FOURTH QUARTER RESULTS CONFERENCE CALL
Comments by:Bob Lillie
Jerry Grandey
George Assie
Questions & Answers
CORPORATE PARTICIPANTS
Jerry Grandey
President & Chief Executive Officer
George Assie
Senior Vice-President Marketing & Business Development
Kim Goheen
Senior Vice-President & Chief Financial Officer
Tim Gitzel
Senior Vice-President & Chief Operating Officer
Alice Wong
Vice-President, Investor, Corporate & Government Relations
Bob Lillie
Director, Investor Relations
CONFERENCE CALL PARTICIPANTS
Ian Howat
National Bank Financial
Dan Bushman
CJWW Radio
Greg Barnes
TD Newcrest
Cliff Hale-Sanders
CIBC World Markets
Murray Lyons
Saskatoon StarPhoenix
Lawrence Smith
Scotia Capital
David Shield
CBC Radio
Orest Wowkodaw
Canaccord
David Wargo
Cormark Securities
Greg Barnes
TD Newcrest
Fadi Shadid
FBR Capital Markets
Ross Carden
MKM Longboat
Jay Turner
BMO Capital Markets
John Coates
Private Investor
Stephen Kibsey
Caisse de Depot
Andrew Mackay
Private Investor
Sarah Zhu
Desjardins Securities
Merrill McHenry
M Partners
PRESENTATION
Operator
Good afternoon ladies and gentlemen. Welcome to the Cameco Corporation Fourth 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. Good afternoon everyone. Welcome to Cameco’s Fourth Quarter Conference Call to discuss the financial results. Thank you for joining us.
With us today are four of Cameco’s Senior Executives. They are Jerry Grandey, President and CEO; George Assie, Senior Vice-President, Marketing and Business Development; Kim Goheen, Senior Vice-President and CFO; and Tim Gitzel, Senior Vice-President and Chief Operating Officer. Also with us today is our colleague, Alice Wong, Vice-President of Investor, Corporate, and Government Relations.
Jerry will start things off with comments on the quarter’s results and Cameco’s position at the end of 2007, George will comment briefly on the recently-signed amendment to the Russian Suspension Agreement, and then we’ll open it up for questions.
Today’s conference call is open to all members of the investment community, including the media. During the question and answer session please ask one question followed by one further question. If you have additional questions, please return to the queue until others have had an opportunity to participate.
Please note that statements made by the Company during this conference call, including statements regarding its objectives, projections, estimates, expectations, or predictions, contain forward-looking information and statements within the meaning of applicable Canadian and U.S. securities laws. The Company cautions that such information and statements involve risk and uncertainty and that actual results could differ materially from those contained in them. In addition, certain material factors or assumptions were applied in drawing the conclusions or making the forecasts or projects reflected in the-\m. Additional information about the material factors that could cause actual results to differ materially and the material factors or assumptions that were applied are contained in the Company’s annual information form dated March 30, 2007 and the Company’s February 6, 2008 news release, both of which are available on SEDAR and EDGAR.
With that I’ll turn things over to Jerry.
Jerry Grandey, President & Chief Executive Officer
Okay, Bob, thank you very much. Let me add my welcome to everyone on the conference call as well as to those that are listening on the web.
We’ve seen a fair bit of turbulence in the world stock markets lately and often that prompts investors to question the resilience of their holdings. Reputable companies that appear attractive in a rising market often lose their lustre in the harsh light of a general market slide. Some companies have the assets, the drive, and the strategy to sail through the turbulence. Their vision remains viable, their resolve is undeterred, and their value is secure. After reflecting on the last year and the results we announced today, I would put Cameco in that group of resilient companies.
While Cameco’s share price has drifted with recent stock market declines, our strengths have become more apparent. We have shown a growth strategy prudent for long-term market cycles, a contracting strategy that will reward investors in all price cycles, and growing financial returns insensitive to economic downturns. My remarks today will expand on these themes.
Our growth strategy is built on acquiring and building quality nuclear assets that add value to the Company at reasonable cost. During the past few years, rapidly rising uranium prices and increasing interest in most things nuclear drove the cost of potential acquisitions to levels that seemed unthinkable only a short time ago. While we clearly had the financial resources to acquire assets available in the market, we exercised the discipline and the foresight to wait for better value. With the rapid and sometimes dramatic decline in valuations in the past few weeks, the wisdom of our strategy has been reinforced.
While prices were high, we continued to develop and rejuvenate our production assets. Concurrently, we expanded our exploration portfolio around the world. And we secured strategic opportunities to build on the world’s most promising collection of greenfield and brownfield exploration interests on five continents.
We continue to monitor valuations in the uranium sphere as they become more attractive. We expect consolidation in the industry will continue and we are watching and evaluating opportunities carefully. We are ready to seize the opportunities that will add value for our shareholders, not just for now, but over many years into the future.
The quality assets we have today have contributed to our strong financial results. While we’ve had operational challenges past year, we emerged focused and determined to improve our safety culture and our management systems to make us stronger and more resilient. And we are beginning to see results.
Late last year we found and sealed an old exploration drill hole at Rabbit Lake that had allowed additional water to enter the mine. Thanks to the ingenuity of the site team, we were able to restart mining sooner than anticipated.
Last month, we received regulatory approval to begin the process of repairing and adding significant upgrades to the Port Hope UF6 conversion facility. Production restart is targeted for the third quarter at the earliest.
Earlier this year, our Smith Ranch-Highland uranium plant in the state of Wyoming received regulatory approval to begin building a new satellite processing facility. This will extend the life of the operation and allow us to mine additional reserves within the permit area. The new facility should be operating in the third quarter of this year and will operate for at least nine years.
At Cigar Lake, all activities are progressing as planned. We are on track to dewater the mine in the second half of the year and look forward to getting underground again.
Finally, we are securing the acid needed to bring our well fields into production at our Inkai project in Kazakhstan. That facility is slated for commercial production this year.
As we continue to build on existing operations and look forward for external opportunities, the prospects for our industry remain strong. The nuclear renaissance is gathering momentum around the world. Last month the UK government was the latest to conclude that nuclear must be a large part of a sustainable energy mix for the future. A few weeks ago, a prominent industry consultant reported that 55 countries are considering building their first nuclear generation capacity and that 86 countries may rely on nuclear power by 2050. Rapid expansion continues in Russia, China, and India.
Cameco’s portfolio of long-term uranium contracts is another source of strength. Our realized uranium prices increased dramatically last year and made a significant contribution to our financial results. Our contracting strategy is designed to deliver strong results through cycles of volatility. While others may cast a worried eye to movements in the spot price, we expect to have strong returns through many price scenarios. This is why we are not particularly concerned when we see significant movement in the uranium spot price like we did last year when the price moved rapidly up and then down.
We said before that we expected volatility and that will likely continue. Keep in mind that the spot price is essentially illiquid – and the spot market is essentially illiquid. Even tiny sales move the price dramatically. And yet, through many spot price changes, the long-term price has remained unchanged at $95 a pound since last May.
The overall market fundamentals remain sound and we are absolutely confident in our marketing strategy, a strategy designed to whether the storms and to deliver strong results over the long term.
The last strength I will mention today is our financial results. In 2007, we again set records for revenue, adjusted net earnings, and cash flow. Not only did we set these financial records, but we have continued to show increases in all these areas for the past three years.
Our financial results are driven by realized prices that have more than doubled since 2005. Given our existing contract portfolio and current market fundamentals, we expect strong results in 2008 and beyond. This has given us the financial flexibility. We have continued our unbroken record of paying dividends and also increased our dividend by 20 percent this year, making the fifth increase in six years. We are also continuing our share buyback program. I should point out that at current share prices, they represent exceptional value.
Successive years of strong financial results have given us the flexibility to be ready to fund acquisitions when the value is right.
Finally, the most important consideration is that we expect to continue generating strong earnings and cash flow, even if economies slow down. Nuclear plants provide baseload electricity and will require fuel. Turning out the lights is simply not an option.
The talented and driven team at Cameco has built a powerful company that is positioned to meet the opportunities we see in the future. I am confident that the strengths I have outlined today will stand the test of time and will ultimately be reflected in long-term share value for our investors.
Before we go to the Q&A session, we have received a number of inquiries in the past few days about the recent amendment to the Russian Suspension Agreement and its potential impact on the industry and on Cameco. Anticipating that we might get further questions today, I’m asking George if he would comment briefly on the Russian Suspension Agreement and the amendments.
George Assie, Senior Vice-President, Marketing & Business Development
Thank you, Jerry, and good afternoon everyone.
Well, as Jerry’s already said, we have been asked about last Friday’s signing of the amendment to the Russian Suspension Agreement and what impact that amendment might have on Cameco.
It’s important to realize that Russia’s long-term focus continues to be to get access to the U.S. enrichment market, which this amendment will provide. It allows them to sell directly to U.S. utilities.
The amendment continues to limit Russia’s access to U.S. commercial markets between now and 2020. The level of additional imports into the US prior to 2014 is minimal and thereafter represents about 20 percent of the estimated U.S. demand for separative work units or enrichment services. By comparison, Russia currently supplies about 50 percent of the U.S. market through the HEU agreement, which ends in 2013. First core fuel for new reactors is exempted from the quota limits.
So I think the important takeaway here is that for uranium there is no affect globally, as it doesn’t change the amount of uranium available in the world. So the impact of this amendment on Cameco is not expected to be significant.
With that, I’ll turn it back to you, Jerry.
Jerry Grandey, President & Chief Executive Officer
Okay. So operator, I think we’re now prepared to take questions.
Operator
Certainly. Thank you. We will now take questions from investors, analysts and media. In order to respect everyone’s time on the call today, we will take your question and allow one follow-up question. Then if you have further questions, please return to the queue and we’ll get to them after the 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 your handset and then press star one. To cancel your question, please press pound. Please press star one at this time if you have a question. There will be a brief pause while the participants register for. Thank you for your patience.
The first question is from Ian Howat of National Bank Financial. Please go ahead.
Ian Howat, National Bank Financial
Yeah, good afternoon. I was interested in some highlights or a little bit more detail on your sustaining capital, particularly the U.S. operations where you’re spending roughly, I don’t know, $15 a pound or more. It seems fairly high for sustaining capital and I just wonder if you can give some details on that and the other sustaining capital. The same with McArthur River.
Jerry Grandey, President & Chief Executive Officer
Okay, I’ll ask Kim to do that. I think the figure, and I will have to confirm it, but it would also reflect expansion, because we plan to expand those operations. We tend to go ahead and count those in the current year not in future years, even though we’re expanding the operation.
Ian Howat, National Bank Financial
Yeah, you separate it out by growth capital above, so that’s what the question is really about.
Jerry Grandey, President & Chief Executive Officer
Yeah, go ahead, Kim.
Kim Goheen, Senior Vice-President & Chief Financial Officer
Ian, what we use for a sustaining capital definition is that if it’s not related to increasing production by default it must be sustaining capital. So expanding that operation, the life of that operation and so on would not get counted as growth. It will count it as sustaining. So as we move forward and just extending the life we’re talking about for the operations in the U.S., all that capital that we’re investing now does extend the life of those operations, and it’s getting caught in there.
Ian Howat, National Bank Financial
Okay.
Kim Goheen, Senior Vice-President & Chief Financial Officer
And certainly—you talked about McArthur River; it fits in that same category.
Ian Howat, National Bank Financial
Okay, so those are going to be $53 million for the U.S. going forward for the next 10 years or $164 million at McArthur River?
Kim Goheen, Senior Vice-President & Chief Financial Officer
No. Not through sustaining capital, no.
Ian Howat, National Bank Financial
Okay, thank you.
Opterator
Thank you. The following question is from Dan Bushman of CJWW Radio. Please go ahead.
Dan Bushman, CJWW Radio
Good afternoon. Mr. Grandey, do you have any plans at all to move your headquarters to downtown in Saskatoon?
Jerry Grandey, President & Chief Executive Officer
Well we’ve indicated from time to time that where we are currently we’re busting at the seams and we’re trying to accommodate people and the growth that we’re facing here, so we’re building a little bit out to the side, and it’s intended to be as an (inaudible) measure, and if we can figure out a way together with the developers in the city in the future then it is certainly possible.
Dan Bushman, CJWW Radio
All right, thank you.
Operator
Thank you. The following question is from Greg Barnes of TD Newcrest. Please go ahead.
Greg Barnes, TD Newcrest
Thank you. Kim, the operating costs at Port Hope of $100 million for the quarter are very high compared to what they have been typically, and I know there’s some remediation costs of about $40 million included in there, but can you give us some guidance on what else is included in that and why it’s so high?
Kim Goheen, Senior Vice-President & Chief Financial Officer
Greg, there really isn’t anything else in there. The $40 million is the big item that you mentioned. Two pieces. One, you know, the ongoing cost of about $26 million since July as we move forward with that, and then the provision, if I can call it that for people on the line, of about $14 to $15 million, taking into account the cost that we expect for cleaning up the contaminated soil. Those two big items going through Port Hope on the conversion side is what you’re looking at. Compared to other periods that would throw it off a bit.
Greg Barnes, TD Newcrest
And what is it going to look like going forward for the next couple of quarters while the operation is still shut down?
Kim Goheen, Senior Vice-President & Chief Financial Officer
I think I’ll wait for a couple weeks to get into that in much depth with you, Greg, when we come out with the full MD&A. But not to duck your question, these activities, as we’re now back into filling the concrete in and such to bring that operation back into service, we’ve already made the provision of $14 that will not be duplicated then when we do that work in 08, and then we’ll go as the additional numbers, we talked about $20 to $25 million for improvements to the facility, we’ll go through and see whether those are capital or to be expensed at the time. Really, you know, again, it won’t be the same as we just went through, but until the plant is back in production it is kind of a unique period for us.
Greg Barnes, TD Newcrest
Okay. If I can just ask a quick follow-up then, Jerry, you mentioned the long-term price at $95 has been static at that level for six, seven months now; do you, Cameco, actually sell long-term material at that level or are you discounting it? How is that working now in the market?
Jerry Grandey, President & Chief Executive Officer
George, do you want to go ahead and respond to that?
George Assie, Senior Vice-President, Marketing & Business Development
Yeah, the short answer is yes. We have entered into contracts with prices at that level and in fact above that level. Long-term contracts.
Greg Barnes, TD Newcrest
So what does that $95 represent if you’re entering into contracts above that level?
George Assie, Senior Vice-President, Marketing & Business Development
Well I’m just sharing with you—you asked if we’d entered into them at that level and I wanted to assure you that we have and indeed above it. So what I’m telling you is that – or I guess the way to put it is that long-term price is the best estimate of long-term prices as determined by UX and TradeTech. They’re the ones that publish that price. So what I’m sharing is we’ve done even better than that.
Greg Barnes, TD Newcrest
Okay. Thank you.
Operator
Thank you. The following question is from Richard Quit, a private investor.
Richard Quit, your line is now open. Please go ahead.
Jerry Grandey, President & Chief Executive Officer
We’re not getting anything operator.
Operator
Certainly, I’ll proceed with the next question. The following question is from Cliff Hale-Sanders of CIBC World Markets. Please go ahead.
Cliff Hale-Sanders, CIBC World Markets
Hi, good afternoon gentlemen. Before I ask my question I just want to clear up Greg’s previous question on Port Hope, just to make sure I understood it right. I understood the $14 million provision. And you calculate $26 million since July. Was that all accounted for in Q4?
Kim Goheen, Senior Vice-President & Chief Financial Officer
Through the two quarters, Cliff. It was not—it was spread through the two quarters and expensed as it was incurred.
Cliff Hale-Sanders, CIBC World Markets
Okay. So the increase in cost is not because you were buying material elsewhere to fulfil contracts then.
Kim Goheen, Senior Vice-President & Chief Financial Officer
No.
Cliff Hale-Sanders, CIBC World Markets
Okay. Just wanted to be clear on that. My question is really on uranium price realizations. Obviously they came down dramatically over the Q3 levels. Some of that is FX rates as well. My understanding was you still had some material that would be closer to spot and therefore, you know, realizations in my anticipation would have been slightly higher. It seems like there is a significant degree in volatility despite the long-term contracts and I’m just wondering if you can address why there’s such a huge swing between Q3 to Q4.
Jerry Grandey, President & Chief Executive Officer
Cliff, I think it has everything to do with just the timing when utilities decide to take their uranium. So we had swings between quarters and third quarter happened to be one where we were able to take advantage of some of the contracts that we had negotiated into very high-price contracts, and that didn’t span into the fourth quarter at all. So just timing of deliveries I believe. George, do you want to…?
George Assie, Senior Vice-President, Marketing & Business Development
Yeah, that’s it exactly. And there’s one additional component. There was a higher-priced contract where the delivery slipped over year end from 2007 into 2008, so that also had an impact from earlier estimates.
Cliff Hale-Sanders, CIBC World Markets
Okay. Can I ask one more question before we go on?
Jerry Grandey, President & Chief Executive Officer
Go ahead.
Cliff Hale-Sanders, CIBC World Markets
On Centerra Gold, and I saw the comments today that the deal was officially, from the Kyrgyz government is being suspended in the sense that they’re not likely to ratify it in the near term. From a simple accounting perspective, what is your plan for the treatment of your investment in Centerra going forward just from a modelling purpose? Are you going to continue to fully consolidate it until this deal is ratified by the local governments or should we expect equity accounting going forward just because your expectation is the deal will close sometime in the near future?
Kim Goheen, Senior Vice-President & Chief Financial Officer
Well, Cliff, let me come back to your first opening comments. You’re at least one step ahead of us here, because we have not seen anything about the government suspending this. We continue to have discussions with them at this point. If we had thought otherwise we would have notified the market. We continue to work and every signal that I am personally receiving from Kyrgyzstan is quite positive.
Cliff Hale-Sanders, CIBC World Markets
Just so you’re aware then, there is a report on Reuters that the government has postponed the ratification of the agreement and that’s come out sometime over the last couple hours.
Kim Goheen, Senior Vice-President & Chief Financial Officer
Well we will follow up on that one. At this point, again, with all due respect to those notices and comments coming out of there, I always treat them with a fair degree of suspicion until more substance is behind it. But we will see what’ll happen. Back to your point, we will not begin equity accounting for our investment in Centerra until the transaction is closed.
Cliff Hale-Sanders, CIBC World Markets
Okay. I’ll let someone else ask a question then. Thanks.
Operator
Thank you. The following question is form Murray Lyons of Saskatoon StarPhoenix. Please go ahead.
Murray Lyons, Saskatoon StarPhoenix
Yes, Mr. Grandey, today in Ottawa the federal government awarded a contract to National Bank Financial actually to help it set a long-term strategic direction for AECL, and should the federal government decide that they want to get out of the business of manufacturing reactors, would that be the kind of nuclear investment that you would be interested in?
Jerry Grandey, President & Chief Executive Officer
Well, Murray, we’re always interested in what the Government of Canada does and what the AECL might be up to, but we don’t make comments on things of that nature.
Murray Lyons, Saskatoon StarPhoenix
Your competitor from France has occasionally expressed interest in AECL.
Jerry Grandey, President & Chief Executive Officer
There’s been lots of commentary and interest on the part of others I think.
Murray Lyons, Saskatoon StarPhoenix
Very good.
Operator
Thank you following question is form Lawrence Smith of Scotia Capital. Please go ahead.
Lawrence Smith, Scotia Capital
Good afternoon. Question on the market, I guess probably for George to handle. Obviously a very wide divergence between, you know, so-called spot price and contract price these days; maybe George could just give us his view on what’s going on in the market to cause that and directionally what’s likely to happen. I mean I know you guys don’t forecast prices, but is it likely that the contract price will come down or the spot price will move up or is it sustainable that we’ll have that divergence continue for a while?
And just as an aside, obviously if the divergence between spot and contract stays there for a while, I guess your guidance on realized prices would be kind of out the window. Thank you.
George Assie, Senior Vice-President, Marketing & Business Development
Okay, well of course what you’re referring to is the $20 discrepancy between the spot and the long-term prices. If you look at the market today and look first at the longer-term market, the situation you have is you have utilities that are well covered under existing contract for the next few years and then they have significant uncovered requirements that need to be addressed. At the same when you look to suppliers, suppliers are very heavily committed. So in large part, I think, when you look at the nature of the long-term price, the $95 reflects that concern about the tightening of the market in that period. If you then move back to where the spot market is, the spot market today reflects the actions of a few relatively aggressive sellers in December of last year and January of this year and with really no demand in the market and no demand coming from financial players and certainly no demand from utilities. And so there you see the weakening of the spot price and then again this large discrepancy.
It’s not, you know, that’s too large a discrepancy to be maintained over a significant period of time, and as to whether the level of the spot price comes up or the level of the long-term price comes down I guess remains to be seen. If you look at some of the most recent reports though coming out of the industry press, it would seem to suggest that the spot market may be at or very near bottom and people are starting to look for some recovery in the level of that spot price. But, you know, that remains to be seen.
What we expect is the spot price will remain volatile and secondly that large discrepancy cannot be maintained for a long period of time.
Lawrence Smith, Scotia Capital
Great. Thank you very much.
Operator
Thank you. The following question is from David Shield of CBC Radio. Please go ahead.
David Shield, CBC Radio
Hello, Mr. Grandey. I was just wondering if you could comment on the likelihood of some more I guess value-added uranium activity happening in Saskatchewan, be that processing or even perhaps a reactor.
Jerry Grandey, President & Chief Executive Officer
Excuse me, but David, I think with the change here in the government, quite receptive to nuclear issues, you know, really across the spectrum, so number one, there’s lots of exploration activity going on; two, new mine development is underway being talked about; three, expansion. That’s really where most of the value in the near-term is going to be added. We talk about, or others talk about what else could be done. That’s going to be driven by longer-term fundamentals in the industry.
So, I think it will be the subject for a lot of discussion by government, by the industry, as we try to figure out what value added, including possibly addressing greenhouse gas issues and others by building reactors. Small ones, big ones, those have been talked about by the government as well. All of that I think is very useful conversation to have, not targeting on any one thing, but trying to figure out where we maximize the advantages we have.
David Shield, CBC Radio
Okay, sir, and maybe if I could just ask one more question. As far as Cigar Lake goes and the clean up that’s going on there, I guess, number one, where is it at specifically now? And number two, how much of a dent has it put in Cameco’s bottom line?
Jerry Grandey, President & Chief Executive Officer
Remember when the mine flooded it was a mine in development, not in production, so it’s meant that with the remediation it will be delayed in terms of its commercial production. But in terms of remediation, as we indicated, we seem to be pretty well on schedule. I hope to have the mine dewatered by the latter half of the year. Once we get it dewatered we’ll be able to go underground and see what the condition of the mine is, better develop and refine the mine plan, and then we’d begin getting the mine back into development.
David Shield, CBC Radio
Sure, but even though it wasn’t a producing mine, I mean obviously you would put that into your expectations that, you know, this mine would be generating uranium originally I guess as early as this year. Originally.
Jerry Grandey, President & Chief Executive Officer
All that’s been factored in and financially we’ve obviously expensed a number of the expenditures that we’ve had and built the delayed production into our schedules.
David Shield, CBC Radio
Okay, thank you.
Operator
Thank you. The following question is form Orest Wowkodaw of Canaccord. Please go ahead.
Orest Wowkodaw, Canaccord
Hi, good afternoon. Two questions, first one on Inkai. In your production guidance for this year what have you assumed in terms of when the acid will resume to expected levels?
Jerry Grandey, President & Chief Executive Officer
Tim?
Tim Gitzel, Senior Vice-President & Chief Operating Officer
Well, we’ve got, Orest, as you stated, we’ve got several sources of supply of acid. We’ve got the normal Kazak supply, which comes out of some of their mining operations which they’ve been bringing on and it’s been reduced at the end, it was reduced at the end of 2007, but they seem to be supplying a bit more now, although we don’t have exact numbers.
Secondly, we took it into our own hands to find a source of supply, which we did in Russia, and that necessitated us getting some rail cars built to transport that. It’s 16 cars and we’ve got half of them built now and they’re transporting. So we’re able to acidify our both Block 1 and Block 2 now and we’ve been pouring that in. So going forward I don’t know the exact status of Kazakhstan’s supply, KazAtomProm’s supply, but—
Orest Wowkodaw, Canaccord
But you don’t anticipate any disruption in terms of your start-up or ramp-up?
Tim Gitzel, Senior Vice-President & Chief Operating Officer
Well we look good for the next few months and they seem to be getting their supply together, so it seems to be okay.
Orest Wowkodaw, Canaccord
Okay, thank you. And second question, just for Kim, at the end of the year your cash was down to about $130 million. Just a question of do you think you can sustain your share buyback here given where your cash is at?
Kim Goheen, Senior Vice-President & Chief Financial Officer
Orest, we will be looking at that as we go throughout this year. We do plan to continue that program. Certainly first and foremost the cash from operations and committed debt facilities will be used to fund capital expenditures and maintain the dividend and then we’ll see how the year goes beyond that.
Orest Wowkodaw, Canaccord
Thank you.
Operator
Thank you. The following question is from David Wargo of Cormark Securities. Please go ahead.
David Wargo, Cormark Securities
Hi gentlemen. My question was actually regarding the sulphuric acid situation in Kazakhstan. Do you know if it’s being rationed to Cameco first, AREVA second, or in that order, and it’s not falling down to the other developing companies in the area?
Tim Gitzel, Senior Vice-President & Chief Operating Officer
I think everyone’s on a bit of a diet there. I don’t think they’re playing favourites.
David Wargo, Cormark Securities
Do you think that the, um, I mean the Kazak’s have basically said that they would have the supply in balance by the end of first half 2008; do you think that might be a little bit aggressive and it could pour over into 2009?
Tim Gitzel, Senior Vice-President & Chief Operating Officer
I can’t answer that. We believe them when they tell us that, but in the meantime we’re taking our own measures as well.
David Wargo, Cormark Securities
Okay, perfect. Thank you.
Operator
Thank you. The following question is from Greg Barnes of TD Newcrest. Please go ahead.
Greg Barnes, TD Newcrest
Yes, thank you. Kim, I guess it’s more on your decision to provide less guidance going forward. You’ve made it a lot more difficult to forecast quarterly earnings by not providing us with an estimate of sales volume changes quarter over quarter and pricing changes quarter over quarter. Just wondering why you decided to do that.
Kim Goheen, Senior Vice-President & Chief Financial Officer
Well, Greg, when we were looking at our results and how the quarter-to-quarter rollercoaster turns out over time, I’d love to sit down and talk to you about how it’s done at some point, but when we looked at it really from our business and the real variability quarter by quarter for earnings, for deliveries I mean, and contracts that are delivered into by quarter, we weren’t sure that we were given a whole lot of substance to going out. So we thought much better just to present a full-year estimate.
Greg Barnes, TD Newcrest
I guess it just leaves us with the fact that I know you’re very volatile in deliveries quarter over quarter and I guess historically it’s been weighted towards the back end of the year—
Kim Goheen, Senior Vice-President & Chief Financial Officer
Greg, even on that, it really depends on the years. I can show you years where it was the exact opposite. You’d have a very heavy quarter four and then a very heavy quarter one. They just really are all over the place driven by when the customers want the material.
Greg Barnes, TD Newcrest
So the best thing for us to do then is just flat line it and say you’re going to deliver 33 million pounds for the year and we’ll just divide it equally quarter over quarter and leave it at that.
Kim Goheen, Senior Vice-President & Chief Financial Officer
Yeah, again, I’d love to talk to you about this some time; maybe I can convince you to go to the full-year estimate as well.
Greg Barnes, TD Newcrest
Maybe you can.
Jerry Grandey, President & Chief Executive Officer
Greg, there’s just too many things at play to make it meaningful I think.
Greg Barnes, TD Newcrest
It was just something to work with and it’s just going to lead to a whole lot more volatility and earnings misses or, you know, you’ll beat us. It’s just very, very difficult to model. Even more difficult to model now than it has been in the past.
Jerry Grandey, President & Chief Executive Officer
Properly explained I think we’ll all be better off.
Greg Barnes, TD Newcrest
Okay.
Operator
Thank you. The following question is from Fadi Shadid from FBR Capital Markets. Please go ahead.
Fadi Shadid, FBR Capital Markets
Yeah, hi. Going back to your comments on potential acquisitions and given your low debt levels, you know, what is the potential in terms, well maybe like what is your target capital structure and, you know, just to kind of frame some, you know, what the acquisition possibilities could be. So in terms of maybe target capital structure.
Kim Goheen, Senior Vice-President & Chief Financial Officer
Yeah, it’s Kim here. I’m not sure—I’d give you the answer first, but I need to then comment on it right after that.
Our long-run capital structure is 75 percent equity/25 percent debt. And we run with that thick in equity component because we are in a growth mode, an inquisitive mode if the right opportunity comes along.
What I also want to comment on though is that in no way does that target constrain what we may undertake or what we would consider to be value adding for shareholders. That is a long-run target. In between, if there were an opportunity conceptually not, irrespective of how many zeros were after it, if we thought it was a value-adding proposition then we would undertake it and we would finance it accordingly.
So I’m not sure it’s the best way to look at what we may or may not have an appetite for just based off of a static ratio like that.
Fadi Shadid, FBR Capital Markets
Okay, fair enough. And maybe more of a market question, what is, if you could share with us your outlook on world production relative to what it will amount to in 07, what it has amounted to in 07. Just world production forecast.
George Assie, Senior Vice-President, Marketing & Business Development
In 2007, we think it came in, you know, we’re waiting for the final numbers, but it looks like it’ll be about 109 million pounds. At the beginning of 07 the estimate was 117 million pounds, so it’s fallen significantly short. Currently for 2008 we believe it will be, or the estimate I should say, is just under 129 million pounds. But that requires the start up of a significant number of new operations. So if you look at what production has done over the last several years, it’s typically disappointed on those numbers. But at any rate that’s the current forecast today.
Fadi Shadid, FBR Capital Markets
Okay, thank you.
Operator
Thank you. The following question is from Ross Carden of MKM Longboat. Please go ahead.
Ross Carden, MKM Longboat
Good afternoon. Just coming back to that point regarding the contracts that you have at $95 and above, that sounds sort of very interesting. I just wondered could you provide any guidance as to when you will actually be delivering into those contracts?
Jerry Grandey, President & Chief Executive Officer
The guidance that we provided would be in the table. It’s blended because we’re selling the assumed annual delivery and all of the contracts and the pricing that would be contained in those contracts, including the ones that are $95 and above, would be included in those price tables.
Ross Carden, MKM Longboat
Fine, okay. So you can’t give any guidance as to when sort of the bulk of those—
Jerry Grandey, President & Chief Executive Officer
No, we’re not going to give specific guidance as to individual contracts.
Ross Carden, MKM Longboat
Okay, that’s fine. Thank you. I just had one other question. I was trying to understand Port Hope just a little bit more.
As you said earlier when you were talking to Cliff and Greg that you have $26 million plus $14, then looking at the number that you’ve provided, getting to the loss that you made for the quarter of $36, can you explain what was happening on the cost side? Because that doesn’t really explain why you made a loss this year versus the $11 earnings before tax that you did—
Kim Goheen, Senior Vice-President & Chief Financial Officer
Thank you. And just to put a point out there, of course through that whole period in time we have a fabrication operation that continued and we also have our UO2 plant that was in full production through that period. So there is ongoing activities there.
As to these two items I’ve mentioned, yes our sales levels are roughly the same as we had had in the prior year, but when you have costs that are, um, during a period when there’s no production, those are immediately expensed. There’s nothing that goes into an inventory calculation. So those items are different year over year and what’s causing the change.
Ross Carden, MKM Longboat
Okay, fine. So going forward we shouldn’t really—from a modelling perspective we shouldn’t really be changing the cost structure or anything like that. This is more to do with the fixed cost base. You had a ramp-down in the production so we should think of it like that.
Kim Goheen, Senior Vice-President & Chief Financial Officer
Two parts to your question. Yes, there was most definitely a ramp-down period while the UF6 plant was not in operation. As going forward as to what we expect the cost to do, well again, through the first part of this year we won’t, that plant won’t be back in operation, so we will have, probably not the same magnitude, but we will have similar, you know, conceptually a similar impact will take place. And it really will be back when that plant is back in operation that you can get back into a real comparison year over year.
Ross Carden, MKM Longboat
Okay. Could I ask one more question? Just regarding the CapEx. Again, it’s a follow-on from an earlier question.
Looking at the way you split and the definition that you provided on the call as to how you define sustaining CapEx, in order to kind of get a feel for the numbers going forward, in essence like a true sustaining CapEx, what would be the numbers? Or is there any headline numbers you can give us? Because it’s difficult to strip out like if I look at McArthur River and Key Lake—
Kim Goheen, Senior Vice-President & Chief Financial Officer
Right, and I—
Ross Carden, MKM Longboat
What part of that is actually more growth and what’s—
Kim Goheen, Senior Vice-President & Chief Financial Officer
Sure. I can’t give you the split, but I do appreciate you giving me an opportunity to expand on my earlier comment.
Included in that McArthur River/Key Lake, because they’re aggregated together, is the rejuvenation of the Key Lake mill, which is a major program that we’re undertaking to extend the life of that mill for many decades to come. As we move forward into our MD&A we will provide some more information generally as to what’s going on there. As to a real good number for total sustaining capital across all of the units, I don’t have that number at my fingertips, and I’ll work and see if I can provide some more as we move forward here.
Ross Carden, MKM Longboat
Okay. Thank you.
Operator
Thank you. The following question is from Jay Turner of BMO Capital Markets. Please go ahead.
Jay Turner, BMO Capital Markets
Great, thank you. Good afternoon gentlemen. Actually most of my questions were answered earlier, especially regarding Kazakhstan and the acid issue, but I was wondering possibly if you could just provide some colour on the spot market as you’ve seen it over the last month or so given the meltdown in the equity markets and whether you got a sense that some of the financial players that were maybe holding physical metal decided to liquidate positions for reasons that were due to the sell-off as opposed to the fundamentals of the uranium market.
Jerry Grandey, President & Chief Executive Officer
Okay, Jay, I’ll ask George to respond to that.
George Assie, Senior Vice-President, Marketing & Business Development
Yeah, the sellers that we saw in December and in January, we did not see a lot of the financial players that hold uranium in the market. We are aware that some of them may have sold, but for the most part I think they bought and sold among themselves. So not, they have not been significant players on either the selling or the buying side and today they continue to hold something in the order of about 20 million pounds.
Jay Turner, BMO Capital Markets
Thanks very much.
Operator
Thank you. The following question is from David Wargo of Cormark Securities. Please go ahead.
David Wargo, Cormark Securities
I guess this is a question for Jerry. Jerry, you know, have valuations come in line where you would actually start thinking about actually making an acquisition? Are they at the level where you’d feel comfortable with that?
Jerry Grandey, President & Chief Executive Officer
We’re certainly getting closer, David. We’ve seen, as I tried to convey in my opening remarks, a pretty dramatic decline and, you know, I’ve said in earlier calls that we’ve got a dedicated team of people that do nothing, but review how successful other companies have been with their exploration programs, how successful they’ve been with development, bringing new mines into production, and all in light of the valuation the market has ascribed to them. So as it adjusts due to the general market conditions we become increasingly interested.
David Wargo, Cormark Securities
This leads to a follow up is do you have any apprehensive of operating in Africa?
Jerry Grandey, President & Chief Executive Officer
There’s no part of the world that we wouldn’t look at, I’ll put it that way.
David Wargo, Cormark Securities
Good to hear. Okay, that’s it. Thank you.
Jerry Grandey, President & Chief Executive Officer
We’re used to some exotic places.
David Wargo, Cormark Securities
Yeah, well if you can operate in Kazakhstan you can operate anywhere. All right, thank you very much.
Operator
Thank you. The following question is from John Coates, a private investor. Please go ahead.
John Coates, Private Investor
Good afternoon gentlemen. I live fairly close to your Crow Butte site in Nebraska and I was just wondering if you have a sense of any results from the recent NRC meeting here. Also, if the ruling is in favour will you continue with the planned expansion down here and if the NRC ruling goes against you what will happen then?
Jerry Grandey, President & Chief Executive Officer
I appreciate the interest. You live in a lovely part of the country. Our intent for Crow Butte is for it to continue, as it has for a number of years, being a low-cost producer in a very, very environmentally-friendly way. The hearing that was held really had to do with a proposed expansion of the facility, which we intend to pursue, and the subject of that hearing was could some interested parties, probably don’t live quite as close as you do but within a 200 mile radius I would say, do they have the right and a sufficient interest under U.S. law to intervene into the proceeding. That was the narrow issue that was at play before the NRC, Nuclear Regulatory Commission panel. So after they make their decision as to whether they’re entitled to participate or not as parties and, you know, I guess we’d expect that that decision would be out within a few months anyway, we will then take the expansion program forward.
John Coates, Private Investor
Okay, thank you. One other question also please. What do you see as the future for Cameco in precious metals, particularly the gold?
Jerry Grandey, President & Chief Executive Officer
Our ownership in gold comes about through Centerra.
John Coates, Private Investor
Correct, yeah.
Jerry Grandey, President & Chief Executive Officer
You know, we consolidated that all in 2004 really to allow them to focus on their own business of gold mining to take advantage of the opportunities that they have before them. They’ve done a very good job of returning shareholder value. There’s been ups and downs obviously. But we also set it up as an eventual vehicle that would allow Cameco to exit the gold business. And so when the time is right we still intend to pursue that objective.
John Coates, Private Investor
That you mean by exiting the gold business.
Jerry Grandey, President & Chief Executive Officer
That’s correct.
John Coates, Private Investor
Okay. Thank you very much, gentlemen.
Jerry Grandey, President & Chief Executive Officer
Thank you.
Operator
Thank you. The following question is from Steven Kibsey of Caisse. Please go ahead.
Stephen Kibsey, Caisse de Depot
Yes, Jerry, I’m just wondering with regard to Centerra, if you were to divest at some point of your holdings, which way would you lean? Towards a secondary issue or would it be more towards dividending out the Centerra shares to the current Cameco shareholders?
Jerry Grandey, President & Chief Executive Officer
I’d say that all options are certainly investigated. Our preference would be to basically realize the value and reapply it to the nuclear business.
Stephen Kibsey, Caisse de Depot
Okay, thank you very much.
Operator
Thank you. The following question is from Ross Carden of MKM Longboat. Please go ahead.
Ross Carden, MKM Longboat
Hi guys. Just one follow-up question on the Port Hope facility. I was looking back at the MD&A from the third quarter and one of the comments that you made is that you have sufficient inventory on hand to meet delivery commitments through the end of the first quarter of 2008, assuming customers do not accelerate deliveries. Now I just wanted to get a better feel for the situation as it currently stands and if this wasn’t to sort of remain the case what is the likely impact on costs? Do you have to go into the spot market and is there likely to be an impact on the bottom line?
Jerry Grandey, President & Chief Executive Officer
We do not foresee a need to go to the spot market. George, do you want to add anything to that?
George Assie, Senior Vice-President, Marketing & Business Development
That’s right. You know, given the inventories that we had and then as we were aware that the facility was going to be shut down a little bit longer we approached utilities that we knew had significant inventories of UF<sub>6</sub> to arrange, and with which we had contracts, to arrange for deferrals of deliveries under existing contracts. So we think we’re well placed through most of 08.
Ross Carden, MKM Longboat
Okay. Well it sounds like you’ve got that one well covered. Just another question on—I was looking at your net income and one thing that interested me was that when you have your adjusted net income, the $603 that you report for the year, you don’t seem to add back the one-off items at Cigar Lake and Port Hope, and I just wonder is it sort of hidden in the numbers or is that another exceptional item that I can potentially add back, therefore increasing the sort of normalized net income for the year?
Kim Goheen, Senior Vice-President & Chief Financial Officer
Yeah, they are not included in those numbers. They are not netted out. The $603 does include $29 million of remediation expenses, our ongoing expenses at Cigar Lake. So we have not taken, we have not pushed that number higher by excluding those items, which is what I think your question was.
Ross Carden, MKM Longboat
Yeah, why is that though?
Kim Goheen, Senior Vice-President & Chief Financial Officer
It’s kind of a definitional thing if you will. Looking at items like the agreement with the Kyrgyz, which I’ll come back and comment on at the end, that one is clearly different. When we looked at items like Cigar Lake’s ongoing expenses or the situation in Port Hope, we thought it better not to try and take those out, but just leave them as expenses and go on from there.
Ross Carden, MKM Longboat
Okay. The reason I say this is that having looked at all what the analyst community are doing, they always add back such items. So what happens is your net income actually looks artificially too low. So really it was caused (inaudible) than people realize and that’s the reason that I’m asking this question. But that’s fine. If that’s the way you’ve classified it, I think we all understand what the number is and how to adjust.
Jerry Grandey, President & Chief Executive Officer
Thank you. Good question, Ross.
While we’re at it, Kim, you raised the Kyrgyzstan issue and we’ve now seen the Reuters report that we didn’t have before, so Kim, go ahead.
Kim Goheen, Senior Vice-President & Chief Financial Officer
Yeah, to Cliff’s early comment on the Kyrgyz, Centerra made the announcement yesterday, which again we are fully aware of. You know, there is no basis for an investigation. They are current with their taxes in the years being audited, 2003 and 2004. No significant differences.
You know, working with the Kyrgyz this has been an ongoing conversation that we’ve had for some time. It is in our best interest to continue this process. It is in the Kyrgyz government’s best interest to continue this. We have absolutely no expectation, no reason to think otherwise. It will just continue as we move on. At this point I certainly would not even take February the 15th off the table, but we will investigate this in more depth as we move forward here.
Jerry Grandey, President & Chief Executive Officer
Okay, next question.
Operator
Thank you. The following question is from Fadi Shadid of FBR Capital Markets. Please go ahead.
Fadi Shadid, FBR Capital Markets
Yeah, hi. I might have missed this, but what is an update on some of your own actions that you may be taking to cushion the sulphuric acid supply in Kazakhstan?
Jerry Grandey, President & Chief Executive Officer
Fadi, Tim talked about it a little bit earlier, but I’ll just have him make a couple comments.
Tim Gitzel, Senior Vice-President & Chief Operating Officer
A couple things. The nearest term and action were taking is we found a source of supply in Russia that has sulphuric acid available. The question was getting it to the site and so to do that we had to fabricate some rail cars to do that. And we’ve got some of them done so they’re transporting that acid now to the site. So that’s supplementing the supply. We’re still getting a supply, a reduced supply albeit, but a supply from KazAtomProm, so with that we’re able to acidify our fields now. You know, longer term we’re looking at option 3, longer term, that’s not for tomorrow, at building our own acid plant in Tykanor, but that’s got a bunch of regulatory hurdles to get over yet.
Fadi Shadid, FBR Capital Markets
Is the Russia supply sustainable? Is there plenty of it?
Tim Gitzel, Senior Vice-President & Chief Operating Officer
The supply we have is sustainable for the near term, I’d say for 2008, and we’ll see going forward if we need it.
Fadi Shadid, FBR Capital Markets
Thank you.
Operator
Thank you. Once again, if you have a question, please press star one at this time.
The following question is from Andrew Mackay, private investor. Please go ahead.
Andrew Mackay, Private Investor
Yes, hello gents. Mr. Grandey, you’re a significant shareholder in UEX and I was reading their last news release on West Bear and it mentioned that discussions were ongoing with respect to West Bear, possibly to arrange a toll milling arrangement or perhaps a sale of the deposit. I was wondering if you could enlighten us on the status of those negotiations and will you have to wait for the final resource report before there is a decision made there? And secondly on UEX, when they raise financing do you intend on maintaining your shareholding? Thanks.
Jerry Grandey, President & Chief Executive Officer
Andrew, yeah, we are a significant shareholder. We’re absolutely delighted with what they’ve done. I think they’ve got some very interesting deposits. But I certainly am not aware of any of their plans, development plans, sale plans. I’m not, just not aware of it, so I can’t really comment. Historically we’ve at times chosen to participate and at times chosen not to and I think each time it comes up in light of both the opportunity and market conditions we’ll make a decision at the time.
Andrew Mackay, Private Investor
Yeah, I was just quoting the UEX news release of December 13—
Jerry Grandey, President & Chief Executive Officer
I apologize, but I haven’t seen it, and even if I had I probably wouldn’t be too knowledgeable about what they’re doing.
Andrew Mackay, Private Investor
Okay. I guess secondly, on the Cigar Lake issue, you mentioned in the release today that come the end of February timeframe you’re planning on drawing down the level in one of the shafts to test the plug. Do you intend on holding a news conference when that evolution is approved and complete or what’s your intention there?
Jerry Grandey, President & Chief Executive Officer
I don’t think we’re going to hold a news conference, but we will communicate eventually through either MD&A or otherwise the results of what we’re doing.
Andrew Mackay, Private Investor
Okay. Well thank you very much and I’ll hang up.
Operator
Thank you. Once again, if you have a question, please press star one at this time.
The following question is from Sarah Zhu of Desjardins Securities. Please go ahead.
Sarah Zhu, Desjardins Securities
Good afternoon. You mentioned about in the long-term you’re building your own acid plant to solve the acid shortage problem in Kazakhstan. Do you have a target date of start up, like when it will start production your own acids?
Jerry Grandey, President & Chief Executive Officer
We’re not committed to building one, but we’re studying the option. It might very well be that in six months there’ll be plenty of acid with a number of alternatives, in which event we probably would not incur the capital expense, but if we think that it’s prudent we’ll make that decision in a few months.
Sarah Zhu, Desjardins Securities
Okay, thank you.
Operator
Thank you. The following question is from Merrill McHenry of M Partners. Please go ahead.
Merrill McHenry, M Partners
Yeah, it could have been answered in the call at the first part or something, I hadn’t got your calls recently, but it seemed like years back you used to provide some kind of price sensitivity to price changes as far as your operating margins. Do you still provide any of that?
And there also, I was wondering if you might have any duration of your contracts. I suppose not, that might be something competitors would want to know, but I was just curious about that.
Jerry Grandey, President & Chief Executive Officer
We do provide price sensitivity on revenue through the price table that we now publish, so you can find it there. And the length of the contracts, I’ll pass it to George to make a comment about.
George Assie, Senior Vice-President, Marketing & Business Development
Yeah, over the last couple of years our focus has been on signing contracts of longer duration, so generally they would have terms that would run ten years or so. So that’s where our focus has been and most of our commitments going forward are generally, I would say, under very longer-term contracts.
Jerry Grandey, President & Chief Executive Officer
I would point out as well in the release on page seven (inaudible) we talk a little bit about sensitivity changes in price.
Merrill McHenry, M Partners
Do you ladder your contracts? I mean is it just a weighted average of approximately ten years plus or is it, I suppose you have some roll-off, but is there any information on roll-off on that?
George Assie, Senior Vice-President, Marketing & Business Development
No, we don’t give any detailed information on that and the table that we present there is based upon, you know, you see the assumptions and that’s based upon the volumes we have committed and etcetera over the entire period. So it’s all baked into that table.
Merrill McHenry, M Partners
Okay, thanks very much.
Kim Goheen, Senior Vice-President & Chief Financial Officer
You know, in effect it is a laddering, because we’re in the market contracting at all times. So new contracts come in each period.
Merrill McHenry, M Partners
Okay. Thank you very much.
Operator
Thank you. Once again, if you have a question, please press star one at this time.
Jerry Grandey, President & Chief Executive Officer
Operator, if there are no more questions then we’ll end the call.
I just want to mention that 2008 this year is the 20th anniversary of Cameco. We’ll be celebrating in October. Through the year obviously we’ll have plenty of opportunity to get together. We appreciate your interest in Cameco and we wish you all a very good day. Thank you.
Operator
Thank you. The Cameco Corporation fourth quarter results conference has now ended. Please disconnect your lines at this time. Thank you for your participation and have a nice day.