Title: Interview with Gerald Grandley, President and Chief Executive Officer of Cameco


Gerard Grandley is one of the most influential leaders in Canada’s natural resources sector. As President and Chief Executive Officer of Cameco, one of the world’s largest uranium producers, and board member of the Nuclear Energy Institute and the National Mining Association, Grandley has unique insight into major developments in the field. CIM Magazine talked with him in mid-February. Following is an edited version of his comments.


May will mark the 10th anniversary since you became Cameco’s president.  How’s it going so far?


What’s interesting is how much our industry has changed. Ten years ago, nobody was interested in nuclear power. At Cameco we took advantage of the pessimism by acquiring the assets of those who wanted to get out. Then gradually, as we expected, nuclear power was gradually rediscovered. There were several reasons for this. For one, investors began to notice the increasingly evident success of US nuclear power facilities, which began to run well, at high levels of capacity and were thus quite profitable. In addition, after 9-11, the United States began placing more emphasis on energy independence issues. Increased awareness of nuclear energy’s potential role on the environmental front also contributed.


I have been trying to delegate myself out of a job my entire career, so taking on the presidency here seemed like a natural evolution. But my greatest revelation was relearning just how difficult it is to effect meaningful change within an organization. It’s easy to declare new policies and to put them down on paper. But to get people to buy into new ideas takes work. The other big change is that when I started, business pressures were mostly bottom line related. Now there are a variety of stakeholders clamoring for attention, ranging from regulators, environmental groups and public officials. That said, I am also quite surprised at how much fun it gets when everyone pulls together, and the results start coming.


The global economic crisis put energy demand concerns on the backburner for a while. Now with the recovery, the issue is coming to the fore again. How so you see things unfolding from here?


Our long term working forecast has been that uranium demand will grow steadily at about 3% per year. However the weak economy will continue to slow intermediate projected demand growth slightly, particularly in Western countries. That said, reactor construction in Asia, particularly in Korea and China has accelerated, even during the recession. This has somewhat counterbalanced sluggishness in the west. In fact, if current trends continue, I would not be surprised that if ten years from now growth could speed up even faster.


Cameco’s stated plans are to double annual production during the coming five years to 40 million pounds per year. What progress have you made so far?


Bringing on stream the Cigar Lake project in Saskatchewan, which is the world’s largest undeveloped high grade uranium deposit, is a key part of our strategy. But  it been a challenge. Our forecast is that output from the project, which we hold a 50% stake in, will be about 18 million pounds per year. However, there have been some major setbacks. In 2006, the mine flooded, which completely wrecked our timetable. By 2008 we had begun to plug the water inflow source. But then the mine re-flooded, and we had to re-plug the second inflow source. As we are speaking, we have begun to dewater the mine, and most of the water is now out. After that we will inspect the underground workings to see what damage has been done. Then we will make an assessment of what is needed to get back on track.


However in general most of the projected output expansion will be done largely from existing assets. Our 70% stake in the large JV Inkai deposit in Kazakhstan, is another big piece of the puzzle. We plan to boost production there from 2.0 million pounds per year, to 5.2 million pounds within the next few years, and then to 10.4 million pounds two to three years after that. We also plan to increase production in our Wyoming and Nebraska stakes, where the key bottleneck is getting the appropriate permits. Our investments in Australia’s Kyntire deposit, Saskatchewan Rabbit Lake and at MacArthur River will also contribute.


Cameco bills itself as a leader in low cost uranium mining and production. What are some of the key techniques that the company uses to keep costs down?


Well, we know a bit about this, because as I noted, uranium was suffering from depressed demand and selling prices for many years. The only way we could survive was to be a low cost producer. As a result, many of the acquisitions that we made were of other low-cost producers, and gradually, we were able to build some good synergies. Generally though, productivity depends on a variety of key factors ranging from the grade and size of the ore bodies, the extraction methodology and crucially, the way you incentivize employees. The good news is that by keeping our costs low, we were well positioned when demand began to pick up.


The recent Copenhagen Summit capped significant public interest in climate control measures. What role does the nuclear power industry have in the current debate?


Nuclear was in many ways excluded from the earlier Kyoto protocols. However in Copenhagan you began to see increased recognition of the huge contribution that nuclear power can make on the environmental front. If you replaced all of the existing 440 nuclear plants with coal facilities, emissions would rise astronomically. That’s just existing plants. However there are many new coal plants being built, and many others are on the design table. If some of these were replaced by nuclear facilities, the industry could make an even greater contribution to helping to the limit the growth in carbon emissions. The challenge is that the cost of building and running nuclear power units has become prohibitively expensive. Nuclear power facilities have a much higher hurdle to reach on the safety front than do other power sources. That may be appropriate, but it’s expensive.


Uranium prices have leveled off considerably during the past few years, from close to $136 per pound, to less than $43 per pound. Do you expect this trend to continue?


Well the drop-off may be large, but don’t forget, prices used to be $7 a pound during part of this decade. So we have lived through low prices before. In short, in the last year, we have seen a lot of volatility, and I believe that will continue. However we agree with projections by outside sources such as Trade Tech and the Ux Company that the longer price indicator will hover at between $60 and $65 a pound.


How do uranium price fluctuations affect Cameco?


Cameco deals with the uncertainty by dividing our portfolio into two pieces, About of 40% of Cameco’s output is sold at fixed prices, under long-term contracts. The balance (60%) is also sold under long term prices, but at spot prices or the long term price indicator at the time of delivery. There is some safety in the strategy in the sense that a lot of the portfolio related to the spot selling prices has floor price protection.


Cameco has been quite active on the exploration front. Can you tell us a bit about some of your major initiatives?


As prices uranium prices firmed we began to put more effort into exploration. We currently have about 100 geologists and scientists on staff. We are also focusing heavily on Kazakhstan. Adjacent to our existing production facilities, we have 20 other drill rigs looking for more resources. We also look explore in Canada, US and South America.


Peter Diekmeyer (Peter@peterdiekmeyer.com) is CIM Magazine’s Quebec correspondent.



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