent and we remain on-track for first packaged pounds next year.

In addition to the strong production and the progress at Cigar Lake, we're continuing to advance our projects under evaluation. Millennium project in Northern Saskatchewan is an important part of this strategy. The biggest news on that front is the agreement we announced in March to purchase AREVA's interest in the Millennium project. Our ownership of the project is now expected to increase to between 58% and 70%, depending on whether our Japanese partner, JCU Exploration, decides to exercise its right of first refusal. We expect to finalize these details and the agreement itself by early June. Cameco, as you all know, has operatorship of this important project.

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