THIRD QUARTER RESULTS CONFERENCE CALL
Comments by:Bob Lillie
Jerry Grandey
Questions & Answers
CORPORATE PARTICIPANTS
Bob Lillie
Director, Investor Relations
Jerry Grandey
President & Chief Executive Officer
Kim Goheen
Senior Vice-President & Chief Financial Officer
Tim Gitzel
Senior Vice-President & Chief Operating Officer
Alice Wong
Vice-President Investor, Corporate & Government Relations
CONFERENCE CALL PARTICIPANTS
Raymond Goldie
Salman Partners
Mark Caruso
Millennium Partners
Greg Barnes
TD Newcrest
Brian MacArthur
UBS Securities
John Redstone
Desjardins Securities
Borden Putnam
Eastbourne Capital
Jay Miller
Private Investor
Ralph Sair
Sairco Investments
Steve Smith
Private Investor
Cliff Hale Sanders
CIBC World Markets
Ian Howat
National Bank Financial
Fadi Shadid
Friedman, Billings, Ramsey
Murray Lyons
Saskatoon StarPhoenix
Orest Wowkodaw
Canaccord Adams
PRESENTATION
Operator
Good afternoon ladies and gentlemen. Welcome to the Cameco Corporation Third Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Bob Lillie, Director, Investor Relations. Please go ahead, Mr. Lillie.
Bob Lillie, Director, Investor Relations
Thank you, operator, and good afternoon everyone. Welcome to Cameco’s third quarter conference call to discuss the financial results. Thanks for joining us.
With us today are three of Cameco’s senior executives. They are Jerry Grandey, President and Chief Executive Officer; Kim Goheen, Senior Vice-President and CFO; and Tim Gitzel, Senior Vice-President and Chief Operating Officer. George Assie, Senior VP, Marketing and Business Development, is travelling and not able to be on the call today. Also with us today is Alice Wong, Vice-President of Investor, Corporate and Government Relations. Jerry will start things off with comments on the highlights of the quarterly financial results, provide operational updates and a few words on Cameco’s strategy, and then we’ll get right to your questions.
Today’s conference call is open to all members of the investment community and the media. During the question and answer session we would ask that you ask one question only followed by one follow-up question. If you have additional questions, please return to the queue until others have had a chance to ask theirs.
Please note that statements made during this call by the Company regarding its objectives, projections, estimates, expectations or predictions may be forward-looking statements within the meaning of applicable securities laws and regulations. The Company cautions that such statements involve risk and uncertainty and that actual results may differ from those expressed or implied. Important risk factors are outlined in the Company’s annual information form dated March 30, 2007.
With that I’ll turn things over to Jerry.
Jerry Grandey, President & Chief Executive Officer
Okay, Bob, thank you very much, and let me add my welcome to everyone the call.
During my remarks today, I’m going to comment briefly on our earnings, provide updates on activities at Port Hope and Cigar Lake, as well as how we are responding to both those issues, and then comment on our strategy and how it is unfolding.
Cameco had another good quarter. We continue to see increasing realized prices for uranium; in fact, we recorded the highest realized price in Cameco’s history even though the spot price of uranium actually fell during the quarter. These higher realized uranium prices generated an outstanding gross profit margin of 67 percent for uranium in the quarter and made a significant contribution to Cameco’s earnings and cash flow.
The earnings are particularly satisfying. Our adjusted quarterly net earnings after unusual items are more than five times higher than last year and our nine-month earnings are more than double last year’s total, coming in at $539 million, another Cameco record. These strong earnings are driven by our uranium business anchored by a powerful portfolio of uranium contracts that will continue to deliver superb results year after year even with market fluctuations.
Let me summarize by saying, we are in great financial shape and we are returning value to our shareholders. Over the past couple of years, we have committed to consider buybacks as a way to return excess cash to shareholders if acquisition targets are too richly valued. In early September, we announced an open market share repurchase program to buy back a maximum of 17.7 million shares and we have followed through. To the end of September we have purchased almost 40 percent of this target.
Now to the Port Hope conversion facility. In the MD&A we indicated that we expect to restart production in the latter part of the first quarter of 2008. We have sufficient inventory on hand to meet delivery commitments through that time, assuming deliveries proceed as planned. UO2 production is unaffected and continues at the site.
Since discovering contamination at the UF6 facility in July, we have drilled numerous test wells to identify the key affected area. We’ve completed a root cause analysis to identify the cause. We’ve begun corrective actions and we’ve developed plans for improved monitoring. It is important to note that there has been no effect on the safety or health of employees or the public and we are already taking steps to contain and extract the very low levels of contamination. The staff at Port Hope have worked long, hard hours to deal with this situation and keep the local community informed. We look forward to getting the plant running again in the coming months. Now moving on to Cigar Lake, there too we’re making good progress. We have completed the holes necessary for dewatering and reinforced an adjacent tunnel. The concrete barrier plug in the tunnel where the inflow occurred last October is nearing completion. We are now working on sealing the top and bottom of the plug and once that’s complete we will finish pouring concrete behind the plug to fill the void and rock pile where the inflow occurred. We expect this to take about six more weeks.
Prior to dewatering there are three more activities to complete. First we will confirm that the plug works as designed, then we’ll assess if additional measures are required in two other areas of the mine and we’ll submit an application and receive regulatory approval to dewater the mine. I’d say we’re making good progress on each of these activities. At the same time we are carrying out other assessments to develop mine plans for future development and the completion of the second shaft. You’ll find more detail on these and subsequent steps in the MD&A.
Tomorrow the Canadian Nuclear Safety Commission will be reviewing our application to renew and amend the Cigar Lake construction licence that is scheduled to expire at the end of the year. We anticipate a decision from them in December and will provide an update on remediation progress at that time.
Production start-up remains 2011 at the earliest. Until the mine has been dewatered and the condition of the underground development has been assessed and incorporated into new mine development and production plans, we will not be able to provide a firmer production start-up date.
As a final note on this topic, there is no off-the-shelf manual to guide remediation at Cigar Lake. We know it’s challenging work. The precise process and timeline are difficult to predict. At the same time I assure you that Cameco has the technical expertise and management systems to meet this challenge.
As I mentioned in our last conference call, the events at Cigar Lake and elsewhere led our management to renew its commitment to excellence and accountability throughout the organization. We continue to put in place the new management structure for all our operations, led by Tim Gitzel, as I announced on the last conference call. That structure will provide the foundation for increased focus and accountability across our operations. Further, I have challenged every Cameco employee to get back to basics in order to focus on our core business and achieve operational excellence.
We have worked with our operating sites and divisions to identify key priorities and make sure all of our activities are in line with these priorities. We have deferred or eliminated tasks or projects that are not considered mission critical and asked each of our divisions to continue to evaluate all work with this same lens. I have also followed up with direct communication to every employee as well as personal visits to the Saskatchewan sites. In the months to come I will be getting to our other sites as well with an aim to meet people, talk to them directly about what excellence and getting back to basics means for them. These visits have given me great confidence in our ability to meet our challenges because of the enthusiasm and dedication I saw in our people and the example of excellence at each site. Our assets are world class and our talent is top notch. I know if we tighten our execution we will remain a leader in our industry and that’s what our renewed internal focus is all about.
I would now like to discuss our strategy for growth. I spend a few moments on this topic since we continue to get questions from investors. And when I say strategy, those of you familiar with Cameco will know that we have over the many years consistently positioned Cameco for long-term growth.
In our pursuit of value our preference would have been to make a few large acquisitions; however, rocketing uranium prices and rejuvenated nuclear industry sent valuations far beyond what we consider to be sustainable, profitable levels. So let me be clear: on my watch we will not heed the public musing of short-term thinkers who want us to grab some headlines with a quick purchase. We will not pay inflated prices just to acquire a company with the word uranium in its name. Cameco acquisitions must promise a significant contribution to our bottom line. And while we monitor the industry for larger acquisitions, we have been steadily making strategic alliances and equity investments with uranium companies around the world. These announcements extend Cameco’s reach in northern Canada, the United States, Australia, Paraguay, Russia, and Kazakhstan, and these investments are likely to pay handsome rewards to investors after exploration and development. And we continue to work aggressively behind the scenes to evaluate other opportunities for growth in the nuclear industry.
While we don’t issue a news release every time we think of making an acquisition, our uranium, conversion, and enrichment teams are actively networking around the world in pursuit of growth opportunities. Our network of relationships throughout the industry provides critical market intelligence on opportunities we might pursue as well as those we would be wise to stay away from. We are ready to strike when we see the right value which strengthens Cameco over the long-term. And as I mentioned at the beginning of the call, we have the financial strength to strike quickly when the right deal comes along.
I thank you for your attention. We’ll now open the call to questions and either I or other members of the management team will respond. Operator?
Operator
Thank you. We will now take questions from investors, analysts, and media. In order to respect everyone’s time on the call today, we’ll take your question and allow one follow-up. Then if you have further questions, please return to the queue and we’ll get to them after others have had their chance.
If you have a question, please press star one on your telephone keypad. If you are using a speakerphone, please lift the handset and then press star one. To cancel your question, please press the pound sign. Please press star one at this time if you have a question. There will be a brief pause while participants register for their questions. Thank you for your patience.
Our first question is from Raymond Goldie of Salman Partners. Please go ahead.
Raymond Goldie, Salman Partners
Good day gentlemen and lady. My question relates to Uranium One, which talked about the inhibitions of their operations in Kazakhstan because of a shortage of sulphuric acid. I’m not even sure if Inkai uses, your project uses sulphuric acid, but are you affected in any way by this situation?
Jerry Grandey, President & Chief Executive Officer
Ray, it is using sulphuric acid. We too are affected, as we’ve said in the MD&A. We haven’t been affected to date through the end of the quarter but if the acid shortage were to persist then it would begin to affect us in quarter four. Kazatomprom, which is the government-owned enterprise, sees the acid situation coming back into balance sometime in the first half of the year, maybe by March hopefully, and in the interim we and others that are affected are looking for alternate supplies of acid in other jurisdictions. But I think one of the impediments there is transportation. But not affected yet, but will be if we don’t find alternative sources.
Raymond Goldie, Salman Partners
Well thanks for your courtesy in taking a question to which the answer was in the MD&A. There’s been a remarkable concatenation of—
Jerry Grandey, President & Chief Executive Officer
It’s a long MD&A, Ray.
Raymond Goldie, Salman Partners
Yeah, there’s a lot of earnings releases that have come out within the last 24 hours.
Jerry Grandey, President & Chief Executive Officer
Not a problem at all.
Raymond Goldie, Salman Partners
Thank you.
Jerry Grandey, President & Chief Executive Officer
You bet.
Operator
Thank you. The following question is from Mark Caruso of Millennium Partners. Please go ahead.
Mark Caruso, Millennium Partners
Good morning. My question actually pertains to Cigar Lake. Is there any potential impact on the review of the application that could push back the timing more as far as, you know, is there a chance that they could a little more stringent with the process and the way that you’re going about remediations and what not?
Jerry Grandey, President & Chief Executive Officer
Mark, I think in this circumstance the regulator is paying a lot of attention. That’s been true since the events. So we’re trying to, on almost a daily basis, work with them and make sure that questions that they have are answered in a timely way. So there is more scrutiny, you’d expect there to be more scrutiny, and we just try to work through it day by day.
Mark Caruso, Millennium Partners
And then just one final question. As far as kind of expanding the business, would you look to grow enrichment? Or is that not something that you have an interest in?
Jerry Grandey, President & Chief Executive Officer
No, we’ve said consistently over the years that we would like to get into enrichment. We’ve looked at the available opportunities that are out there, and they’re few and far between, but in pursuing enrichment as an objective the guiding principal is that we won’t do it unless we see a way that it makes economic sense for Cameco and its shareholders.
Mark Caruso, Millennium Partners
Great, thanks.
Operator
Thank you. The following question is from Greg Barnes of TD Newcrest. Please go ahead.
Greg Barnes, TD Newcrest
Yeah, thank you. Jerry, you mentioned that there’s two other areas at Cigar Lake that you’re investigating for potential weakness I guess; could you give us some idea where those areas are and what it means?
Jerry Grandey, President & Chief Executive Officer
Greg, there are two other areas that are kind of (inaudible) larger openings that were done in the underground excavation. They’ve got technical names. One of them was established for the installation eventually of the clarifier and the other one was for run of mine production. And those areas, because they’re larger openings, when we de-pressure by dewatering the mine and there’s a pressure differential, we’re just trying to make sure that the support that was put in place and that the geological structure is properly understood before we do it. So what we’re doing is just simply doing some geotechnical drilling into that, into the areas, just to understand the relative strength, weakness, and reinforcement that’s already there.
Greg Barnes, TD Newcrest
Is there a potential you’ll have to pour concrete or pump concrete into those areas as well?
Jerry Grandey, President & Chief Executive Officer
At this stage of the game we don’t know. You know, I’d say we don’t think so. That certainly would be the last thing we would do to reinforce. But at this stage of the game I think we’re optimistic that there are other ways of making sure that it remains okay.
Greg Barnes, TD Newcrest
Okay, thank you. Just one quick other question on the big broader strategy discussion you had. Where does Bruce Power fit now?
Jerry Grandey, President & Chief Executive Officer
Bruce Power remains a core holding for Cameco. I think that, as we’ve said from the beginning, it adds, from Cameco’s perspective, the ultimate and vertical integration where we take our own uranium and ultimately realize the value of nuclear electricity. It does, by virtue of being the only independent operator, nuclear operator in Canada, provide us growth opportunities not just at the Bruce site but perhaps elsewhere in Canada where they’re looking for additional nuclear as well. And that’d be Ontario and perhaps Alberta.
Greg Barnes, TD Newcrest
Are you still looking at nuclear opportunities in the U.S. or have you backed away from that?
Jerry Grandey, President & Chief Executive Officer
We’ve backed away from it. You know, I would say we’re always looking, but from in terms of active pursuit, recognizing that our cost of capital is a little bit higher than most utilities that are regulated, these things became very expensive. And again, when we do something, as we tried to demonstrate in the South Texas project where we prevailed in the bid, but ultimately had the rights of first refusal taken away from us, that we’ll only do it in a way where it adds value, we think, to shareholders.
Greg Barnes, TD Newcrest
Thanks, Jerry.
Jerry Grandey, President & Chief Executive Officer
You bet.
Operator
Thank you. The following question is from Brian MacArthur of UBS Securities. Please go ahead.
Brian MacArthur, UBS Securities
Good afternoon. I want to go back to the updated chart here and just clarify exactly what you’ve done with Cigar Lake contracts. And I’m talking about the chart on page 21 that shows your realized price at every, ah, at a number of spot prices. I mean if you look at it, the values actually are using a lower spot price now quarter over quarter but your values realized go up in 2010 and 11. I assume that’s because we’ve deferred the Cigar Lake contracts and just put in spot. Is that right?
Jerry Grandey, President & Chief Executive Officer
Brian, let me first say there is a lot of information and assumptions behind these tables. So more than anything I hope people are using them more as an indication of a trend that we see and not trying to hang their hat on the, you know, last dollar that is there. It is simply intended to give people a pretty good glimpse of where the realized prices would be trending over time. And the farther out you go the less certainty there is, as with any forecast. One of the things we’re considering is, since it becomes so vague way out in the future, is there much utility for going beyond three to five years. But we’ll take a look at that in future quarters. But I wouldn’t get too hung up beyond all of this. I think in terms of technical detail and your specific question, Alice probably better than anybody can talk about well what is the underlying assumption in ‘09, ‘10, ‘11 vis-à-vis Cigar Lake. So, Alice, can you respond to that?
Alice Wong, Vice-President Investor, Corporate & Government Relations
Brian, the change in ‘09 through ‘11 is the assumption, while the decision hasn’t been finalized yet, is the assumption that we will make some additional deferrals under our supply protection language in our contract.
Brian MacArthur, UBS Securities
Right. So I mean basically we’re getting the same effect as you saw this quarter where you’re getting a much higher realized price because we’re taking out material under a lower contract and it’s being pushed out to 2000 whatever it is, 18 or 16 or whatever it is, and you’re putting in the spot price now of $80 instead of $120 versus last quarter, but last quarter you didn’t, you basically had the old contract in. Is that correct?
Alice Wong, Vice-President Investor, Corporate & Government Relations
The last price table would not have assumed any additional deferrals.
Brian MacArthur, UBS Securities
Okay, so we deferraled through—I mean I just can’t figure out, I mean you very clearly laid out a lot of, you know, as Jerry says, a lot of assumptions on this table, but I just want to be clear. So you’ve deferred Cigar through 2011 now in this table or ‘12?
Alice Wong, Vice-President Investor, Corporate & Government Relations
Brian, it’s not—it’s the impact of a reduction in production and the largest impact was Cigar, but you do remember the Cigar Lake baseload contracts we’ve already accounted for if we think they’ve been impacted. That’s always been in the price table. So the new assumption is that under the other contract where we have the right to reduce or defer or cancel deliveries we pro rata reduce some of that. And that’s the changed based on—
Brian MacArthur, UBS Securities
Ahh…
Alice Wong, Vice-President Investor, Corporate & Government Relations
Yeah, that’s what we’re doing. Cigar Lake baseload has always, we’ve always had that in for the last couple of tables I believe. Well I know that. And so the change really is this additional reduction in supply due to the right that we have under the other contracts.
Brian MacArthur, UBS Securities
Okay. I’ll follow up with the rest of it offline. Thanks.
Jerry Grandey, President & Chief Executive Officer
Thank you, Brian.
Operator
Thank you. The following question is from John Redstone of Desjardins. Please go ahead.
John Redstone, Desjardins Securities
Yes, I’m sorry to belabour this point about the table with realized prices so I’ll try to make this as painless as possible. The table shows that if you realize a price average of $100 over the course of this year, you’re average realized price is around $39, and if you keep that going next year it’s $46 and change, and yet you’ve got $53 in the third quarter. Could you give us a little bit more detail as why that was so high?
Jerry Grandey, President & Chief Executive Officer
John, just simply the timing of sales in the particular contracts. You know, we had a certain amount of material that we were able to sell at the height, literally at the height of the spot market in this quarter, and of course then the spot price came down through the quarter so, you know, it’s just simply the way the contracted sales and deliveries have fallen in quarter three.
John Redstone, Desjardins Securities
Okay, so can I assume then that that, shall we call it premium for want of a better word, is not sustainable?
Jerry Grandey, President & Chief Executive Officer
Quarter to quarter we’ve always said that you shouldn’t read too much into results, so…
John Redstone, Desjardins Securities
Okay.
Jerry Grandey, President & Chief Executive Officer
Look at the table.
John Redstone, Desjardins Securities
Okay, fine. Can I ask one follow-up question?
Jerry Grandey, President & Chief Executive Officer
Absolutely. Go right ahead.
John Redstone, Desjardins Securities
The expansion at McArthur River; any news on that?
Jerry Grandey, President & Chief Executive Officer
Still planning and still in the regulatory approval. We in past quarters have said that we need to demonstrate that the technology that we’ve developed for reducing the selenium and molybdenum content in the effluent stream, that technology is successful. And once we demonstrate that, and we firmly believe that it will, and that should be starting in the early part of 08, then we should be able to begin making progress on the environmental permitting and licensing of the expansion. So still—I think we’re still several years away.
John Redstone, Desjardins Securities
Fair enough. Thank you.
Operator
Thank you. The following question is from Borden Putnam of Eastbourne Capital. Please go ahead.
Borden Putnam, Eastbourne Capital
Hi, Jerry. Borden here. Thanks first of all for the increased disclosure on the McArthur expansion plans. I’ve done a bunch of work on that and we’ve talked about it in previous calls and it’s good to see you talking about—
Jerry Grandey, President & Chief Executive Officer
We try to be responsive, Borden.
Borden Putnam, Eastbourne Capital
No, I appreciate it because it was kind of a murky topic. I want to go back to a question that Greg Barnes introduced about the two additional areas, and you said that one of them was the clarifier area and the other is a run of mine storage bin, and those, looking at some diagrams that I’ve compiled over the years of following this, that zone looks like it’d be about 130 metres distance from the area of the rock fall horizontally and at least 15 metres vertically, and that’s right at the bottom, sort of, of number one shaft and would have thought that was pretty high integrity ground. Is there a thawing effect from the loss of the freezing circulation that’s affecting the integrity of that ground?
Jerry Grandey, President & Chief Executive Officer
No, that ground has never been frozen. Freezing has gone, the freezing that’s been doing has been going on in the ore body itself.
Borden Putnam, Eastbourne Capital
So why would this ground around—
Jerry Grandey, President & Chief Executive Officer
We just, you know, we want to make sure that what we’re doing is successful here, so we’re looking at every eventuality.
Borden Putnam, Eastbourne Capital
It’s interesting; I wouldn’t have expected that to have a loss of integrity in that area.
Jerry Grandey, President & Chief Executive Officer
Well it hasn’t had a loss of integrity; we just want to make sure it doesn’t.
Borden Putnam, Eastbourne Capital
Right, right. Sorry, poor choice of words on my part. You mentioned in your start that you were going to test the plug before you began dewatering; how will you do that?
Jerry Grandey, President & Chief Executive Officer
Lower the water level in shaft one and then begin to watch its rebound.
Borden Putnam, Eastbourne Capital
Oh, okay, so that’s not included in the—
Jerry Grandey, President & Chief Executive Officer
And another way to do it is to pressure up a little bit on the upstream side of the plug where the fall is, because we’ve got a hole drilled in there, and then see what effect, from a pressure perspective, occurs on the other side.
Borden Putnam, Eastbourne Capital
Okay. Last as a follow-up for this round, back at the Key Lake there was an issue about isodecanol and the treatment of concrete from backfill that was getting through the mill. Has that—Tim and I talked about that last call, has that issue been resolved or is your progress along that improving?
Jerry Grandey, President & Chief Executive Officer
No, I think that issue is pretty well resolved. We put in a hydrogen peroxide circuit and that seems to be working quite well. Tim, I don’t know if you have anything you want to add to that.
Tim Gitzel, Senior Vice-President & Chief Operating Officer
No, that’s exactly right. We’ve pretty well got that cleared up.
Borden Putnam, Eastbourne Capital
Okay, thanks.
Operator
Thank you. The following question is from Jay Miller, Private Investor. Please go ahead.
Jay Miller, Private Investor
Yes, my question is about the hexafluoride plant in Ontario. The shutdown there is now in its fourth month I believe and it sounds like you’re looking at another four. What are you expecting it will cost to fix that problem and are there any circumstances that might take the reopening of that plant beyond the first quarter as you say?
Jerry Grandey, President & Chief Executive Officer
First quarter is our best estimate from what we know right now. We’re now on kind of the road, getting the remediation in place, working with the regulator, which is a requirement. It’ll require regulatory approval before we restart. In order to understand the extent of the contamination under the building we ended up removing a fair bit of piping and we’re looking now at what needs to be done to make sure the situation doesn’t persist. So best guess of putting all of this back together and getting started on the prevention is by the end of the first quarter of 2008. That’s our best estimate right now.
Jay Miller, Private Investor
Is there, ah, is it a big price?
Jerry Grandey, President & Chief Executive Officer
Ah, really not so big.
Jay Miller, Private Investor
Okay. Just one follow-up. In view of the age of the plant and the expected strong demand internationally for enrichment material, what are your long-term plans for that plant?
Jerry Grandey, President & Chief Executive Officer
Long-term plans are to get it back up and running. We’ve got something called Vision 2010 that we’ve been pursuing both describing it locally involving the citizens into a very, very large refurbishment of that plant that would see it upgraded, see it get ready for production for many decades to come. So we’re committed to remaining in the Port Hope area, we’re committed to getting this plant back up and running, and Vision—the implementation of 2010 does require regulatory approval, but we hope to begin doing the refurbishment in that timeframe. It’ll take a few years obviously, but that’s the objective we have.
Jay Miller, Private Investor
Thank you very much.
Jerry Grandey, President & Chief Executive Officer
You bet.
Operator
Thank you. The following question is from Ralph Sair of Sairco Investments. Please go ahead.
Ralph Sair, Sairco Investments
Good afternoon and thanks for taking my question. It revolves around UEX, which has talked about some significant percentages of uranium find. What is the relationship of Cameco to the UEX and might that be a very good possibility for an acquisition?
Jerry Grandey, President & Chief Executive Officer
Cameco was one of the founding shareholders of UEX. We, my recollection is, have about 20 or 21 percent ownership in UEX. Yes, they’ve had some very interesting drill results in the western part of the Athabasca Basin, a lot of drilling ahead, and while we look at everything we don’t make specific comments on acquisition targets.
Ralph Sair, Sairco Investments
Thank you.
Jerry Grandey, President & Chief Executive Officer
You bet.
Operator
Thank you. The following question is from Steve Smith, Private Investor. Please go ahead.
Steve Smith, Private Investor
Yes, good afternoon. Thanks for taking my call. My question is regarding the strategy for growth in the long-term and more specific to the labour market, as it is the lowest that it’s been in three decades. Saskatchewan is below 4 percent. And you refer to your topnotch talent and I’m just curious as to how you’re planning on sourcing that out in the future.
Jerry Grandey, President & Chief Executive Officer
It’s a challenge for anybody in the mining industry and certainly anybody in the nuclear industry these days. We are affected like others in terms of the hot market and the booming economy. I would say given the vision and the mission we have in Cameco and the asset quality that we’ve been able, we’ve been successful in attracting the kind of talent that we need to operate the facilities that we have. We talk a little bit about it, you know, in terms of trying to achieve a higher level of operational excellence. It does mean more experts and more geologists and more people to look after some of the technical details and over the last six or seven months, even with the tight labour market, we’ve been remarkably successful in attracting people to come help us do what we do and ultimately that’s to produce uranium to generate clean energy.
We have another advantage in that we’ve got 26 or so communities that are in the area of our northern operations where we fly in and fly out people and we have very, very strong relationships with those communities and their inhabitants. Of course it’s seven days on, seven days off, and so there again it’s kind of like growing talent in your back yard and making sure that the benefits that are coming out of the business are flowing back into these communities and that the communities remain supported. So it’s not without a struggle, but so far we seem to be managing through it.
Steve Smith, Private Investor
Great. Do you see a push of I guess importing workers from abroad or increasing your foreign talent pool?
Jerry Grandey, President & Chief Executive Officer
We really haven’t seen a need to go down that track. We obviously have been attracting people from abroad over the years, we’ve got a number of nationalities that are working for us, but we’re not targeting any particular country or source, even though other resource industries might be. We seem to see enough success just drawing on the available talent pool by advertising locally and through North America when we need to.
Steve Smith, Private Investor
Perfect. Thank you very much.
Jerry Grandey, President & Chief Executive Officer
You bet.
Operator
Thank you. The following question is from Cliff Hale Sanders of CIBC World Markets. Please go ahead.
Cliff Hale Sanders, CIBC World Markets
Hi, good morning everyone. Two quick questions if I may. The first one is on Rabbit Lake where you outlined a radon gas problem that you’ve encountered over the past while which has resulted in a loss of production for 07. I’m just wondering if we should be concerned about your production forecast going out if you’re going to have to essentially go slow on production there just to moderate exposure levels for the employees there. If you can just clarify that one.
Jerry Grandey, President & Chief Executive Officer
Tim, can you respond to that one?
Tim Gitzel, Senior Vice-President & Chief Operating Officer
Yeah, well we’re into that O2 next area, which is a little deeper, a little farther down, and we’ve got water in there that’s the source of the gas. We’re taking the steps we need to to deal with that, which has caused us to reduce a bit our production for 2007, but you see some of our projections going forward. It won’t be easy down there, it’s a little bit farther and a little bit deeper, but I think we’re taking the measures we need to to make the production levels that we’ve set out in our quarterly report.
Cliff Hale Sanders, CIBC World Markets
Right, so we should, um, the ‘08 and beyond we should still be comfortable going forward with those?
Tim Gitzel, Senior Vice-President & Chief Operating Officer
Yes.
Cliff Hale Sanders, CIBC World Markets
Okay. And my second question really relates to your various foreign exchange hedging contracts that you have out there. Unfortunately I don’t have access to some of my technology I would like, ah, just wondering if you could dumb it down a little bit in the sense of what should we expect you to be bringing into your earnings profile over the next couple of years, both from your uranium business and the Bruce Power contracts and in effect what sort of impact should we really be looking for. Obviously it’s going to move around quite a bit, but a little bit of guidance just to clean it up would be nice.
Jerry Grandey, President & Chief Executive Officer
Yes, we can talk about philosophy, we don’t forecast earnings. But I’ll let Kim address that.
Kim Goheen, Senior Vice-President & Chief Financial Officer
Sure. Cliff, on page 15, 14 and 15 of the MD&A, we show you—15, top of page 15 we show you a little table there that as of September 30th how those numbers would flow into earnings. And so that’s, again, page 14 really shows you the balance by year.
Cliff Hale Sanders, CIBC World Markets
Okay. That’s the problem, I just can’t see that. So that is in there?
Kim Goheen, Senior Vice-President & Chief Financial Officer
Yeah.
Cliff Hale Sanders, CIBC World Markets
I don’t actually have that in front of me.
Kim Goheen, Senior Vice-President & Chief Financial Officer
Yeah, top of page 15.
Cliff Hale Sanders, CIBC World Markets
And could you just address what was in the Q3 numbers for me?
Kim Goheen, Senior Vice-President & Chief Financial Officer
Well the Q3 numbers we had, ah, year to date was $49 million of gains from the derivative contracts themselves, made up of some hedges that were taken out of the accounting qualified hedges and then some other currency hedges we have in place that did not qualify for hedge accounting. The two pieces together year to date is about $49 million.
Cliff Hale Sanders, CIBC World Markets
Okay. Okay, I think that does it for me. Thanks.
Operator
Thank you. The following question is from Ian Howat from National Bank Financial. Please go ahead.
Ian Howat, National Bank Financial
Yeah, good afternoon. Just with regards to Bruce Power, could you give us some guidance on what the contract price was for power, what it would be going forward next year, and what percentage or how much is actually under contract for 2008?
Jerry Grandey, President & Chief Executive Officer
Ian, I don’t have those statistics. Maybe Kim does. We might have to deal with that offline. But Kim, do you have all that?
Kim Goheen, Senior Vice-President & Chief Financial Officer
Ian, realized price year to date is about $52 per megawatt. We don’t forecast 2008 material at this stage in time. Through this fourth quarter we will come out with some more information. So far year to date they’ve had roughly about one-third, a little over one-third of their portfolio has been under contract.
Ian Howat, National Bank Financial
Okay. So I’ll back-calculate. And what is your plan going forward with your percentage of amount being contracted?
Kim Goheen, Senior Vice-President & Chief Financial Officer
Again, kind of the same avenue. We look at the opportunities as they come forward but, again, we really don’t forecast forward any kind of specific, you know, any specific numbers.
Ian Howat, National Bank Financial
Okay. So Bruce Power is not actually trying, doesn’t have a set target amount for how much it wants under contract or spot.
Jerry Grandey, President & Chief Executive Officer
Well there is a philosophy, Ian, of having a balance. When I say balance, not 50-50; you see it this year at about 30. Kim, I don’t know what the discussions have been going forward for…
Kim Goheen, Senior Vice-President & Chief Financial Officer
Yeah really, Ian, it’s not something that we put a whole lot, you know, disclosed in any great depth. We have partners in that business. As Jerry said, we do look for a balance of contracted amounts and spot exposure.
Ian Howat, National Bank Financial
Just in the last quarter obviously if only a third was contracted, ah, the spot price $47 and you did $53, maybe you should have more under contract.
Kim Goheen, Senior Vice-President & Chief Financial Officer
Well that’s always the debate. If you look at 2006 it was about 50 percent, if you look at this year, as I said, it’ll be about 36 percent; it really does depend on the opportunities that are available.
Ian Howat, National Bank Financial
Okay. Thank you.
Operator
Thank you. The following question is from Fadi Shadid of Friedman, Billings, Ramsey. Please go ahead.
Fadi Shadid, Friedman, Billings, Ramsey
Hi, good afternoon. Back to Inkai if I may, your forecast rebounds back to the original 3 million pounds or so in ‘09; does that assume that these shortages go away and we’re back to normal?
Jerry Grandey, President & Chief Executive Officer
Fadi, it does. All of the conversations gone on to date is that the acid supply should become available once again by first or second quarter of next year.
Fadi Shadid, Friedman, Billings, Ramsey
And it’s primarily the fire and the delay at this new acid facilities? I mean is that what defines this shortage?
Jerry Grandey, President & Chief Executive Officer
That’s correct, yeah.
Fadi Shadid, Friedman, Billings, Ramsey
Okay. And longer term, no reason at this point to think there’s not enough sulphuric acid to go around?
Jerry Grandey, President & Chief Executive Officer
Longer term there’s plenty of sulphur in Kazakhstan and surrounding countries and making sulphuric acid is relatively simple.
Fadi Shadid, Friedman, Billings, Ramsey
Thank you.
Jerry Grandey, President & Chief Executive Officer
You bet.
Operator
Thank you. The following question is from Greg Barnes of TD Newcrest. Please go ahead.
Greg Barnes, TD Newcrest
Yeah, thanks. Jerry, or Tim I guess, the levels of freezing at Cigar Lake now that it’s effectively been offline for a year, um, is the freezing disappearing I guess? What is the situation on that front?
Jerry Grandey, President & Chief Executive Officer
Tim, go ahead and respond.
Tim Gitzel, Senior Vice-President & Chief Operating Officer
Well the freezing obviously will start to dissipate over time and, you know, we’re anticipating that we’ll have to go back in and re-establish the freezing and refreeze. I think it holds—I don’t have the exact timeline as to how long it takes for it to dissipate, it’s over a year, so we’ve got some time, but we’ll have to go back in and refreeze those areas and probably freeze more areas than we’d anticipated.
Greg Barnes, TD Newcrest
Where was the freezing prior to the flood? Or how much had been done?
Tim Gitzel, Senior Vice-President & Chief Operating Officer
Well the freezing was up in the north end right around the ore body. That’s where we’d started the freezing getting prepared. So that’s where we’ll go back in. I think we’re re-looking at all of the freezing. I think I said that last quarter or the quarter before as to how much freezing we will do going forward and whether we’ll freeze more, because it not only stops the water, but provides some ground support. So we’re re-looking at that, Greg.
Greg Barnes, TD Newcrest
And I assume that’s all built into the 2011 at the earliest re-start date.
Tim Gitzel, Senior Vice-President & Chief Operating Officer
That’s part of it.
Jerry Grandey, President & Chief Executive Officer
Greg, it is, with all the caveats, we’ve got to get the mine dewatered and then look at it all, including how much of that existing freezing remains. I will say that in the test mining phase, when we froze ground to do the test mining and then stopped freezing it remained frozen for quite a long period of time, measured in years, not just one year.
Greg Barnes, TD Newcrest
Okay, good. Thank you.
Operator
Thank you. The following question is from Murray Lyons of Saskatoon StarPhoenix. Please go ahead.
Murray Lyons, Saskatoon StarPhoenix
Yes gentlemen. Because of the timing of your third quarter results you follow the financial update from Ottawa and assuming that our parliament is more stable than the one in the Kyrgyz Republic I’m just wondering what you think the eventual corporate tax rate that was proposed yesterday would do to your operations in the future and investment decision say versus investing in Australia or the U.S.
Jerry Grandey, President & Chief Executive Officer
Kim, can you respond to that the day after it was done?
Kim Goheen, Senior Vice-President & Chief Financial Officer
Murray, we are looking at the impact of those rate reductions. It will not—we don’t at this point believe it will be as large a one-time impact as we’ve shown in prior years. As to the decision whether we develop here or elsewhere, certainly all such decisions are welcomed and will impact all decisions that we make and the economic analysis that’s done. But too early to describe it as making a sea change in any way.
Murray Lyons, Saskatoon StarPhoenix
Okay, but I was just wondering whether 15 percent would put Canada on a basis that would be competitive with the other jurisdictions that you already operate in.
Kim Goheen, Senior Vice-President & Chief Financial Officer
It’s one factor to consider only, Murray. There’s so many others that come into such a decision.
Jerry Grandey, President & Chief Executive Officer
But it’s certainly welcome news, Murray.
Murray Lyons, Saskatoon StarPhoenix
Very good, thank you.
Operator
Once again, please press star one at this time if you have a question.
The following question is from Borden Putnam of Eastbourne Capital. Please go ahead.
Borden Putnam, Eastbourne Capital
Yeah, Jerry, on the Cigar Lake licence, the original licence was issued in 2004 and expires in December this year; would a normal renewal also have a three-year term or would it be different?
Jerry Grandey, President & Chief Executive Officer
There is no standard term, Borden. Tim, can you better respond to this?
Tim Gitzel, Senior Vice-President & Chief Operating Officer
Yeah. In fact, Borden, we’re (inaudible) this afternoon, we have the hearing tomorrow morning, and that’s part of it. And the recommendation I think from staff is for a two-year period going forward. But there’s no fixed time limit set out for these, often it’s just that they think that’s a reasonable amount to come back to the commission with an update. So that’s what we’re looking at, two years.
Borden Putnam, Eastbourne Capital
Okay, but you’re asking, if I’ve understood the documents, for an indefinite license period. Why is that? Do you think you might get done sooner or that some of these… I don’t understand why the—
Tim Gitzel, Senior Vice-President & Chief Operating Officer
It was more an activity-based request that we were saying let us do the remediation plan and drive the licence off our progress on the remediation.
Borden Putnam, Eastbourne Capital
Okay. And they’ve come back, the staff has come back with a license condition called License Condition 1.5, which they would hope to have risk assessments, third party reviews and so forth as part of each step in the process, and I wonder would any documents like a 43-101 come out of that that we might have better insight into what’s being found and being recommended by your third part, if this is agreed by CNSC commission.
Tim Gitzel, Senior Vice-President & Chief Operating Officer
Yeah, if you look at our submissions to the CNSC there’s really a focus on three areas and it’s governance, quality, and our safety culture, and the documents that flow around that, including our corrective action plan and progress on that. So that’s all part of it.
Borden Putnam, Eastbourne Capital
All right. Thank you.
Operator
Thank you. The following question is from Orest Wowkodaw of Canaccord. Please go ahead.
Orest Wowkodaw, Canaccord Adams
Hi, a question for Kim. You obviously had a pretty low tax rate this year; what can we anticipate next year for overall effective tax? And then of that what portion do you think would be deferred versus cash tax?
Kim Goheen, Senior Vice-President & Chief Financial Officer
Orest, the last question I’m not going to get into on a forecast basis. Effective rates, what we’ve said in the past is, again, we’ll come out with more specifics in Q4, but at this point I don’t see any real dramatic change from where we are, what we’ve been telling you for this year.
Orest Wowkodaw, Canaccord Adams
Okay, so next year could be just as low as this year potentially?
Kim Goheen, Senior Vice-President & Chief Financial Officer
That’s a good comment for right now.
Orest Wowkodaw, Canaccord Adams
Thanks.
Operator
Thank you. This will conclude the questions from the telephone lines. I would now like to turn the meeting back over to Mr. Jerry Grandey for his closing remarks.
Jerry Grandey, President & Chief Executive Officer
Okay, operator, thank you very much. I thank everyone, both those that have asked questions and those that have been listening by phone or certainly on the website. We appreciate, as always, your interest in Cameco.
As I said at the beginning, it’s an exciting time for both the company and the industry and we look forward to taking advantage of our financial strength the opportunities that we see out there to create additional long-term value.
In the coming days we’re going to be hosting investor luncheons in New York and Toronto and we’ll be providing more detailed information about the Company during those luncheons. And those events will take place on November 6 and 7 with live webcasts that are available from the Cameco website, that’s Cameco.com, and so we encourage everyone to go ahead and get on the website and listen or attend in person.
So again, thank you very much for your interest in the Company. Bye-bye.
Operator
Thank you, gentlemen. The Cameco Corporation third quarter results conference call has now ended. Please disconnect your lines at this time. We thank you for your participation and have a great day.