According to Bank of America Merrill Lynch:
 
A little holiday cheer. Investor & analyst lunch highlights
 
Investor & analyst community main focus on uranium market
 
The Mineral Resource Analyst Group (MRAG) hosted an investor/analyst lunch for Cameco Corporation (CCO) in Toronto, Canada. CCO management presenting included the company’s CEO Tim Gitzel, CFO Grant Isaac and CCO Ken Seitz. After a brief introduction by Mr. Gitzel, the floor was open for questions. Participants’ focus was on uranium market fundamentals (i.e. Japan/China demand, inventories, supply response), CCO future production (and sales), tax issues with CRA (Canada Revenue Agency) and Bruce Power (BPLP) future within CCO’s portfolio. CCO stated that a decision on BPLP will be taken within the next two years and that at a retrofit cost of ~$2B per reactor (100%), the company would have to consider IRR.
 
Uranium market: All eyes on Japan. Don’t lose sight of China
 
CCO remains confident that Japan nuclear reactors will restart during 2014. CCO executives recently visited clients in Japan. The company stated that 5 utilities have submitted applications for 14 reactors to be evaluated and that these evaluations are now entering their seventh month. CCO believes up to two Japanese nuclear reactors could be in operation by 1Q14, with a further ten to twelve by next summer. The company reiterated its view that two thirds of 49 available Japanese nuclear reactors post-Fukushima will be in operation longer term. CCO also reminded the audience not to lose sight of the nuclear renaissance in the Far East, with China expected to bring 58 new reactors by 2020 and a further 30 thereafter. CCO continues to expect approximately 90 net new reactors by 2022.
 
Uranium supply: Response started. Inventories at high levels
 
A supply response from uranium producers to a low price environment has started. CCO stated that this is not surprising for operations in the 4th quartile of the cash cost curve. Uranium One suspended operations at its Honeymoon mine in Australia and deferred plans to mine Willow Creek in US. We believe operations like Rio Tinto’s Rossing mine (Namibia), with production ranging between 6 - 8 mn lbs (at cash costs over $35/lb), could be at risk of shutting down in a continued low uranium price environment. Also, CCO stated that Kazakhstan plans to limit new production at 20.9 kt (46 mn lbs) under a low price environment. CCO addressed many questions on uranium inventories and additional supply from enrichment facilities. The company stated that contracted volumes (i.e. long term contracts) remain at all time lows with approximately 20 mn lbs contracted YTD. This compares to average yearly volumes of ~150 mn lbs.