Business Edge - Prairie Business News With an Edge
08 / 17 / 2006 - Vol. 2, No. 17 - Manitoba/Saskatchewan Edition
Nuclear resurgence fires up Cameco CEO
Uranium price driving appetite for juniors
By Gyle Konotopetz - Business Edge
Published: 08/03/2006 - Vol. 6, No. 16
Jerry Grandey opens the conversation with a clever quip about global warming that speaks volumes about his business.
"If global warming's coming, well, I've got my palm tree potted and I'm just waiting," cracks Grandey, CEO of Saskatoon-based Cameco Corp.
The good-humoured Grandey may be joking, but the subject of global warming is not something he finds amusing at all. Yet Grandey is heartened by the fact that Cameco, the world's largest producer of uranium, is finally in a position to make a major impact on the issue of greenhouse gas emissions that many scientists link to global warming.
It's not surprising that the 60-year-old Grandey, one of the world's most influential proponents of nuclear energy, is in particularly good spirits these days.
Cameco and Grandey have been through the worst of times, languishing through more than a decade of depressed uranium prices, but now the company and the man are enjoying the best of times. Not only have uranium prices skyrocketed to the $46 US per-pound range from a rock-bottom price of $7 five years ago, but, more importantly, the nuclear energy industry is undergoing a renaissance as it garners respect from political leaders.
Since Grandey was appointed CEO at the start of 2003, 10 years after joining the company, Cameco's stock has soared from the $6 range to a recent price in the $50 range, a gain of almost 750 per cent.
The company's market cap has swelled to the $16-billion range. And, with Cameco producing about 20 per cent of the world's uranium and boasting the world's largest high-grade reserves of uranium in Saskatchewan's Athabasca Basin, the company's name has become synonymous with so-called 'yellow cake' and the nuclear energy industry.
Remarkably, even some nuclear opponents have come onside in supporting the building of nuclear power plants. Grandey knows something about nuclear activists. He was once one of them.
"I like it quite a bit. This time of year is absolutely spectacular. The winters are a little long, but you can escape it once in a while ... it's a great community to raise kids in. My wife (Tina) moved from a lovely community in Denver. She'd never been to Canada or Saskatoon. But she was quite supportive of this and now she is quite engaged in the community in philanthropy."
2. Growing up in Long Beach (California), who was your mentor or role model?
"My father and my grandfather. My father (Loren Grandey) came from Ohio, where he grew up on a family farm. I would go back there every summer and work on the farm. They had a sawmill and dairy cattle and pigs. I'd milk the cows and combine (harvest). When I was a kid, I had an avid interest in geology. My dad was in the oil and gas business, running refineries (he worked for Union Oil) so that's part of the reason that I developed an interest in geology and rock collecting. I became interested in physics and mathematics, and I ultimately studied geophysics. My dad was quite a positive influence. He was quite active in youth organizations that I participated in, whether it was in church activities or Boy Scouts of America. He was pretty demanding in terms of making sure I wasn't wasting time and was actively engaged in activities and doing well in school. He was a chemical engineer, so his interest in the sciences probably led to mine."
3. I read that your father was involved in the Manhattan Project, producing the first atomic bomb. Did he talk to you about that?
"No, not a whole lot. I knew that my parents lived at Los Alamos (New Mexico) and I knew he taught at MIT (university) during the war, but I never really connected the dots until I was either a young adult or a little later. While at MIT, my father was doing research on something that was brand new at the time, called radar. He ultimately went to Los Alamos to work on the (Manhattan) Project because radar was one of the ways they triggered the bomb."
4. How did you initially become interested in the uranium business?
"Well, I had a little bit of an exposure to nuclear as an anti-nuclear activist when I was in Chicago (while attending law school at Northwestern University). There, I began to study nuclear energy issues and some of the early technical challenges the industry faced and some environmental issues. I wasn't so much of a protester as I was working on the legal aspects of licensing (nuclear power projects) and trying to oppose the licensing of nuclear plants around the Great Lakes, on the U.S. side. It turned out that all federally licensed projects that had a significant impact on the environment had to go through the National Environmental Policy Act process."
5. How'd you get your start in the uranium business?
"While I was working for a major Denver law firm, uranium became a hot mineral once again, no pun intended. I began to work on business opportunities for a number of clients of the law firm, licensing of properties, tax issues and those kinds of things. One of my clients was a small entrepreneur and I was helping him build a coal company. It turned out that he had created a uranium company called Western Uranium in the 1950s and 1960s. It had been sold to Phelps Dodge. He wanted to start over again in the uranium company and asked me to get involved with him as a general counsel. He passed away unexpectedly in 1982 and from that moment, I stopped being a lawyer and began running his private companies, selling the coal company and then growing up the uranium company (Concord Mining) from really nothing to being the largest uranium company in the U.S. All during that time the price of uranium kept climbing. In 1990, we sold the company to another entrepreneur whom I had known and worked with and who wanted to pursue the uranium entrepreneurial dream. I stuck around for about a year and a half, then didn't do much for a while and then Cameco asked if I wanted to join Cameco. I looked at the assets and quickly said yes."
6. What's your outlook for uranium prices?
"I don't see much downside, given the fact that we've got inventories being rebuilt and we've got people that are speculating on the price of uranium. Particularly in the nearer term, there is continued upward pressure on the price. It's like any commodity and at some point the industry will overproduce and the price will go back down. But because we don't have 10 or 20 years of inventory hanging over us as we had in the early 1980s, I don't see the same downside. I think it will become much more like other commodities with shorter cycles of price increases and price decreases."
7. What was life like for you in the 1990s while uranium prices were depressed?
"Since I've been in this business, I believed that inventories would be finite and they'd some day dry up, which would mean a price increase.
I also had a very strong conviction that the environmental benefits of nuclear energy would some day be recognized, as indeed they were by environmentalists in the '70s.
"They (environmentalists) then somehow decided it was not a good technology and indeed thought it might be evil. I firmly believed that those environmental benefits - clean air and the fact that its waste product is minuscule and easily handled - would be recognized and that it would be a low-cost provider of electricity. And all through the '90s, even though it was gloom and doom, and the price kept going down, we kept talking to our investors and potential investors about the price recovering some day. One thing we've said we won't do, and we haven't done, is just get bigger to get bigger. It's got to make economic sense to us and to our investors."
8. How do you see the rampant speculation in the uranium junior market playing out?
"There'll be winners and there'll be companies that disappoint investors. That's always the way it goes. Right now, there is a huge appetite for junior uranium companies, driven, I think, by the price increase in uranium. With any phenomenon of this type, you need to be quite judicious in the ones that you pick. You've got to be confident that management of the company is committed to the industry and spending the money wisely in exploration."
9. Are you looking at any attractive acquisition targets in that market?
"It's a little bit early. This junior phenomenon started a year to a year and a half ago from a handful, five or so, who were out there hanging on in the bleak times. Today, there's probably well over 400. They've had no difficulty raising capital in the market and they're all-out acquiring properties and doing exploration. My own sense is that it's about a three- to five-year cycle until the ones that are good and fortunate find something that would be of interest to Cameco."
10. What's your level of interest in diversifying your business model into other investments, such as nuclear power plants?
"We've been very clear that the vision goes all the way from exploration through to the generation of nuclear electricity. Bruce Power (an Ontario nuclear power plant in which Cameco is a major partner) is a great example of that and there are opportunities there. About two years ago, we spent a lot of time looking at a (nuclear power) opportunity in Texas, succeeded in negotiating an acquisition (for a 25.2-per-share of the South Texas Project for $333 million US) and then it was taken away from us by the rights of first refusal (exercised by two of the project's partners). Since that time, we've looked at a number of others. From a standpoint of Cameco's access to capital, given the fact that our investors are bigger risk-takers than say, a utility investor, our cost-to-capital tends to be higher than that of a utility. And they tend to be able to pay more than what we can pay for these nuclear assets. So we're in a watch mode with respect to nuclear generation and we haven't said it's no longer part of the vision - but most of our energies are being spent on the front end of the fuel cycle, which would be exploration and uranium production."
11. What's your view of the issue of disposing of nuclear waste?
"The technical solution is quite well known and is very simple - disposing of a spent fuel in an engineered repository, not unlike what mankind does with most of his waste, but in a much more technical and much more sophisticated way. The volumes that we talk about are absolutely minuscule. After 40 years of operating nuclear plants in Canada, all of the spent fuel today is stored on the sites of the utilities with no problem. If it were all collected and put in one location, it would occupy a space no bigger than a basketball court to a depth of about 10 metres. So you're talking about a very small volume of material - it's solid, easily managed and easily transported - and the solution is to put it into a geologic repository that's specially designed at a central location. Well, there's plenty of Canadian Shield in Canada and other geologic formations that are suitable. The difficult issue is convincing the decision-makers that the public supports it. And I say that because I don't think most of the public really cares. They just want to know that it's going to be properly taken care of. But there is a subset of the public that knows that if we find the solution, and we actually begin to dispose of nuclear waste and make it work, there is no longer an impediment to a full-scale deployment of nuclear energy. And we find that subset quite vocal in trying to prevent a solution from being implemented.
That makes it politically very difficult. There is also the challenge of finding a host community that is willing to host, on a voluntary basis, the geologic repository."
12. With the global shift toward the building of nuclear power plants, have you noticed much of a change in attitudes toward nuclear?
"There's been a big, big change (in attitudes). And it has crossed all aspects of society in North America and Europe. You can just take a look at our customer base.
Five years ago, a utility chief executive officer would have been shot between the eyes if he even suggested that the utility build a nuclear plant. Today, they're all talking about it in regions where new plants are needed. There are 11 sites being worked on in the United States. And you've seen what Canada's done in Ontario with the government pronouncements (of major investment in nuclear energy) and the desire on the part of OPG (Ontario Power Generation) and Bruce Power to be part of that process."
13. Do you think Canadian politicians are paying enough attention to energy shortages and nuclear energy?
"Not at the federal level yet, and it does need to happen. Energy supply and its relationship to environmental issues like Kyoto (accord) will bring nuclear to the forefront and will engage a pretty vigorous debate in Canada as to what that means, not just in Ontario but more broadly through the country. In Alberta, you've got some tremendous challenges with greenhouse gas issues."
14. Is Cameco experiencing cost escalations that have been hitting oilsands projects in Alberta?
"We certainly are. We're in the midst of constructing Cigar Lake (project), which is the next high-grade (uranium) mine that will be brought on line in 2007. And we're finding trouble attracting contractors and qualified tradespeople like electricians and plumbers and carpenters. So there is a spillover into Saskatchewan, which is driving up the cost of our construction and making it more difficult for us to find qualified people."
15. Is there a possibility that Cameco would become involved in the oilsands industry?
"We had an opportunity about seven or eight years ago to get engaged in a project and we ultimately decided that it didn't fit with our vision and mission. I think that was a correct decision. We would have been engaged in doing some of the mining while the partner would have handled the upgrading and processing. Given the cost overruns that ultimately were experienced, it might have been a challenge for us to hang in there. We made the decision to focus on what we do best."
16. Do you foresee nuclear energy becoming a part of the development of oilsands projects?
"I do. I firmly believe that will come, although not soon. I don't believe you can continue the rate of expansion, which requires tremendous energy input, relying simply on natural gas that will ultimately be in short supply. I believe the present generation of plants, and even the next generation, come in 1,000-megawatt sizes, and that's probably too big. Ultimately, it's going to come down to when the nuclear industry has smaller plants. When that generation of plants becomes available, assuming they're cost effective, I think then that'll open up Alberta and other places that have got energy-intensive requirements."
17. What's your view of the environmental costs of developing the oilsands?
"I just marvel at the money investment and the amount of CO2 that is going to get generated. I have always been a skeptic about global warning, what we're doing and whether it's going to happen anyway. I don't think we can as a society have a laissez-faire attitude. And I think that's even beginning to dawn on people like (U.S. President) George Bush and others that it can't be just lip service and no action. From a personal perspective, I'd say that is probably why I am no longer an anti-nuclear activist. Now I'm an active proponent of the (nuclear) industry because it's a solution. It's quite irresponsible to run around talking about problems and threats and risks, and not offering concrete solutions. The question for society is how you make decisions where the risk is mitigated and the social costs are minimal."
18. When you reflect on your career, of what are you most proud?
"I'm extraordinarily proud of Cameco and I have to give a lot of credit to my predecessor, Bernard Michel. We have collectively, I think, built a great organization. There are two things that stand out over the course of my career. Before I joined Cameco, when I was with the privately held uranium company, we negotiated a wilderness compromise with five national environmental organizations. It was really quite an achievement that took the effort of a lot of people. The second thing was the agreement that Cameco has with the Russians in dismantling nuclear weapons through 2013. That's our highest-grade mine, obviously.
The program is dismantling 20,000 weapons over a 10-year period of time and to date, we've dismantled 11,000 weapons with our Russian partners. Yes, there was a lot of commercial imperative to do that, but in the final analysis, it was a case of there being a lot more uranium coming into the market that kept the price low. But it absolutely needed to be done for the benefit of humankind."
19. Considering it's a small centre, is Saskatoon the best home base for a company the size of Cameco?
"Saskatoon is the best place - absolutely without question. You get great employees with a wonderful Prairie work ethic, you've got a very supportive community and the major foundational assets are here in the province. So there's every reason in the world as we grow here to have the headquarters of the company here."
20. How long would you want to remain CEO?
"The retirement age at Cameco is 65. I had the happy occasion of turning 60 recently, so there's lots of time to continue to pursue this vision that we've painted for ourselves and try to grow the production base of the company. By using the asset base and the ability to produce uranium cheaply, we want to find our way into more of the fuel cycle and perhaps all the way through to more generation of nuclear electricity. As I've said before, it would be dependent upon finding value if we do it. But in any event, we'll stay focused on producing uranium and growing there."
Jerry Grandey
- Title: President/CEO, Cameco Corp.
- Born/raised/age: Long Beach, Calif./60.
- Family: Wife Tina, two children.
- Education: Northwestern University (Chicago area), law degree; Colorado School of Mines.
- Career: Grandey joined Cameco in 1993 as senior vice-president of marketing and corporate development. He was promoted to executive vice-president in 1997, president in 2000 and CEO on Jan. 1, 2003. Prior to joining Cameco, he worked in the mining industry in the U.S. as CEO and vice-chair of Concord Mining Business Unit, a uranium mining company, and president of Energy Funds, a coal and uranium company. He practised law in Denver in the 1970s, specializing in mineral financing, natural resources and environmental law.
- Moonlighting: Grandey is on the boards of the Canadian Nuclear Association, the Nuclear Energy Institute, the National Mining Association, Saskatoon YMCA, Royal University Hospital Foundation and on the board of governors of Junior Achievement Saskatchewan. He is also past-president of the Uranium Producers of America and past vice-chair of the World Nuclear Association.
- Starts his day by: Swimming about two miles.
- Drives to work in: Three-year-old E500 Mercedes-Benz.
- Recommended Business Book: Good To Great, by Jim Collins.
- Favourite Movie: 2001: A Space Odyssey.
- Prized Possession: Historical art collection by Colorado artists.
Cameco Corp.
- Brass: Jerry Grandey, president/CEO; O. Kim Goheen, chief financial officer; Terry Rogers, chief operating officer.
- Profile: Cameco is the world's largest producer of uranium, operating mines in the Athabasca region of Saskatchewan and the U.S. The company's 70-per-cent owned McArthur River mine in Saskatchewan is the world's largest high-grade uranium deposit. Cameco also has a 31.6-per-cent interest in the Bruce Power Limited Partnership, which operates a nuclear generating station in southern Ontario.
- Stats: Cameco has 550 million pounds of proven and probable uranium reserves and generates 1,000 megawatts of electricity from its share of the Bruce Power nuclear plant.
- History: Cameco was formed in 1988 from a merger of two Crown corporations - Saskatchewan Mining Development Corp. and Eldorado Nuclear Ltd.
- Recent Stock Price (TSX:CCO): $45.17 (52-week range, $26.45-$49.95).
- Website: www.cameco.com
- Head Office: 2121 11th St. W., Saskatoon, S7M 1J3.
- Phone/Fax: 306-965-6200/965-6201.