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Alice Wong – SVP and COO

Analysts

Oscar Cabrera – Bank of America/Merrill Lynch.

Cameco Corporation (CCJ) Bank of America Merrill Lynch 2012 Global Metals, Mining & Steel Conference May 17, 2012 12:10 PM ET

Oscar Cabrera

(inaudible) for another great conference. Last but not least is Cameco Corporation. Presenter for Cameco is Ms. Alice Wong. She is Senior Vice President and Chief Corporate Officer with oversight for investor, corporate, government, and regulatory relations, and corporate-social responsibility. Alice has worked with Cameco for more than 25 years and has experience in a number of areas including marketing, corporate development, strategic planning and communications. And again Alice, after Fukushima, the uranium markets has been in a bit of a turmoil and you guys have been the stewardess of the uranium industry, always looking forward to hear updates on your views in the market and what’s new with Cameco in its growth path with you.

Alice Wong

Well, thank you Oscar, and thank you to Merrill Lynch for having Cameco here today to speak about the industry and a little bit about our company. I’d refer that Ken Seitz was expected (ph) to come to this conference and had a family medical emergency and I think things have stabilized but he sends his regards as he is unable to attend the conference.

So for those of you who don’t know Cameco, we are one of the world’s largest uranium producers with operations around the world. We are also a leading provider of services required to produce fuel for nuclear power plants, and we have an interest in Bruce Power, which provides power for the province of Ontario in Canada.

I am now -- at this point, I must pass along a – of course, you have seen this on every presentation, our friendly reminder that information in this presentation will be forward-looking, some of it. It’s based on a number of assumptions, and that actual results could differ materially. Please refer to our annual information form and the MD&A for factors that could cause these different results and the assumptions that we have made.

Before I get into the specifics of Cameco, I’d like to start by looking at the uranium market and the energy market which drives our business. It’s -- I know, as Oscar said top-of-mind for you, given the changes in the market in the past -- the last few years or so.

I think it’s important to start by looking at the big picture for nuclear. And the big picture for nuclear is that it’s a very long-term picture. This is a long-term industry, and the fundamentals that drive it have not changed that much over the years. Some 50 years ago, to provide some background, utilities started to use nuclear reactors to power their grids because they needed safe, clean, reliable, and affordable energy, and they needed more of it. That need has not diminished over the years, and has in fact increased in recent years as more focus has been put on reducing greenhouse gas emissions and ensuring energy security.

An even bigger contributor to this need is the world demand for energy in general. Since the 1980s, global electricity consumption has tripled, and it is forecast to almost double again over the next two decades. Understandably, the largest growth is coming from countries with rapidly expanding economies. And to put this into perspective, some – there’s seven billion people on the planet roughly. Of that two billion do not have access to electricity, and more who have access to only a fraction of the electricity that we use here in the western world, and they are demanding more.

As with any industry, there have been ups and downs in the past 50 years, and I can say from my 25 years in the industry, it’s been up and down and public support has come in, and then stronger and a little bit weaker, but the world’s reactors have continued to produce energy efficiently and affordably. As a result, many utilities around the world want and need nuclear in their energy portfolios, so much so that over the past decade, we started to see construction of new reactors, the magnitude of which has not been seen for many years. The pace of that construction accelerated to the point where, today, dozens of reactors are being built around the world, and increasing the need for uranium.

The challenge for the industry, as Oscar has mentioned, is the near and mid-term uncertainty that has arisen from the events of Japan last year. At that point, all countries with nuclear programs paused to review the safety of their operations and to conduct stress tests, which has led to some delays in the licensing and construction. Some countries, most notably Germany, as most of you probably know, over time, has decided to move away from nuclear and focus on other ways to generate electricity. And Japan, as of very recently, has no reactors operating.

The result is that supply and demand, which is usually a fairly simple equation, has become a bit more complicated and there is a concern about the possibility of excess inventories entering the market, and the utilities have been in a wait-and-see mode. Today, this is how the industry stands while those issues get sorted out, which we are watching closely.

But with regard to the Japanese fleet, we believe that the reactors will eventually come back online, and that Japan remains committed to nuclear energy. We have -- Cameco itself has partners. Japanese utilities are partners in our Kintyre and our Cigar Lake projects. And they are very clear that they are committed to these projects and they want to remain in the business. So I think that that’s a very positive for the future of the Japanese fleet.

If we look beyond Japan, we will see that most countries are continuing to grow their programs, and

some of them are – sorry, they are looking at continuing their programs and some of them are looking at growing their program. With regard to the long-term market outlook, which is the real story for this industry, 96 net new reactors are expected to come on by 2021; 63 of them are already under construction. Most significant are countries like China and South Korea. We see some growth. But China is where the big growth is expected to come. Today, they have 14 nuclear plants in operation, and 26 under construction, and they have many, many more planned.

Even here in the US, there are new nuclear build plans. The US government recently granted the first license in 30 years for the construction of two new plants at the Vogtle site in Georgia. This, we believe, is good news for Cameco, and good news for the industry. More reactors mean more demand for uranium. But it is also to remember that demand for uranium has long outpaced supply/production.

For example, last year world consumption was 165 million pounds; production was 143 million pounds. Thus far, secondary sources of supply, such as that coming from the Russian Highly Enriched Uranium agreement or the HEU agreement, has filled the gap. But these supplies are diminishing, and the HEU agreement itself is coming to an end in 2013. When that agreement ends, it takes 24 million pounds off the market. That is equivalent to almost 15% of last year’s consumption. So it’s a big source of supply that will be gone.

New supply will be needed to fill a gap that already exists and is expected to grow as the result of new reactors, which will raise the question and has raised the question, “Where will this production come from?” The challenge is that our industry has such long lead times and has the inability to really respond quickly to demand. Uranium mines in general are very difficult to bring on at the best of times, and now with lower uranium prices, we’re seeing cancellations and delays as new projects are becoming uneconomic.

As a result, (inaudible) could face significant supply challenges and a widening supply-demand gap in the not too distant future. And that’s why we will turn a bit more to Cameco now. We are pursuing our goal to increase our annual production from just over 20-some million – 21 million, 22 million pounds to 40 million pounds by 2018, so that we can be in a position to respond when the customers call for more uranium. And we are well prepared. We have world class assets in Canada, the United States, Australia, and it contains an extensive base of mineral reserves and resources.

Today, we have 435 million pounds of proven and probable reserves, 254 million pounds of measured and indicated resources, and 317 million pounds of inferred resources. These assets are the foundation of our strategy, and one of the primary reasons why we’re a leader in our field and confident about our future. Our uranium segment delivers up to almost 70% of our business, and in 2011, delivered a record revenue of $1.6 billion for the company. In 2012, we expect to produce a total of 21.7 million pounds of uranium. And I’ll show you now where that uranium is to come from our production centers.

McArthur River in northern Saskatchewan, Canada, is our flagship operation. The average ore grade there is almost 17%, which is 100 times the world average. This simply means, in very, very simple terms, that we can produce more uranium from much less ore. This mine gives us consistently good mine production, and this year we expect our share to be 13.1 million pounds. The total production from this mine is 18.7 million pounds. To put that in to context, that mine alone produces about 13% of the current world production. And we continue to expand this operation by transitioning to new mining zones using our innovative freezing technique, which will allow us to develop in the Athabasca sandstone.

In Kazakhstan, we have our Inkai operation, which is a joint venture that gives us significant access to another significant deposit at a low cost. Inkai is expected to produce 2.5 million pounds for us in 2012, and we continue to pursue increased production at that project.

We signed a Memorandum of Agreement with our partner, Kazatomprom, to increase annual production to 5.2 million pounds on a 100% basis, and we are in discussions to increase future annual production to 10.4 million pounds.

Then there’s Rabbit Lake, also in Saskatchewan, Canada, and our US operations, which are also solid

producers and an important part of our strategy. Rabbit Lake, which I am sure you’ve heard, our CEO refer to as our Energizer Bunny, is the mine that just keeps on giving. We’ve mined over 186 million pounds from that site. And that was over the past 36 years, and we continue to – we expect to continue through to at least 2017. We are expecting 3.7 million pounds from that mine in 2012.

In the US, our operations are in Wyoming and Nebraska, and they continue to serve us well. These facilities are expected to produce 2.4 million pounds in 2012, and we are pursuing expansion around those facilities at satellite mines as well.

At Cigar Lake, we have a very exciting project under development. It is the largest undeveloped high-grade deposit in the world. It has an average reserve grade of about 18%. So, combined with McArthur River, we’d like to look at them as the two richest ore bodies on Earth. At full production, this mine is expected to produce 18 million pounds annually. Our share of that will be 9 million.

We’ve made a lot of progress towards first production in 2013, which is topped off by a breakthrough of shaft 2 earlier this year. The scale of progress is difficult to envision if you haven’t been to the mine, but the images on the screen should give you a bit of a look at what we are talking about. At the top image, you’ll see the area as it was in September of 2011. And then the same area, which is the bottom part of, in March. So in a few short months, that area has been completely transformed, and is almost ready for production. So we’re getting close.

We also released an updated technical report in February that incorporates more comprehensive knowledge about the geology of the ore-body and changes that we have made to improve the project such as surface freezing and the milling agreement that we signed to have the ore all processed at AREVA’s McClean Lake mill.

The most significant results of these developments is an improvement in the economics of the project. The estimated average cash operating cost is expected to decrease from about $23 per pound to $18.60 per pound. So we’re very pleased with that and this will benefit the shareholders.

Of course, we need to keep replacing the pounds that we mine and we are preparing for future growth. To do that, we are expanding many of our operations in Canada and in the US and we are evaluating two new projects.

The Kintyre project is in Western Australia, and is a deposit that would add diversity in our geographic reach and mining methods. We plan to have our pre-feasibility study completed for the project later this year. In Saskatchewan, we are finalizing the feasibility study for our Millennium project. If it moves to development, this project would allow us to capitalize on the existing milling capacity that’s in the Athabasca basin in Saskatchewan. We recently came to an agreement to purchase AREVA’s interest in the Millennium project, which is expected to increase our ownership to between 58% and 70%, depending on whether our joint venture partner exercises its first right of refusal.

Ongoing exploration is also important to us, so we have a direct interest in almost 75 active exploration projects in nine countries. Our approach to obtaining assets has been and continues to be strategic, planned and disciplined in order to remain one of the world’s lowest cost and largest producers, well into the future.

And though the focus of our business is the uranium segment, we are also invested across the nuclear fuel cycle. This diversity supports our uranium segment and helps us to better serve our customers and expand our market share, while also supporting our double U goals.

We’re always looking for opportunities to enhance and complement our business. We came across one such opportunity quite recently. You may have seen the news release that came out a couple of days ago on – and this is the acquisition of the Nukem Group, which is one of the world’s leading traders and brokers of nuclear fuel products and services. This acquisition complements Cameco’s business by strengthening our position in the nuclear fuel markets and improving our access to unconventional and secondary sources of supply. We’re very excited about this development, and we believe it will be another tool – an excellent tool for us in our toolbox as we continue to grow our company.

But of course, the goal is to put all these assets to work and to achieve results and to deliver value to our shareholders. And last year we did demonstrate that we are very capable of doing that. We achieved a number of performance records in a very challenging environment. We continue to deliver good results in Q1 as well.

This is largely due to our contracting strategy, which is designed to protect us through periods of uncertainty. We have target a weighted mix of contracts that have 60% of the amount, which will be tied or linked to market pricing at the time of delivery, and 40% of the portfolio has pricing that is fixed and escalated over this time. So this gives us stable cash flow with predictable sales, and some exposure to the upside when market prices increase.

As a result, we have had strong earnings, consistent cash flow and a solid balance sheet that supports continuing growth; growth we believe that will be needed for the future demand, which brings us back to where we started – considering the future of the nuclear industry and uranium demand. What I hope that I have imparted to you today is that the future for Cameco remains positive, that the world energy situation remains unchanged. The world need large quantities of clean, reliable and affordable electricity, which will be needed to meet future demands. Nuclear power offers a proven, technically mature solution on this criteria.

All of the evidence points to the continuing importance of nuclear energy and an increasing demand for uranium. Cameco will play and continues to play a leading role in supplying uranium to customers old and new alike, for many years to come.

Thank you very much for your interest and for taking time to listen to what we would call the Cameco story, and I’d be very happy to take any questions you might have.

Question-and-Answer Session

Oscar Cabrera

(inaudible) there at the back. We asked this question to (inaudible) with the event of Fukushima and nuclear reactors in Japan just coming to a stop. There’s different estimates in the market with regards to inventories. And so you know, and we understand that 24 million pounds of HEU material will come to an end in 2013, but how do you factor those inventories and how do you see that affecting the fundamentals of uranium which we think are going to improve in 2013? Would that delay, you know, the price response? How do you see that market?

Alice Wong

What I would say is that the DoDs do hold a certain amount of inventory. And that we have to assume that I mean – sorry, we fully expect that those reactors will come back on line, the ones that are still operable. And that over time, when you will see the first restart come, then you will see more to come. So the inventory that they hold would be, you know, we don’t have a – we are not going to disclose the exact number, but we have a sense of how much they would be holding. And I think in the past, they’ve held about two to three years worth of demand in inventory.

And so if they have that – and they’ve been very – working with producers and working well to make sure that they manage the inventories. So we haven’t seen any large amounts of inventory coming to the market from the Japanese utility. We’ve worked with them to manage their supply because if the reactors are closed down, you don’t need the product right now. But we haven’t – with that effectively, they’ve been behaving quite very responsibly, I’ll put it that way.

So if you look at that amount of uranium, if it – you have to assume I guess the worst case if none of them come back on, then that inventory would start to come into the market or be managed through producers or brokers and traders as it has been.

Oscar Cabrera

We had a question there in the back.

Unidentified Analyst

Just – given the chemical -- how they plan to double their productions between now and 2018, if demand doesn’t match supply, are you able to slow that down?

Alice Wong

Well one of the things is that it is a really long lead time to get the production to the 40 million pounds. So what we are doing is, we are moving our projects to a number of stage-gates. So it goes to pre-feasibility and feasibility. And then it has to go through the regulatory process. Absolutely, if when we get there at the time that we need to start production, if the economics are not there to support it, we can slow it down. We can park it for a while. But we don’t have to bring them on. We want – what we found is that the last time the price had a bit of a run up, which would have been in 2007 or so, you know, you can’t quickly bring on production. So we know, we’ve learned from that, the timing and amount of effort that it takes to get new production ready to bring on. But certainly if the signs are not there and the economics are not there, we won’t bring it on.

Oscar Cabrera

Let’s go over to here.

Unidentified Analyst

I have two questions. One, it is said that the Japanese are spending $100 million a day in fossil fuel and that is creating a lot of pressure for them to start some of their reactors. Also it is being said that Germany is in fact going to come out and start their two reactors as well. But that’s one question of how -- you know, what do you think about that?

And the second question is, let’s assume for a second that those reactors don’t come back into the market. The expected capacity – those 20 -- 63 that are on the construction, of which 26 are in China alone, is this something that’s going to take 20 years to build or is something that we should expect to see in the market in the next two, three, four, five years?

Alice Wong

I’ll answer your first question, which is what do I think of the idea that some of the reactors have been brought back on because they need them for – because Germany has brought some on and Japan. Is that right?

I think that part of the challenge in Germany and in Japan is that they don’t have other power that can easily come on or that is economic. So Germany, you may recall, did have a phase out policy before this and had just declared not that long ago, that they were going to reverse that policy and let the reactors run and extend them as needed. And then with Fukushima happening, they went back to their old policy. They will face the same challenge, is that well how do you replace – I think this is like 30% of their electricity comes from nuclear. So how do you replace that? What do you replace that with and when can you do that?

Japan, we know well they need the nuclear power as well. They will face the same challenges. I think they are already predicting things like rolling blackouts in night for summer. So if they can go through their testing, improve and demonstrate their faith, I think you will see pressure to bring those reactors back on. And I think that will be a bit of movement that will help bring clarity to the market.

With your other question; China. They want – they are going to bring on what they say higher than this. I think it’s by 2021, it’s another – like it will be within a decade that they can bring on at least that much that they are saying. But they’ve pretty – they’ve proven they can build their reactors and get them running in about five years or so. So they don’t take as long as some of the other examples you may have seen.

Oscar Cabrera

There’s one question out there.

Unidentified Analyst

The new acquisition that Cameco just made this week, what kind of volatility will it introduce to your earnings strength?

Alice Wong

That’s a good question. I don’t about volatility. They trade – they broker trade, most of their deals are done back to back. And so there’s – so we can see they’ll add some earnings. It will be I think modestly – we’d describe it as modestly accretive, starting in 2013. And will add cash flows and earnings – modest earnings. So I don’t know they would add a lot of volatility to the earnings. They’ve been in the market for sometime and they have their contracts in place. And they’ll contract – and so like that. So I don’t foresee a lot of volatility due to the acquisition.

Oscar Cabrera

Just one over there.

Unidentified Analyst

Thank you very much for a detailed presentation. I was just curious if you could share some thoughts on the DoE announcement for the uranium sales. Of course (ph), we have this dynamic in uranium. There’s always this future deficits on the horizon. But in the near-term we have DoE selling more which they did last year, and again this year. And that big black box called secondary supply, which often yields a lot. Thank you.

Alice Wong

The DoE inventory – at this point, we have the information, and we know it’s just the end of last year, sat at about 144 million or 145 million pounds. That’s the estimates I think that have been out there. They have an arrangement with the enrichment plant there that they can bring in the uranium part of it. The limit was 10% of the US uranium requirement. So that equated to about 5 million pounds annually. So the last – this recent -- and I have to confess I don’t have all the information on the recent announcement, but I believe that it suggests that the limit can be increased to 7.5 million pounds.

So you are right. I can tell you in the 25 years I started my life in marketing and I actually did the supply-demand forecast. So I can tell you that you are right. When you look at the supply-demand, there was this excess inventory that overhung the market back in the years when I was doing that work. And now the overhang would be the HEU agreement which is about 24 million pounds off the market.

The DoE inventory at this – we know it’s finite, it will come in. And so there will be different amounts coming in, but at least there’s an agreement around it. It’s transparent but the different these days, I’d say compared to when I was doing analysis, that there’s a lot more transparency around what’s actually out there, as in inventory stock when I did analysis there really wasn’t. You sort of did an estimate of what people who’d bought and why there was inventory in the market and about how much it was? So I’d say the market today is a little bit more transparent in that you know what the stock piles are in, and you can make some estimation about how they would have come in.

But the bottom line is that with these inventories starting to come down, you are going to need new production, you are going to need the price to incentivize production to come on. And that hasn’t been the fundamentals. I mean that hasn’t happened because of these inventories. But when the marginal cost of production of the (inaudible) and the pricing structure, you should see the price reflect what it should in the normal commodity -- it should be reflective of the cost. And at this point it just stays in.

And I don’t know if that makes – hope that answers your question.

Oscar Cabrera

We don’t have any more questions. Can you please help me thank Alice for her presentation. Thank you, Alice.

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