March/April 2010

A decade at the helm in a sea of change

Interview with Jerry Grandey, president and CEO of Cameco Corporation

By P. Diekmeyer

Jerry Grandey is among the most influential leaders in Canada’s natural resources sector. As the president and CEO of Cameco Corporation, he heads one of the world’s largest uranium producers, as well as one of the Financial Post’s 10 Best Companies to work for in Canada. He is also a board member of the Nuclear Energy Institute and is a former chair of the World Nuclear Association. His depth of experience and wide-ranging involvement in the industry affords Grandey unique insight into major developments in the field. CIM Magazine talked with him in mid-February.

CIM: May will mark the 10th anniversary of your becoming Cameco’s president. How has it been so far?

Grandey: 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, as we expected, nuclear power was rediscovered. There were several reasons for this. For one, investors began to notice the increasingly evident success of United States 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 to this rediscovery.

Personally, my greatest revelation was relearning just how difficult it is to effect meaningful change within an organization. To declare new policies and to put them down on paper is easy; but to get people to buy-in takes work. The other big change is that when I started, business pressures were mostly bottom-line related. Now there are a multitude of stakeholders clamoring for attention, ranging from regulators to environmental groups to public officials. That said, I am also quite surprised at how much fun it can be when everyone pulls together and the results start coming.

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

Grandey: Our long-term working forecast has been that uranium demand will grow steadily at about three per cent per year. However, the weak economy will continue to slow near-term 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, assuming current trends continue, I would not be surprised if, 10 years from now, growth happened even faster.

CIM: Cameco’s stated plans are to double annual uranium production by 2018 to 40 million pounds per year. What progress have you made so far?

Grandey: 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 has been a challenge. Our forecast is that output from the project, which we hold a 50 per cent stake in, will be about 18 million pounds per year. However, there have been some major setbacks. In 2006, the mine flooded, which completely disrupted our timetable. By 2008, we had plugged the initial water inflow source. But then the mine re-flooded, and we had to plug the second inflow source. As we are speaking, most of the water is out of the mine. Once dry, 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 to development.

The projected doubling of production will be done from existing assets. Our 60 per cent stake in the JV Inkai deposit in Kazakhstan is another big piece of the puzzle. We plan to boost total production there from two million pounds per year, to 5.2 million pounds by 2011, and then to 10.4 million pounds 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 Kintyre deposit and Saskatchewan’s Rabbit Lake and McArthur River will also contribute.

CIM: 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?

Grandey: 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 sources 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 to the extraction methodology and, crucially, to 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.

CIM: Surrounding the Copenhagen Summit, there was strong public interest in climate control measures. What role does the nuclear power industry have in the current debate?

Grandey: Nuclear power was, in many ways, excluded from the earlier Kyoto protocols. However, in Copenhagen, 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 436 nuclear plants with coal facilities, emissions would rise astronomically. That’s just existing plants. However, there are many new coal and gas-fired 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 in helping to limit the growth of carbon emissions. The challenge is that the cost of building nuclear power units has become expensive. With the insistence upon ultra safety, nuclear power facilities have a much higher hurdle to leap than do other power sources. That may or may not be appropriate, but it is expensive.

CIM: Uranium prices have come down 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?

Grandey: Well, the drop-off may be large but don’t forget, prices used to be $7 per pound during part of this decade. So we have lived through low prices before. 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 TradeTech and Ux Consulting that the longer term price indicator will hover between $60 and $65 per pound.

CIM: How do uranium price fluctuations affect Cameco?

Grandey: Cameco deals with the uncertainty by dividing our portfolio into two pieces. About 40 per cent of Cameco’s output is sold at fixed prices, under long-term contracts. The balance (60 per cent) 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 spot prices has floor price protection.

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

Grandey: As uranium prices firmed, we began to put more effort into exploration. We currently have about 100 geologists and geoscientists 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 explore in Canada, the United States and South America.

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