Cameco Earnings Call NUGGETS: Contract Mix, Double U Strategy

On Friday, Cameco Corp (NYSE:CCJ) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Contract Mix

Ralph Profiti – Credit Suisse Securities: With what we are seeing on the U.S. deal either Kintyre economics and sort of the realized price. How are you thinking about the 60-40 contract pricing strategy do you think that’s still the way to go for chemical?

Tim S. Gitzel – President and CEO: Yeah, we do, Ralph. In the long-term we think that’s our best combination. I am just looking to Ken. Ken has been doing a lot of work on that with his team over the last few months, I would say, just on that question because we have thought about it. Ken, can you comment on that?

Ken Seitz – SVP and Chief Commercial Officer: Yes, absolutely. And Tim is right. We have looked at our contract mix and what it meant for us in terms of average realized price and the type of hedge that we have with the 40% and so on. With think it is the right strategy for us. Your point about Kintyre and the deal we are well taken. That said, we are a long-term company, we take a very long-term view and so, 40% base escalated we have a nice hedge, but we still leave ourselves open to the upside that we see in the market with the 60% market, relative of course providing (indiscernible) into those contracts to cap ourselves – limit ourselves on the down side. So, for us we continue to believe it’s the right mix for us and it’s the one that we’ll continue to pursue.

Ralph Profiti – Credit Suisse Securities: Just taking that further. Are there any fixed price contracts that you are realizing that when you combine them with the escalators are now at or above the spot price contracts, is there any of that going on and if you can compare that to say six months or a year ago?

Tim S. Gitzel – President and CEO: If your question is whether we have base escalated contracts today that are above the current market? We absolutely do. We did significant amount of contracting in 2007 through 2010 period when we believed the prices were quite good. Of course, the prices have come off since then, and so yeah we have contracts in place that are above the current market.

Double U Strategy

Greg Barnes – TD Newcrest: Question was around Kintyre on your Double U strategy. It’s not making the great now, is that going to impact your ability to get the 18 million pounds – sorry, 40 million pound by 2018?

Tim S. Gitzel – President and CEO: Greg, we have a suite of projects that we are moving forward. Right now, most significant of which of course is Cigar Lake progressing nicely. So, with our production today around 22 million pounds, Cigar should bring us 9. As we ramp up we would be over 30 million pounds that’s going to be a combination of the suite of projects that we have including our U.S. assets, Kazakhstan and MacArthur. We are working on that and others that will get us to the 40. So I can say we are still holding our guidance on the 40 million by 2018 and we believe we can achieve that.

Greg Barnes – TD Newcrest: On the quarter that’s realized price of $42 a pound was very low this is what you have done over recent quarters and your price guidance does suggest, your price sensitive table does suggest that 2012 is somewhat of a low point for you in your realized price? So are you coming off from very low price contracts now and that will be done and you can move forward from here?

Ken Seitz – SVP and Chief Commercial Officer: There is a few things that worked there, Greg. One is yes, we continue to closeout lower priced contracts and that’s happening at the movement. In the last quarter we also delivered a greater number of market related deliveries and you see that effect in the price table, in that – our current portfolio, the one that we look forward is a little less exposed to market related prices. So when it get into those higher prices and the price table you can see that we are off a little bit, because we just have a little less exposure to the market at the movement. But you are right, I mean, if you look at the price table and you look at future years you can see the effect of the various price scenarios.

Greg Barnes – TD Newcrest: Little bit less than 60% market related right now?

Ken Seitz – SVP and Chief Commercial Officer: A little bit, yes.

Greg Barnes – TD Newcrest: Like 55?

Ken Seitz – SVP and Chief Commercial Officer: I’ll just say we continue to target 60-40 and in this price environment we can certainly like to write some more market related contracts?