Q1 2021 Cameco Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the Chemical Corporation first quarter 2021 conference call as.
As a reminder, all participants are in a listen only mode and the conference is being recorded after the presentation, there will be and opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal, an operator by pressing star and zero.
I would now like to turn the conference over to Rochelle, Gerard VP Investor Relations.
And tax please go ahead.
Thank you operator, and good morning, everyone and welcome to chemicals first quarter Conference call today's call will focus on the trends, we're seeing and the market and on our strategy not on the details of our quarterly financial results.
As always our goal is to be open and transparent with our communications and therefore, if you have detailed questions about our quarterly financial results or should your questions not be addressed on this call. We will be happy to follow up with you after the call.
There are a few ways to contact US you can reach out to the contacts provided in our news release.
You can submit a question through the contact tab on our website or you can use the submit a question tab on the webcast and we will be happy to follow up after.
With us today on the call are Tim gets Hill, President and CEO.
Isaac Senior Vice President and CFO.
Brian Reilly Senior Vice President and Chief Operating Officer, Sean Quinn, Senior Vice President and Chief Legal Officer, and corporate Secretary and Alice Wong Senior Vice President and Chief Corporate Officer.
I'm going to hand, it over to Tim to talk about the growing demand for nuclear power the uranium market fundamentals and about cameco strategy to add long term value. After we will open it up for your questions.
If you joined the conference call through our website event page there are slides available, which will be displayed during the call and.
In addition for your reference our quarterly Investor Handout is available for download in a PDF file on our website at cameco Dot com.
Today's conference call is open to all members of the investment community, including the media.
During the question and answer session. Please limit yourself to two questions and then return to the queue.
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'll turn it over to Tim.
Well, thank you Rachelle and welcome to everyone on the call today. We appreciate you taking the time to join US I Hope you and your families are doing well.
Last quarter I talked to you about our excitement for the future of our industry and about the opportunity for nuclear power to play a pivotal role and the transition to a net zero carbon economy through both traditional and non traditional uses.
I also talked about the excitement we have for the role that cameco can play and that future as we executed on our tier one strategy, which includes production discipline.
Marketing discipline and conservative balance sheet management.
And I have to say that over the course of the last few months there has been nothing to dampen our enthusiasm and and so.
There've been a number of developments that continue to support our optimism.
And I'll get into those and a bit but I'm going to provide a recap of what I said was the three main drivers for our optimism.
First demand for nuclear power is becoming more certain and as the.
A trend of increasing electrification, while phasing out carbon intensive sources of energy continues to take hold around the globe.
Second uranium supply is becoming less certain.
As years of persistently low prices have led to planned production curtailments.
Lack of investment the end of reserve life for some mines shrinking secondary supplies and trade policy issues.
And finally that our long term strategy positions us very well to sustainably deliver long term value.
Let's start with the macro view the fundamentals for energy.
And as I said previously we are seeing today, a mega trend focused on increasing electrification while at the same time, achieving massive decarbonization goals.
This mega trend has led to Omega challenge.
That challenge being threefold.
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To bring safe clean and reliable baseload electricity to about one third of the population who currently have no access or limited access to electricity.
Second to clean up and replace our existing sources of electricity with a safe clean reliable affordable and carbon free option.
And finally to transition away from the current use of thermal sources of energy for things like transportation.
And heating.
This mega challenge of increasing electrification is occurring precisely while countries and companies around the world are fixated on reducing their carbon footprint.
Many have announced net zero carbon targets and many more are expected to follow.
Country. After country is recognizing that in a world where 85% of our electricity still comes from fossil fuel sources. There is no clear pathway to sustainably achieve both electrification and decarbonization without nuclear and the toolbox.
And as I noted earlier over the last few months there has been further support for nuclear is roll and the clean energy transition.
And Europe, we've seen nuclear move another step closer to being included in the EU sustainable finance taxonomy.
A rigorous scientific full lifecycle assessment from the joint Research Center and concluded that there are no scientific arguments supporting the exclusion of nuclear energy from the taxonomy.
The European Commission and proposed a supplement to current legislation that is passed we'll confirm nuclear is sustainable.
In addition, and France, the French nuclear safety authority granted a 10 year extension to the operating lives of 32 of Etfs nuclear power plants.
Conservatively this could equate to at least 100 million pounds of additional uranium demand not previously accounted for.
Over in China, The nuclear Energy Association confirmed that the countries 14th five year plan targets 70, Gigawatts of nuclear power operating by 2020 five.
And increase of approximately 20, gigawatts from 2020 with another 50 gigawatts under construction.
It also indicated China could reach up to 120, Gigawatts and operation by 2030, and as part of its planned to be carbon neutral by 2016.
This would translate into annual consumption of about 60 million pounds of uranium per year.
And Russia, Rosatom announced a target of 24, new reactors that will be needed by 2045 to increase Russia share of nuclear to 25% of the energy mix.
This would add another 12 million pounds of annual demand to Russia's requirements.
And at the recent global leader Summit on climate hosted by the United States and.
<unk> plans to reduce carbon emissions and achieve net zero carbon goals over the next 30 years were discussed and many commitments were made.
For example.
And the U S where nuclear energy is increasingly recognized as a major source of carbon free scalable energy the president announced the goal to cut up to 52% of U S. Greenhouse gas emissions by 2030, leveraging existing nuclear energy and advanced reactor technology and its clean energy initiative.
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And he has promised to make the electricity system fossil fuel free by 2035.
Japan has revealed plans to cut carbon emissions, 46% from 2013 levels by 2030.
And maintaining its target for nuclear to provide 20% to 22% of its generating capacity.
Furthermore, we're seeing momentum building for non traditional commercial uses of nuclear power such as the development of small modular reactors and advanced reactors.
Nuclear is also the only low carbon source that can produce heat that along with its traditional users can be used to produce clean hydrogen and fresh water.
We're also seeing company after company announced net zero carbon targets.
They recognize there is increasing scrutiny on their environmental performance.
Investors are beginning to price climate related risks into their capital allocation decisions.
Investors are not only looking to invest and those companies that can demonstrate improved environmental performance. They will look for those companies that are positioned to do it profitably and sustainably.
Unlike in the past companies will be accountable for where the energy to fuel their operations comes from.
We like to think of it as electron and accountability.
And they'll have to make decisions that are economically sound to attract investment.
When you look at level is cost of nuclear compared to other low carbon sources nuclear energy is that solution.
The most cost effective way to provide low carbon dispatch of bolt 24 seven electricity.
So the outlook for nuclear is very bright.
Increasing demand for nuclear means increasing demand for uranium.
Which brings us to the second factor that I said is driving our growing optimism day.
And for uranium is rising at precisely the same time that supply is becoming less certain.
One of the indicators, we look at to illustrate the opportunity is uncovered requirements.
We know that utilities have not been replacing what they consume annually under long term contracts.
This has led to a growing wedge of uncovered uranium requirements.
That wedge is now bigger than it was back in the early two thousands which was another period of complacency.
There are only a couple of sources for this information and if we look for example at USC, which tends to be the most conservative view.
They show that global cumulative uncovered uranium requirements or about $1 4 billion pounds to the end of 2035.
If we back that up to when it's needed to be contracted produced and delivered the challenges to by $1 4 billion pounds by 2030.
That would require a 140 million pounds of long term contracting per year starting in 2020.
Last year, we saw 50 million pounds placed under long term contracts. So that demand is piling up in the future window.
Keep in mind. This is just traditional demand we're talking about does not consider any of the alternative uses of nuclear and I talked about earlier.
We're also seeing increased demand for uranium from financial players the junior uranium companies, who recognize that statistically.
The current uranium price has a much greater likelihood of going up than down.
And this view is supported by the fundamentals.
The growing uncovered requirements are occurring at a time when there are some big question marks about where the uranium will come from the fuel the world's expanding nuclear fleet.
Cameco supply curtailments alone both planned and unplanned along with our purchasing activity have resulted in at least a 145 million pound swing and the supply fundamentals since 2016.
Since the end of 2020, we've seen two long term producing mines come to the end of their reserve life.
The loss of the Ranger mine in Australia, and the common AG mining and Niger will further reduce supply by about 7 million pounds per year.
And our cigar Lake mine is done about eight years from now so right in that 10 year contracting window, we're talking about that's.
And that's another 18 million pounds per year gone.
Given the timelines. It takes we should be investing now to replace that lost production, but at today's prices that makes zero sense.
In addition, as a highly trade dependent commodity government driven policies can be particularly disruptive for the uranium market.
Due to persistently low prices, we've seen planned supply curtailments lack of investment.
And the end of reserve life for some mines and shrinking secondary supplies all of which have been amplified more recently by unplanned supply disruptions due to the COVID-19 pandemic.
Consequently primary supply has become concentrated it's.
It's concentrated geographically with about 80% of primary supply coming from countries that consume little to no uranium and.
And nearly 90% of consumption and recurring and countries that have little to no primary production.
And it is highly concentrated by producer with about 70% of primary production in the hands of the top by producers and about 80% in the hands of state owned entities.
So we believe that in the current market the risks to uranium supply are far greater than the risk to uranium demand.
These are the fundamentals that get us up in the morning, and why we remain a pure play supplier of uranium fuel needed to produce clean carbon free baseload electricity.
Which brings me to the final factor driving our optimism our strategy and why we remain committed to doing what we said we would do.
Let me remind you what it is that we said we would do first and foremost and this is where it starts for US we're focused on protecting the health and safety of our workers their families and their communities.
And we're doing that every day, we make decisions about how best to manage our operations and protect and support our workforce through the pandemic.
In December the trends, we were seeing and the COVID-19 pandemic caused us to proactively pause cigar Lake production for a second time as concerns about the availability of workers and critical areas was increasing.
During the temporary shutdown, we put further COVID-19 related protocols in place.
Combined with our onsite testing facility and the vaccine rollout in the province, we had the confidence to restart the mine and April with greater certainty that the mine will be able to operate safely and sustainably.
We will continue to monitor the situation and our communities and we will have regular dialogue with public health authorities.
Pandemic or no pandemic, the health and safety of our workers will always be our priority.
We will not hesitate to take further action, if we feel our ability to operate safely is compromised.
Second apart from the COVID-19 disruptions to our operations, we have not wavered from the execution of our strategy.
There are three fronts on which we are executing our strategy operational marketing and financial on.
And on the operational side, we have implemented our planned supply discipline cutting production well below our delivery commitments.
This includes the curtailment of production at Rabbit Lake Our U S assets and of course at the Mcarthur River key Lake operation.
As I said earlier these actions and left a lot of pounds and the ground and kept them off the market.
Consequently, we have been purchasing material on the spot market to meet our committed deliveries.
In addition, we've shown sales disciplined sticking to our value strategy.
We've been strategically patient.
We take a portfolio approach to building our contract book.
And much like building and the investment portfolio. It is a balanced approach that manages risk and return.
We'd like to layer in contracts where appropriate.
We want to ensure we support the operating cost of our assets will not committing our tier one pounds too far and the future under contracts that will generate an appropriate portfolio of return and we do not want to exhaust our tier one assets and a low price environment.
And we're seeing our patients pay off and.
In April we successfully finalized and executed a number of sales contracts, which had been under negotiation, adding 9 million pounds to our long term contract portfolio, which together with recent long term contracting total is almost 60 million pounds.
And we continue to have a large pipeline of uranium business under negotiation.
In fact, we continue to see off market interest growing and historically it has been a leading indicator of broader demand for long term contracting.
We're having conversations with our biggest and best customers.
These customers recognize the long term fundamentals they want access to long lived tier one productive capacity from commercial suppliers, who have a proven operating track record.
They understand that from a security of supply perspective, today's prices do not reflect production economics.
They recognize the first mover advantage gained from securing their future access to our tier one pounds today as opposed to in the future.
And we have some competitive advantages we have significant idle tier one capacity that is fully licensed and fully permitted that will be among the first pounds to meet the growing demand and the market.
We are and independent commercial supplier and provide our customers supply diversity from state owned enterprises.
With substantial Canadian productive capacity, we can help de risk their future supply from trade policy exposure.
And emerging is the focus on ESG matters, which is great news for us.
The cameco, serving the interest of our stakeholders has always been at the heart of what we do long before there was a focus on ESG issues, because it's the right thing to do and.
And we recognize the significant business value it adds.
Our board.
Our employees contractors communities suppliers customers governments and are providers of capital and expect us to manage this company and our long term sustainable fashion.
We're very proud of our over 30 year commitment to protect engage and support development of our people and their communities.
And to protect the environment.
The uranium fuel we supply plays a significant role and contributing to greenhouse gas mitigation efforts and Canada and abroad and.
And Canada alone this uranium fuel provides greater than 30% of the province of Ontario electricity every year.
More than 5 million tons of carbon dioxide from being admitted.
Considering only the Canadian emissions avoided resulting from the use of nuclear power and Ontario, we like to think of ourselves as Canada's first net zero mining company.
So we are well positioned to meet our customer needs.
And finally on the financial side, we've been very deliberate and shoring up our balance sheet.
At the end of the first quarter, we had negative net debt with 1 billion and cash and a 1 billion Undrawn credit facility.
As such we have the financial capacity to self manage risk and maintain our strategic resolve.
Before I move on from the strength of our balance sheet I do want to address with the Supreme Court of Canada decision means for us.
First and foremost it means that this dispute is fully and finally resolved for 2003, 2005, and 2006 and that cameco as marketing structure and behavior through this period, we're in full compliance with the income tax Act.
In other words cameco, followed the law and it was the CRA and its re assessments that were off side.
And as stated many times with this decision we believe CRA should move quickly to resolve all subsequent years and returned to us the $303 million of cash they are holding and release the $482 million and letters of credit that are tied up a security for all years.
While this dispute has been before the courts, we've been accused of not paying our fair share of taxes.
Now that this matter is no longer before the courts. It gives me great satisfaction to know that the court system and Canada has unequivocally confirmed that we did pay our fair share of taxes.
But there are elements of this that are not fair.
It's not fair that we have to continue to wait for an indeterminate period for the CRA to make the decision to return our cash and credit capacity.
And it's not fair to see Cameco disparaged in the recent federal budget document is engaging and inappropriate profit shifting in light of what various court judgments actually say.
Cameco has contributed to the health and safety of individuals around the world.
We participated in the megatons to megawatts program that saw the dismantling and more than 20000 nuclear weapons.
Converting 500 metric tons of highly enriched uranium into low enriched uranium for uses fuel and nuclear reactors.
And we're proud to be part of the venture that makes Canada, the world's leading supplier of cobalt 60 for medical applications and other gamut technologies, demonstrating the tremendous benefits the nuclear industry delivers to Canadians and others around the world.
Cameco has contributed millions of dollars per community and infrastructure projects in northern Saskatchewan, including schools housing recreation facilities.
Since 2009, we've invested nearly $10 $5 million in support of infrastructure improvement projects and local communities, which have been targeted at youth health and wellness, including mental health education, and literacy and community development.
We're a leading industrial employer of indigenous peoples, and Canada, providing well paying jobs and northern Saskatchewan for over 30 years.
And we've helped establish and grow businesses and northern Saskatchewan by procuring almost $4 billion and services since 2004.
We've reinvested billions of dollars and Canada building mines, and mills, and filling voids and programs for some communities.
So we take great exception to any claim that what we have done is in any way unfair when it is in accordance with the law.
The facts show that Canada has benefited greatly from the profits we have generated and this distraction should be result immediately.
Setting this issue to the side I'm happy to say that we're performing well on all three strategic fronts.
However, there are costs to our strategic decisions, which are reflected in our financial results.
But the good news is this does not represent the run rate of our business and we expect much better days ahead. Once we return to a tier one cost structure.
And we're taking the steps today and incurring the costs, we expect will allow us to restart our tier one assets with more flexibility and the production rate.
And to eliminate the care and maintenance costs incurred while our tier one production and suspended and to benefit from the very favorable life of mine economics. They provide.
We are confident and our ability to transition through this period and capture demand that will provide leverage to higher prices.
And we have concluded that we have the right vision strategy and values to deliver long term sustainable value.
Our vision, which is to energize a clean air World.
Recognizes that we have an important role to play and enabling the vast reductions in greenhouse gas emissions required to achieve a resilient net zero carbon economy.
As we seek to achieve our vision, we're committed to doing it in a manner that reflects our values.
Those values have not changed they have always guided our actions and they place a priority on safety and the environment.
And on building and supporting a flexible skilled stable and diverse workforce.
And behaving with integrity and leading by example.
And promoting and quality enacting to eliminate racism wherever it exists.
And on pursuing excellence and all that we do and inspiring others to do the same.
Our decisions are deliberate.
We are a responsible commercially motivated supplier with a diversified portfolio of assets, including a tier one production portfolio that is among the best and the world.
We are well positioned to take advantage of a market where demand for nuclear power, both traditional and non traditional is growing well.
And where we believe the risk to uranium supply is greater than the risk to uranium demand.
And where we believe our strategic decisions and strategic patients provide us with resiliency and the face of unprecedented challenges and will result, and the rewards that will come from having low cost supply to deliver into a strengthening market.
So thanks for joining our call today, and operator with that we would be happy to answer any questions.
Thank you.
We'll now begin the question and answer session and the interest of time, we ask that you limit your questions to one with one supplemental if you have additional questions Youre welcome to rejoin the queue.
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Once again anyone on the conference call and their wishes to ask a question May Press Star one at this time.
Yeah.
The first question is from Rs <unk> from Scotia Bank. Please go ahead.
Hi, good morning.
Wondering if we can get some color on your new contract that you disclosed and the results that the 9 million pounds I realize some of this information is probably sensitive but can you give us an idea of perhaps what region. The customers from what sort of time period. The deliveries are over and also on the pricing.
We haven't seen any movement and the reported term price.
Call it by UX and others.
Can we assume that.
Contracting price was down at a premium to that or any color here would be really helpful. Thank you.
Well thanks, George Thanks for the question.
So.
I think you said contract I would say and contract with an S. On the end of it would be a better description.
Of what we've done I'm going to ask Dr. Grant Isaac our expert on the market.
And just give a bit of and updated worst on those pieces and we will tell you. What we can and then just maybe grab a little overview on kind of the market and what we're seeing today, yeah sure happy to do that thanks. Thanks for your question and <unk>.
And as Tim noted in his opening comments that the 9 million pounds that we are announcing now.
Add to what we announced in 2020 and in 2019 nearing about 60 million pounds under contract now since we started this supply discipline strategy and what I think.
And it reflects is a couple of things that we've been saying and that is yes on one hand, the term market, especially the on market RFP side of the business is not at the level it needs to be in terms of the demands coming to deal with that uncovered requirements wedge, but as we've been saying for a while now.
There are some utilities, who get it they see the demand outlook improving they see the supply outlook at being.
Becoming more uncertain because today's prices are not incentive and the investment in capacity and in the past they've relied extensively on secondary supply capacity and they see that falling to through the same cycle. So there are some utilities, who get it and I would say the common denominator. There is these are the bigger utilities the bigger.
Company or country programs more reactors and more certainty about how long theyre going to run for so that tends to be the common denominator and this 60 million pounds. I think it also reflects that there has been and easing not and elimination, but some of and at the easing of the COVID-19 concerns that we saw and <unk>.
2020 that we're delaying the completion of some of the negotiations.
I think it also reflects the fact that some of the trade policy distractions have been cleared up utilities have a better sense of the origins that that they ought to be buying and a world where critical minerals and the role of state owned enterprises is taking on a bigger role in in sourcing decisions. It also reflects.
And the role of of ESG, and procurement decisions going forward and making sure that supplies.
Have a good chance of meeting the criteria that utilities are also going to be responsible for I think for cameco. This success reflects we're in the pole position when it comes to layering and new contracts for all the reasons, we've talked about in the past the incumbency factors that we have permitted licensed facilities that are.
Proven and our reliable and meet ESG criteria that we're a commercial supplier.
We have had.
The high proportion of Canadian origin, which is a sought after origin in the market for share at the moment. So I think it tends to reflect all of that.
Just a quick reminder, about sort of the portfolio and as Tim said also in his comments.
We tried to build a.
Our contract portfolio that isn't dissimilar to our owners trying to build and investment portfolio. We have a number of criteria. We try to meet you asked about price and of course price is central to US building our contract portfolio, but what is central to us in the pricing discussion right now is the price mechanism and we look at a market, where we believe that too.
Today's price is insufficient to generate the supply needed to meet the improving demand outlook. So right now we're not really anxious to lock in today's price in fact, we would prefer market related price indicators, so those utilities, who get it and who are willing to give us more market related exposure.
Those are where we're having success and these off market contract. So so for US. It really is a function of getting the pricing mechanism right. So we have exposure to what we think is and improving market and of course price matters, but so does so does volume.
Certainly volume with respect to the.
The timeframe in which we'd be making deliveries and the duration and how long that contract is for so so you asked about the window I would say and that nearly 60 million pounds and some of it is near term and the next three to five years some of it is longer term.
Outside 2025, and beyond which is really interesting. It's a reminder to all of us.
And that those folks that are planning their supply decisions, believing theres going to be this.
GAAP and the market in 2027, 2028 that won't be filled well it will be filled it'll be filled by this type of contracting over the next couple of years. So if you're not if you're not involved in it now youre going to end up with supply that doesn't have a home and the future. So volume certainly matters to us and then remember within volume there as they are.
Flex and deferrals that we build into our contract portfolio to give us opportunity for more value product for matters, because we're not just a uranium supplier we have a fuel services group and we like to obviously underpin that activity.
The customer matters as I as I think we discovered with our dispute with Pepco not all customers are the same in terms of their commitment to contracts that they signed and.
So making sure that those those high quality tier one customers are well represented and our portfolio and regions matter to us so like our owners were building our contract portfolio.
And the opportunities the nearly 60 million net we've signed so far since we've embarked on this strategy reflect a balance of those criteria and and very much in our interest when we look at it from a portfolio point of view.
Okay.
Thanks, Brad.
Yes.
The next question is from Lawson Winder from Bank of America Securities. Please go ahead.
Okay.
Lawson Winder your line is open.
Oh shoot out as needed I apologize, yes, good morning, guys and thank you for the update today I Hope you all are well.
So.
Did the high level of producer buying and late March early April factor and at all to your decision to restart cigar Lake.
Good morning loss, and so no no cigar Lake and <unk>.
Something we had always planned to run this year, we've been very clear about that what has set us back on that and December was with COVID-19 and the.
The COVID-19 that was sweeping the world and Saskatchewan as well and we didn't have a huge problem at cigar, but we could see a wave coming and we were having people have to sit out.
Because they were a close contact for instance, and then we'd be short of operators and the GM Lloyd Rouse and was every day kind of looking to see what his roster look like and whether you could put a team on the field that cigar lake to run the assets and so no that didn't factor into it at all and that was certainly interesting I think we saw the juniors.
Book to 10 million pounds, and a little bit more and maybe $10 5 million pounds.
The market and the first quarter, but that was just added pressure on the market and it wasn't related to our cigar lake decisions.
Great. Thanks for that and then my follow up which is beyond the first question on the contracting.
And you gave us a lot of detail in your answer there great. Thank you for that now I wasn't entirely clear though.
And those 9 million pounds on average lineup with your overall portfolio target of 60% market related and 40% base escalated.
It's a great question.
They would largely so when we think about not just the nine but the overall nearly 60.
And we're staying consistent with those goals is and that framework that we put out it hasnt changed and and if it does we'll we'll change the framework for you to reflect that maybe we will have a different pricing balance going forward, but the key is to remember that.
The responsible producers or those that are building homes for their production and they are building homes now for their production and the idea that that somebody is going to sit on a bunch of material and they're not going to put it into the term contract homes, they're just going to dump it into the spot market at a later date.
That's exactly what some fuel buyers water here because they understand that the spot market is not capable of absorbing that level of uncommitted primary production.
And so really what you want to see is the building of the term contract homes, creating our market alignment with the production decisions.
Thank you very much.
And then flow.
The next question is from Ralph <unk> from eight capital. Please go ahead.
Hi, good morning, Thanks for taking my questions.
And.
Tim or grant it's been a while since Japan has been sort of top of mind and and that sort of a topical issue you know the pace of restarts continues to I guess lag expectations, but now we've had and it was recently that they are looking at bringing on or passing critical phase on three new reactors, where does Japan stand on.
On inventories and and are they are there material legacy contracts to which they continue to honor is that a significant part of the market.
Well.
And I think Japan is becoming a good story I mean, yes, it's taken way longer than we ever thought it would I remember back in 2011 of them talking about.
About radar.
And right after the accident the talked about reviewing all of the units and then bringing them back on and here. We are 10 years, plus 10 years later and.
And it's slowly coming back, but I can tell you they showed up at the Earth The summit and.
And last week with the president Bud and Theyre, making commitments to <unk>.
And the carbon.
The reduction that are that are very aggressive I would say and so.
And I think there are politicians are clear that they are never going to get there without nuclear so we're seeing it come back we havent seen a whole lot of Japanese material over those 10 years come into the market and now we think they're holding onto it.
And because there are restarting and the Oregon and need their fuel going forward. So we see Japan us and improving story, it's been a it's been a long time, but we're pretty we're pretty positive do they have long term contracts well. It's been 10 years. So most of them at least I can speak for cameco.
And they have gone away and they havent signed a whole lot of new ones, but we have seen them and the market from time to time, so rather than if you are and that well I would just say, Ralph and Youre right and that the.
The Japanese.
<unk> fleet was a major theme and narrative and the mark at quarter to quarter year to year for a while but thats kind of died away and it died away as the new regulatory authority really.
Took root and started making approval decisions and then that was that.
Created the impression that yeah.
Japan has got some material that they need to work through but everybody kind of just lifted up that market and moved it to the side and focused on China, and India and everywhere else. So Japan's kind of kind of over on the side nobody expects the Japanese fuel buyers to beef at the front of the line and the next buying cycle because of the inventory position.
And that you've talked about but we don't see it as a risk of up huge amounts of material coming to the market from Japan anymore, either because of the restarts because there seems to be a pathway and a renewed commitment to that base load power that is absolutely fundamental to an economy, that's and export <unk>.
And industrial growth economy, it needs to keep base load power and increasingly clean cheap baseload power to make that economic model work and so nuclear is kind of back in the tool box and a really important way if we take a one level down look at Japan remember, it's kind of the tale of two worlds and <unk> got a couple.
Utilities can you share Kansai Chicago approved reactors to run and have been running and have been consuming inventory and consuming material and in fact, we've seen.
And some new buying from that group and then you have the others, primarily with the boiling water reactors. The first generation reactors there hasnt been one of those restarted yet there has been a couple now approved.
That group is sitting on and excess inventory relative to what they are producing today in terms of power output, but they also have an expectation that their reactors are coming online. It's why they've made the investments that they have to prepare for the new regulatory measures that are required and Japan.
As the largest spot buyer of material and the market you can imagine we've asked is there material available from from those customers and we get the same consistent message.
Why would we sell it today and a low price to market.
Only to have to buy it back into a higher priced market and it will be a higher price market when their reactors are running so.
And we look at that as probably the most mobile source of utility inventories, but I can tell you we see no indication that it has been mobile.
Right right.
Well that's good color. Thanks.
I wanted to come back to the 60% market related.
What would you need to see and the market to push that higher right and.
Previous uranium psychochemical wasn't able to fully capture that uranium price price because of those legacy fixed price contracts.
What what are you going to need to see and the market to be able to push that to 70%, 80% and and is that potentially part of the strategy.
Yeah, Ralph I would say that balance is actually and important learning from exactly the scenario that you described.
Since Fukushima and especially with some folks who are kind of new to the uranium space people will ask us about well why would you have a 60 40.
Portfolio split why wouldn't at all be 100% market related because.
And the price seems to be low right now we seem to be at a P 10, or a <unk> 15 price it's got it yes.
And then to 15% chance of going down and not very far 85 day, 90% chance of going up and probably a long way.
But remember that that ours is a market that moves more on sentiment and then on I would say fact, because if our market moved all in fact, there would be a lot more contracting today, there would be a much more rational view.
The demand outlook is improving the supply outlook is far less certain.
If price is low now would be a good time to buy but instead, we actually see a slightly different psychology, we see a psychology for some fuel buyers up not the ones that we've signed nearly 60 million pounds worth of new business with but for others. They look at a low price of uranium and they say well uranium price must be low because it.
Must be everywhere and if its everywhere I don't need to worry about buying it today and instead of saying a low price is not incentive and the investments and the capacity that is needed to match the demand out into the future. So so for us knowing that that psychology hasnt changed it reminds us that ours is a market that.
And it can go through some fairly significant.
Price transitions and go through them quite rapidly we saw it in 2010 and uranium we saw it and 26 2006 and uranium and we saw in the last 18 months and conversion if you want and more recent data point that psychology is still there and so for US it's important to make sure that we have the exposure to the.
Those moments, where you see a rapid transition and the price, but then at some point you want to lock in some of that value recognizing that if there is a period of low below replacement level contracting followed by an exuberant period of above replacement level contracting utilities will there.
And kind of fill up their requirement to get and they will feel complaisant. They will step out of the market and the price we will consolidate it will come off and you want to be protected for that so right. Now we look at a price that it's got to go up to and said future production, we want to be exposed to that at some point. We then want to lock in value and when we lock in that.
And you think about it is giving us the ZIP line protection that we've enjoyed since Fukushima. So that 60 40 balance is actually the learning from where we were in the 2000 and fix price Spike as you say uranium gets to $136 a pound I think our average realized price at the time was $36 a pound and so.
60, 40 has come out of that learning to say, we've got a lock in value and we think we're and the right price range, but until then we want to be market exposed that's the better that's the better play for us. So so so Rob I think it actually reflects better the dynamics and the market and reduces the likelihood of the outcome that that you were describing and hey, we want to learn from that.
And on that side of the trade and it was very painful.
Understood well.
Thanks, Tim Thanks Grant.
Thanks Ralph.
The next question is from Andrew Wong from RBC capital markets. Please go ahead.
Hey, good morning, Thanks for taking my questions.
I just wanted to ask about cigar Lake.
And so one with development of phase two needs to be accelerated to ensure production.
Whereas chemical considering other options to maintain production later this decade and.
And also how does that.
How does the cigars longer term decisions factor into some of the contract discussions that youre, having with your customers.
Yeah. Thanks for the question Andrew.
<unk> is an interesting piece as we said by the end of the decade, if we continue to run at that.
And at normal rates.
We will run out of or they're in phase one phase II is available, but we're in that exact dilemma that I mentioned earlier that there is no incentive price to be to be looking at new projects and making that eight year investment 10 year investment that you need on and will add one won't take that long because it's a brown.
Our own people you can imagine on a greenfield.
To 10 years before you're up and running but if you walked into your board of directors I can tell you for ours, and we said well we're going to start a new Greenfield project today, they probably running out of the boardroom and so.
No incentive pricing there to to put the large amounts of capital in to start a new project. So for cameco I mean, we're looking at that.
And that phase two we're doing studies on it and doing the math on it and doing projections, but.
And there is no no incentive today to move that forward. So I would say the same with our jewelry and kintyre and millennium and some of the other projects we have there.
And theyre not at the same level as the Mcarthur is and the cigars and some of the Kazakh production and new projects just aren't there and.
And the unproven ones and Youll see some pretty interesting numbers coming out of some feasibility studies, but I can tell you after more than 30 years here, it's not an easy game building and new projects. So that's that's a concern.
Think about that we think about that all the time, we think about that $1 4 billion pounds that needs to be procured in the next what nine years 10 years, and where that's going to come from and yet the market is not giving anyone a signal to move ahead on our new projects. So it's a dilemma and we're going to face and I think there.
Gotta be a realization of the urgency of this and the market.
And at some time in the near future.
Okay.
Okay.
Maybe I'll just ask about some of the recent purchasing activity.
And with chemical consider making strategic purchases similar to what the juniors and recently and.
I guess, let's just what's your view on that kind of strategy, that's being employed to purchase excess material.
And to help push prices higher thank you.
Well Andrew Thanks.
And the purchasing we've been doing is to to fill our contracts that we have in our portfolio having shut in most of our production.
And the Mcarthur the U S Rabbit Lake.
Cigar has been due to COVID-19, we still have a very nice contract portfolio that we have to fill so our purchasing has been in that regard and and not on speculation with grant do you want to chip in.
Lately right. So we continue to purchase where we're and rather than sort of buying on on spec or buy to hold where the most inelastic buyer and the market. If you think about it because we have to buy to meet our committed sales portfolio.
In some ways and I don't mean to make us a cheeky comment, but we actually owe the trader community in the uranium space a big thank you because instead of instead of restricting pounds and holding them back and watching us chase the price up because we got to buy anyway, they've been very willing sellers and so we've been able to to help clean up the market.
To meet our committed sales portfolio, but not at <unk>.
Really punitive prices for us under our strategy, but.
But having other step in like this is an important fact change youre absolutely right I won't I won't make a comment about sort of whether it's wiser and not for and advanced exploration company to buy material and hold onto it and I've heard the reasons and their reasons are theirs and their investors seem to by and large to agree with it.
I think the buying showed.
What we've been saying and that is that the spot market the true spot market with the material that's available in the Cana in the canister today is very thin and the reason I think it proved it is because many of these purchases by the by the advanced exploration companies were out on the curve because they simply couldn't file.
And the material available today and so on one hand, that's quite positive isn't it Andrew because.
We've been saying a problem and our market is uncommitted primary production from from producers, who should be leaving it in the ground because they don't have a home for it but they haven't been <unk>.
And along the curve basically creates homes for the uncommitted primary production and that's great because it won't it won't be dumped into the market six months out nine months out 12 months out on the other hand, I wonder if there's a bit of regret though on a missed opportunity and the missed opportunity as if if that $10 5 million pound stay dedicated to true.
Price formation in defining what really is a spot market we'd be in a much different price formation right now there'd be a much different spot price if folks we're holding out for what's available today and so on one hand positive on the other hand, probably a bit of a missed opportunity and.
And just.
Bear with me for a second I want to take a step and distinguished two between the funds and the advanced exploration companies by because I think there is a really important development and our market recently with the with the folks at sprott, taking over the management of UPC I think theres just tremendous <unk>.
<unk> upside there.
And it really comes in the form of bringing in and.
Experienced.
Professional manager in in the physical metal space to bring active management truly into this I think they've involved a group.
Very credible market liaison some folks that cameco notes used to work for us and so we think that brings instant market credibility to what theyre doing.
I think that that will bring.
Access to a broad base of investors.
But in terms of this price formation piece that I was talking about I think there is real potential upside there too because.
If you see a very active management from a fund not a passive fund, but and actively managed fund we could get into a situation very quickly where.
You know the spot market isn't five traders offering against one person with a with a bid to buy we could see some balance there where the amount of bids and equally.
Equally the amount of offers and it would really create transparency and the spot price and get us away a little bit from this ability of the intermediaries to offer down the market without actually making a transaction because there would be this president and persistent bid. So I think there is tremendous upside here and.
We'll watch it really closely obviously, we have some views on how to maximize it and we're going to be happy to share those at a return and that would be really to focus on the spot market and not buy out and and and if there are redemptions have have a very credible and value generated way to to deal with the redemptions.
And there's very little downside to it as far as I'm concerned because at.
If they just if they acquire it and and sit on it well that's what it was before so that's no. That's no different so we think that combined with some of the other demand.
Has been a pleasant surprise to the market and and is proving some of the things we've been saying about just health and the front end of the spot market actually is.
Okay. Thanks for your comments thanks.
Thanks, Andrew.
The next question is from Greg Barnes from TD Securities. Please go ahead.
And thank you grant and I think you just answered my question, but I was surprised that the spot price to get more wallet bond company and which suggests there is.
Excess supply still out there and I think that's the fundamental question everybody has how much excess supply.
Truly fits out there willing to meet this demand.
Yeah, Great Great question, Greg and so just to.
Just to go over the ground again.
I think the missed opportunity and the real proof would've been if that buying had stayed restricted to what's truly available today, you would have seen a much greater impact.
But I think there was just a day.
Desire to lock in some material to take advantage of these financings and take advantage of the window that these companies were looking at and they were willing to buy forward and as soon as they bought forward. They took the pressure off the spot market did and they just went out along the forward curve in fact, I think I think one of them did.
Buy anything within the next 12 months and was actually by in the beginning of the term market and so that kind of took the pressure off Greg and it had been focused on the front and it really truly would have proven how thin the spot market was what it did do though as I said and this is good news is it's created homes for the.
The problem as we've been identified yet which is those producers who are producing material and they don't have a home for it well now homes are being built so think of it instead of kind of pushing the near term of the spot price they've supported the forward price of uranium because now we're not going to see material.
Coming into the market six months nine months 12 months with the same weight.
The same churn with traders than just offering the market down ahead of pricing those purchases. So it really created a stronger floor. If you will as opposed to kind of pushing the front end of the spot market.
Okay.
This line investigate New York purchases a little bit.
And I use that guidance range to 11 to 13 million pounds, but that includes 5 million pounds from income.
Yes and Youre.
And youre going to advice and material and I guess, it's until and shifting from Luka Luka and excess inventory too.
So how much actual net buying.
And from chemical in the market.
Yeah, and that we don't have that disclosure out there. So once again, we're in a partial outlook world and we're and a partial look world because of cigar Lake. So we have a sense Yale cigar Lake was down for the first quarter of the year and it was.
Ramped up through the first month of the second quarter, but that gives a sense of kind of what we're short because cigar lake wasn't wasn't producing for us going forward. We have question marks about cigar lakes run rate. So while the date is now clarified of restart the run rate isn't that creates uncertainty about how much production we're going to.
Have to our accounts and that uncertainty actually impacts our planned purchasing activity. So our partial outlook has stayed away from making those determinations, but Greg it's not just the cigar Lake story Mcarthur is also down and so as long as as long as we have that asset and care and maintenance for our strategic.
Reasons, and we will be I.
I think probably the biggest spot buyer and the market once again.
Timing is something where we have more control over but but we will need those pounds and as I said to Andrew we are the and elastic buyer and the market and we will buy but we just have shied away from guidance at the moment because we have this partial outlook scenario.
A quick follow up how much will you transfer from Luke and then.
And from their excess inventory.
It's just a couple of million pounds, Greg. So there is still a going concern in terms of some legacy contracts. So it's just the intercompany management of that.
Okay. Okay. Okay.
Thank you.
Yes.
The next question is from Ben Hartford Private shareholder. Please go ahead.
Okay.
My question was mainly with sprite and was somewhat answered.
And with the with the New Trust and your knowledge with your relationship with cars that are from do you think that's going to.
Influence you guys to buy your pounds quicker before they establish their trust.
I don't think it changes our behavior at all I guess, we'll watch to see what they do I think they have.
A bit of time in front of them just to set the whole thing up I don't think it closes for a while yet and those grants as we're pretty inelastic owner buying we have to buy to fuel contracts that are out there to meet them. So we will watch with what theyre doing and what happens, but I don't think it will influence our behavior.
It's important to remember that because we're buying not hold uranium, but we're buying to meet our committed sales portfolio.
Our number one priority is actually making sure we have the product to deliver into the committed sales portfolio and and so we know the product forms we need we know the origins we need we know the timing that we need to buy that material. That's what drives our purchasing decision. So when we think.
And we can meet those criteria, we will buy it and be a very aggressive buyer and we think we can meet those criteria. We can be more opportunistic because remember our incentive is to keep the cost of purchasing down as low as possible, but our strategy is one and where it really doesn't matter to us if the price starts to move.
Away because if the price starts to move away because buying is in front of us well guess, what that's being picked up and our committed sales portfolio. So we get the benefit of the rising price there offsetting the fact that we're buying some material and the market. So our strategy is designed so that we can tolerate.
Market that.
Price formation Hasnt happened yet, but it is also designed to if the price starts to go up we're actually celebrating that as opposed to panicking and say we need to buy everything before someone else does so we'll watch how this unfolds.
We do think it could be a game changer with lots of upside and then our inelastic demand I guess would just be a leverage on that.
Okay.
And also are you guys going I know that with the bite and administration and there I don't know if its going to be a uranium reserve or anything are you guys going to be and involved in that or any of the Canadian producers or and do you notice and it's just gonna be Americans.
Well.
If youre talking about the purchase of strategic purchase of uranium.
That was started even before the by the administration and it looks like Theyre going to carry on with it I think secretary ground home is.
And is committed to by that of course, we have we have.
Several different options and we got Canadian production, but we also and of our U S assets.
And that we were running that were the largest we were the largest producer up until a few years ago and.
The market kind of fell out so where I can tell you we're in Washington as much as we can we're talking to the department of energy and.
And we will see they havent come clean and clear yet on whether theyre going to spend that $150 million or $75 million to build a strategic reserve, but I can tell you we will be right there to offer our assistance and providing those pounds absolutely.
Okay. Thank you very much thank you.
And.
The next question is from Brian Macarthur from Raymond James. Please go ahead.
Hi, good morning, just to follow up on the.
Purchases by junior copy discussion and your strategy.
Talk about potential redemptions and it might have believe as we look forward. The next few years do you worry about some of those pounds that are being bought out and the curve coming back to the market that is to say maybe day by the minute price goes up a little bit and they flip it back. So all we've done is.
Delayed some of those pounds and futures that sort of what you are talking about when you go through that thinking process.
Yes, Greg why don't you, we just talked about that this morning.
And Brian so.
It would certainly be a worry and it would be a worry rooted in what we've seen even last year and now let me make a distinction between.
The advanced exploration companies and the funds to start with.
Like I said I think it's an interesting strategy and and I won't I won't comment on it commercially but it does concern me a little bit from the point of view of conviction I would be I'd be disappointed for example, if we discovered that when the uranium price who we think has got to go up but it's not going to go.
Up into the right constantly it's gonna Sawtooth and so we may see situations where.
Some of these companies that are holding and asset on their balance sheet, probably accounted for derivative Lee may have to take a mark to market loss at the end of any one quarter, if the prices off a bit or if if we see unusual quarter and gains from the traders uranium price comes off and they might have to take a line.
What are they going to do and that situation or are they going to have the conviction and the support from their investors to hold through that it would be disappointed if it simply came back into the market or if they said hey, we made a 20% return.
And our uranium purchases, we're going to monetize that well all we did then was just played a shell game with uranium.
And I have to be mindful of that I'd like to believe that there is probably going to be conviction I like to believe that it's probably linked to making good commercial decisions about funding their projects going forward.
I have to believe that they understand how our market works and that if youre going to dispose of material you should be disposing of it too and end user where it's never going to come back. If you are disposed and get to a trader theyre just going to churn it and your face so.
But I have to separate what I believe is going to happen from what could happen and we've got to be mindful of that with respect to the funds. We did see the redemption. Examples last year and then we saw material coming out from the funds either being loaned or sold and again not meeting I would say good criteria. They were being loaned are sold to traders.
So again, just churn it down traders make their making their margins by discounting to market and not by holding back material to get a premium price. So you know what's going to happen. If you put the hat and material in the hands of traders. So I raise it as a caution Brian and stop my expectation and it is not what they said they would do but I just think it would be wise.
To be aware of it and probably wise to the best of our ability to signal to those who support those strategies.
How do you how do you sustain the best value going forward.
Yes fair enough.
My second question Jess.
With the reopening of our expected reopening of capacity of conversion and the United States that have you seen any changes and the conversion market.
As you said it all tightened up with constrictions, but maybe we're getting back to the <unk>.
A more balanced market is there any update there.
I don't think we've seen the ground a lot of change and the market I think it's a little early maybe Brian and people are waiting to see I think.
They said they would come back on and 2023, some time, which is at the end of 'twenty, three which is a while from now so so far we haven't seen that.
Much change and the market, we're watching closely and they're presenting at all the conferences and trying to keep the margin updated but I think they are just getting started so it might be a little bit early Brian too to have any views on how that'll that'll work.
Alright.
We're looking and the market that far out I guess yet.
This is a ways away yet to Brian and I think they have a significant amount of capital to put into to the plant to get it up to speed. So we'll watch and see how that goes.
Thank you very much for all the color I appreciate it yeah. Thank you Brian.
The next question is from Gordon Johnson from G. L. J research. Please go ahead Chris.
Hey, guys. Thanks for taking the questions.
I guess the first question I have is and maybe you guys answered this but I didn't I didn't catch it.
I guess, the ramping backup of cigar Lake Theres. Some viewpoints that this is actually.
A positive and the thought is that.
You guys are ramping that back up because you have limited supply from and Cai.
Due to the COVID-19 cases et cetera, there and thats.
That's suggestive of.
Increased demand for uranium industrial and need to ramp this back up and that spot market remains under supply can you address that and can you also talk about if youre seeing still excess inventory and the market or not and then lastly.
I know this was asked but I didn't catch the answer on the contract that you guys signed can you talk about the timing around that.
The pricing and what geography, that's going in and thank you all.
Thanks, Gordon and let me take the cigar part and then I'll pass it to grant on the market.
As you know cigar for us when it's done its a double hit for US. So we are we have care and maintenance costs and the $8 million to $10 million a month the cash.
<unk> will that still and that's those are significant cost for us to have that down and at the same time, we are we.
We don't have access to a low cost source of production that we need to put into our into our contract portfolio. So it is expensive for us to.
And to keep that down and so.
As I said before a little bit earlier, we didnt plan to take it down it was COVID-19 and our Super precaution and our concern for employees and the communities that COVID-19 would not be spread around.
That caused us and our lack of on a day to day basis qualified operators to run some of the circuits that really kept it down and it wasn't really a market related issue and so that's why when we felt it was safe and we have all the protocols and <unk>.
Seizures in place to protect the workers, we were able to bring it back up and in April and it's back up running now and producing and so for cameco and so thats a good story growth do you want to take the rest of the yeah Gordon.
Gordon I think Thats, an interesting way to describe it as sort of a positive to bring cigar lake back and really let me just map it back to our strategy and the reason we want to run cigar Lake is for the reasons you talked about because we have supply discipline going on we've turned our production down well.
Below our committed sales and we made the determination that we'll be able to buy some material, but we won't be able to buy all of it because the market is not that deep. So so cigar lake coming back I think you've got and interesting spin on it is positive because it is a return to our strategy and our strategy built in the idea that the market is and deep enough.
For us to buy everything in it. So so I would agree with you from that perspective hadn't thought about it that way before but it's probably a good way to think about it in terms of excess inventories.
We no longer see the uranium market being and inventory story. This kind of ended about two or three years ago.
When we saw the and Richard Underfeed be spoken for yesterday and Richard is still under feed but most of that is going into the uranium needs for their their longer term enrichment contract. So we're not seeing kind of in Richard Underfeed being dumped into the market and we arent seeing inventory come to the mark excess inventory.
Inventory is playing a role is.
Clearly some utilities they've been consuming off their term contracts, but they haven't been replacing them. So where's that coming from well that's coming from their inventory and mobilizing their own inventory chewing down a little bit of their strategic inventory position, but thats that differs demand, but it doesn't add to <unk>.
Apply it's not like we can buy that material that utilities, just chosen to consume a little bit more before they start their buying campaign. So for us the issue and the market is not inventory. It really is the last of this uncommitted primary production Tim mentioned, the common Yak mind coming down the range your mind coming down.
That's great because those were two sources of uncommitted primary production pounds that should've been left and the ground, but werent. They were being produced and then they had no place to go but to the spot market and contributed to this to this notion of the spot market being for surplus disposal. So we've got to work through the last bit of this uncommitted.
Primary production coming into the spot market to tighten that up I talked about some of the new demand.
<unk> homes for that that's good news.
But for us it just.
It isn't and inventory issue, we don't sit and worry about inventories coming into the market. So I would say that feature of the markets and dramatically improved over the last couple of years.
Okay.
Actually if I could get one more and.
So given that you guys are saying that there's not an inventory issue I know you get this question a lot, but maybe if you could talk around and I'll address it is there a point at which you guys expect to see some type of price inflection because I guess the pushback on the comment that inventory hasn't been a problem for two years would be spot prices have been steady.
From flat so is there a point at which you guys expect to see and inflection and then lastly on the China contracts those contracts are 10 years David.
A lot of people expect imminent renewals can you guys address that discussed that and you see anything going on there and thanks again for the questions.
Yeah on the spot market.
Great points, I think our observation would be.
Remember when we started our supply disciplined strategy, especially in earnest with Mcarthur coming down we were below $20 and the spot market. In fact, I think for for one moment there it tucked below $18 and was like $17 75, a pound.
And that was inventory.
That was inventory coming into the market we.
We started our supply discipline strategy as Tim noted in his comments.
Having our assets down and our purchasing has led to about 145 million pounds swing in the market dynamics.
And as bridged us through that inventory challenge the spot market is up what about 65% since those day, so it's not where it needs to be in terms of incentive primary production and the investment and new capacity, but it has come a long way from those inventory mobily.
Asian day, so so I would say the the first move was to go from a market that was inventory and primary production driven to one that's just uncommitted primary production driven at the moment. The next inflection of course comes with demand and it comes with enough fuel buyers look.
<unk> at the improving demand outlook that we start to see and acceleration of the completion of contracts not just the off market, but a steady drumbeat of on market Rfps and then that demand signal.
And we'll begin to build more confidence in the producers.
Who right now when they see and RFP come into the market. They are very aggressive going after it there'll be able to step back a little bit. So so then the next leg up I would say is there's no substitute and user utility demand and we're not quite there yet but that that's what creates that inflection point that you talked about the spot.
<unk> is no longer inventory driven and that's why it's kind of hanging around $30. Instead of below 20. The China story is very interesting obviously, Tim identified some statistics on just the improvement and their outlook for the role of nuclear power as part of their net carbon zero by 2060.
And we've seen a bit of and evolution among the customers and.
In China, we no longer sort of think of them as as one group anymore, they've behaved very differently one of our customers has gone out and acquired assets.
And is running assets in and in Namibia for example, and that supply is going back to meet some of their needs.
Another customer has instead of building their own assets, they've taken equity positions in other assets, but they're not running so we actually see it and being a bit different and we see one has kind of been.
And more proactive and in meeting some of its own needs with some of its own investments and the other probably being more uncovered and probably will be the first to come to the market in light of these new plans because when Youre building a reactor fleet, that's going to run for 60 or 80 years.
It's probably and insufficient to answer to go back to those that are planning power and saying, yes, but I've only got the fuel procured for another five so there's probably there probably is a cycle coming to start to match up the commitment to 60 to 80 years of power production with the fuel to supply $60 to 80 years of power production.
And so we're optimistic on the China situation.
Thanks again guys.
It's Gordon.
The next question is from John Tumazos from John Tumazos, very independent research. Please go ahead.
Thank you very much.
The first question and then a follow up from.
At first glance Tim.
It looks really good cash balances went up $107 million and the quarter.
But there were six one time benefits cash without which.
It would have fallen and $135 million inventories fell there was $49 million credit for long term receivables you got the legal fees back and the tax dispute. The Capex was way way below trend money came in from stock and.
Illiquid as short term investments.
So how do you look at the cash flow first.
And then second does that mean.
And that you need to restart production and to generate cash rather than having holding costs or else slimmed down real day P&L.
Take your pay and stock or do things to save cash.
Yeah. Thanks, John for the question and you're right. We did have a lot of kind of one off ins and outs during the quarter on the cash side of the CRE and some other government payments.
Brent.
And the CFO, if there was anything abnormal about it and that's kind of how we operate so yeah, I mean, John and interesting take on a couple of clarifications. So for example, the cash from the CRA and it's actually not in that quarter and number that was a subsequent event.
But of your puts and takes the main point is we've said all along as part of our strategy. We would take supply discipline, we would embark on market discipline, which had both a purchase in the market to meet our committed sales as well as being very strategically patient on layering in new <unk>.
<unk>, which we spent a lot of time talking about today and it would be backed up by a very conservative financial management that gave our owners the confidence that we can self manage risk, whether we're sitting at $1 billion or $900 million, we're still achieving that so so for me there.
No no danger here about our financial capacity slipping into a zone, where we don't have strategic resolve anymore. So you raised some interesting points, but I would just countered by saying we're still absolutely on track with a third pillar of our strategy that we've talked about which is to be financially conservative and b and a position to self manage the risk of that.
Strategy and the risk of the market transition.
Thank you.
Thanks, Sean.
The next question is from Jessica Sungard, sorry, <unk> from nuclear Intelligence Weekly. Please go ahead.
Hi, Tim Hi, Grant. Thank you for taking this call.
And just wanted to add.
Ask about the.
$9 million comes and term sales in April and.
And the balance you had and $17 million per year for the first quarter for 2020, one to 2025 and <unk>.
And the commitments higher in 2021, and 'twenty two and that doesn't include the $9 million and I'm wondering if you can add a little color to what the $9 million adds to that balance and is this materials linked with end user and intermediary anything.
Sure.
Yes, thanks for the question Jessica.
And we were happy to get those extra sales.
Even more to come.
And many many times our pipeline is busy.
COVID-19.
And related.
Things have slowed down I think in 2020 was slow due to the rooms focused on their own operations and not.
Particularly adding to their long term.
Contract and a portfolio with now we're seeing a few things free up per those 9 million from those are included by the way and the $17 million.
They are not includes I'm, sorry, Rachelle says they are not included in the $17 million per year over the five year period and so yeah.
I think Greg gave a little bit of color on those pounds earlier, they fit what we want to see and our portfolio the ratio of the mix between fixed price and market price it on delivery and and so yes.
Granted we have something to add to yeah. I think there's an important tie here between your question Jessica and one that was asked quite a bit earlier by Ralph and that is there is no doubt that our contract portfolio is opening up in sort of the later years of that five year window, and and I don't want anybody to have the impression that.
We're not aware of that and in fact that isn't a strategic position, we want to be more exposed to the market that we think that needs to be transitioned.
And the situation that Ralph was asking us about that's the one we've learned from we've layered in a lot of volumes in the past we layer demand at indexed pricing such that when the market did transition, we didnt really participate and that we don't want to do that again. So so yes, we have more deliveries that's 17.
Pounds on average per year for five years, it's more heavily weighted to the front and it's.
And the less deliveries and the back and that's exactly where we want to be looking at a market. That's sitting at a <unk> five or a P 10 price with a much greater chance of going up and going down and you also asked the question about to whom are we are we entering into contracts and not intermediaries at all I mean, we're not selling to traders. These are these are and.
Users. These are utility contracts. These are kind of the classic term business and between $19 20 and now.
And nearly 60 million pounds of new business, we've added to that pipeline, reflecting that broader portfolio criteria that we have when we layer and contracts.
Okay, great. Thank you grant thank you, Tim and just one more.
Follow up but a separate question on the cigar Lake run rate uncertainty can you characterize that a little more is that.
It requires investment or what's the what's the issue really.
Jessica It's just normal operations, when you take and operation down like that.
And we kept all of the workers and we kept obviously the facility in good shape on care and maintenance and so we just are being ultra cautious as we ramp back up.
COVID-19 situation isn't gone and Saskatchewan, we've been very fortunate and.
<unk> managed it quite well at the site, but we just are not sure what kind of production level, we can ramp up to this year and we're just getting started and now are just sending.
So and uranium down the road to the Mcclean Lake.
Facility and so just lots of.
Question marks nothing that we're seeing that's out of the ordinary but we just want to be we just want to be very prudent and not putting out <unk>.
A number that we can't back up right now and so we'll see on the next quarter. Once hopefully we can get them up and running and running normally and then we'll be able to give some better guidance going forward, but right now we're just being cautious.
Okay, great. Thank you. Thank you.
Next is a follow up question from Orange Wakata. Please go ahead.
Hi, good morning, and thanks for taking the follow up grant.
Grant just had a question about your uranium inventories I mean based on your guidance updated guidance for purchases and your unchanged sales guidance I mean, my my mental math would tell me that you plan to exit this year with markets with lower inventories closer to that nine to 10 million pound range versus.
15 exiting 2020 I was just curious if you think that's a good targeted run rate for inventories or whether we could actually see cameco be more opportunistic and buy more purchases and you're guiding.
Can I answer yes to both RF.
As a reminder, just a reminder of how we got there. So you go back to last March last April COVID-19 starts rolling out around the world we started to see.
Real supply uncertainty.
Not just in Canada, but places like Kazakhstan, Youll remember the actions that 'cause Adam prompt took in countries like Uzbekistan, Namibia, COVID-19 cases, and Niger as the largest buyer and the market and the largest inactive or in elastic buyer and the market because we had a committed sales portfolio to deliver into.
Think of it as we bought some risk material. It wasn't we were building up and inventory to hold it was it was as we looked out at our committed sales portfolio and knew what we had to deliver we bought what we needed. When we saw it was available because of that uncertainty.
But as the COVID-19 situation began to stabilize and we brought cigar Lake back and we saw the measures that 'cause Adam problem, we're taking.
And we Werent really in that world anymore, I'm thinking we needed to buy ahead and buy some risk pounds. So we ended 2020 with a higher inventory than we would've otherwise and.
<unk>, we brought it down back more in line with what you've traditionally seen but for some of the I would say new factors not COVID-19 related but if we do see a piling on.
And start to invest more if we talked quite a bit about the sprott vehicle and the opportunity for that to be more active if that vehicle starts buying more pounds well guess, what so are we because we're not going to be completely left out of that because we need it for our committed sales.
Historically, you know what our inventory targets have been we sort of navigate by those inventory targets.
But we got we got to deliver into our committed sales portfolio. So it really is going to depend or start the buying behavior of others and what we see and the market and we're not going to be left.
With no material and and having the default on our committed sales and that is absolutely not going to happen. So so and then.
And really unhelpful way my answer is yes to both.
Thanks, Craig and then.
Second a follow up just coming back again to the your new contracts.
Starting in April representing 9 million pounds do you think that represents and your.
I'll review, some kind of inflection point and the re contracting market like do you think that opens the door now.
Paves the way for others to now start piling on or do you view this more as sort of an isolated event.
Well again, I'm, a little tempted to say, it's a bit of both I mean, the the real inflection point as I said earlier it comes when we start to see.
Greater frequency of the on market Rfps going along with the kind of off market business. The off market business has historically been a leading indicator a necessary condition, but it hasnt been the sufficient condition for a full blown term contracting cycle.
But here's why we view it as positive because utilities, yes, they are watching the supply demand dynamic, but the other thing we know theyre watching as each other.
It's tempting to to sort of say well.
If my if my big neighbor here isn't buying maybe I don't need to be by but then when the word gets out that.
Some are starting to buy and they're starting to buy out and more of that classic term window.
Think about the summer of 2010, when the Chinese stepped into the term market for the first time and contracted 150 million pounds basically for kind of 2013 2014 to 2024.
Everybody else, who was sitting on the sidelines feeling they were well covered for 2011 to 2015 saw the big new entrants come into the market and start gobbling up the pounds that hadn't yet been call for and that triggered a contracting cycle. So we do think.
Maybe it is a drip and the bucket, but it's a big drip and a bucket that's getting pretty full aurist.
Thanks, Craig.
Thanks for your question.
This concludes the question and answer session I would like to turn the conference back over to Tim <unk> for any closing remarks.
Well, thank you very much operator, and with that I just want to say thanks to everybody who was on the call today, we as always appreciate your interest and support and.
And just have to tell you we're pretty excited about the future and what we're seeing for nuclear power generation. We're excited about the fundamentals of uranium supply demand and and we think our companies and a great spot.
We continue to be a responsible commercial supplier with strong balance sheet long lived tier one assets and a proven operating track record.
And I can just assure everyone that we will continue to make the health and safety of our workers their families and their communities our priority. So with that thanks, again, everybody stays safe and healthy and talk to you again soon thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
[music].
Okay.