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Cameco (NYSE:CCJ)

Q3 2012 Earnings Call

November 01, 2012 1:00 pm ET

Executives

Rachelle Girard

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

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

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

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

Analysts

Oscar Cabrera - BofA Merrill Lynch, Research Division

Greg Barnes - TD Securities Equity Research

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

Edward Sterck - BMO Capital Markets Canada

Egor N. Rybakov - Edge Asset Management, Inc.

Borden Putnam

Orest Wowkodaw - Canaccord Genuity, Research Division

Operator

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

Rachelle Girard

Thank you, Dave, and good afternoon, everyone. Welcome to Cameco's third quarter conference call to discuss the financial results. Thank you for joining us. With us today are 5 of Cameco's senior management team. They are Tim Gitzel, President and CEO; Grant Isaac, Senior Vice President and Chief Financial Officer; Ken Steitz, Senior VP and Chief Commercial Officer; Bob Steane, Senior VP and Chief Operating Officer; and Alice Wong, Senior Vice President and Chief Corporate Officer. Tim will begin with comments on Cameco's result for the third quarter, our strategy and on current industry conditions, then we will 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 third quarter results. I want to start today by expressing our sympathy to those affected by Hurricane Sandy. Our thoughts are with each of you who have suffered loss or damage, and we hope that you are able to recover from this devastating event as soon as possible.

Let's turn now to a discussion of our results and then move on to our strategy and our view of the market. This quarter, net earnings were higher than the same quarter in 2011, but revenue gross profit and adjusted net earnings were lower. Our uranium segment was the primary driver behind these results because of lower uranium sales volume and realized prices. This is not a reflection of the underlying strength of our business, but rather a demonstration of the variability that's common for us from quarter-to-quarter.

The price we realize depends on the contracts we deliver into during the quarter and the volumes are dependent on when customers want their deliveries. As is often the case, most of our deliveries for the year will occur in the fourth quarter. This year, around 40% of our deliveries will be in the fourth quarter. Our performance in relation to annual guidance is a more accurate representation of the state of the company, and I can report that we remain on track to deliver on our sales revenue and production guidance for the year.

Speaking of production, I'm pleased to report that our operations performed safely and responsibly and that production was unchanged from the third quarter of 2011. We also announced that we are updating our McArthur River technical report, and more details will be available in a few days, but some key highlights include a 19% increase in our share of reserves and a decrease in the estimated average unit operating cost of about $0.46 a pound, that, despite the escalating cost our industry is experiencing.

So McArthur River continues to be an important driver of our uranium business as are all of our Saskatchewan assets, which is why we were also pleased to announce support from the Saskatchewan government for the Highway 914 connector road, which will connect McArthur River and Cigar Lake, essentially linking all of our assets in the Athabasca Basin. We've been working with the province and with several industry partners on a plan for some time, and we're happy to see it coming to fruition. This connector road is critical to expanding access to infrastructure and enhancing transportation efficiency in the north.

Over in Kazakhstan, we reached an important milestone at Inkai this quarter when our board approved a memorandum of agreement with our partner, Kazatomprom, providing a framework to increase production there up to 10.4 million pounds annually. The details are available in our MD&A, but the key outcome is that the memorandum of agreement strengthens our partnership with another global leader in the uranium mining industry, and will allow each company to realize the full potential of the Inkai asset. The timing of our pursuit of increased production at Inkai will, of course, be driven by market demand, which brings me to the topic of the adjustment in our growth plans.

Since 2008, we've been focusing on increasing our annual uranium production to 40 million pounds by 2018, what we call our Double U strategy. This strategy has been based on our view of the market in which we see the strong market fundamentals you hear us talk about regularly. Those fundamentals include the increasing energy demand due to expanding economies, increasing uranium demand as new reactors continue to be built around the world and decreasing secondary supply, particularly the end of the Russian highly enriched uranium agreement in 2013.

As a result, we expect a gap between supply and demand that will need to be filled by new primary production, and that has been the driver behind our strategy. This view has not changed, but the timing of it has. And as a result, we're adjusting our plan to match what we're seeing in market. We will now focus on advancing our brownfield projects, which will result in an increase in our annual supply to about 36 million pounds by 2018 rather than the 40 million pounds previously announced.

So why are we making this adjustment now? Well, we've been using the word uncertainty a lot over the past months to describe the state of the nuclear industry, and that term has proven to be very accurate. While we can still clearly see positive growth in the long term, it has been difficult to read the near term. And although this remains true today, we do have some clarity on certain issues that resulted in adjusting our plans, including restarts of Japanese reactors taking longer than expected, some reactor retirements and new reactor construction being pushed further out in time, some near-term softening of their uranium price and the overall global economy remaining depressed for longer than expected. We've always said it would not be Double U at any cost, and we believe the current state of the market and the global economy justifies this adjustment at this time. We are prioritizing our capital investments with the focus on the projects we expect will add the most value per shareholders, and will continue with the remaining projects in a measured manner. This approach should preserve our ability to respond with additional new production as quickly as possible, if profitable to do so, since the time lines to bring on new production in our industry are long.

And I want to stress that, although the timing has been shifted, we continue to believe this new production will be needed. Though the reactor restarts in Japan have taken longer than expected, progress is still being made towards those restarts, including creating a new regulatory body and drafting new safety standards for the reactor fleet, which will ultimately facilitate restarts. Outside of Japan, most countries with nuclear programs are continuing those programs or even growing them.

You've heard us talk about the 64 reactors that are currently under construction, which is a big number. If we want to put a dollar amount behind that using, say, $2 billion per reactor for easy math, we're looking at a $128 billion investment in nuclear worldwide right now. And that doesn't include the many other planned reactors that are expected to come on by 2021 and still more outside of that window. And of course, as we've said often, we need to keep our eye on supply. It's not obvious where it's going to come from. We've seen a lot of supply destruction over the past year as more projects are becoming uneconomic at the current uranium price.

So what can you expect to see from Cameco now. Well, you can expect an even more intense focus on profitable growth. That means continuing to apply rigorous scrutiny to each and every project, while at the same time, making sure the cost side of the business is optimized and that returns are being made on investments. We will be focused on execution with particular attention directed to bringing Cigar Lake into production next year, on expansion of McArthur River, on increasing production in the United States, on refurbishing and expanding the Key Lake mill, on extending the mine life of the Rabbit Lake and on advancing the process for extracting uranium from the Talvivaara mine. So we are busy. We have challenges, but we also believe that we’re positioning ourselves to continue to succeed in the current market environment and take advantage of the vast potential we see for the future.

So again, let me confirm that we remain very optimistic about the future of the nuclear industry and the future demand for uranium. That said, we can't ignore the market signals we're seeing and must adjust accordingly. We at Cameco are fortunate to have in place a strong sales portfolio, which will help carry us through the current uncertainty in the market. And with the work we're doing to optimize our operations, we will be ready to move quickly and efficiently when the market calls for more uranium.

So with that, we'd be pleased to answer any questions you might have.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Oscar Cabrera with Bank of America Merrill Lynch.

Oscar Cabrera - BofA Merrill Lynch, Research Division

If you could put into context -- understandable that you changed your strategy to profitable growth in the current environment. Where do you see the 36 million pounds coming from in 2018?

Timothy S. Gitzel

Yes. Thanks, Oscar. We tried to list the mode, I think, in our MD&A and clearly, the big driver is Cigar Lake, of course, 18 million pounds at full production. Our share would be half of that. And we're happy to say that Cigar Lake is progressing well and is on track for first production next year. You'll see soon in our McArthur technical report, and I think you'll see in the information we put in, that we look to expand McArthur production as well. Rabbit Lake, we're looking to add to that project as well. The U.S., we're are well underway to increasing production there. And of course, we've added our Talvivaara piece. So it's a combination of those projects that we would have ready to get us to 36 million pounds. And again, let me just restate, we're on a growth plan here. Clearly, from the 21.7 million pounds we're planning for this year to 36 million pounds remains a significant growth plan. And we retain the optionality with our other projects to -- we call it, we have them in the bullpen, ready to go. But to pull them out and move them along as the market calls for that uranium. So that's the strategy.

Oscar Cabrera - BofA Merrill Lynch, Research Division

As a follow-up, I appreciate that there's still growth in the pipeline. But just -- if you could put into context for us some in that bullpen that you talked about. What sort of returns are you looking for because you have projects like Yeelirrie now that I'm not sure if you still plan to go ahead with that. But just context around uranium price and ore returns to see these projects come online.

Timothy S. Gitzel

Yes. Thanks, Oscar. We don't normally put out the level of return we're looking for. But what I will say is that, obviously, they would have to add value to our shareholders for us to bring them forward. You've seen you some context on the Kintyre piece, what we thought it would take to move that one forward. Yeelirrie, you asked about -- that hasn't closed yet, that deal, we're still waiting for referral [ph] approval on that one from the Australian government to see that close. But again, that's a very good project for us to have in the pipeline and we'll have it ready. So I would just say that we will watch the market, the market that has been very soft. I think we saw a $41 spot price this morning, but we have hopes for the future that's going to turn around with supply-demand fundamental demand that has to change at some point going forward. And so as we see those by signals, we will bring our portfolio projects that are, as I say, in the bullpen forward.

Operator

The following question is from Greg Barnes from TD Securities.

Greg Barnes - TD Securities Equity Research

Tim, the Inkai agreement has a number of moving parts in it, including transferring proprietary technologies at Kazakhstan, I guess, for conversion. Do you think the Canadian government approval for that is likely? Have you already talked to them about it? Where does that stand?

Timothy S. Gitzel

Thanks, Greg. We've been working with the Canadian government for some time, I would say some years, on our Nuclear Cooperation Agreements. Of course, we talked about China very close, we hope, to being finalized now that we'll be shipping Canadian uranium to China. India is underway. And I think the Prime Minister is heading that way and we'll continue to work on that. And the other one is Kazakhstan, and we've been working on that one for some years now. And we're on it if not daily, weekly. And that, as well, has progressed well. It's very close to being finalized between the 2 governments. And of course, that would be a condition precedent to transferring any kind of nuclear technology between countries. And so we think we have time for that, but it's -- I can tell you we're not starting today, Greg, it's been moving along and I would say it will be, hopefully, completed in the near future.

Greg Barnes - TD Securities Equity Research

Okay. So the next question on McArthur River, this new plan or technical report that's coming out soon in the news release. You've given us some of the details and it looks like you're going to spend in the order of $1 billion over the next 4 years there. Is that spending going to happen no matter what or is that contingent on you getting approval to expand output to the GBP 22 million ?

Timothy S. Gitzel

Well, that's a -- a lot of it would just be sustaining capital. I think that we would put into the mine to keep developing the drifts and moving the mine along. We don't see any holdups in getting regulatory or government approval to move that mine along. So that would be just existing capital. I'll ask Bob if he has more detail on that. Bob?

Robert A. Steane

Sure. Thanks, Tim. Greg, what that speaks to in the next 4 years is capital will be spending to give us access to 104 million pounds of production that we have in reserves. So that's used in -- 2 big aspects to it, some of it is infrastructure, some electrical, some freeze plants, some water treatment capability and surface facility. And the other is the development underground to access those reserves. They're not new reserves as for the technical report. They're reserves that we had in our reserve category in the last technical report and in our annual statement, but we did not have the infrastructure in place to mine that. So that will go ahead and that takes us to the 104 million pounds at the 18.7 million pound production rate.

Operator

[Operator Instructions] The next question is from Tyler Langton with JPMorgan.

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

This is a follow-up to that CapEx question. I think you had previously guided to around, I think, $650 million to $700 million for 2013 and like $600 million to $650 million for 2014. I guess, now with the focus on brownfield, do you think that your CapEx number will come down? And can you just give any thoughts on those CapEx over the next several years?

Timothy S. Gitzel

Yes. Thanks, Tyler. I'm going to ask Grant Isaac to answer that.

Grant E. Isaac

Yes. Happy to do that. Thanks, Tyler, the CapEx guidance that we put out, remember, one of the key messages today is that we're continuing on a growth path going to 36 million pounds. And a lot of that, of course, is Cigar Lake and a lot of that has been the infrastructure, as Bob talked about, with McArthur River expansion. So as we've adjusted our growth plans, we still have to acknowledge we're on a growth path with those projects. As we re-pace the rest of the projects that are identified in the bullpen as we identify it later. We, of course, will update our CapEx plans. We do that -- we intend to do that on an annual basis. We didn't have a reason to change that at the moment but, of course, that's all part of the investigation and announcements that we'll do in the months to come to figure out exactly what that impact is on CapEx.

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

Okay. Great. And just a follow-up. I mean over the last month or so have you noticed any changes in activity in your Japanese customers? Are there any sort of request for more deferrals? Are they more cautious? If there's any color that would be great.

Timothy S. Gitzel

Yes. Tyler, thanks. We've been in, obviously, constant contact with our Japanese customers, in fact, some of them were over here last week, we met with them. I would just say on the Japanese situation, that's one of the bigger drivers for us in our adjustment to our strategy. I would say, in the third quarter -- clearly, we've been watching the market over the course of the year, but really in the third quarter was in the context of the World Nuclear Association meetings in London that we really got a sense that things were changing in Japan. I think they announced, during that week, that there would be a phase out of the Japanese nuclear power by 2030s they said, or 2040, which subsequently got overturned, I think, the week after. Then there was the announcement of the regulatory authority being put in place and that they would be putting standards in place against which all nuclear reactors in Japan would be compared and that those standards will be in place sometime mid-2013, I think we heard. So that's clearly changed our view of Japan, whereas we had said that we thought there would be perhaps 6 to 8 Japanese units back on by the end of this year. That would be closer to our number for next year, I think, 2013. Now we'll watch to see how that plays out but that was really the moving piece for us in this.

Operator

The next question is from Edward Sterck with BMO Capital Markets.

Edward Sterck - BMO Capital Markets Canada

So I've got a couple of questions. Firstly, on the CapEx guidance had a great level for the next couple of years. Just from your previous comments about continuing on a growth path, I guess the implication there is that we shouldn't expect a significant reduction in CapEx just because there's now FX on brownfield growth rather than greenfield growth. Would that be fair?

Timothy S. Gitzel

Well, what we said, Ed, is that the CapEx guidance was really dominated by the growth of the brownfield projects anyway. As you look out into the project pipeline that we had previously disclosed or previously illustrated, it's probably a better way to say it, that was spending that was yet to come down the road. And so as we looked at the forecast guidance, we still feel that it's in the range. But keep in mind that along the way, as you advance some of those projects, some of that would have been capitalized spending. And as we think about re-pacing the rest of our growth plan, there will be -- there is likely to be an impact and we'll adjust that as we have more opportunity to assess it and then put out annual guidance.

Edward Sterck - BMO Capital Markets Canada

Okay. Fair enough. And just one follow-up question on the agreements, the MOA [ph] with Kazamtomprom, to play devil's advocate slightly, is it -- could one level an accusation that actually Cameco is giving up quite a lot of stuff here in order to get the increased production rates of Inkai.

Timothy S. Gitzel

That wouldn't be our view at all. In fact, we're delighted to have this agreement. We've been working on this for probably 5 years to get to this point. And clearly, we've been in Kazakhstan, I think, for 15 years or so, now we know the partners well. And from their side, they have to have a deal that's fair for their shareholders, which is the people of Kazakhstan and we wanted the same thing. And we think this was a very fair deal. We're delighted to be partnering with them on the next 2,000 tons of production when it comes in. And again, we're pacing that according to the market, but we think it's a good deal for both sides. And Ken, I don't know if you have anything to add to that?

Kenneth A. Seitz

No. I just would echo that and to hear the point that there are a number of moving parts there, but of course we looked at it as a package along with our joint venture partner and look at doubling uranium production. But in addition to that, extending our leases to 2045, which is worth a lot to us. So I just would echo what Tim said -- what Tim has said and that is we're thrilled with it and pleased to be moving onto the next stage with our joint venture partner.

Operator

The next question is from Egor Rybakov with Edge Asset Management.

Egor N. Rybakov - Edge Asset Management, Inc.

I have a general question, if we were to come back to the reduction of the long-term guidance. And while we are in the camp, we believe [ph] that it makes sense of having a number for the very long-term production, so 40 doesn't make much difference from 36, really. But just to philosophically understand the reason for that, I mean, we've seen a decrease of the commitment to the long-term projects from some of your competitors in the uranium space. So theoretically, even with the uncertainty of this it should be -- while there still might be a shortage at a certain point of the uranium in the market. So I'm just trying to understand when you decided to lower your long-term growth, was it guided by the potential lack of putting a certain number in your ROI calculation that would lead you to the desired level of profit or was it your change of view that the shortage perhaps is not going to be as prominent as you saw it before or was it driven by something else? And maybe you can explain it to us in very layman terms, if you may.

Timothy S. Gitzel

We'll certainly try to do that, Egor. I think we saw that the growth plans for nuclear that we had previously had in our model have changed, have been deferred. I stated the Japanese piece. We see the return of the Japanese fleet being deferred, to some extent. We also saw in India that they will not be proceeding as quickly as they had planned. Other pieces, whether you look in France with the Fessenheim [ph] units, here in Canada [indiscernible], it was announced that won't be going ahead. So we had information coming to us that said that the model we have, the 95 net new reactors that we were talking about had changed. So we had to act on that. We had to disclose that and act on it, and that's what we've done. So we're still certainly moving forward on our projects, on our growth plan. We're going to 36 million pounds and we're keeping the other projects ready to go. And as we see market signals, we will bring those forward. Other companies, you're right, have probably taken the same approach and have even put out numbers. So we've seen numbers $75, $85 that would take to incent -- or insight or incent them to bring their projects forward. So we're not putting out a number but we say it’s going to be higher, the price of uranium has to be higher than it is today.

Egor N. Rybakov - Edge Asset Management, Inc.

But what I'm trying to understand, Tim, is that the reductions that you saw in the future commitment, in the commitment to the near-term projects from your competitor, it sounds like it was not enough to maintain this potential shortage of supply in next year, is it a fair assumption? So it needed, basically, more traffic, you needed to take another formula and balance from the market for the next 4 years to equilibrate it.

Timothy S. Gitzel

Egor, I think our -- with the new information we had on the market, I think, we looked at our portfolio and we said should we have all the levers down going forward as fast as we can, the pedal to the metal, as we say, for all of the projects. And we looked at that and we said perhaps that's not the best strategy given the information we have. So we went through our portfolio, one by one looked at all of them and we came to the conclusion that certain of our projects are moving along, are very -- have high shareholder value, and we decided to focus on those ones, while keeping the other ones ready to go. So that would be -- will we lose some time on those? Perhaps, we will. But we're also ready to move them forward when the market calls for them. So that's what we were looking at. We were looking at some less demand in the period -- in the period. And so we adjusted our portfolio accordingly. And as Grant said, we re-paced some of our projects.

Operator

[Operator Instructions] The next question is from Borden Putnam with Mione Capital.

Borden Putnam

I have a question, I guess, maybe for Bob Steane. And Bob I apologize this may have been answered when you were discussing things with Greg Barnes. At McArthurs the change in reserves, an increase in the probable and a commensurate decrease indicated, is that related to the infrastructure accessing those reserves or is there any change in the geology or possible mining methods?

Robert A. Steane

The big change there is the B zone in the north end and a zone in the south. So that's the biggest change. The piece that I was talking with, with Greg were already in the reserve category. It was just doing in the next few years, we will be putting in the infrastructure and development increasing to extract those reserves.

Borden Putnam

Got it. And then the small decrease in proven in this thing, that's -- I'm guessing that's attributable to production or depletion?

Robert A. Steane

You're absolutely right. Overall, I look at -- if go back to my McArthur River technical report 2009 and to McArthur technical report 2012, and you put them on the same footing, so if you count all the 2009, '10, '11 production and so on, there's been a net increase of Cameco share of 85 million pounds. So that's a significant difference of one report to the other. So that's one of the biggest differences in the 2 technical report, another 85 million pounds of Cameco share.

Operator

The next question is from Scott Larson with the StarPhoenix.

Scott Larson

In regards to completing Highway 914 in Northern Saskatchewan, do you have a time frame of when this will be done, at what cost, and what that will mean to your Saskatchewan operations?

Timothy S. Gitzel

Well, thank you, Scott, for the question. As you probably know, the premier put out is economic plan for the future about 10 days ago here in Saskatoon, and we were pleased to be there and to hear him talk about the connector road Highway 914 being a priority for government going forward. So we were delighted in that. That's one of those P3 or cost sharing type plans, where we will cost share the road with the provincial government, which is a benefit, I think, to all of Saskatchewan. And so a very important piece connects up now all of our mine sites. Once it's in place, all of the mines will be connected so that has certainly logistical benefits to us, whether it's from a milling point of view or sharing a supplies point of view. Very important to the future growth of the uranium business in Saskatchewan. So very important. I believe it's just in some feasibility, some engineering work being done on it now. Cost estimates? I don't have a cost estimate for you at this time, but I can tell you we'll be proceeding with due haste on that project.

Operator

The next question is from Greg Barnes with TD Securities.

Greg Barnes - TD Securities Equity Research

A question for Ken. Ken, can you give us your sense of the uranium market as it stands right now and how you think it's going to evolve the next 6 to 12 months?

Kenneth A. Seitz

Yes. Greg, today I can tell you that in terms of the spot market and of course, we see it reflected in the price, we see sufficient material floating around the market and not much demand. And I think it's fair to say that in the context of discretionary demand, utilities still have an ability to sit out and in fact, of course, you're being rewarded for sitting out of the market the moment as they watch the spot price fall. I think under the thing that -- and of course, all of it lending to our change in our view is what's going on in Japan and whether -- with those units being shut down for at least another 10 months and no restarts before then, whether there will be inventories or additional inventories in the market and so we're watching for that. I said that earlier we have seen a splash around the market. But nevertheless, with those units shut down, that's material that's not being burned in the reactor. So sufficient materials in the market, not much demand and probably seeing an environment like that, as you said, Greg, over the next 6 months and maybe a little bit beyond, the catalyst then has continuing to be a long-term contracting as utilities uncovered requirements grow. And as we said in the past, we expect that over the coming few years to really open up. And the HEU agreement, we cannot forget that the market leases GBP 24 million at the end of next year. And continuing to monitor actions of the U.S. government and so on. So I think to answer your question, Greg, there's still a lot of uncertainty in over the 6 to -- the next 6 months and maybe a bit beyond. We don't see that necessarily we're going to see an improvement in price.

Greg Barnes - TD Securities Equity Research

Okay. Just a follow-up to that, the utility requirements. I think in the past, Ken, you said they were pretty well covered through 2015. Is that still the same or is it extending out?

Kenneth A. Seitz

No. That would still be our view, Greg. And 2015 being -- when you look at the graph when those requirements, uncovered requirements start to open up, now when they come to market actually put that material under contract will be certainly in advance of 2015, 2016 and beyond. But that would still be our view that in that time frame requirements start to open up in a fairly considerable way.

Operator

The next question is from Egor Rybakov with Edge Asset Management.

Egor N. Rybakov - Edge Asset Management, Inc.

If I may follow-up on one other issue. Did you start seeing any Japanese inventory in the market? And I'm especially curious, did you perhaps make any efforts to approach the Japanese customers and see if they would be interested in selling some the uranium that they have currently?

Timothy S. Gitzel

Thanks, Egor. I will let Ken Steitz to answer that one.

Kenneth A. Seitz

Egor, it's fair to say that we have not seen any Japanese utilities directly stepping into the spot market to sell inventories. We haven't seen that to date, and the real question about whether we will see that. If we look at what is going on in Japan, while it's taking longer than we had hoped or anticipated, there are still very large investments going into new safety systems at all of those units. So continuing confidence not just among us, but among the Japanese utilities that their reactors will be rejoining the grid. I'll also say 2 units that were under construction prior of Fukushima have received approval to reinitiate work on those reactors. So there is -- while it's going to take longer and we have a more muted view of perhaps the number of units, there are some strong indications that there is certainly no phase out in Japan. And so utilities tell us they're seeing it that way. And again, no material coming back into the market. Well, have we bought material from Japanese customers? I'll say that we have. But we do that when we think that there's a deal that make sense for Cameco. And so what we do some more of that remains to be seen.

Egor N. Rybakov - Edge Asset Management, Inc.

Great. And the second question is just a follow-up in the relation between the long-term and short-term pricing. With the short-term pricing being delayed and at least from the statistic that we're getting long-term contract pricing being fairly stable, what's the propensity of the customers to sign the longer-term contract as they come off the existing contract right now and how does it impact your ability to put this in the long-term price scheme?

Kenneth A. Seitz

Well, I would say that actually today, a utility, if they had uncovered requirements, wouldn't mind writing some fixed price-based escalated contracts. And we're seeing a tendency toward that. But is that the surprise? No. Because everyone believes that the uranium prices is in some form of trough and so locking in prices today is good move for utilities. I would say that if we look at the long-term indicator and the spread between the spot price in the long-term indicator, we do see some -- a little bit of buying in the spot market exploiting that spread. But I guess to answer your question, there is a tendency for utilities that have uncovered requirements to try and lock in this price. And we have done a few based escalated long-term contracts this year, but our preference is to look at market-related contracts at the moment.

Operator

The next question is from Orest Wowkodaw with Canaccord Genuity.

Orest Wowkodaw - Canaccord Genuity, Research Division

My question again comes back to Japan. Can you give us a sense of what percent of your contracts set for delivery in 2013 are to Japanese utilities? I think in the past it was somewhere around 12% to 15%, but can you confirm that number?

Timothy S. Gitzel

Once again, I'll ask Ken to answer that.

Kenneth A. Seitz

Sure. Yes, it would be close to that number. This year it's going to be about 8%. Next year, slated for about 10% of our sales into Japan. Our overall portfolio if you look at our long-term commitment still about 18% into Japan.

Orest Wowkodaw - Canaccord Genuity, Research Division

So 18% in terms of all existing future contracts.

Kenneth A. Seitz

That's right, yes.

Operator

The next question is from Edward Sterck with BMO Capital Markets.

Edward Sterck - BMO Capital Markets Canada

I may be jumping the gun a bit here on next year's guidance. Is it possible to give any indication of what you expect in terms of overall corporate tax rate for next year?

Timothy S. Gitzel

I'll see if Grant has any information on that. Grant?

Grant E. Isaac

Yes. Well, you're not jumping the gun. I think we've been fairly consistent to say that we put out in our outlook table that we expect our guidance around either a small recovery or a smaller effective consolidated tax rate will hold and when we -- over the next couple of years. And if we have a reason to change that, we will certainly provide that to the market. But at the moment, that continues to be our guidance going forward and certainly, safe to say on a multiyear basis.

Edward Sterck - BMO Capital Markets Canada

And then just one question on the CapEx from McArthur River is it -- or the change in CapEx over the next -- with the revised technical report. How much of that is broadly speaking of the potential terms attributable to the mine and how much to the Key Lake mill?

Timothy S. Gitzel

Bob, have you got that split of CapEx?

Robert A. Steane

Yes. It's roughly 1/3 and 2/3, the CapEx and the mill. Actually, sorry, I should have gone -- I'm not good with doing instant math here. The bulk, probably, 3/4 of it is in the mine and 25 -- 1/4 of it is in the mill, finishing the revitalization and getting the mill ready for the long life. But it's mine, it's the infrastructure in the mine including the development and the freezing.

Operator

That is all the time we have for today. I would now like to turn the meeting back over to Mr. Gitzel for his closing remarks.

Timothy S. Gitzel

Well, thank you very much, operator. And thank you to everyone who has joined the call today. In closing, I would like to reiterate that the long-term fundamentals of the industry remain very strong. And while we continue to prepare for that, we also recognize the importance of adapting to the current environment to remain competitive and return value to our shareholders in the near term. I believe there are a few other companies that have the capacity to do this, as well as Cameco does. Our plan to intensify our focus on execution and maximize efficiencies combined with our extraordinary assets, employee expertise and comprehensive industry knowledge provide us with a distinct advantage, which I believe will allow us to continue to be successful. So again, thank you for joining us today and have a great day.

Operator

The conference call has now ended.

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