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Cameco Corporation (NYSE:CCJ)

Q4 2008 Earnings Call Transcript

February 17, 2009 at 10:00 am ET

Executives

Gerald Grandey - President and Chief Executive Officer

Kim Goheen - Senior Vice President and Chief Financial Officer

Tim Gitzel - Senior Vice President and Chief Operating Officer

George Assie - Senior Vice President of Marketing and Business Development

Rachelle Girard - Manager, Investor Relations

Bob Lillie - Director, Investor Relations

Analysts

David Snow - Energy Equity Inc

John Redstone - Desjardins Securities

Greg Barnes - TD Newcrest

George Topping - Blackmont Capital

Duncan McKeen - Macquarie Capital

Borden Putnam - Mione Capital

Lawrence Smith - Scotia Capital

Ian Howat - National Bank Financial

Brian MacArthur - UBS Securities

Ralph Profiti - Credit Suisse

Cliff Hale-Sanders - CIBC World Markets

Vincent Lauerman - Uranium Intelligence

Simon Tonkin - Thomas Weisel Partners

Ben Elias - Sterne Agee Group Inc.

Bob Lillie

Welcome to our fourth quarter conference call to discuss the financial results and the outlook for 2009. Thank you joining us. With us today are four of Cameco's senior executives. They are Gerry Grandey, our President and CEO; Tim Gitzel, Senior Vice President and Chief Operating Officer; Kim Goheen, Senior Vice President and CFO; and George Assie, Senior Vice President of Marketing and Business Development. Both Gerry and Tim are traveling and calling in for today's session. Here in Saskatoon, we are also joined by our colleague Rachelle Girard, Manager Investor Relations.

Gerry will start things up with a few opening comments about Cameco stable and predictable revenue streams during 2008 including the fourth quarter and comment on the outlook for 2009 then we will open it up for questions. Today's conference call is open to all members of the investment community including the media. During the question-and-answer session, please ask one question plus one follow up if needed.

Please note that statements made by the Company during this conference call including statements regarding its objectives, projections, estimates, expectations or predictions contained forward-looking information and statements within the meaning of applicable Canadian and US securities laws. The Company cautions that such information and statements involve risk and uncertainty and that actual results could differ materially from those contained in them. In addition, certain material factors or assumptions were applied in drawing the conclusions or in making the forecast or projections reflected in them.

Additional information about the material factors that could cause actual results to differ materially or the material factors or assumptions that we are applying are contained in the Company's annual information form dated March 28th, 2008 and the Company's annual management's discussion and analysis dated February 16th, 2009, both of which are available on SEDAR and EDGAR. With that, I will turn it over to Gerry.

Gerald Grandey

Okay, Bob and thank you very much. Welcome to everyone on the conference call and certainly to those listening on the web. As we look back on Cameco's 2008 results and a little bit ahead to 2009, we are more confident than ever of our growing global reach as a supplier and participant in the nuclear power industry. We look out on an uncertain economic landscape from a solid and secure vantage point.

Cameco's strength was evident in our fourth quarter, a time of unprecedented volatility in world's financial markets. As 2008 drew to a close and continuing in to 2009, we have seen declining economic confidence in the world. Indeed, it has been painful to watch day-by-day as companies in the metal, mining and energy sectors make tough decisions. They cancel projects and scale back operations. Cameco we believe is in a much different position. We are able to plan and execute our long-term strategies because our revenue base, customer relations, and excellent uranium reserves are built for the long term. Let me elaborate.

First our customers are well established electrical utilities. Many, either government owned or with regulated rate structures, in tough times they run their low-cost nuclear plants at full capacity assuring demand for our products. Our strategy is seeking price protection in our contracting has reduced the sensitivity of our revenue to softening spot prices and we are seeing the benefit now. In 2008, we delivered record revenues of $2.9 billion and adjusted net earnings per share of a $1.67 and that from our diversified portfolio of long-term contracts and stellar assets.

As you know, our customers do not have a set pattern in taking deliveries so our quarterly revenues fluctuate. In 2008, robust deliveries in the fourth quarter helped us close out a positive year. Not only did we set a new high watermark for overall revenues in the quarter, the last quarter also brought with it a return to strong cash flow from operations similar to what we achieved in 2007.

Now in 2009, while other companies defer or abandon projects, Cameco is advancing work to secure our current and our future production including the promising new projects we acquired within the last 8 months. With predictable growing revenue, we believe the market is recognizing that Cameco's fortunes are not linked to the current gloomy outlook in the metals and petroleum sectors. For the broader economy, we observed there is no agreement on how long or how deep the global recession will last or for that matter, how much more central bankers will have to do to sell bank credits.

Cameco continues to watch developments on a credit front but we can report favorable developments since we last spoke of this topic on our third quarter call. We could tell you today that the short-term loan we took out last June to help finance our investments and new assets such as Kintyre and Global Laser enrichment has been extended on good terms. In addition, Cameco has recently gained access to additional credit in the amount of $100 million. Access to credit on favorable terms will provide us the flexibility to take advantage of opportunities that arise from this difficult economic environment.

Some players we know will have difficulty raising capital and mainly to sell assets or engage new partners to advance their projects. We are constantly assessing such opportunities and we have the capacity to make strategic investments at the right time and at the right price. We will make these investments knowing that the prospects for nuclear energy remain strong. Indeed, they are improving with the passing of each day. In countries where public skepticism once reigned in phasing out nuclear power was long standing. Government policies toward nuclear continues to be reassessed. Most recently, Sweden's leaders concluded that a country that wants to be carbon neutral cannot afford to phase out the only thermal source of base-load electricity that does not generate greenhouse gases.

As a result, Sweden is likely to see all 10 of this remaining reactors replaced with new ones over time and further reactors added at existing license site. Recently, we are seeing India set a course for a large-scale expansion of nuclear power, some 35 operating reactors by 2018, double of today's number. China too, continues to expand its already aggressive nuclear power program and while India and China lead the way, other countries are moving to expand or create nuclear capacity as well.

All of this is in keeping with our 10 year outlook of almost 100 new plants being commissioned around the world with some older and smaller ones closing. From this new and renewed global interest in clean nuclear generation, we project annual uranium requirements will rise to 226 million tons from the 181 million tons we expect will be needed in 2009. That will mean average demand growth of almost 3% annually in the next 10 years. Cameco is intent on remaining a leading world supplier in this growth scenario. Some money invested now in advanced exploration projects such as our new joint ventures in Australia will position us to deliver new production to customers as markets expand.

We also have reason for optimism on the operational front. At our flagship McArthur River operation, we have made good progress in developing the newer zones that will sustain production for the next 10 years. Successful exploration continued to add Rabbit Lake last year adding another year's production from this long-live producer and putting total reserves at 17.6 million pounds. At Cigar Lake, we have identified the location of the inflow that we experienced during our dewatering attempt last August. We also gained assurance that the original inflow area was effectively sealed. Work to seal the new inflow area is underway and is expected to take most of the year.

At Inkai, we are on track to achieve commercial production this year. Recently, asset supply has been adequate and the goal is to ramp up production by 2011. We continue to work with our partner on the fast forward to doubling production. In fuel services, we safely remediated and restarted the UF6 conversion facility at Port Hope, Ontario. Currently, we are working to secure reliable sources of hydrochloric acid and we are making significant progress in this area and expect it to resume production in the second half of 2009.

On the financial side of things, 2008 was another record year for Cameco with the gross revenues increasing 24% and adjusted net earnings per share up by 8%. Looking ahead to 2009, we expect another solid year of financial performance, of course depending on how market prices developed. Unit cost of sales is expected to rise between 5% and 10% in the uranium business while administration costs are expected to decline a similar amount. We have set a prudent course in planning for 2009 capital expenditures with approximately $320 million budgeted for growth and sustaining capital. We are confident this level of expenditure will secure our producing operations, advance to revitalization work at Key Lake and the dewatering and remediation programs at Cigar Lake.

With that I will now turn the call over to Mary Beth, the operator. Thank you.

Question-and-Answer Session

Operator

Your first question comes from the line of David Snow - Energy Equity Inc.

David Snow - Energy Equity Inc

I need to go first because everybody else will raise questions and I want to follow up on there. Can you give us your assessment and outlook for the spot uranium price?

Gerry Grandey

David, I will ask George to respond to that.

George Assie

Sure. Well David, demand this year has really been pretty been very low so far. I think while fuel buyers might like to add to strategic inventories given today’s lower uranium price, the fact is that with the global financial situation, I think most utility fuel buyers are under instruction to minimize capital outlays and so for, the most part only utilities with real or near-term demands have come to the market, so there has been little or no discretionary buying by utilities so far this year. So with that lower demand, and adequate supply chasing, the demand that is there, we have seen prices soften and we believe that given the global financial situation spot prices are likely to remain quite volatile over the course of 2009.

David Snow - Energy Equity Inc

When do you see the real demand coming in for you?

George Assie

Well, utilities are generally well covered under existing contracts and with moderate amounts of inventory. What is interesting is in this period, I think there are going to be a drawing down. They are drawing down, inventories here a little bit to avoid the market.

Uncovered utility requirements really do not grow for significantly, I should say, for several more years. So, utilities could stay out of the market in the near term here for a short while but eventually will have to come back to the market, and then of course in all these, I have not factored in what India and China might do. They are always a wildcard in terms of stepping into the spot market.

David Snow - Energy Equity Inc

And is there a possibility that I could ask is still there any guess as to when you are going to have some visibility on restarting Cigar or starting Cigar?

Gerald Grandey

David, we are still in dewatering stage. I think we are making good progress but until we get it dewatered and get underground, we are just speculating and so we are just not doing that yet.

David Snow - Energy Equity Inc

And that will be the end of the year before you get the second flow sterilized and dewatered?

Gerald Grandey

That is the current prognostication, yes.

Operator

Your next question comes from the line of John Redstone - Desjardins Securities.

John Redstone - Desjardins Securities

First, I just like to clarify something. On page ten of your news release under Cigar Lake, you write, "We have confirmed that the main source of the increased water inflow observed on August the 12th was from the fissure." By saying the main source, are you suggesting that there are other sources?

Gerald Grandey

John, I would not read it that way but I think it added a sort of a caution. We just say this is the one we believe generated the water inflow. We did a lot of work, a lot of testing to see if we could see others and could not, but you cannot speak in terms of absolutes and we just will not do it.

John Redstone - Desjardins Securities

Alright, fair enough. The other thing I wanted to ask you is you mentioned you see your cost coming upfront to 10% this year. Could you give us a little bit more data on what factors are causing those cost increases?

Gerald Grandey

I will give it a try and then Kim, maybe you can. Certainly royalty is there is still a little bit of inflationary cost pressure although we are hoping that that will reverse. So royalties are a function. Obviously, the price is a function of what we buy and when we buy at the market as we always do every year including Russian material. That has gone up in price as well a little bit. So combination of those things is what is taking it up. Kim you got anything to add to that?

Kim Goheen

Yes, John. We made some purchases in 2008 in the open market in much higher prices than we had historically. That just goes into an average inventory system so some of that spills over into 2009 as well.

Operator

Your next question comes from the line of Greg Barnes - TD Newcrest.

Greg Barnes - TD Newcrest

Kim, could you give us some idea what the terms are on the new or the extended debt facility?

Kim Goheen

Well, I can give you the maturity dates, Greg. The one facility was extended to middle of June 2010 and the other one, the $100 million matures February of 2010. The terms are, I got quite reasonable but I really will not give you more details in that. I think I have an excellent bank syndicate and I had very reasonable terms from them.

Greg Barnes - TD Newcrest

So you are not going to give us something like LIBOR plus 400 bases points or..?

Kim Goheen

No, because it is a whole lot less than that but I still will not give it to you.

Greg Barnes - TD Newcrest

It is worth the try.

Gerald Grandey

Good try, Greg.

Greg Barnes - TD Newcrest

If I could follow on, Tim, Zone 2 Panel 5, when do you expect the bulk of production from McArthur coming from that zone?

Tim Gitzel

Well Greg, we are looking at the second half of the year really including for that zone to get started. It is in the freezing mode right now, has been for couple months and that is going quite well. So, I think we are looking at going in there probably in September of this year and then just wrapping up our operations in there. So, sometime in 2010 probably.

Greg Barnes - TD Newcrest

By 2010, what, 75% of production from McArthur will be coming from there?

Tim Gitzel

Yes, I do not have the exact number but it would be somewhere in that neighborhood.

Operator

Your next question comes from the line of George Topping - Blackmont Capital.

George Topping - Blackmont Capital

Gentleman, I have got a question on the source of uranium sales. It was 5.4 million from production, 1.8 roundabouts for the HEU and that production was about 0.7 less than you originally expected in early November. I am just wondering where the source of uranium came from to fill the gap between production and sales.

Kim Goheen

George, let me give it a try to that one. Certainly with the purchases we had made earlier, we had built some inventory and there was a slight inventory drawdown to fill that balance.

George Topping - Blackmont Capital

Okay because it is about 3.4 million pounds I worked out as the difference. I am just wondering is there a future liability associated with those sales in the fourth quarter?

Kim Goheen

I will answer it in a second type of way. If you mean, did we borrow materials to make that sale? Absolutely not.

George Topping - Blackmont Capital

Okay. That is good. Okay and just the second thing as a follow up, there was a note to the statements mentioning of $75 million debt would came from Bruce; was that in the fourth quarter was that earlier in the year?

Kim Goheen

I think it was spread throughout the year but there was a partner loan of $225 million that has been outstanding since 2003 and Bruce Management decided this was the year to move it off the book. So, 75 million be in our shares is what we were repaid throughout 2008.

George Topping - Blackmont Capital

So it was equal. It was not the bulk of it in Q4 for example?

Kim Goheen

I cannot remember the exact time, George but perhaps something like that probably.

Operator

Your next question comes from the line of Duncan McKeen - Macquarie Capital.

Duncan McKeen - Macquarie Capital

I just want to apologize if this has already been answered but wondering if there is an actual increase in spot market purchases that you guys did in Q4 specifically? Then also as a second question, I am wondering if you can expand a little bit on the struggles you are having with the dissolution rate at the Inkai operation?

Gerald Grandey

Okay. George, why don’t you tackle the first one and Tim, the second half?

George Assie

Yes. There were no increased purchases in Q4, increased spot purchases.

Gerald Grandey

Okay and Tim?

Tim Gitzel

Yes, so at Inkai, in our Block 1, which we were working on last year, we have been putting somewhat limited acid we have been receiving into that Block and just have not seemed to be getting the production that we are looking with the increase in grade and so we have done some I guess what you would call flushing of the wells over the last couple of weeks and month and we send some experts from our US operation over there to look at that and that seems to have been helping. You see the grades coming up, the flow coming up and so we are optimistic that we will be able to get to a much better production from Inkai Block 1 in 2009.

Operator

Your next question comes from the line of Borden Putnam - Mione Capital.

Borden Putnam - Mione Capital

Tim, if I could go to you and carry on where Greg left off asking about the sources of production at McArthur, there is a note in the third quarter release that I want to go back to that talks about to deliver the additional or required to allow Key Lake to achieve production targets in 2009 that a short-term area is being developed in Zone 2. Is that going to Panel 3 or is it someplace else?

Tim Gitzel

No, you are absolutely right, Borden, it is back in that 1, 2, and 3; scraping the walls where we had the freeze in place already. There are some remnants I guess that are left there and so we are back in scraping some of that, you are right.

Borden Putnam - Mione Capital

So what, if you can split it down for us as we talked about last quarter, what is the percent of fee coming from the different Zones 1, 2, and 3? And are those the only sources of oil until Panel 5 is prepared?

Tim Gitzel

I do not have the percentages but I can tell you we ended the year last year with great inventory. We have two million pounds in inventory that we are using in the first period half, if you like in months of 2009 along with it. So that Panels 1, 2 and 3 productions to feed Key Lake and then as I said earlier to an early question those we are moving to the new zones midway through the year.

Borden Putnam - Mione Capital

Okay and lastly in the MD&A that talks about the production shortfalls that took you down below the $12 million that you guided for that was related to various process and equipment problems at Key Lake. Can you give us a little more on that?

Tim Gitzel

Yes, we have some issues at Key Lake for sure in 2008. I think they are set out in our documents. We have some oxygen plant issues at the start. We seemed to have those nailed down and we had a piece of equipment called the bird centrifuge which is just before the calcine and the dryer and we struggled with a bit, but we are seeing that on track now too. So, I think we have fixed those problems and we will keep it going as we work toward revitalizing the mill going forward.

Operator

(Operator's instruction) Your next question comes from the line of Lawrence Smith - Scotia Capital.

Lawrence Smith - Scotia Capital

Congratulations on extending your line of credits obviously tough market like this. Tim, I guess I will pick up where Greg left off. If I say LIBOR plus 300, how would that sound?

Kim Goheen

Yes, you keep going south.

Lawrence Smith - Scotia Capital

Okay. As far as on covenants, have you guys ever disclosed, do you guys disclose what your financial covenants are?

Kim Goheen

There are two covenants. They are listed in the documents or in the notes to the financials. They are in there.

Lawrence Smith - Scotia Capital

Okay and was there any change with the extension or not? Any change in the covenants or not?

Kim Goheen

No change at all.

Operator

Your next question comes from the line of Ian Howat - National Bank Financial.

Ian Howat - National Bank Financial

Are you now still getting any material from reprocessing tails or are those contracts over?

Gerald Grandey

George?

George Assie

We are getting material yet in 2009, yes.

Ian Howat - National Bank Financial

Okay, that is the last year?

George Assie

Yes.

Ian Howat - National Bank Financial

Okay. And just, if I may, McArthur River production guidance with the longer term, are you still planning to take it up to the 22 million tons?

Gerald Grandey

Somewhere Ian, between 20 and 22 depending on the mine capability after we make the transition.

Ian Howat - National Bank Financial

In the technical report filed yesterday you have it sort of tailing off; is that sort of more for the technical report and you do not believe that will actually be how it is going to progress?

Gerald Grandey

If you look at it, I mean it is really a function of what you can call proven reserves, and hopefully as the mine continues and we continue to do more drilling and bring more of the considerable resources into proven reserves, and the numbers continue to look good.

Operator

Your next question comes from the line of Brian MacArthur - UBS Securities.

Brian MacArthur - UBS Securities

Can you just give us an update on where the Silex joint venture is just given the challenges and the economic outlook right now what GLE is doing with that please?

Gerald Grandey

Okay. George?

George Assie

Yes, where we are with Global Laser Enrichment or GLE is it is fully staffed up. I think there is an excess of 100 people there, so work is underway. We expect to have the test loop run the middle of this year and the project is really cashed up. That is where our purchase price went in to cash up the project. So, it is in good stead and moving forward. We will know at the middle of, a little later this year, I guess in the second half of this year, just how good the technology looks.

Brian MacArthur - UBS Securities

So, by midyear you may be able to tell whether it actually works.

George Assie

Well, we are convinced it works, I guess it is the middle of this year after we have done the test loop as to how well it works and whether we have a commercial process.

Brian MacArthur - UBS Securities

Okay, great.

Gerald Grandey

I would not quite look for it the middle of the year, Brian; it may be a little later than that.

Brian MacArthur - UBS Securities

Okay, great. Thank you.

Gerald Grandey

Got to have a little run time, you know.

Operator

Your next question comes from the line of Ralph Profiti - Credit Suisse.

Ralph Profiti - Credit Suisse

First one maybe for Jerry or even George: How have the floor prices on contracts reacted during the recent weakness and do you expect them to hold in sort of the previous guidance in say the mid-$40 or pound? Or have those slipped a little bit? And the second…

Gerald Grandey

George is on the front line, I am sorry, Ralph; go ahead.

Ralph Profiti - Credit Suisse

Yes, my question was in relation to the movement of the floor price on contracts that maybe you have written, say, over the last six months. Previously, you were doing I guess in the mid-40s and have had those slipped at all?

And my second question is maybe for you, Jerry or Tim: Versus the previous table of guidance US production post 2010 is down about 25% or 30%. Just wondering, is there a permitting issue there or just a lower guidance. Thanks very much.

Gerald Grandey

Okay, George, you want to tackle the first one?

George Assie

Sure. Well in respect to the floor prices that we have been securing, they have generally been in that mid-$40 price range, and most of the offers or deals that we look at are further out in time and so the, the long-term fundamentals of the industry continue to remain fairly positive. So we have stuck with that mid-$40 range on our floor prices. We have not moved off that. But these are longer-term deals, so deliveries start to further out in time, and when you look out there, there are fewer players in that market and fundamentals are stronger.

Gerald Grandey

And, Tim, can you talk a little bit about US production and the permitting issues?

Tim Gitzel

Yes, absolutely. Ralph, we did backed it off a little bit in the US, and that is due to the increasing complexity, as we say in our MD&A, of the regulatory situation down there. There is several agencies in the US that oversee our activities, all of them having taken certainly greater interest, not just in our activities but in uranium mining activities in Wyoming and Nebraska overall. So, we are trying to be realistic with our expectations as to how we can ramp up our production and that is why you see our numbers stretched out a little bit longer.

Operator

Your next question comes from the line of Cliff Hale-Sanders - CIBC World Markets.

Cliff Hale-Sanders - CIBC World Markets

Just a couple quick questions if I may on Inkai. If you could just elaborate perhaps a little bit on the changing legal environment there, primarily on the subsoil laws and the potential impact on your stabilization agreements. Obviously, it is still something that is under assessment but kind of what level of risk assessment, could you give us some guidance for on that one at this time?

And also on Port Hope, is there any more clarity on the timing for renewed asset supplies there? Obviously 2009 you are covered but for the longer term.

Gerald Grandey

Cliff, on the Inkai specifically, really what we say in the MD&A is pretty well what we know. There is the proposition on the subsoil use agreements. We have got the long-standing stabilization agreement which is for the project, so it benefits both us and our partner, although the partner of course is government-owned. But beyond that we simply will engage in a dialogue with the government and see where it all comes out and hopefully when it is all said and done, it is viewed by all parties as mutually satisfactory.

Cliff Hale-Sanders - CIBC World Markets

But there is no timeline that you know of at this point?

Gerald Grandey

Well, they talk about having legislation done within, I think we said about a six-month period of time, but you are dealing in central Asia so timelines may be faster or shorter.

Cliff Hale-Sanders - CIBC World Markets

Okay and at Port Hope?

Gerald Grandey

Okay. Tim, can you answer that one?

Tim Gitzel

Yes, absolutely. Cliff, it is Tim Gitzel. On Port Hope, at the end of last year, 2008 we did restart the six plants and actually it ran very well. In the limited time, we had it running and produced just over 1,000 tons of UF6. And then HF situation we had to deal with. Our supplier was asking some terms for HF that we could not live with, so we stopped production, but now we are negotiating with several potential suppliers. We have made good progress. We will have HF available to us to restart the plant in the second half.

Cliff Hale-Sanders - CIBC World Markets

Okay, so longer term, you do not expect anymore, I guess, production problems?

Tim Gitzel

Not because of HF supply. We are going to diversify our HF supply going forward.

Cliff Hale-Sanders - CIBC World Markets

Okay. And at this point, while the agreements are not signed, sealed and delivered, you are quite comfortable with them?

Tim Gitzel

Yes I am.

Operator

You have a follow up question from the line of David Snow - Energy Equity Inc.

David Snow - Energy Equity Inc.

I am wondering if the Global Laser Enrichment technology is causing any effect on the enrichment market, either delaying the expansion of the alternative technologies or depressing the price as a result of anybody thinking it will work or can you give us any idea whether it is too early for it to have any impact on the market and how do you think it will impact the market?

George Assie

Jerry, do you want me to answer that? Oh, we may have lost him. Well, it is George here. I would answer that by saying I think it is too early to tell what the impact would be and I do not think it is priced into the market at this point. So I think it is just too early to answer that.

David Snow - Energy Equity Inc.

Okay. You will give us an update on the progress in the second half?

George Assie

Yes.

Operator

Your next question comes from the line of Vincent Lauerman - Uranium Intelligence.

Vincent Lauerman - Uranium Intelligence

At the beginning of this conference call, Mr. Grandey mentioned that Cameco's business should be relatively recession proof. At the same time, I noticed that George mentioned that the spot prices, the spot uranium prices might be relatively low this year. In addition, across your four business segments I have noticed that your capital expenditures are about $125 million less for 2009 compared to actual in 2008. So I guess my question is, is there some concern on your management's front that your six-year winning streak in terms of revenue and earnings may come to an end in 2009?

Kim Goheen

Vincent, there are lots of parts to that, so let me try and pick pieces out as we go along here. Jerry's initial comment really relates to the fact that we do believe our sales are quite insulated from the economic environment. If you look at nuclear power plants, they are base-load electricity. They are and in fact I will phrase it to you, they are the last plants people will turn off. So, the demand for our product really is very, very stable going forward. I think George's comment about the price here and volatility is just a matter of where the customers are in their own supply arrangements.

As to the capital reductions, we are an exceptionally prudent when we come to financial management and certainly looking at what is going on in the rest of the world, it made sense to slow down activity a little bit this year. As Jerry also mentioned, we are moving forward on all fronts to secure current and future production, we are just taking it at a little bit slower pace maybe then we might have in the past.

As to your final point on whether six years of increasing revenue will be at risk, well we will let that play out as the year unfolds.

Operator

Your next question comes from the line of Simon Tonkin - Thomas Weisel.

Simon Tonkin - Thomas Weisel Partners

For Inkai, what is the outlook for acid supply there? And also for McArthur River, had there been any further water inflows in the development areas?

Tim Gitzel

So at Inkai, we are encouraged I guess by the acid supply we have seen in the first and I know it is early in the first part of the 2009 now. We have got all the acid we can handle in January and the first half here of February and December was good as well. So we are encouraged, as I say, and we hope that carries on. McArthur, nothing new on the water front other than the small inflow we had at the end of last year in November. That was easily handled by our pump and treat system.

Operator

You have a follow up question from the line of George Topping - Blackmont Capital.

George Topping - Blackmont Capital

Just a follow up, if we can here, on the Canadian tax review. The increase in 2003, the taxable income could be up $43 million out of the $200 million that was reported back in 2003 and you made extra allowances for any tax that might come from that. Have you worked out a range of the potential liabilities here if it goes against you? Best case/worst case type of thing?

Kim Goheen

Well George, we are really not going to disclose more than we have out there. I would put it this way: We are exceptionally thorough in the analysis we have done, the process we have used to come up, and our best estimate as to what the incremental cost will be is the $15 million provision that we booked in Q4 there.

George Topping - Blackmont Capital

I see. So that would fully cover…

Kim Goheen

That fully covers 2003 through 2008.

George Topping - Blackmont Capital

Okay, great. And just secondly on the Centerra cash, it is building up inside that company there; is there any further news on whether you can get a dividend out of Centerra or get hold of that cash outside of the company and get it into Cameco proper?

Kim Goheen

Well, that is always a debate that is out there. Certainly, what we would hope Centerra does instead of that, of course, is to continue to grow their business and expand their reserve resource base and production capabilities, and that is their first order of business.

As to what happens with that cash over time, we will have to watch that one as it goes, but paying a dividend now would not be their first priority, no.

Operator

(Operator's instruction) Your next question comes from the line of Ben Elias - Sterne Agee.

Ben Elias - Sterne Agee Group Inc.

I have a question that is a little more general. At the beginning of the conference call, you talked about customer relationships. You also talked about the growth internationally, India, China. Can you sort of address the trend we have seen where China certainly looking to get in on the game themselves they had to deal with Areva? They have a lot of joint ventures in Kazakhstan. The president of Kazakhstan was at India's Republic Day Parade and India is certainly forming a lot of relationships there. How do you think Cameco, how do you see Cameco participating in this growth where a lot of the countries, a lot of the I guess the new demand is going direct to source?

George Assie

It is George Assie here. With those countries, we are also working with them directly, so no, we do not have an interest in selling them part of any of our operations or anything else. We are interested in long-term arrangement, long-term supply arrangement. And we have good dialogue with them, very active and we expect to secure significant business in both of those countries as we go forward. That is about it.

Kim Goheen

I would add also, Ben, though that it is a world market for uranium and the product, the natural product itself is fungible, so general demand increases impact the market worldwide.

Ben Elias - Sterne Agee Group Inc.

Okay. And just as a follow-up, your fuel services business; is that well positioned? What is your expectation of the demand increase there? We have seen Areva expanding at George Besse. They are looking at Eagle Rock in Idaho. Are you looking down the road and saying perhaps we do need to make a bigger push on the enrichment side in addition to your interest in the laser enrichment?

George Assie

At this time I think we are quite pleased with our investment in the laser enrichment and I think that represents, for the time being, our foray into enrichment. So, we will always look at any opportunities that might arise that make sense but for now I think we are happy with the one we have.

Operator

You have a follow up question from the line of Borden Putnam - Mione Capital.

Borden Putnam - Mione Capital

Tim, back to you if I could, on the life-of-mine production profile for McArthur in the new 43-101 it looks like, based on the discussion we just had a second ago and the comments about Zone 4 lower coming in like in 2010, it looks like this chart should be pushed out a little bit to the right. Is that fair?

Tim Gitzel

No, I think the chart is where it should be. As I said, we are just waiting for the freezing to take hold in the Zone 2 Panel 5 and that liberates a significant number of pounds, in the order of less than 100 million pounds. So that is where we will be focused and then Zone 4, we are moving into that area. We are going very cautiously into that area, but that will come on as well in 2010. So I do not think the chart has to move too much.

Borden Putnam - Mione Capital

Okay. It just looks like Zone 4 was coming in in 2009, but I will look at that thing a little closer. On the reserve reports and maybe this is a question for Bob, in the past you guys have given reconciliations for reserves and resources in a table and there is no tables in the MD&A this year. Was that intentional or an oversight?

Rachelle Girard

There was not, what we provided this year is the same as what we provided last year actually.

Borden Putnam - Mione Capital

No, not exactly, because after the reserve statement then there is a page of reconciliation and it shows throughput additions/deletions by table in a tabular form for both reserves and resources and I do not see that in the current MD&A.

Bob Lillie

I will follow up and get back to you, Borden.

Borden Putnam - Mione Capital

Okay, thanks. One last thing on the reserves and resources. There were some big changes at Crow Butte. Forty seven percent of the proven has now reported to probable and there is a commensurate drop in grade with an overall, about a 63% drop in contained metal for the proven at Crow Butte, and also there were some shifts in the resources there. I know it is not a big resource but those are big movements; can you give us some idea of what is going on there?

Tim Gitzel

Yes, it is Tim, Borden. We did some re-looking at those again and being conservative, we wanted to make sure they were in the right category, so we moved some of them back a bit. They are still there obviously but we just had to re-look at them. And we are re-looking at them again this year to make sure we have got the feasibility work and study work to back them up. So, that was our work this year.

Borden Putnam - Mione Capital

Okay, without that table that I was asking for, there were no additions to reserves in McArthur. No change there, just as it was basically last year net of depletion.

Kim Goheen

Tim?

Tim Gitzel

Yes, I believe that is correct.

Operator

Thank you. This will conclude the questions from the telephone lines. I would like to turn the meeting back over to Mr. Kim Goheen for his closing remarks.

Kim Goheen

Thank you, operator. At Cameco, we entered 2009 on an optimistic note, based on confidence in our revenue streams and the progress we have made in renewing our focus on operational excellence. Despite the world's current economic difficulties, we are convinced that Cameco will continue to demonstrate that we have the ability to weather this storm. Cameco's ongoing strength in the near term will allow us to prepare for the long term, where steadily increasing amounts of fuel from primary sources will be required by the growing global nuclear power industry.

With that, I thank you for your participation today and for your continuing interest in Cameco. Thank you all.

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Source: Cameco Corporation Q4 2008 Earnings Call Transcript
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