Rachelle Girard - Director, IR Tim Gitzel - President and CEO Grant Isaac - SVP and CFO Bob Stein - SVP and COO

Orest Wowkodaw - Scotiabank Greg Barnes - TD Securities Chelsea Laskowski - MBC Radio Daniel Horner - Nuclear Intelligence Weekly David Snow - Energy Equity Fai Lee - Odlum Brown PT Luther - Bank of America Anang Majmudar - General American Investors

Welcome to the Cameco Corporation 2016 Fourth Quarter and Annual Results Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the call over to Rachelle Girard, Director Investor Relations. Please go ahead Ms. Girard.

Thank you, operator and good morning everyone. Thanks for joining us. Welcome to Cameco's conference call to discuss the fourth quarter and 2016 financial results. With us today on the call are Tim Gitzel, President and CEO; Grant Isaac, Senior Vice President and Chief Financial Officer; Bob Stein, 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 results and the industry, followed by Grant, who will discuss the change made to the outlook we provided for 2017 to help investors better understand our business and improve the alignment of expectations. Then we'll open it up for your questions. If you joined the call conference call through our website event page, you will notice there will be slides displayed during the remarks portion of this call. These slides are also available for download in a PDF file called Conference Call Slides through the conference call link at Cameco.com. Today's conference call is open to all members of the investment community, including the media. During the Q&A session, please limit yourself to two questions and then return to the queue. For those on the webcast if you have questions please select submit a question feature to submit your questions by email and we will follow-up after the call. 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.

Thank you, Rachelle and welcome to everyone on the call today. As usual we will start this morning with some brief remarks and after that we will be happy to take your questions. We've been saying for some time that uranium prices are neither rational nor sustainable. Current prices are failing to incent the investment decisions required to ensure reliable supply is available to meet growing demand out into the future. Indeed, I would have to say that market conditions in 2016 were as tough as I have seen them in 30 years. In response to these tough conditions, Cameco led the way in terms of supply discipline. We curtailed our Rabbit Lake and US mining operations and reduced our production at McArthur River. Now the world's largest uranium producing country with almost 40% of world supply Kazakhstan has announced that it intends to cut its 2017 production by 10%. In addition [indiscernible] has announced cuts to better align its UF6 production capacity with customer demand. These announcements certainly represent positive developments around the supply performance signpost that we've been watching. They strengthen our view that the low prices are not sustainable and further bolster our optimism about the long-term fundamentals for our industry. We've seen some uptick in uranium prices with these supply announcements as the average spot price is up over 40% and the average term price is up about 8% since the lows of December 2016. But let me be clear, our optimism is best described as cautious optimism. We're far from a true incentive price for sustainable production. In fact we're far from declaring that even tier-1 production is free from the pressure of further reductions. And obviously we're very far from requiring any new Greenfield uranium projects. There's still a long way to go. Ultimately it will be the return of term contracting in meaningful quantities that will signal a transition to a more positive market environment. Until that time we must manage our business as if difficult market conditions will persist. Looking back at 2016 we did what we said we would do and more, we were the first to show real supply discipline and in addition we took significant steps to reduce costs and streamline our business. Why? Because 2016 proved to be another difficult year for the uranium market. At the end of December the spot price was US$20.25 per pound and the term price was CAD30. That's about 40% and 30% lower than the beginning of 2016 and about 70% and 60% lower than March of 2011. I think it's fair to say that no one including me by the way expected the market would go this low and for this long even with Fukushima taken into account. However, despite the uranium spot price hitting a 12-year low of US$18 per pound in early December, the performance of our core business uranium was solid and in line with the outlook we provided. We delivered 31.5 million pounds of uranium at an average realized price of CAD54.46 per pound, about 60% higher than the average uranium spot price for 2016. However, our earnings for 2016 reflect the consequences of a weak uranium market and our resolve to take the necessary steps to ensure the strength of our core business for the long-term benefit of our shareholders. These steps are expected to benefit our performance over time but came with a number of upfront costs in 2016 which totaled about CAD120 million with another CAD362 million in impairment charges for Rabbit Lake and Kintyre. On the operational front, our performance was strong. The uranium production for the year was about 5% higher than expected with all sides meeting or exceeding our expectations particularly Cigar Lake. As a result of our unit cost of production continued to decline, evidence of our ripening tier-1 strategy. The financial objective of our strategy during this period of low uranium demand is to maximize cash flow while maintaining our investment grade rating so that we have the tools to self manage risk. Risks like a market that remains lower for longer, litigation risk related to the CRA and TEPCO disputes and refinancing risks. On the cash flow front, we continue to have good visibility into our cash generating capacity thanks to a combination of our contract portfolio and the restructuring and cost cutting measures we have taken and continuing to take. In terms of financial capacity, we have been getting questions about the sustainability of our dividend in this environment. You will see that our Board approved a quarterly dividend based on the priority they place on shareholders and their confidence in the company's ability to deliver long-term value. As they always do, the Board will continue to us the dividend and will take the action they deem necessary based on the circumstances including the TEPCO contract cancellation and to ensure long-term value creation. As I said earlier, our outlook for 2017 and beyond is cautiously optimistic, optimistic because it appears that the pain of low prices is driving meaningful supply discipline and this discipline is now provoking a strengthening uranium price. Cautious because market challenges continue, challenges that might frustrate the recent increases in the uranium price. As a result, we will take all necessary decisions to remain a competitive low cost producer in the face of continuing market challenges. At the same time we are positioning the company to maintain exposure to the rewards that come from having uncommitted low cost supply to accompany the return of meaningful term demand. We were recently reminded of one of those potential challenges that could frustrate the progress we've seen in the market. Last week we announced our surprise and disappointment at the notice we received from TEPCO stating that they were terminating our uranium supply contract signed in 2009. We have been down this road before and have successfully defended the strength of our contracts. As such we strongly disagree with their position and we will vigorously pursue remedies to recover value for our shareholders. However, until that dispute is settled, our results will be impacted. You can see this in our outlook for 2017 delivery volumes, realized price and revenue in our uranium segment. We also know there is concern over the risk of contagion from the TEPCO announcement. But I want to be very clear. We do not believe there's any contractual basis for TEPCO’s claims, nor do we believe our other customers can make similar claims. This has been tested previously and the strength of our contract has been validated. I want to remind you that we fulfilled contractual commitments to our customers even when it meant we faced harsh criticism as a result of taking low prices under our contract portfolio when market prices were higher. We expect our customers to fulfill their contracts just as we do. A contract is a contract. It's obviously early days in the process of working our way through the implications of TEPCO’s actions but I can tell you it will invoke a revaluation of the optimal mix of our sources of uranium supply to feed into our contract portfolio and could see us make changes to our inventory position, our production profile or our purchasing activity. Until our work is complete we will move into 2017 with a plan to produce about 7% less than we did in 2016 largely due to the production changes we made last year and we will continue to hold McArthur River production at 18 million pounds. In addition, in alignment with the announcement in January by Kazatomprom, Inkai’s production is expected to be about 10% less than it was in 2016. We know it is difficult to see beyond the market weakness that has persisted for almost six years but as we look to the future the bottom line is we see continued growth in reactor construction and consequently uranium consumption. In 2016, ten new reactors came online and there are 58 reactors under construction, today the majority of which are scheduled to come online over the next three years if start ups occur as planned. Many of the countries building new reactors are installing base load electricity. China represents about a third of that growth. You only need to look at the news in January about the choking air pollution in China to understand why nuclear is so important in that country. India and South Korea are also significant contributors to the demand outlook. Of course more reactors means more uranium and we know that some of this demand is coming to Cameco as utilities pursue safe reliable supply from long-lived tier-1 uranium assets. We believe we are well placed to seize this demand. We have a strategy focused on our tier-1 assets those that are the lowest cost and provide us with the most value. The quality of our assets combined with the action we have taken over the past five years to curtail higher cost sources of production to protect and extend the value of our contract portfolio and reduce costs and streamline our business have allowed us to remain competitive in a challenging market. So although we can't control the timing of a market recovery we can and will continue to take the tough actions we believe are necessary to ensure we are well protected under our contract portfolio to have the financial capacity to weather an uncertain market and to maintain exposure to the rewards that come from having uncommitted low cost supply to deliver into a future market where we see demand growing. So thanks again for joining us today. And with that I'm going to turn it over to Grant. Grant?

Thank you, Tim. I want to highlight the changes we have made in our disclosure for 2017 which coupled with the information provided at our November workshop, we expect will improve the investment community’s ability to assess our expected annual performance. If you missed the November workshop, all the materials are available on our website. Let's start with the 2017 outlook table. And I want to emphasize that the 2017 outlook table excludes the TEPCO contract. You will notice that at the top of the table we have provided you with the percentage contribution we expect each segment to have on 2017 gross profit. We have done this to really focus you in on the core of our business, the uranium segment. You can see that at more than 80% it is really what drives our results. In alignment with this focus I will start with the uranium segment. We have provided you with an expected average realized price for 2017 which is based on our delivery commitments this year, the pricing terms under those contracts, and the following assumptions. First, we assume that current Ux weekly spot and term uranium prices remain at these levels throughout the year US$26 a pound spot and CAD30 a pound term and we assume that the Canadian dollar US dollar foreign exchange rate is a CAD1.30 and remains at this level for the entire year. We will update this quarterly based on deliveries and actual pricing under contracts in the quarter and for changes in uranium prices. We realize that prices and exchange rates can fluctuate. So we also provide you with the sensitivity of our revenue, cash flow and adjusted net earnings to a CAD5 change in both the spot and term uranium prices and CAD0.01 change in the Canadian US dollar exchange rate. Since we have added this more granular disclosure for 2017, you will notice we no longer include the year 2017 in our average realized price sensitivity table. As a result of providing the expected average realized price, the revenue range provided for our uranium segment is based purely on the delivery volume range provided. We have also provided you with the expected quarterly delivery pattern for 2017 based on delivery notices received to-date. This could change but it gives you a sense for the pattern of variability in our deliveries. The next piece that we have changed is in the disclosure is the disclosure for the expected average unit cost of sales including depreciation and amortization. We have now provided you with a dollar range instead of a percentage range for both uranium and fuel services. Keep in mind for our uranium segment this is based on our annual average costing method. And includes the average of the cost of existing inventory, our expected cash and non-cash operating costs for the year and our expected purchase cost. In addition it includes our expectations for royalties, care and maintenance and severance costs, and other selling costs. For our fuel services segment the average unit cost of sales includes the cost for UF6, UO2 and fuel fabrication. As a result this is not something you would be able to derive on your own. We have done that math for you and again we’ll review every quarter and update if necessary. Not listed in the table but found in the uranium segment information we have also provided you with the volume of purchase commitments we have in 2017 and the expected average price of those purchases again based on the same uranium price and exchange rate assumptions used for the rest of our outlook. We have also provided significant new disclosure on our hedge portfolio starting under the section in our in MD&A called foreign exchange. Along with this disclosure we have calculated and provided in the outlook table using the methodology discussed at our November workshop, the loss we expect to record in 2017 on the portion of the hedge portfolio that is applicable this year. This reflects the loss on adjusted net earnings not our IFRS earnings. This disclosure is based on the same foreign exchange assumption that we used for calculating our expected average realized price. We have also moved away from providing you with a percentage for our tax recovery. As we realized that in 2016, it only served to magnify any discrepancies in the investment community estimate. Therefore this year we have given you an expected dollar range for the tax recovery. That range is based on the current expected distribution of earnings among jurisdictions which we recognize is not possible for you to derive. Going forward as we enter new transfer pricing arrangements and our tax rate transitions to a more stable expense as we have described in our MD&A. We will re-access his approach. Those are the biggest changes and to help you find this information we have provided a disclosure reference guide that lists where you can find all of your outlook in the MD&A. The guide is part of the reference material on our website for this call. And with that I'll turn it back to Tim.

Thank you, Grant. And with that we're happy to take any questions you might have.

[Operator Instructions] The first question is from Orest Wowkodaw with Scotiabank. Please go ahead.

I guess if we could start just with the standby costs at Rabbit. Are they - should we anticipate that's still going to be around 35 million going forward and is that - did I hear you say that is in the cost guidance on a per pound basis?

Hi Orest, this is Tim. I think we put CAD35 million to CAD40 million in the box for Rabbit going forward. So we’ll keep assessing Rabbit on a year by year basis or even shorter terms than that to see what we're going to do with it, but that's the number we’ve put out.

And it is included in the cost guide that's been provided, Orest.

And what about the severance costs related to the new headcount reductions you announced a few weeks ago?

So those will be in our 2017 numbers, Orest.

So is that included in the cost guidance or is it…

Yeah, sorry, yes, it is.

In terms of the investment grade rating which you mentioned earlier. So S&P put your rating on negative watch recently. Can you just remind us again what you think your net debt to EBITDA criteria needs to be to maintain investment grade. And then just also what are the implications to the 1.5 billion of letters of credit you have outstanding if the investment grade rating where to be in jeopardy?

Orest, I’ll let Grant deal with that.

So right now, Orest, we sit at BBB+ which of course is well into investment grade rating. Obviously, the negative watch with S&P is something that we pay particular attention to and we'll be having a discussion with them next week as our normal follow up coming out of the year end. I would probably put it in really rough terms you know when you're at two times net debt to EBITDA that's probably a pretty comfortable BBB+, if you're 2.5 times that's probably BBB flat. If you're 3 that's probably BBB- that's probably where a conversation starts to happen but of course that conversation is not about a particular point in time that conversation is about your outlook over the next two to three years and how things are evolving and of course is one of the things that I want to emphasize, Tim had mentioned is, we are seeing a ripening of our tier-1 strategy and improving story with respect to the core performance of our business and that is obviously something that they will factor in. So a conversation to be had for sure. In terms of the impact on the LCs with respect I think your question might have been if investment grade is lost or just if there's a downgrade within the investment grade rating, I’m just - would just ask you to clarify.

Well if you could answer both ways that would be helpful. Thank you.

So I'm not particularly concerned with any investment grade rating those LC stand. It's possible to slip outside investment grade rating but still maintain the covenants that - the financial covenants that are behind those. So obviously we would deal with that. If we found ourselves there, we don't find ourselves there right now and are not planning for that.

The next question is from Greg Barnes with TD Securities. Please go ahead.

And first off, thanks for the additional disclosure it’s a huge help. One thing I couldn't find this time around in the MD&A is your views on the global supply and demand for uranium. The balance you’ve given the past is mine supply and your anticipation of demand for the year and 2016 and 2017 if you could.

Yeah, Greg, I don't think it's changed much from last year. I think we're in the demand side probably in the 170ish million pound range, supply in the 160 and then the - you've got the secondary supply out there and so - that's going to take some time. We're optimistic going forward with the 58 reactors that are under construction today that are I think coming on over the next three, four years that demand line is going to go up. I know it's about a 2% increase I think we're looking at per year going forward. So numbers haven't changed too much obviously on the supply side we're watching that close. We've pulled off 7 million pounds last year some of it made up by Cigar and a little bit by Inkai. And then our friends at Kazatomprom, Zhumagaliyev made his announcement in early January to drop production by 10% which is a fairly significant - a very significant move. So that's where we are, we're still watching to see what's going to happen this year but I think we're cautiously optimistic that the supply is becoming more disciplined if you like and it still grows, so that is good news story.

So taking all that into account Tim, what do you see as a surplus or deficit, but I assume it is a surplus with the Kazakh announcement in your tenants taken into account.

Yeah hard to say, we think there probably is still a surplus obviously with the secondary material out there, could be in the range of 20 million pounds that might be excess. Grant and I were talking this morning, we said it could be 10 could be 20, so 15 might be your number, but of course nobody knows because there's a few black boxes out there as [indiscernible] said but I think the good news is that it's tightening up and we see it tightening up over the next few years.

The next question is from Sam Leeds, a private investor. Please go ahead.

Hello Sam. Sam it’s Tim Gitzel, can you hear us. I think we have to move on operator. We have another question, operator?

David, can you hear us?

I was wondering Tim, if you can discuss your expectations for pace of Japanese restarts going forward.

I'd have been really disappointed if somebody hadn’t asked that one, David. So, I guess where we are today, you've got three operating I think that's three more than we had about for a year and half ago. I think there are about seven that have made it fully through the regulatory process, some tied up in litigation, others need some more time. I think ten have made it through at least the first stages. 26 total are progressing through the restart process. So, I hate to guess on this, I was over in Japan just at the end of last year meeting with all the utilities. Those seven could make it through the process and through litigation and get started this year that would be real good if there was a few more that be even better. So what we want to see is a kind of a steady start up pace, if those Takahama units can get through the legal process with a good decision we think that will be helpful to a more regular rate of restart of you like. So we'll see, like I say we're happy that there's seven, eight, nine or ten that are partially or fully through the process, we're happy that there's 26 that are going through the process. Talking to all of those utilities they’ve spent billions of dollars on their units getting them ready. As we say they're still involved in exploration some companies in production of uranium so there's certainly behaving like the units are coming back on. So been around four or five, now six years in a row as to how quickly they will come back on, but we're optimistic that it might pick up a little pace in 2017.

As a follow up, is there a way for us to get a sense of the sensitivity for 2017 average realized prices has been a little bit higher than the numbers that you guys have baked into the guidance.

Well there's a couple ways to do that we have the price sensitivity table, but of course for 2017 we collapsed that down to an estimated number based upon the assumptions under that table with respect to where the price is and where FX is and then you can see through into the sensitivity analysis on from a cash flow and an earnings point of view how you might think about that with changing price assumptions. So we've given you those tools to work with and it's kind of a pick-up price where you think it can go and then it would be subject to the outlook table.

The next question comes from Chelsea Laskowski with MBC Radio. Please go ahead.

So I wanted to check with the TEPCO announcement. That kind of adds on top of the - I suppose financial things that you guys need to consider for 2017 and that came after the 10% work force decrease for Cameco. For you guys, is it on the table to potentially take that 10% and increase it in 2017.

Obviously we're always looking at our cost, our cost structure will never stop doing that in this difficult market but for now the announcement we made a couple weeks ago is what we're planning to do and so we're working our way through that now. I think we announced some 120 positions at the northern mine sites in Saskatchewan, we’ve announced a proposed change, upcoming change to our work schedule and some pick up point changes. So that's what we're working on right now and we haven't anything new to announce from that.

So when you say four now, do you mean all of 2017 or is that within a limited time period?

That really depends on how things are going, how the market goes going forward for us, how our production schedule goes. So it's really hard to say, it's been a tough six years for us. Now we are one month and one day away from six years post Fukushima and we've had to unfortunately make some really tough decisions in the company and so we've done that watching what the market would do. I don't think as I said in my comments we over expected that things would be so tough for so long post Fukushima but they are and so we'll continue to make whatever decisions we have to but for now the announcement we made two weeks ago is all we have to announce on that.

The next question is from [indiscernible] with CEO.CA. Please go ahead.

There's a lot of analysis that's out there now showing a turn in the market possibly two to three years down the road as you know we have you know new reactors come online and some of the over you know supplies work through. Do you see the same things and what are the you know what you know risks are there to the supply maybe not being worked off as fast and maybe that turn being moved out a bit farther than you know let's say three years out.

Well Robert that's the big question. We go back to the fundamentals of the business that we're watching for, we talked about the supply side I think we led the charge back in 2016 in April when we made our announcement on Rabbit Lake and then on Wyoming and Nebraska operations pulling back production 7 million pounds, we pulled back 2 million pounds at McArthur River. Then we saw the Kazakhs pull back their production as well in January of this year. So we're seeing that discipline being applied to the supply side. The demand side we're optimistic I mean in 58 reactors under construction. That's a good number and you see China confirming their numbers, you see India moving forward, South Korea and other countries. So we see the supply demand fundamentals going in the right direction. We talked a little earlier there's still secondary supply in the market. So, I think in the timeframe you mentioned we will see a better market and in the meantime we're preparing for the lower for longer that's what we have to do in this industry and in this company but we will be ready. I can tell you we'll have operating leverage and we’ll be ready to go when the market does improve.

As one follow-up question regarding the situation with the utility, Japanese utility contract dispute. Did that affect the market at all in the short term there's some speculation that now they won’t sell that pounds in to the spot market and that's a positive? Is that true or does it have any effect at all in the spot market?

Well, Robert, those are our pounds, so we will determine what we’re going to do and that hasn't been our practice, so we'll be very disciplined in the market I can assure you.

The next question is from Daniel Horner with Nuclear Intelligence Weekly. Please go ahead.

Hi. Thank you for taking my questions. First of all, I wanted to ask about your future purchase commitments. In the outlook for 2016, you had commitments to purchase 38 million pounds from 2016 to 2028. Now, the commitment is 21 million pounds. And I believe that you’ve purchased 8.4 in 2016, so that still leaves 8.6 million if I’m looking at this right. Can you talk about that and what accounts for that difference and just explain that a little? And I have another question on a slightly different topic, but if you could go ahead with that.

Hey, Daniel. I’m going to pass the first question over to Grant. He's got the information on that one.

Yeah. So there's a difference between what you're picking up in sales and purchases in the Uranium segment versus what you're seeing in the purchase commitment table, which also includes NUKEM. So that explains the difference between the two. The Uranium segment doesn't include NUKEM volumes.

Okay. And then earlier when you were talking about the impact of the TEPCO proceeding, you said evaluation of the inventory positions, production profile or purchasing activity, can you give a little more detail on what you're considering under those [indiscernible].

Well, those are the things we always look at and given the news from TEPCO last week, we’ll obviously look at our inventory position, we’ll look at production for that set and any new purchasing we might have had in mind. So those are just three levers that we wanted to mention that we're constantly looking at and we will take a relook at in light of the TEPCO situation.

The next question is from David Snow with Energy Equity. Please go ahead.

Yeah. Hi. Just doing the math, it looks like your, TEPCO is priced at about nearly 140 a pound and is the price lower in the near term and then it escalates higher or is it flatter, how does that go over time?

Yeah. Hi, David. You’re asking for some questions that we typically don't reveal about our contract portfolio, but I can confirm because we kind of already have, it is a high price contract. And it's one that we are really reluctant to let go of as a result and it's probably the reason why TEPCO is interested in making the move that they made. In terms of how it's priced in the terms and conditions, we don't typically reveal that stuff. Sorry, David.

Even though this is a significant factor in the current outlook?

Well, right now, the current outlook doesn't include the TEPCO contract.

The next question is from Fai Lee with Odlum Brown. Please go ahead.

Thank you. I just wanted to talk about the sales volume that’s just 32 million pounds. Does that include or not include the resale of the TEPCO volumes?

That does not include anything to do with TEPCO.

Okay. So if you had the TEPCO volumes, your guidance would be approximately, I guess rounding up 1 million pounds higher, is that the way to look at it?

Yeah. That would be about right. I think it was 887,000 pounds, something like that. So, yes.

Yes. Rounded. So now the guidance for 2017, like it's not that much different than your actual sales volumes in 2016. Has there been a bump-up in sales commitments or are you expecting increased sales somewhere for say 2016, given that TEPCO is out of the sales volume lines?

Yeah. Those are committed sales that we've had in place, probably signed those contracts some years ago. So there's no sales to be made in those numbers. Those are the sales commitments. Those need to be delivered.

Right. But are there some deliveries in some areas like China or someplace else that you’ve increased on a year-over-year basis [indiscernible] previous commitments?

That's possible. It almost changes from year-to-year depending on which customers are in or out and that would be made up of Grant, how many contracts would be involved in that 30 to 32? There would be 30 customers. So there is variation all the time. So it might mean a little bit more Asian and less US. I don't have those numbers in front of me if I were to -- yes, there's a big variation every year.

Okay. All right. Thanks. And just as a follow-up, TEPCO a couple of years ago was talking about drawing down their inventories back to pre-Fukushima levels, but I guess presumably reselling some of the volumes that they purchased from you. Did that actually happen or I’m just, do you know or I'm just trying to understand the dynamics maybe that was by the pressure?

Yeah. Fai, we have no information on that. I can't even answer you. I don’t know.

[Operator Instructions] The next question comes from Greg Barnes with TD Securities. Please go ahead.

Thank you. I just want to talk a little bit about Cigar Lake. You mentioned in the MD&A you’re doing some drilling and feasibility work on Phase II at Cigar, I wonder if you could give us some color around that?

Yeah. Thanks, Greg. We’re indeed. And I’m going to, looking to Bob Stein here to supply an answer. Bob?

Yeah. Good morning, Greg. When an expiration fail, last year, in 2016, we drilled out 29,000 meters of drilling out of 65,000 meter program and the intent there is we have had Cigar Lake Phase 2 we’ve known about it for a long time, but while we were busy getting Cigar Lake Phase 1 up and going, we left that. Now Cigar Phase 1 is up and going. It’s deposit. It’s also with a very near Cigar Lake Phase 1 deposit was 300 to 400 meters on the western edge of the Cigar Lake phase 1 deposit to the Cigar Lake phase 2 deposit. We had limited information, but now, we’re drilling it out to understand the deposit and get the information and do a pre-feasibility study on, can we turn that to positive, kind of turn into a mine extending Cigar Lake is like that’s the, that’s what we need to know. You may note, if you look at the, our reserve statement, what’s happened this past year is we’ve changed some, in the past, that Cigar Lake was about 102 or 103 or somewhere in that inferred resources at Cigar. Most of that was in Phase 2 with the drilling that we’ve accomplished so far, we’ve moved roughly around 80 million pounds of those inferred into indicated class. And as we go forward, we’ll carry on with the drilling program, so that’s what we’re about and what we’re doing at Cigar Lake Phase 2.

Grade similar to Phase 1?

It varies. It’s a bit early to pin a grade on it. It’s a higher grade and it’s not good, but we haven’t assigned a total grade to it. Yeah. It’s similar but not quite as good.

The next question is from PT Luther with Bank of America. Please go ahead.

Hi, Tim and Grant, how are you? I just want to talk a little bit more about the Japanese utilities and the TEPCO contract termination. I was wondering if there's any more color you could share on why now the timing of the TEPCO cancellation seemed a bit puzzling to me. And then Tim in your prepared comments, you talked about risk of contagion out of TEPCO. I was curious if you've seen any reaction out of other Japanese utilities following TEPCO if there any other new discussions taking place?

Well, I’ll answer the first part and then Grant has been working hard with his team and the marketing team on the second part, but why now. Great question, which is why we used the words, surprise and disappointment I think in our call and in our press release last week. We've known these folks for a long time, they've been good customers. I've known them for many, many years and so Fukushima happened as I say one year or sorry one month away from six years ago. And so we've been working with them all the way through that. We've had contracts with them. We've been on the other side of contracts that heard some numbers put out on this call. We were on the other side of that, back in ’07, ’08, ’09, those type of years. But we worked our way through that. So under this contract, we delivered 14, 15, 16, took delivery, paid for it. So we were surprised and disappointed as I say to get that notice in January on this contract. So I don't know their timing, I have no idea. We're -- obviously there's a process now that they were going to launch into very soon with them. So hopefully we'll get some more information from them, but I'm going to ask Grant to comment on the other, that contagion piece.

Yeah. So just a bit of context of course because this isn't the new risk for us. We've been dealing with the general risk of contract non-performance due to Fukushima for nearly six years now and if we think about that, there's three things that are notable. First that for five full delivery years, we've met our expected sales guidance. Second, when we have faced a similar challenge to a contract, we successfully defended the contract in international arbitration. And third, we've actually settled with two other utilities on that same net pay term that really reinforces how strong our contracts are. So we kind of view this general contract non-performance or this contagion as being as managed as well as it can possibly be. And we also believe that the further we get away from the event, the lower is the risk that that event can be legitimately used to justify contract non-performance. So in some sense, it's a bit of a declining risk as well. Now, we've been talking about this doesn't mean our contract portfolio is risk free, we’ve never said that. We've talked about how when our average realized price is substantially above the market, this does create pressure from some of our customers who want to be more in the market, but in all but this one case with TEPCO, these are commercial negotiations of price. They're not price negotiate disguised as force majeure. You asked the question specifically about the other Japanese utilities and I would say just say what's happened here with TEPCO really is a departure from the successful commercial relationships we've had with the others, including TEPCO post Fukushima. We've worked with sorry, excuse me, of the 11 Japanese utilities on a number of things to help them with their circumstances, but of course always when it's beneficial to us and all of that’s generated goodwill, it's enhanced our commercial relationships and as I say been beneficial. There's a few utilities who we haven't had to work with either because their contracts were shorter terms or because they just weren't interested, they were content with the terms and conditions of their contracts. I mean it's certainly possible. We can't rule out that other field teams will be asked to review their contracts in light of TEPCO’s actions, but given the standardized nature of our contracts, we will approach any other force majeure claim and exactly the same manner, especially if it's with a customer who has a nuclear power plant approved for restart. So on balance, we just think we'll continue to manage this risk well like we have in the past. We put out guidance for delivery for 2017 in our outlook table and that's the guidance we're sticking to.

Got it. Thanks. That's really helpful. And then one more follow up if I could. I was curious if given the nice run up we've seen in spot prices, since the lows in December and Kazakhstan’s 10% supply cut announcement, are you starting to have more dialog with other utilities looking at contracting are these things that are start starting to maybe create some optimism and maybe start to create some momentum or do you think we need to see kind of more sustained improvement in spot prices and more proof in the putting that Kazakhstan is going to do what they said they will do before getting more momentum in the contract discussions?

It's a good question, PT. I still phrase Grant’s been using. There is an upward lean to the market and I think that probably adequately describes what we've seen from the, I think it was December 8 low in the Uranium price where it touched of 17 something and has moved up since then. We're still, and let me be real, cautiously optimistic. Cautious in the sense that there's still a lot of material floating around, especially on the secondary side, but optimistic in there's still 58 units, demand is going up, supply is being tightened up and that's what you want to see on your indicators, so on your fundamental. So let's watch as 2017 rolls along to see what happens. But we're optimistic that we're headed toward a better market. We saw some UX numbers the other day, just showing the pounds to be contracted over the next I think nine or ten years and it's in the hundreds of millions like 700 or 800 million pounds that have to be contracted in the next number of years. So how long the utilities await? We're seeing a bit of utility. You asked, we're seeing a bit of utility activity out there, but there's a fair bit that's got to come to the market, so it's a question of when. So we'll be ready when it does come.

The next question comes from Sam Leeds, a private investor. Please go ahead.

Hi, Tim. Sam here. Sorry, I must have been on mute earlier. But yeah, and the question is, can you speak a bit on the chemicals approach to China and the kind of the rumors that they've been stockpiling Uranium but also they’ve opened up that fairly large mine in Africa that's supposed to be producing something like 15 million I think is the expected output. Can you speak a bit on your strategy around how you’re going to penetrate that market and kind of get chemical kind of more exposure to that part of the world?

Yes. Thanks, Sam and thanks for the question and sorry, we missed you on the last round there. Obviously, China did become a big deal for us and that started, I’m thinking almost a decade ago already when they started their construction program and through the 2000, everybody watching to see, is it real, is it real. And then their big move was back in June of 2010, when they came to the market. About $42 market and bought about 150 million pounds in a month and shot the market from $42 to $72 a pound, which is where it stayed until the Fukushima. So we've been dealing with them since then. They're been really good customers. I have to say that we were nervous at the time we entered into such a big commitment to them as to how they would perform. They've been excellent customers. We've done a lot more deals with them since then not of that magnitude, we talked to them about going beyond the straight Uranium supply deal and so we're in there. We're thinking very good shape with our Chinese customers, really excited about their future growth plans. I think that is about 35 reactors operating. Another 20, 22, 25, again I don't even know under construction, they are talking 58 gigawatts or units by the end of the decade and then I’ve seen numbers like 100 by 2025 which is making the biggest in the world. So you want to be there, you have to be there. We think we're in good shape. Now, to your second part of your question, obviously, they're very astute business and we've heard them say that they want to divide up how they get their Uranium. They like to produce some themselves internally inside the domestically inside the country. Obviously they're buying externally and then they're producing externally and you mentioned the [indiscernible] which I think was scheduled for startup last year and saw some delays. We read recently that the first drum of yellowcake has come out and over time not sure what period of time they would ramp up, but it was as much as 15 million pounds. That's been taken into account. I can tell you when we look at the supply demand numbers, we've known about that mine for a long time and that's taken into account in our supply demand forecast. So. Yeah, it's where they're going. Like I say, we're very close to them and plan to do a lot of business with them in the years and decades to come.

So in addition to that like with your investments in Australia and of course the governments there seems to be a little bit more kind of positive in terms of their opening up the uranium market in Australia and but we chemical also had that, came in with the name of that underwater species that prevented one of our mines from being opened up there, what's your percentage of growth and focus on Australia to supply the Chinese market?

Well, Sam, we have some good news, just I’m looking at Bob, two weeks ago on -- you're talking about the [indiscernible] project, which we have approval on now to move ahead. The environmental review did identify some of those issues and we were able to work with the government to convince them that we could deal with those issues. And so we have approval to go ahead with that now and of course the market is not in anywhere near the shape to bring a project like that ahead, but it is an excellent project that we now have in ours with the environmental and government approval to move ahead and I think we have about a ten year period Bob to present a plan to go ahead. So we'll watch that. Obviously in this market, we're not even close to where a project like that could move ahead but it's a nice one to have in ours.

The next question is from [indiscernible] with BMO. Please go ahead.

Thank you. Good morning gentleman. This may be the question, one question maybe for Grant. Actually thanks for the detail contents. On the tax, now you have moving to a new transfer pricing agreement, so can you give us a kind of indication on guidance toward how much is going to be the in terms of cash taxes, how much is going to be, there are some complications in for example like you can set up some of the CRI payments in fact, but without taking into consideration of the CRI payment, how we can look forward for the ’17 at least 2017, 2018 cash taxes?

Yeah. Well, it’s actually quite a complicated question. Let me just take a shot at it and this is obviously one that might benefit from a little bit of a deeper dive offline. What we have in our outlook is guidance for tax recovery for ’17 based upon the jurisdictions in which we will sell uranium or we think we're going to sell uranium throughout 2017, so that all consolidates up to this tax recovery position. We also have some disclosure that we've been using for a couple of years now to say that as our underlying transfer price agreements that have kind of underpinned our company structure are renegotiated in a different market, then we will transition to an expense overtime. In terms of the cash tax, we really only have it at one jurisdiction where we pay cash taxes in and that's just buried in the overall consolidated number, offset by jurisdictions where we actually have operating losses. So it's about as far as I can go right now, but we would welcome a chance to dive a little deeper if we can help out.

Okay. That's fine. So the tax recorded n umber that you provided in the guidance for 2017, that is actually if that the P&L tax guidance, isn’t it?

Yes. It is but on an adjusted basis.

The next question is from Anang Majmudar with General American Investors. Please go ahead.

Good morning. Thank you for taking my question. Given the disclosures provided, it is possible to roughly back into a cost per pound produce for 2017 and what I was curious to know is, are there any costs in 2017 that would be one-time in nature or would roll off exiting 2017, looking into 2018, just as we try to think about the cost structure of the company, for instance, conversely actually I know there's care and maintenance with respect to Rabbit Lake that would be ongoing. But if there's anything else related to some of the other initiatives that you've taken from a cost savings perspective that are embedded in that number, but would roll off exiting the year. That would be helpful. Thank you. And then the second question I had was, is the depreciation and amortization related to Cigar Lake, is that still elevated relative to pounds produced or has it stabilized. Thank you.

So just on the first one, what comes to mind is similar a bit to 2016, we had some severance costs obviously in 2017 with the reductions we're making to the workforce now. I'm thinking of tax, looking at Sean as well, there will be some tax costs and litigation costs that we're incurring now. Hopefully, that litigation winds up sometime this summer with the final arguments in the fall and then we'll wait for a decision. So I can think of those two at the moment. So those would come to mind and I'll pass it to Grant.

Yes. So the main one to come out of the cost, the produced cost is the severances. Care and maintenance for Rabbit Lake really will carry on as long as we're assessing Rabbit Lake in terms of its status and whether we continue to hold it in that status, whether we move it to a different status like shutdown, whether we find a favorable market to bring it back and all of that to be seen, but in the meantime, there are not insignificant costs associated with Rabbit Lake. Those are in the cost guidance as we had said earlier. In terms of the amortization of the pounds for Cigar Lake, as Cigar Lake is ramping up to full capacity, it will stabilize at that. Cigar Lake is commanding some sustaining and a bit of replacement capital as you see on our outlook guidance, but fairly modest and now that it's stabilizing at a higher rate, we did see the stability in that contribution.

[Operator Instructions] The next question is from Greg Barnes with TD. Please go ahead.

So I’m back for the third time. In terms of long term contracting, if the utilities are beginning to reengage, what kind of price levels would you even contemplate signing long term contracts at?

Grant, do you want to take that one on?

Well, yeah, I mean certainly not today's levels, you haven't seen that. You haven't seen I think engaging a lot of term contracting in the market in the last couple of years because we've had the contract portfolio protection and because we've been keeping our eye on this growing wage of uncommitted requirements. As Tim referenced earlier, some trade press folks saying that between US and non-US utilities that's a wedge that in the next ten years is some 800 million pounds of uranium that hasn't yet been bought and that's pretty exciting to us because that's a lot of business that has to come into the market. We look at the supply that needs to be incented in order to meet that demand that supply. Some of it's going to be tier one, some of it's going to be tier two, it's probably going to have to incent some of that tier 3 stuff as well and that tier 3 stuff is expensive and so we've never quarreled with those who have talked about $70 uranium price to incent that to tier 3. Now, we would obviously find good entry points for capturing value in the market below that. But certainly well above where it is today to be interested certainly in fixing it. And we have an overall portfolio strategy of wanting to be balanced. We want to have some fixed prices. We also want to have some market exposure. We also want to have regional diversification in our portfolio. I think the last couple of weeks have demonstrated that not all customers are created the same. So we want to have a focus on those kind of tier 1 customers in our portfolio. So all of that factors in along with price to determine when we pick our entry points, but today isn't an exciting entry point, which is I think why Tim's comments began with we are far from seeing a fundamental transition.

Grant, Tri Tech picked up their long term price let’s assume to 35 from 30 last week, is that something you are seeing as well, is that going to become evident in the market, the prices moving higher?

Yeah. It's always interesting for us when you see that kind of gap that there is right now between the two main price reporters, a $5 gap in their term price reference and really I think it comes down to there's a bit of sentiment in there, these trade reporters have different access to potential demand, they do different work for different customers on what those fuel buyers are thinking about the market and clearly I think Tri Tech is seeing something with respect to the term market and what the appetite is to maybe come off the sidelines a little bit. I mean I think last year ended with only about 60 million pounds of term contract and yet another year way short of replacement rate. So we know there's demand piling up on the sidelines. Are we actively seeing it? Well, nothing we can immediately point to, we haven't seen a spike in RFPs in the market, but when we use the term upward lean, it's because we are seeing this momentum.

The next question is from Orest Wowkodaw from Scotiabank. Please go ahead.

Hi. Good morning. Thanks for taking a follow up. I believe it's the first time you've ever given us the disclosure on your quarterly sales within a calendar year. How much certainty do you have on the delivery schedule and can that change as the year goes by?

Well ‘sit certainly closer in the near quarters. I think we will have more accuracy and we can get some more delivery notice changes I guess during the year but Grant do you have anything else?

Yeah. So we’ve been actually talking about the variation of our deliveries of the course of the year for quite some time now. It is the first time we put it in a picture, so I guess we learned a lesson here about actually being a little bit more clear. So that is very helpful for helping you understand kind of the mood in the market because those delivery notices are really a function of when fuel buyers are timing their entry points as well. And so it's not uncommon that when a fuel buyer is sitting there thinking there might be some price off pressure, they would push out their market related to later in the year to maybe try to take some advantage of that. So as you look at that picture in the disclosure, there is a familiar pattern. Whether that changes in a market that begins to have an upward lean, we don't know. And the other thing to remember about it is that our delivery notices are usually six months lead time. So this is our best guess. It is subject to change, but right now, that's the guidance that we have for the year and how we think the business is going to unfold. So we'll have some quarters that will be low and some waiting toward the second half of the year.

Okay. And then just in terms of the contract portfolio, you disclosed that you've got average, your average book is about 24 million pounds a year between 2017 and 2021, obviously higher in the in the upfront years, can we assume then, I mean if you're going to do 30 to 32 this year that by 2020 to 2021 that number would be below the 20 million pound mark in order to average the 24.

Well, it does tell you that in order to get an average of 24, the other years have to be less if the earlier years are higher. Remember that’s the kind of exposure that we actually want to have. We look at a market where we see a lot of uncovered demand, a market where we think that that demand has to come and we think some of that is coming our way and we want to be exposed to it rather than panic a little bit and lock-in a lot of volume today at these prices which we could do. We would have a portfolio with a lot of volume and then not a lot of value and our goal is to always get that right balance between the two of them. So we want that exposure in those outer years looking at the end coverage requirements, but there's no doubt, we're protected fairly well in the next couple years and then it starts to fall off coinciding with when we want to pick our entry points.

I see. And if the contracting market did not pick up for whatever reason, I assume you wouldn't be taking your production levels down to sub-20 million pounds. Should we anticipate that any kind of shortfall that you might actually look at selling into the spot market or different avenues.

Yeah. That’s an interesting question and of course we would have a couple of years to adjust for that, but you remember in Tim’s comments, he talked about we look at things like the TEPCO contract cancellation and the pounds that we thought that were going to them that are now part of our longer term planning and we then have to factor those plans in on kind of a sales and sources perspective, so we have some committed sales. That's a great home for our volumes, it's a great home for our purchases and then and we have an inventory as well. So we'll just look at how to best navigate through those scenarios, one, obviously where there's a low for longer but one where there's a demand transition and we hope to grab some operating leverage, so all part of the assessment. These are early days post the TEPCO cancellation and more of the work that we have to do, but I can tell you we really have an aversion to being in a position where we're producing from tier 1 assets and having to sell that material into the spot market. That's not something that we particularly lust after, so our planning will have that kind of parameter in mind.

There no more questions at this time. This concludes the question-and-answer session. I would like to turn the conference back over to the presenters for any closing remarks.

Well, thank you operator and with that I just want to say thanks to everybody that's joined us today. We appreciate your interest and your support. We're confident here that our strategy to focus on our best margin assets are going to allow us to really manage effectively through this challenging market and position the company to benefit from a future where additional uranium is required to meet growing demand. So we're cautiously optimistic and we’ll leave it at that. So thanks everybody and have a great day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.