Cameco Corporation 2016 Third Quarter Results Conference Call Wednesday, November 2, 2016 – 1:00 PM ET C O R P O R A T E P A R T I C I P A N T S P R E S E N T A T I O N Rachelle Girard Operator Director, Investor Relations Good day, ladies and gentlemen. Welcome to the Tim Gitzel Cameco Corporation Third Quarter Results Conference President & Chief Executive Officer Call. I would now like to turn the meeting over to Ms. Rachelle Girard, Director of Investor Relations. Please go Grant Isaac ahead, Ms. Girard. Senior Vice-President & Chief Financial Officer Rachelle Girard, Director, Investor Relations C O N F E R E N C E C A L L P A R T I C I P A N T S Thank you, Wayne, and good afternoon, everyone. Thanks for joining us. Welcome to Cameco’s third quarter Orest Wowkodaw conference call to discuss the financial results. Scotiabank Ralph Profiti With us on the call today are Tim Gitzel, our President Credit Suisse and CEO; Grant Isaac, Senior Vice-President and Chief Financial Officer; Bob Steane, Senior Vice-President and Greg Barnes Chief Operating Officer; Alice Wong, Senior Vice- TD Securities President and Chief Corporate Officer; and Sean Quinn, Senior Vice-President, Chief Legal Officer and Corporate David Wang Secretary. Tim will begin with comments on our results Morningstar and the industry followed by Grant, who will discuss in more detail the financial results for the quarter and first Jim Ostroff nine months. Then we’ ll open it up for your questions. Platts If you joined the conference call through our website Fai Lee event page you will notice there will be slides displayed Odlum Brown during the remarks portion of this call. These slides are also available for download in a PDF file called Daniel Horner “Conference Call Slides” through the conference call link Nuclear Intelligence at Cameco.com. PT Luther Today’s conference call is open to all members of th e Bank of America Merrill Lynch investment community, including the media. During the Q&A session please limit yourself to two questions and Edward Sterck then return to the queue. BMO Capital Markets Richard Williamson Please note that this conference call will include forward- Private Investor looking information which is based on a number of assumptions and that actual results could differ John Tumazos materially. Please refer to our annual information form John Tumazos Very Independent Research and MD&A for more information about the factors that could cause these different results and the assumptions Anang Majmudar we have made. General American Investors With that, I will turn it over to Tim. Fraser Phillips RBC Capital Markets Tim Gitzel, President & Chief Executive Officer Tadeas Trojan Powder Gate Capital Thank you, Rachelle, and welcome to everyone on the call today. I will start today with some brief remarks, then Bell Conferencing Page 1
Cameco Corporation 2016 Third Quarter Results Conference Call Wednesday, November 2, 2016 – 1:00 PM ET I’m going to turn it over to our Chief Financial Officer, modest near-term uranium demand and effectively Grant Isaac, for some additional details on our financial allowing utilities to defer and delay term contracting until results. After that we’d of course be happy to take your there’ s more clarity on important demand questions like questions. the pace of Japanese restarts and the pace of reactor construction programs. And I think it’s important to stress These are not easy days in the uranium business yet at that the spot market is not a fundamentals-driven market. Cameco we remain optimistic. We see growth in reactor It is not where utilities acquire their run-rate material. construction and consequently uranium consumption, Instead, the spot market is typically used for discretionary and this growth results in the important fact that over 500 purchases only and is very thinly traded moving on very million pounds of uranium has not yet been purchased for small volumes. Moreover, Cameco is not a spot market reactor requirements over the next ten years. We know seller. We do not sell our tier one production into the spot that this demand at some point has to come to the market market, preferring instead to sell it into our contract and we know that some of this demand is coming to portfolio. Looking ahead, obviously a turnaround in the Cameco as utilities pursue safe, reliable supply from uranium market requires the return of significant long- long-lived tier-one uranium assets. We believe no other term contracting. But this will only occur once the producer is better placed to see this demand than oversupply in the spot market is reduced, which requires Cameco. However, this demand has not emerged yet. As either supply discipline from those who continue to sell a result, current uranium market conditions are some of into that market or good news on the demand front such the most challenging we have ever faced. Prices, both as a clear pathway to the restart of the Japanese reactor spot and term, have fallen to levels that are neither fleet. rational nor sustainable. And we believe that these prices are failing to incent the investment decisions required to While we are optimistic that demand must return to the ensure reliable supplies available to meet the 500 million market, I assure you we are not being complacent. We pounds of requirements over the next ten years. have taken and we will continue to take action to remain competitive in today’s market and position the company The weak current market as we see it is due to an to benefit when the market improves. We have refocused adverse combination of two things: On the demand side, our strategy away from definite production growth and a buyers’ strike; on the supply side, sellers’ panic. The towards flexible production that can respond to market buyer strike is driven by two main factors. First, utilities conditions. And we have focused on our tier-one assets, continue to have a price off bias. They see an over- those that are the lowest cost and provide us with the supplied spot market putting downward pressure on the most value. In focusing on these assets we have also spot price. Ultimately, they want this to drag the term demonstrated supply discipline by curtailing production in price lower as well. Second, fuel buyers are part of an oversupplied market and pulling back pounds from our significant cost-cutting programs among major utilities, highest cost operations at Rabbit Lake and in the U.S. programs that translate into restrictions upon tying up and reducing production from our McArthur/Key Lake financial capacity in long-term purchase agreements. On operations. These decisions, as you will know, did not the supply side since Fukushima we’ve seen mo tivated remove pounds from the spot market, as all of our spot market sellers, including primary producers, primary production is sold into our contract portfolio. The enrichers, and some traders, and recently we’ve seen strength of our tier-one strategy gives us the ability to make these changes to remain competitive in today’s some traders and intermediaries who have taken long positions in uranium unwinding their positions as prices challenging market. And that same strategy is what will have gone lower. The volumes aren’t large and these allow us to benefit when market conditions improve, actions are not driven by the fundamentals of the industry providing a strong basis for future growth. but by panicked reactions to a uranium price that has continued to fall for longer than anyone expected. The But production management is not the only area where results for now are uranium prices at levels we haven’t we’ve taken action. We’ve also fought to protect the value seen in more than a decade. Today the spot price sits of our contract portfolio and, where possible, extend the value of that portfolio. That’s why today our average below $19, which is almost a 50 percent decline this year alone, and this spot price fall has pulled the term price realized price continues to outperform market prices. We’ve always said that one of the benefits of our down to the mid-$30s. And since Fukushima the spot price for uranium is now down over 70 percent and the contracting strategy is that it gives us a good measure of term price is down 45 percent. protection when the market is low and we continue to see the truth of that. So we’ve looked at our production, we’ve You can think of the current market dynamic as this: we looked at our contracts, and we have really looked at have today an oversupplied spot market satisfying every nook and cranny of the business to see where we Bell Conferencing Page 2
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