Cameco Management Discusses Q2 2012 Results - Earnings Call Transcript

Cameco (CCJ)

Q2 2012 Earnings Call

July 27, 2012 1:00 pm ET

Executives

Rachelle Girard

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

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

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

Bob Lillie

Analysts

Ralph M. Profiti - Crédit Suisse AG, Research Division

Greg Barnes - TD Securities Equity Research

Edward Sterck - BMO Capital Markets Canada

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

John Hughes - Desjardins Securities Inc., Research Division

Barry D. Allan - Mackie Research Capital Corporation, Research Division

Ian T. Parkinson - CIBC World Markets Inc., Research Division

David Snow

Oscar Cabrera - BofA Merrill Lynch, Research Division

Brian MacArthur - UBS Investment Bank, Research Division

H. Fraser Phillips - RBC Capital Markets, LLC, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Cameco Corp. Second Quarter Results Conference Call. I would like to turn the meeting over to Ms. Rachelle Girard, Director of Investor Relations. Please go ahead, Ms. Girard.

Rachelle Girard

Thank you, operator, and good morning, everyone. Welcome to Cameco's second quarter conference 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 and Chief Financial Officer; Grant Isaac, Senior Vice President and Chief Financial Officer; and Ken Seitz, Senior Vice President and Chief Commercial Officer. Tim will begin with comments on Cameco's results for the second 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 community, 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 second quarter results. As expected, we saw lower delivery volumes this quarter, which contributed to lower revenue, gross profit and net earnings compared to the second quarter of 2011. Our results are heavily influenced by our deliveries and as is often the case, our deliveries this year are heavily weighted to the fourth quarter.

What is most important is that we remain on track with our sales, our revenue and our production guidance for the year, so I can say no change there. In Q1, we talked about most of the factors that affected us this quarter, namely higher expenditures for exploration and administration, the fact that our deliveries for the year would be lowest this quarter and the $30 million contract termination charge. That charge will be made up and more as some of the materials have already been placed into higher priced contracts, and we expect to place the remaining volumes as well.

Another factor was our average realized uranium price, which was 10% lower than Q1 of 2011. This just means that more of the deliveries this quarter were for materials in lower-priced contracts. So you can expect to see variance in our average realized price. But overall, as we move other lower price contracts that came into effect when uranium prices were lower and into higher priced uranium contracts, we expect to see a general trend upwards. The decreases we saw were partially offset by positive returns from our Electricity segment which benefited from Bruce Power, achieving a 16% increase in its generation for the quarter over Q2 2011. If we move to our operations, I'm happy to say that they performed safely and responsibly. Safety, as we always point out, is a top focus for us and is key to our success as a company. Production this quarter was down from the second quarter of 2011, which we expected. And we remain on track with our yearly guidance of 21.7 million pounds. The decrease this quarter is partly because of the length and regulatory review process at Smith Ranch-Highland we talked about in Q1, but largely because of lower production from McArthur River. This is a result of normal course fluctuations that occur throughout the year as well as some planned maintenance shutdowns.

Good news. I can report that McArthur River this quarter has to do with the risk to 2013 production we mentioned in our annual MD&A. There was a possibility that production could be affected when we transition to the upper mining area of zone 4 in 2013. However, we've made productivity improvements on cycle times and changed the sequencing of the raises in zone 2, mitigating that risk, so we're very pleased with our team's achievement in that regard.

At Cigar Lake, we continue to make solid progress. Many of the milestones that we laid out for the year have been achieved. Shaft 2 has been sunk to its final depth of 500 meters and we're now installing infrastructure. We've also lowered the main components of the jet boring machine underground and have begun assembly. Testing of the system will occur later this year. And the Seru Bay pipeline has progressed to the point where we can use it in the event of a nonroutine inflow. So I can report that progress at Cigar Lake is going very well.

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