Cameco Corporation (CCJ) Q4 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Cameco Corporation Fourth Quarter Results Conference Call. I would now like to turn the meeting over to Ms. Rachelle Girard, Director, Investor Relations. Please go ahead, Ms. Girard.

Thank you, Mark, and good afternoon, everyone. Thank you for joining us. Welcome to Cameco's 2014 fourth quarter and year-end conference call to discuss the financial results. With us today on the call are Tim Gitzel, President and CEO; Grant Isaac, Senior Vice President and Chief Financial Officer; Ken Seitz, Senior Vice President and Chief Commercial Officer; Bob Steane, our Senior Vice President and Chief Operating Officer; Alice Wong, Senior Vice President and Chief Corporate Officer; and Sean Quinn, Senior Vice President, Chief Legal Officer and Corporate Secretary. Tim will begin with comments on our financial results and the industry, followed by Grant who will comment on tax cases. Then we'll open it up for your questions. Today's conference call is open to all members of the investment community, including the media. [Operator Instructions] Please note that this conference call will include forward-looking information, which is based on a number of assumptions, and actual results could differ materially. Please refer to our annual information form and MD&A for more information about the factors that could cause these different results and the assumptions we have made. With that, I will turn it over to Tim.

Well thank you, Rachelle and welcome to everyone who has joined us on the call today to discuss Cameco's annual and fourth quarter results. We appreciate you taking the time to join us. And I wish you a happy new year if we haven't had a chance to do that already. This is the time when we sum up the previous year and look forward to what we think this year will bring. And I would sum up 2014 as being another challenging year for the industry but again another solid year for Cameco. This may sound familiar to those of you who have been past calls I said it last year and the year before because it's true despite the difficulties in the uranium market we have continue to achieve strong result and deliver on our guidance. If you recall in 2013, we reported record annual revenue, record revenue from our uranium business and record average realized price. In 2014, we were just shy of 2013's overall record revenue and achieved new records once again in our uranium business including revenue and average realized price. That shows that we're doing the right things, we're keeping a close watch on how the market continues to evolve, we're staying flexible to respond to the conditions we see we're focusing on the assets that return the most value and we're continually striving to be more efficient. So we're finding ways to do what we've always done remain a profitable, low cost producer but in a much more challenging environment. Of course that takes in large parts of portfolio of assets. This year I am happy to see we operate the two largest high grade uranium mines in the world McArthur River and our newest operations at Cigar Lake. Production from the mine and first package Cigar Lake pounds were certainly big highlights of 2014. Today, we're continuing with our plans to wrap up production there to 18 million pounds by 2018 and expect between 6 million pounds and 8 million pounds this year half of which is our share. So [Audio Gap] Key Lake performed very well in 2014 as well, exceeding our annual production expectations on the heels of a record month of production at Key Lake in December. As a result, our fourth quarter production was 9% higher than in 2013 and overall we beat our annual production guidance by 2%. And I am delighted to say that those results were achieved safely and responsibly. In fact, safety milestones were achieved across the organization, Blind River is the star having achieved eight years without a lost time inquiry with Crow Butte just behind it seven years, those are exceptional results. So positive financial operational and safety performance for the fourth quarter and for the year. But that's not to say there weren't challenges, there is no denying market conditions remained depressed. Reactor restarts in Japan are taking longer than anyone thought even the utilities. The two Sendai units of the front runners or the 21 reactors that have applied for restart, those two have received the go ahead from the regulator as well as all of the public approvals and they're now going through the final safety checks. And just recently Takahama unit three and four received preliminary approval from the regulator for restart. So there has been movement and we'll continue to watch that process closely in 2015. But overall the industry is still suffering from decrease demand and the supply overhang that has caused low uranium prices. In fact prices reached a nine year low last July before recovering somewhat at the end of the year. So today it's tough, for that to change we need to see the needle move on some key catalysts, we need to see reactor restarts in Japan, the return of long-term demand and continued progress on new reactor construction. Of course new reactor startups are occurring now in 2014 five new reactors joined the grid. There are around 70 continuing constructions today and we expect about 80 net new reactors to come online over the next 10 years. When we translate that to expectations for uranium consumption it means 4% annual growth over the next decade. So the growth story for nuclear over the long-term has not changed, it remains incredibly strong. In fact the question is becoming we think will supply be able to keep up when the market turns. Continued low uranium prices means there is no incentive to invest in new productions, so it's not surprising that what you see today are projects being delayed or cancelled. Ours is a long lead time industry, the mine can take up to 10 years to bring on when things go well. So in our view the market will be calling for more uranium at the time when it could be difficult for primary supply to keep up, and that is what we continue to plan for. We're maintaining flexibility to respond not only to the near-term challenges but also the long-term growth. We continue to prepare for expansion on McArthur River, Key Lake and we're ramping up Cigar in order to be ready for the increasing demand we see coming. And in the longer term we have an excellent pipeline of projects to draw on as well. So what you're going to expect to see from us is 2015 will be very similar to what you saw in 2014; working hard at our operations, staying efficient, operating safely and looking to return another year of strong results. So with that I'll turn it over to Grant Isaac to take you through the CRA and the IRSPs. Grant.

Thank you Tim. I just wanted to make a few remark, you've heard us talk about our dispute with the Canada Revenue Agency several times now. And as we said before it is challenging for us to effectively communicate what this dispute is about because it's complex and it's before the court. And adding to this challenge you will have read in our news release an MD&A that we recently received a notice of proposed adjustment from the U.S. internal revenue service relating to our 2009 tax year. We do realize that our tax disputes are of interest so I wanted to provide you with an update of where we're at on the CRA case and walk you through what the IRSs notice covers. So what is new on the CRA front? Well actually not a lot. There are couple of items I would like to draw your attention to however. First we had determined that we have another two at our disposal in order to satisfy the 50% we're required to pay at the time of reassessment. As an alternative to paying cash we may instead provide security by way of letters of credit. We've not yet received the CRAs reassessment on our 2010 tax return but continued to expect to see that shortly. Keep in mind we have already factored this reassessment into the estimated future amounts owing that we have disclosed. The other item you will notice that the total of the amount paid and estimated future amounts owing has increased from what we reported previously. This is simply because we now know our 2014 earnings and are able to apply the methodology we think the CRA is using to estimate the expected impact of the reassessment on our 2014 tax return, you will see similar updates in subsequent years. I should point out that the expected amounts owing and timing our estimates only since actual amounts will depend upon the income reassessed in each year, the availability of elective deductions in tax loss carryovers and the timing of reassessment, if we are successful in our cases we believe we will be, we expect to recover all amounts paid to the CRA related to this case. It's important to note, that there have been no changes to our view of the case since we first disclose the issue in 2008 and as far as timing goes, the 2003 assessment is expected to grow to trial in 2016 with a decision expected six to 18 months after the trial is completed. As I mentioned earlier, we’ve received a notice of proposed adjustment from the IRS for our 2009 tax year, the IRS position is at a portion of our non-U.S. income tax in non-U.S. jurisdictions should be taxed in the U.S. In particular they propose that income earned on sales of uranium by our U.S. mines to chemical Europe is an adequate and compensation earned by Chemical Inc. one of our U.S. subsidiary is an adequate. We believe the assertions of the IRS are incorrect and we plan to contest them in an administrative appeal. During the appeal process, we are not required to provide security or make any cash payments. Also keep in mind that the income the IRS is proposing to tax in the U.S. is a portion of the same income we paid tax on in non-U.S. jurisdictions and which the CRA is proposing to tax. By lateral international tax treaties contain provision to the generally seek to prevent taxation of the same income and we are considering our options under these treaties, I want to emphasize that we do not believe that the ultimate resolution of these matters will be immaterial to our financial position results of operations in cash flows in the years of resolution. And with that, I’ll turn it back to Tim.

Thanks, Grant. And with that we’ll happy to answer any questions you might have.

Thank you. We will now take questions from investors, analyst and media. In order to respect everyone’s time on the call today, we will take your question and then allow one follow-up question. Then if you have any further questions, please return to the queue and we’ll get to them after others have had their chance. (Operator Instructions) Our first question is from David Talbot from Dundee Capital Markets. Please go ahead.

Good morning, guys. Good quarter here. focusing on the assets that return the most value, you had some write-downs at Rabbit Lake either cancellation or deferral of certain capital program, so perhaps we get little bit of color on what capital projects might have been impacted here, could we perhaps read through that Rabbit Lake is one of those assets not necessarily returning the value? Maybe there is something assuming that is coal, would you rather focus elsewhere and allow productions decline at Rabbit, who is at something that we could see in the next couple of years?

David thanks for the question. Regarding Rabbit we did use the write-down on Rabbit. Rabbit continues to produce for us, we have very good year, the last year as you know we sell between 31 million and 33 million pounds a year, we produce less than that 23 million to 24 million ranges. So Rabbit pounds are important for us, we also have some constraints going forward, our tailing capacity is limited going forward and so we’ve got some decisions to make there, we’re looking at the potential of expanding tailing, extending that output that’s really market driven to a large extent. So, we’ll continue to look at that, we did take a small provision on some other assets and I am just looking at Grant, you want to just add some notes?

Yes, certainly now just circle back to the impairment on Eagle Point, as Tim was describing, obviously there are times when the accounting treatment may differ from operational for strategic intent, so only done is some analysis on this asset from an accounting perspective and you just came to an impetrative charge but yet rapidly had a great year in 2014 and you’ve seen its production forecast for 2015, so it continues to be a part of our stable obviously and then there were few other assets that we looked at -- we’ve come off Double U obviously we mentioned that quite a while ago and as part of that process and revisions to our capital allocation process we’ve gone through and looked at all of our projects that we have and determined that there were few of them in particular that were linked to our growth plans, growth plans that were no longer on and so we also took a write-down at yearend on some of those assets pertaining to Key Lake and McArthur River.

Okay perfect thank you. Just one more quick question Cigar Lake, how is the ramp up proceeding right now from the mining point of view, have you find with that additional freezing time has really helped the development for this year and has that impacted I guess development for this year at home?

David, let me pass it over Bob Steane.

Yes, David, it’s Bob Steane. That pause increasing absolutely took freezing out of the pictures, so that’s not an impact on our development plans coming up in this year and going forward and overall our development is progressing and will long alliance with the technical report ramping up to 18 million by 2018 which we’re on track for that. Operator Thank you. Our next question is from Gregg Barnes from TD Securities. Please go ahead.

Yes, Grant. The tax recovery this year at 60% to 65% is that entirely traced back to the transfer pricing issue is that something else going on behind that?

It’s the same analysis we’ve been doing every year when we put out that outlook table, we look at our consolidated effective tax rate which is just the accumulation of the activities we have in our global structure. The recovery this year just recognizes greater activity in Canada obviously as a result of Cigar Lake coming on line and more Canadian productions, so no change in the methodology.

Okay, second question then on respect to Cigar Lake, you’re pretty vague about when commercial is achieved let say consistent to a sustainably increasing production levels, what guide is going to tell you that you’re there is that three jet boring machines operating or is there some other trigger that’s going to tell you you’re at that level to hit commercial production or announce commercial production?

That has to do with the IFRS interpretation and Grant’s been studying that meticulously, so Grant do you want answer that?

Yes, so we obviously have to build the bit of a framework for coming up when commercial production can be declared, I mean, go on with days when you pick a notional capacity fact and say 75% of nameplate or 80% those days are gone now it really comes down to a determination of is the asset producing in accordance with its mine plant. So looking at that we’ve developed a series of markets that have to achieved, you’ve hit on a good one. I mean we’ve said that we need a certain level of productivity from that jet boring system. We need to see a producing reliably and sustainably over a certain period of time. We also would like to see obviously more than one jet bore in operation reliably and sustainably and so that’s kind of gives an idea of the some of the factors that go into obviously there is a north specification that we want to hit and hit that reliably. And then ultimately wrapped into a sustainable production rate right through the entire mining process, so those become a framework for declaring commercial production because you no longer have the ability to simply say well 70% of nameplate, so we’re working towards those milestones and when we get there obviously we’ll be very happy with that declaration.

Thank you. Our next question is from Brian MacArthur from UBS. Please go ahead.

My questions related little bit back David going forward and some of the other plans since you’ve got rid of Double U, you talk lower well field development Crow Butte’s down year-over-year, onetime you’re going to big ISR production which I think has probably been pushed out, how should we think about the well field declines on the U.S operations over the next few years because it doesn’t look massive amount of capital is going to be in there?

But Brian we’re still -- we’re watching the market really and where we have flex in our production we’re watching to see where we can use that. We’ve been putting a lot of capital spending down overall forecast for this year and even going forward. So watching the market those well fields are continuing to produce, we're waiting to see like I say if the market improves and well if they do we may put some more capital into the ground there but at the moment we're just letting them run. Bob do you have anything to add to that?

No.

That's about where we at running.

So would do they last another three years or like I just don’t know well enough how those wells declined?

Yes, Bob Steane here Brian. They will carry on a decline for a number of years, and there are still, we go to Crow Butte there are no new well fields putted in the Crow Butte deposit there are additional deposits around there but the Crow Butte deposit is will be declining. At Smith Ranch-Highland there are additional well fields that we continue to develop but not brining on addition in properties.

Thank you. Our next question is from Steve Bristol from RBC Capital Markets. Please go ahead.

Hey congratulations on a good quarter. I just had a question on Cigar Lake if you could give any more color on the ramp up you are seeing in 2016 and 2017 up to your full capacity in 2018?

Steve it's Tim, we haven’t guided on that yet -- what we've done is just for this year to say that we're looking at 68 million pounds and then we take you out to 2018 and say we will be at 18 in '18 we haven't said in those two other years -- say the two or three other years '16, '17 I guess where we're at. We're just being cautious I think prudent on where we want to go with that. And so as I say you could take six day there will it be linear probably not exactly but our plan is to go from the 68 this year to 18 by '18.

Thank you. Our next question is from Raymond Goldie from Salman Partners. Please go ahead.

Gentlemen you said that Rabbit Lake's tailing capacity is limited; I wondered if you could remind us when the tailings dam is filled up. But perhaps more important since you said that the expansion of the tailings capacity is market driven and could that market include doing on behalf of a third party doing custom billing, haven't you been approached by someone anyone wanting to do custom billing at Rabbit Lake?

Well I mean custom billing is an option that’s about all I would say on that nothing in offer at the moment. We would say that we have space in the tailings facility now with production to the 2018. And as I say you are going to hear this or refrain from us. we're watching market conditions, we want it to be flexible as to where we were active, we want it to get off the W track where we said we're going from 20 to 40 we didn't think that was a good idea pinning that up on the wall for all of the customers to see and giving great assurance to the market. So we pulled back on that to where today, we're operating our assets with some flexibility in them now, we're watching closely the future because we believe it's going to be better and so we want to have our timing down on that, we think Cigar Lake is going to be -- the timing is going to be good as we ramp up to 18 by '18 we think those will be great pounds and needed pounds. McArthur, we have got a little bit of flex there that we're working on that just preparing for that and Rabbit we're watching as well we know that we've got capacity in the tailing to tailings till 2018 and we're looking at what kind of approvals and the capital we will have to go into extending that. So all of our facilities let's say we're watching them very closely. And it's going to be the market that will dictate what we're going to do at some of those facilities.

Thank you very much for that, I admire your increased dedication to supply management and watching what your clients really want.

Thank you. Our next question is from Daniel Rohr from Morningstar. Please go ahead.

What sort currency assumption underpins the expectation of a 5% to 10% unit cost increase for 2015 is the same; 1.1 cross rate underpinning the revenue forecast?

It is yes we haven't changed that.

Okay. And then this is a follow-up to that. You had mentioned the high unit costs for Cigar in the ramp up phase being part of that 5% to 10% increase. I guess excluding any impact from Cigar what sort of unit cost increase are you looking after the rest of the portfolio?

I don't have that number at hand, I would tell you that on a cash cost basis the Cigar Lake pounds coming in on a non-fully utilized basis are the main driver to why the cash cost would be up. And of course once commercial production is declared you have the non-cash cost of Cigar Lake hitting in -- if I back those out and I hate to take a flyer like this, I would expect our guidance would be very similar till last few years where up to 5% average unit cost of sales increase but not more. I can certainly go back do a little more work on that and we can [audio gap]

…hold the spot cross rate. What sort of -- what sort of unit cost increase will you be looking at?

If we were to hold the spot, yes I won't hesitate to guess on that one.

Thank you. Our next question is from David Snow from Energy Equities. Please go ahead.

Could you give us little more color on inventories? What they look like versus demand how many whatever it is years or whatever of demand and what would it be to get normal when you might expect it to get more normal?

Are you talking about David the inventories around the world?

Yes.

We'll ask Ken to speak to that.

If we look around the world in different jurisdictions, different regions, people are holding different levels of inventory and certainly the place like Japan there is lot of inventory at the moment. And the Chinese are probably reasonably well covered and that said we find them always in the market. And so the Chinese continue to plan for I would say pretty big new build program. If you look at the balance of our traditional customers, we're seeing that over time now inventories are starting to deplete and uncovered requirements are opening up and we'll say that even first quarter this year we're seeing some emerging long-term demand utilities wanting to put material on the contract, which is a strong indication that some of those requirements are opening up.

On a macro-basis how many years supply do you see out there the total?

Well I don't think I would venture a guess at that because again region to region it varies so much that put altogether in one global number I don't think it's useful.

Thank you. Our next question is from Fai Lee from Odlum Brown. Please go ahead.

I am just wondering if you could possibly just walk us through what your capital structure would possibly look like if you -- under two scenarios if you win the CRA dispute and if you possibly lose the CRA dispute and I am talking maybe debt to capital I guess.

I'll ask Grant to touch on that.

I am hoping you've had a chance to look at the disclosure that we've had out there for some time. We had an enormous amount of voluntary disclosure to actually address some of those issues. We've only been technically set by the CRA reassess for the 2003 to 2009 years and then we go on to add the years which we haven't been reassessed to the current periods, so that's 2010 to 2014. And what we do is we give you a sense of what the maximum exposure would be under their methodology which we don't agree with by the way and that's putting things into three buckets. The income adjustment back in Canada, the income tax expense that we would face and then the cash tax impacts. So we have those numbers out there, there is quite a bit of detail in our MD&A. all of that to say that the profile of this isn't where even in a worst case at all hits in one year, we have a situation where 2003 is actually the year that's technically before the courts right now, that's what we're looking at going to trial. And so obviously the trial outcome will affect how subsequent reassessments are done, that would be quite a prolong process. So it's hard to give you an answer because the process is one where there is no sudden change in the capital structure, we would have time to adjust but the numbers are there for you and what might be easiest is for you is just have a good look at that disclosure and we can take it offline if you’d like.

Maybe if I can just ask, just clarify my question, I am aware of the numbers and I know the profile, I just look at your balance sheet as like it looks like there is relatively very low levels of debt certainly seems like there is room to accommodate even a negative decision into the debt portion when -- you consider financing those equity, I guess the alternate as more as if you win this scenario, I am just wondering you have a relatively low level of debt would you consider increasing your debt and buying back shares I guess that’s sort of related to my question?

Thank you for the clarification. So on the tools in the tool box question, we do have a lot and I appreciate the perspective that you just brought to that, I mean we do have relatively low level of leverage, we have credit facilities that are undrawn, we have a lot of opportunity there, we’re sitting on a very nice cash position not doing that because we’re worried about a negative outcome, but just because we’re running the business flexibly and prudently as Tim said. In the event that this dispute goes our way which our belief and that cash has return to us, we will look at those proceeds from the perspective that we look at all of our cash and that through a very rigorous capital allocation process. So, when we look at our needs, we evaluate them and say really our cash from operations when you take out our dividend commitment and when you take out our financing cost leaves us with an investible amount of capital, that investible capital can go in one or two directions, it can go into investing in uranium space or it can go back to our owners. And we’ll just continue to use that kind of framework for making those decisions. By the time this is - this dispute is decided, our guidance is six to 18 months at the end of the trial and trial perhaps in 2016 now, who knows what kind of uranium market we’re going to be in and therefore, I can’t even begin to imagine what those capital allocation decisions would look like, but that’s the framework under which we would look at it.

Our next question is from Oscar Cabrera from Bank of America/Merrill Lynch. Please go ahead.

Thanks operator. Good morning everyone. Just would respect for your capital guidance for 2015 to 2017 notice that the sustain capital and capital replacement it's increasing to 2017, could you comment on that? And by the same token your growth capital has turn out $80 million, $90 million, could you comment on that?

Thank you for the question. Our CapEx profile in the plan that we have out there for ’15 and the estimates for ’16 and ’17 really reflect what we’ve been talking about for some time now which is the focus on our Tier 1 assets, putting ourselves in a position where the best assets in the world are ready for a market that’s going to need pounds, but that our other assets just aren’t getting the attention. We’ve already talked about it with respect to Rabbit Lake for example and the U.S. operations is a prudent response to a market that I think the uranium price on a spot basis was down 13%, so year-on-year 13 to 14. So, what you're seeing in that CapEx profile is simply the consequence of that strategic direction. Now sustaining will pick up a bit and that’s really because you have -- if you look in those outer years ’16 and ’17, you have a Tier 1 asset in Cigar Lake that’s ramping up to full production, it's producing a lot pounds on an annual basis and then the sustaining capital will have to kick in like it does at McArthur and Key Lake. So that’s the dynamic you're seeing there.

So if I can follow-up on that, so was that being at the sustaining levels that you have there, if your new assets will be from an amount of production of about 26 -- 30 million pounds going forward?

Well, because we don’t have a production forecast to follow in that ‘16 and ‘17 year, I certainly don’t want to confirm that too historically. But the high grade mines that we run do have a sustaining piece to them and that’s why we broke out that CapEx table a few years ago and to sustaining capacity replacement and to give you some line of sight of what that kind of harvest rate of capital actually looks like and we’re pretty comfortable that that’s a pretty fair range.

Thank you. Our next question is from Graham Tanaka from Tanaka Capital. Please go ahead.

Nice quarter guys, I just would want if you could maybe describe for us as you ramp production in 2018, what kind of layers could we estimate being added in and I know it’s complicated because you’ve got purchased and produced, but given your ramp and what you have in terms of the new assets, what average price would that new production becoming on at say every ex-million pounds or whatever?

Graham I am not sure we can find tuned it to that extent obviously from a bigger picture point of view. We are people of assets where we ramping Cigar Lake at this point in time and we say we’ve ramped up that asset at any point of time in just about any market. We have world-class assets that are going to see average unit cost across the life of the mine and in the $20 or less range those are good assets. And so that is the Cigar Lake story McArthur and Key continues to be the premier asset in the space by some margins, so we like that one. Our Kazakh production is very strong so we’re looking at those three assets at least I think we’ve been clear, and if you can go back to our technical reports those have average unit cost in 20 or under range and so if that gives you any help to what we’re doing with those assets going forward that’s what you will see from those assets. In the meantime we’re ramping up Cigar Lake so you don’t -- the first pounds is coming out aren’t that level it will take some time to be get up there, but once we do that’s where it will be.

Say for example in the out year some demand does increase significantly for China, Japan et cetera, I am just wondering if you have a higher calling for more production can we asset that the incremental production cost would be in that same range we’ve been experiencing or would it be higher or lower?

Well, I’ll tell you unless you Graham you have assets like that they will be higher that’s pretty much guarantee. You can, if you watch this space see some of the competition and some of the numbers they’re putting out to incentivized new production even our own cases we’ve come out I think on the Kintyre mine that was some years ago already probably three or four years ago, I think we said we needed north of $67 three or four years ago it will be well north of that now and so, yes, there is not many mines like the Cigar Lake project left out there, anything new coming on is going to -- we’ve heard other say 70% than we haven’t -- we have no reason equal with that number.

And you’re hitting at something that obviously gets us very excited because if there start emergence of demand as you articulated, that’s hit at Cigar Lake is actually achieving those tier 1 operating cost, so that combination we like the effect that has.

Thank you. Our next question is from David Wang from Morningstar. Please go ahead.

I just want to see if you had a view on the long term percentage of Japanese reactors that would be restarted and then so if you have a view of what load fracs would in your loan projection for 2024?

I can tell you on the Japanese front from talking and can we just over there not long ago, we have agents over there we supply all 10 utilities that were constant contact with we have as partners at Cigar Lake, so we’re forever probing them I would say for information on what they think not only when do the first restarts happen but how many and when -- we still are sticking to 10 of the two-third of the fleet coming back on over the next few years and that’s not really-really specific but because we’re trying not to be we misfired on the fuels but that we were still holding to that number that’s the best information that we’re getting from the Japanese utilities and from our own insights, so today I think there is 48 operable units reactors in terms of somewhere in the two-thirds range. I am not sure about the second question that understood what it was.

I was wondering -- so you have projections for the amount of gigawatts rate in 2024 as well as uranium consumption and also wondering sort of load factor assumptions that you’re using?

No I can jump in on that one and David. We -- if capacity factor is what you are after we would assume that certainly in 2024 the nuclear reactors just keep getting better at this and so we would have an assumption across the board of greater than 90%.

Thank you. Our next question is from Fai Lee from Odlum Brown. Please go ahead.

Just wanted to close on to something -- the tax court decision that's expected it refers to the 2003 reassessment and the disclosures. I am assuming that once you get decision you will covered out 2003 to 2009, is that your assumption as well?

Yes so you can imagine one year goes before the court and a decision is finally made and what obviously have to happen is the results of that decision would then be imputed into any reassessments that follow, so we would just expect that to take the time required to do that. In the event that it's a decision that goes against us well then that will have to be reflected in those reassessments and if it's one that goes for us well then the basis for the subsequent reassessments is [lost]. So 2003 year is just a very good analog for the structure.

Okay. And with reference to the IRS also one of your assumptions they could propose adjustment for later years I am just wondering how far out can these adjustments go on for or there is a termination date?

Yes. So the adjustments always follow your filing and so what we said in our disclosures into 2009 we have received the notice of proposed adjustment of course that's not the official documentation and keeping with our recent practice we're being quite voluntary here on our disclosure and decided to disclose that an open stage rather than the official stage which is the revenue agent's report. 2010 to 2012 we know they are asking about right now, we filed for those years '13 and beyond we haven't filed for those years in the U.S, so hard to propose an adjustment for years we haven't filed in. In a broader sense and this tied to some disclosure we have had out there for a while the underlying structure that is being looked at benefited if you will from intercompany arrangements that were signed in an earlier period in the uranium market. And what we've said is that is a lot of agreements come due and new agreements have to be put into place. And so as we layer into those new agreements that are if you will more trued up to the market at the time then we expect actually the magnitude of questioning to go away. So there is a bit of an end to this and we think it's in that 2016 period and that's tied to our view on our consolidation tax rate going forward.

Okay. I just wanted to confirm that was related to the IRS portion as well. Okay thanks.

Thank you. Our next question is from Fraser Phillips from RBC Capital Markets. Please go ahead. Mr. Phillips your line is open please proceed.

I just wanted to check a couple of things. Grant in your presentation you said that or maybe I will say the opposite way around in the press release, it looked like said that you are going to try news letter of credit or exploring the possibility of using letters of credit instead of cash. The CRA I thought seemed more certain in your presentation?

Yes, so we're certainly exploring it -- there are provisions under Canadian income tax act and dispute policies that would allow us to do that. We're looking into it, we think that there is no reason why we wouldn't be able to do that for the reassessments and so we're just locking down the process, we just think that that's a better use of our balance sheet during this dispute phase than parking cash with the CRA.

Thanks. And the other thing was the guidance with respect to operating costs -- was most of the increase or a big portion of the increase for the year expected because of Cigar. What assumptions have you made in terms of when you start running Cigar through the income statement vis-à-vis that increase in cost you are getting for?

Well we have an idea obviously internally on when commercial production would be achieved. If you told you what that date would be and we didn’t hit it then you would ask me why we didn't hit that for commercial production which is why we haven't forecasted. So yes obviously the plan includes some decoration of commercial production along the way then it starts running through the P&L statement for Cigar Lake. But I don't have the date out there.

Thank you. This will conclude the questions from the telephone lines. I would like to turn the meeting back to Mr. Tim Gitzel for his closing remarks.

Thanks Mark. I will just close this morning by saying that and this won't come as a surprise to anybody, the conditions have been challenging since Fukushima and as we look at the calendar now we're coming up next month on four year post Fukushima. So we continue to find ways to remains a profitable low cost producer in that tough environment and that has certainly been our top priority. That means having a realistic view what the market is doing and where it's going. And we believe it's important to share that view with our investors what we're seeing, what our plans are and how we plan to return value. That remains a high priority for us. And we know we may have been considered overly cautious at times, for example with our view that 2014 was not the year of uranium. We’re watching for the inflection point just as closely as anyone but last year just wasn't it, much as we would have liked it to be. We were frank I think about that and we will continue to be about all aspects of our business in the market whether the news is good or bad. So in 2015 you can expect to see the things have already talked about, focusing on our tier-1 assets, running our operation safely and efficiently but also providing what we think it credible insight into what’s happening in the market. So with that thank you for your continued interest in Cameco and have a great day. Thank you.

Thank you. The Cameco Corporation fourth quarter results conference call has now ended. Please disconnect your lines at this time. We thank you for participation and have a great day.