Q2 2021 Cameco Corp Earnings Call
Thank you for standing by interest is the conference operator, welcome to the Cameco Corporation second quarter 2021conference call.
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I'd now like to turn the conference over Richard Rachelle, Girard, VP Investor Relations Treasury and tax. Please go ahead.
Thank you operator, and good morning, everyone.
Welcome to Cameco with second quarter conference call I would like to acknowledge that we are on treaty 6 territory in the homeland of M. A T.
Today's call will focus on the trends, we were seeing in the market and on our strategy.
As always our goal is to be open and transparent with our communications. Therefore, if you have detailed questions about our quarter.
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On this today on the call are Tim gift for President and CEO Grant Isaac Senior Vice President and CFO, Brian Reilly, Senior Vice President and Chief operating Officer.
Alice Wong Senior Vice President and Chief Corporate Officer, and Sean Quinn.
<unk> Senior Vice President Chief Legal officer, and corporate Secretary.
I'm going to hand, it over to Tim to talk about the growing demand for nuclear power uranium market fundamentals and about cameco strategy to add long term value. After we will open it up for your questions.
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Police since we have made with that I will 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 and enjoying some rest and relaxation during the summer months.
It's certainly the time of year, when the uranium market tends to slow down as.
The participants step away for summer break.
Like I did in previous quarters administered this call by reiterating our excitement for the future of the nuclear industry and for our role within that industry.
The drivers of our optimism remains the same.
First there is an opportunity for nuclear.
<unk> power to play a pivotal role.
The mega trend of increasing electrification, while phasing out carbon intensive sources of energy continues to take hold around the globe, increasing the certainty of demand for nuclear power with a durability that I don't think we've ever seen before.
Second.
Second uranium supply is becoming less certain due to years of persistently low prices.
And finally, the execution of our tier 1 strategy, although driving cost in the near term.
<unk> positions us to achieve our vision to energize, a clean air World and deliver long term sustainable value.
It includes cutting our production below our committed sales volumes.
Being strategically patient and our marketing activities.
<unk> managing our balance sheet.
Being vertically integrated across the nuclear fuel cycle and pursuing new opportunities within the nuclear fuel.
Let's start with the fundamentals for nuclear energy.
We're seeing a mega trend emerge, which is focused on increasing electrification while at the same time, achieving massive decarbonization goals.
This mega trend has led to a major challenge.
<unk> being threefold.
First to bring safe clean and reliable baseload electricity to about 1 third of the population who currently have no access or limited access to electricity.
Second to clean up on replace our existing sources of electricity with a safe clean reliable affordable.
Portable 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 focused on reducing their carbon.
<unk> footprint.
Many have committed to achieving net zero carbon targets.
Many more expected to follow.
And these clean air and climate change commitments in particular by companies are creating accountability.
In the past, we have always been reliant on governments and public policy to take the lead.
Now there are more than 1600 companies, who have made net zero commitments and will therefore play a critical role in shaping what energy policy will look like.
Companies will no longer just be energy takers there'll be held accountable by their investors and other stakeholders for their performance on ESG metrics.
Including the carbon footprint of their supply chain, which of course includes energy.
And they will need a source that can provide safe clean reliable and affordable electricity 24 hours a day 7 days a week 365 days of the year.
And this accountability or as we like to refer to.
<unk> is elektron accountability creates a durability and demand for nuclear we have not seen in previous cycles.
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 while maintaining.
Stable electricity grid without nuclear in the toolbox.
In Europe, we see continued progress towards the inclusion of nuclear and the sustainable finance taxonomy.
The European Commission has proposed a supplement to current legislation that if passed will confirm nuclear as sustainable.
With the U S. The by the administration's 2022 fiscal year request for the Department of Energy's Nuclear office was about $1.8 billion, which is the largest proposed nuclear investment ever in the U S.
In late June 5 use Democratic Senators introduced the zero emission nuclear power.
Induction credit Act of 2021 that if enacted will provide federal production tax credits to support at risk plants.
Furthermore, we are seeing momentum building for non traditional commercial uses of nuclear power.
Such as the development of small modular reactors and advanced reactors.
<unk>.
Bill Gates in the company. He Cofounded Terrapower, just announced plans to build a 345 megawatt next generation reactor at our retiring coal power plant in Wyoming.
Our proposal, which was well received in the state.
We at Cameco are.
Power per during ways to further our reach in these innovative non traditional commercial uses of nuclear power and the nuclear fuel cycle.
For example, we've made an investment in global laser enrichment for.
Also participating in the centre for next generation nuclear technologies with Bruce power.
For our expand we also recently entered a non binding memorandum of understanding with GE Hitachi nuclear energy and global nuclear fuel Americas to explore several areas of cooperation to advance the commercialization and deployment of its small modular reactors in Canada and around the world.
So the outlook for nuclear is very bright and we at cameco are well positioned to respond to the growing need for nuclear fuel to generate safe clean reliable and affordable electricity.
Increasing demand for nuclear means increasing demand for uranium, which brings us to the second factor that I said is driving.
Our growing optimism demand for uranium is rising at precisely the same time that supply is becoming less certain.
1 of the indicators, we like to 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.
Since 2011 about $1.6 billion pounds of uranium have been consumed in reactors and only about half of that or 800 million pounds had been placed under long term contracts.
This has led to a growing wedge of uncovered uranium requirements.
The wedge.
<unk> is as big as it was back in the early 2 thousands which was another period of complacency.
And with the recognition of the importance of maintaining the existing nuclear fleet to meet net zero carbon targets.
Reactor life extensions are expected to represent an additional source of near and medium term demand.
Keep in mind. This is just talking about traditional demand. It does not consider any of the alternative uses of nuclear I talked about earlier.
We're also seeing increased demand for uranium from financial funds and junior uranium companies.
Through the end of June this year more than 550 million.
U S has flowed into the uranium market via junior uranium companies and financial funds.
This money has been used to purchase approximately 16 million pounds of uranium.
With more expected.
1 of these funds has recently come under new management and transition to a uranium.
Uranium Trust.
With a planned at the market feature which it expects will result in more active spot market purchases and improved liquidity and price discovery.
We believe there is growing recognition among these players that statistically the current uranium price has a much greater likelihood of.
Up than down.
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.
Chemicals supply curtailments alone.
<unk> planned and unplanned along with our purchasing activity have resulted in at least a 145 million pound swing in the supply fundamentals since 2016.
And since the end of 2020, we've seen 2 long producing mines come to the end of their reserve life.
For the loss.
Loss of the Ranger mine in Australia, and the common <unk> mine in Niger will further reduce supply by about 7 million pounds per year.
Our cigar Lake mine is done about 8 years from now and Thats. Another 18 million pounds per year that will be gone from the market.
Given.
Given the timelines. It takes we should be investing now to replace that lost production, but at today's prices. It makes zero sense to invest in greenfield projects.
In fact, given the persistently low prices not only have we seen planned supply curtailments.
Lack of investment in the end of reserve life for some.
Mines.
We've seen shrinking secondary supplies and trade policy issues.
All of which have been amplified by unplanned supply disruptions.
Consequently primary supply has become concentrated.
Concentrated geographically with about 80% of primary supply coming from countries.
Countries that consume little to no uranium.
On nearly 90% of consumption occurring in 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 5 producers and about 80% in the hands.
Pete on enterprises.
So we believe that in the current market the risk to uranium supply are far greater than the risk to uranium demand.
These are the fundamentals that get us excited and why we remain a pure play supplier of the uranium fuel needed to produce clean carbon free.
<unk> base load 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 this is where it all starts.
A steer us.
We are focused on protecting the health and safety of our workers their families and their communities.
We're doing that every day, we make decisions about how best to manage our operations and protect and support our workforce.
Earlier this month, we evacuated all non essential personnel from the cigar.
Lake mine and suspended production temporarily due to the proximity of a forest fire.
Our fire preparedness was instrumental in successfully protecting our site on the assets.
And the proactive response from our site demonstrated the thoroughness of our risk management.
Happily.
And thanks to our preparedness, we were able to safely return the workforce to the site on July 4th and production resumed later that week.
In addition, we continue to monitor the COVID-19 situation and have regular dialogue with public health authorities.
Let me be clear the health and safety of our workers will always.
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 disruptions to our operations, we have not wavered from the execution of our strategy.
There are 3 fronts on which we are executing our strategy on.
Operational marketing and financial.
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 operations.
These actions have left a lot of pounds on 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 have shown sales disciplined sticking to our value strategy, we have been strategically patient.
We're seeing.
For our patients pay off and we're continuing to build our contract portfolio.
In addition to the 9 million pounds added in April we successfully finalized and executed a further 7 million pounds under a number of sales contracts, which had been under negotiation, bringing the total for the year, so far to 16 million pounds.
Since 2019 that is a total of over 60 million pounds added to the contract portfolio.
It's important to remember that our contracting activity is done within the context of global market realities.
The primary driver for our contracting activity is always value.
And.
I mean, great assets is a necessary condition for creating long term value it's not sufficient.
The spot market is not the fundamental market in our business. It is a very thinly traded market.
In our business are responsible producer creates real value by building a long term contract portfolio that.
And while half supports the operations of productive assets is leveraged to greater returns as prices increase and provides downside protection.
Therefore to create long term value where appropriate we layer in volumes over time in accordance with market conditions.
We do not want to commit our tier.
On too far into the future under contracts that won't generate an appropriate portfolio of return and we do not want to exhaust our tier 1 assets in a low price environment.
As the market improves and we move outside of the carry trade window.
We expect to continue to layer in volumes, capturing greater upside using market.
<unk> pricing mechanisms.
We also expect to lock in value at higher prices to carry that value through the next price cycle always with a view to our preference for a 60.40 split of market related and fixed price contract.
We continue to have a large pipeline of uranium business under negotiation.
<unk>.
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 many of our customers.
These customers recognize the long term fundamentals they want access to long lived tier 1.
1 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 1 pounds today.
<unk> as opposed to in the future.
And we have some competitive advantages we have significant idle tier 1 capacity that is fully licensed and fully permitted that will be among the first pounds to meet growing demand in the market.
We are an 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.
At Cameco, serving.
Moving 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 we recognize the significant business value that it adds.
Our board and our employees.
Contractors' communities suppliers customers governments.
<unk> and our providers of capital expect us to manage this company in a 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.
So we're well positioned.
Standard <unk> meet our customers' needs.
And finally on the financial side, we have been very deliberate and shoring up our balance sheet.
At the end of the second quarter, we again, we're in a negative net debt position with $1.2 billion in cash $1 billion in long term debt.
And a $1 billion Undrawn credit facility.
As such we have the financial capacity to self manage risk and maintain our strategic resolve.
So I'm happy to say that we're performing well on all 3 strategic fronts.
However, there are cost to our strategic decisions, which are reflected.
<unk> in our financial results and the outlook for 2021.
As a mining company there is significant cost to not operating our mines, which is why having cigar lake running is a critical part of our strategy.
The other imagine where the market might be today had we not curtailed supply and purchased uranium.
There will be more than 145 million pounds and growing above ground and available to the market.
We have made responsible and deliberate decisions to preserve the value of our tier 1 assets in an oversupplied market and in the case of cigar Lake to protect the health and safety of our workforce.
The largest of these costs are for care and maintenance of the assets, we have on standby and the cost of the uranium we must purchase to replace lost production.
So let's put these cost into perspective.
In 2021 care and maintenance costs are expected to represent between $7.40 and.
On $9.35 Canadian per pound, that's about 15% to 20% of our expected average unit cost of sales.
And our purchase costs to replace production are expected to be about 20% for $7 Canadian per pound higher than production costs at cigar Lake for the past 2 years.
Further increasing our unit cost of sales.
The good news is they do not represent the run rate of our business.
We planned with these cost in mind, and we expect much better days ahead, once we return to tier 1 cost structure.
We're taking the steps today to support the future restart.
Tier 1 assets and to create a more flexible asset base.
We want an asset base that allows us to align our overall production decisions with our contract portfolio commitments and opportunities.
That allows us to eliminate the care and maintenance costs incurred while our tier 1 production is suspended.
<unk> and that allows us to benefit from the very favorable life of mine economics, our assets provide.
We are confident in 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 value to deliver long term sustained.
Book value.
Our vision, which is to energize a clean air World recognizes that we have an important role to play in 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 are committed to doing.
Sustainable manner that reflects our values.
Those values have not changed they are always guided our actions and they place a priority on safety and the environment on.
On building of supporting a flexible skilled stable and diverse workforce on behaving with integrity and leading by example.
On promoting.
<unk> E quality enacting to eliminate racism wherever it exists.
And on pursuing excellence in all that we do and inspiring others to do the same.
Our actions are deliberate.
We are a responsible commercially motivated supplier for the diversified portfolio of assets.
Including a tier 1 production portfolio that is among the best in the world.
We are well positioned to take advantage of a market where demand for nuclear power, both traditional and non traditional is growing.
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 in the face of unprecedented challenges and will result in the rewards that will come from having low cost supply to deliver into a strengthening market.
So thank you for joining our call today, and operator with that we would be happy.
For any questions.
Thank you.
We will now begin the question and answer session in the interest of time, we ask that you limit your questions to 1 with 1 supplemental if you have additional questions Youre welcome to rejoin the queue.
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Chemical Investor Relations.
Kelly and I will follow up with you by E Mail after the call.
Once again anyone on the conference call for your wishes to ask a question you May Press Star 1 at this time.
Okay.
The first question is from Ralph for PT from <unk> capital. Please go ahead.
Hi, good morning.
Thanks for taking my questions.
Tim for Tim or grant I wanted to think a little bit more long term in the context of this 16 million pounds a year to date.
And its impact on the contract book, because I've noticed that the purchase commitments.
That said off balance sheet haven't really changed sitting at around 20 million.
On pounds at what point does it become prudent to protect the contract book by increasing those longer dated purchase commitments.
Or are you more closely matching future contracting with production capability.
Both.
Ralph Thanks for the question, we've been as we've been reporting quarter on quarter with Larry.
Larry in contracts.
Each quarter overtime, I think we said 60 million pounds over the last number of years I think we have about 19 million pounds per year on average sales over the next 5 years more on the front end and the back end is a spot that we like to be and I think we're comfortable where we're at we.
We will going forward 1 on match or.
For our sales.
With production, we've said that we've said that to restart mcarthur and key we'd like our portfolio to be in place. So that we're not springfield's into the spot market. So.
The answer to your question is yes to both parts of the credit I don't know if you want to.
Anything to that yeah, I, just might add where I'll think about it as kind of a market alignment strategy from a sourcing point of view, we have a number of criteria that are behind our portfolio decisions and think about them that way when we build our contract portfolio. It has a number of criteria, but but.
And he did that is actually making sure that we've got line of sight to the sourcing and we've said for some time now that and Tim said it in his opening debt responsible producers in the uranium market build homes and so for US. It really is about matching where we see the sourcing of that material right now that sourcing is largely coming from.
But we've got to go in and buy obviously, but over time it will set the conditions that allow for the restart of Mcarthur for example.
That will then CF sourcing from tier 1 production, which has a great day, that's unequivocally positive for for Cameco of course, so for US it's about this market alignment and it's about never.
The market finding ourselves in a position, where we're contributing to an oversupply in the market.
That wouldn't wouldn't be a sensible thing to do.
And when the market is suggesting that those pounds arent needed and could be purchased are picked up on the spot. We will do that as you've seen us do quite aggressively so so think of.
Our market alignment point of view.
Yeah understood that's helpful.
My second question is on on Kazakhstan, and the 20% curtailment through 2023.
Are you satisfied from a prudence perspective of that type of move do you think they could or should have done more on I'd like to get your insights on.
From that is perhaps about their view of the market.
Yes.
Yes, well these days Ralph as you know you can ask them on some of those questions on pure gallon would be more than happy to answer them. I think we were quite pleased to see them extend the 20% reduction into 2023, the good very prudent move on their part obviously is a joint venture.
What it from there as we will comply with that so we can only do here at cameco, what we can do and you've seen us take a peak.
<unk> leadership, the strides over there I think gallons and the Kazakhs are doing what they think is necessary in the 20% reduction.
Parked in 'twenty, 3 we think it's very positive.
Excellent okay. Thank you thanks Ralph.
The next question is from Andrew Wong from RBC capital markets. Please go ahead.
Hey, good morning, Thanks for taking my questions.
So the spot and the term price.
The cash quoted by USD.
They are roughly on par now and that GAAP between those 2 benchmarks.
Pretty small for a while.
Could you just talk about what's causing that dynamic and what that's telling us about the market.
In fact, I think I saw a little bit of backwardation in the UX.
X numbers.
This week, but grant you want to speak for them, Yes, Andrew It's a great question.
At the risk of taking up all the remaining time on that let me just make a couple of observations.
From the spot point of view.
I'm not declaring that the spot prices, where it needs to be but it is up quite.
<unk> since the supply discipline, it started up about 60% and thats, reflecting I think progress.
In cleaning up that spot market and we've certainly contributed to that with our major purchase we've left pounds in the ground and we've gone and bought material instead off the market Tim referenced.
Did some junior.
<unk> advanced exploration companies buying you referenced some financials bi that's all taking material out of that spot market. It's been taking material out of the hands of the financial intermediaries. Its taking material out of the churn and that has led to some I would say positive pressure in the spot market, which is all good has a ways to go but.
That certainly is very very constructive.
It's what we absolutely needed to see the term market has remained more discretionary in part because while the spot market as is being cleaned up.
Still as a source of carry trade for utility, so utilities, who who know that.
Were uncovered requirements are growing and know that that global wedge of demand is growing still see opportunities to go into the spot market or or have a financial intermediary for example offer them carry trade into the near part of their term demand and it effectively buys them a bit more time to not really focus on.
There is term contracts, but to take smaller bites out of the term market and so we're just not seeing that level of replacement rate term contracting occurring across the industry.
We are seeing some of the bigger rfps come to the market.
We just we still see.
On the bill of the producers.
Who are quite eager to I would say by that business.
Not all bad by the way I mean, we've been saying for quite some time, it's important for producers to build homes.
All the new interest in the uranium market, which has been great has forced us to kind of revisit some of the fundamental.
<unk> in our business the fundamental being the spot market.
Is not the target market for for production and so when we see producers looking to build that term contract homes.
That's great news because it means that in the future of their production won't be hitting the spot market. However.
That eagerness.
A few build term homes, we're seeing.
In the form of I would say some very competitive bids to the rfps that are on market.
The bids that we cant compete with and we won't compete with good strategically it doesn't make much sense, but the good news is those homes are being built and that demand.
Ernest is calling for pounds that maybe in the future would have hit the spot market.
So for the term market in total it's just not there yet relative to the uncovered requirements I think we would've expected more demand in the market than we've seen.
Just make the final comment that.
Cameco.
Chemical those enjoying a little better.
Situation in that we talked about our off market contracting we talked about the pipeline if negotiations Tim referenced the over 60 million pounds that we've added to our contract portfolio, reflecting that there is term interest it just isn't at the level right across the industry.
We have replacement rate so no surprise spot market getting cleaned up 60% increase in the spot price more demand to come we think with some of the financials. In particular, certainly we will have some buying to do along the way, but the term market isn't quite there yet those 2 are connected as the spot market tightens. It really will send the signal that the carriage.
Carry trade is going away that buying material and smaller bits is probably not going to satisfy security of supply concerns. So on balance we think the potential is for the term market to break back to something closer to production economics kind of break free of this anchor of the spot market, it's behind our optimism Andrew.
Okay. That's great. That's a lot of good detail. Thank you.
Just like a longer term kind of question.
Can you share your thoughts on the development of these higher enriched fuels like AGU, plus and and how you're for the advanced reactors now what what kind of impact.
On the market and how can come from cameco participate in this trend.
You have that.
Investment in GLA, which maybe longer term could be part of that thank you.
Yeah. Thanks for the question, Andrew we're quite interested in the whole Hell you.
On the advanced fuel market fuel for SM ours.
<unk>.
A lot of attention these days everywhere channel.
And then I think there's 11 or 12 different models from the regulator LPG looking to pick a model a very soon I think within the next few months to build the demonstration project Darlington and Bruce is involved.
They have our own Scott from government looking at them U S. We know China is no maybe is leading the pack is built on the Russians on floating so as mr's are getting a lot of attention because it makes sense and if they can build them a cheaper and have the mobile and in places where you don't have to have huge infrastructure.
It makes a lot of sense. So that's not going to put a dent in the uranium market to tomorrow morning, We are still relying on the 443 operating reactors of the 51 plus that are under construction there but.
We're looking as to how cameco can get involved we have all the elements we got the uranium we've got lots.
Lots of it to the refinery.
Refinery and nice refinery conversion, we've got our GLA.
Project that we're standing up now in the U S to provide enrichment.
<unk> talked to a lot of companies. Many many companies about how we can play in especially on the fuel side and so yes, we're excited about its nuclear.
Sure.
It's the nuclear of the future I think and so more to come on that from US we don't have anything to announce.
We signed an Mou with the GE Hitachi on SME <unk> on their SMA or they've got the X 300, I think that's a nice model, but there are others as well so more to come on that but pretty exciting stuff for the future.
Okay.
Okay.
The next question is from Rs <unk> from Scotiabank. Please go ahead.
Hi, good morning I'm.
I'm pleased to see that you've announced another 7 million pounds of new long term contracts this quarter.
Building on the.
1.1 million pounds from line from last quarter I'm, just curious if youre seeing now a real pickup in movement here from utilities from a re contracting perspective on weather.
These contracts are starting to build momentum on each other.
And whether we should anticipate more following now that.
The door has been opened.
Any context would be appreciated.
Yeah, well I would say that.
There is no doubt that every time, we talk about more of our future production being claimed it does it does create interest from others, who arent part of making those claims.
Let me just be cautious here it hasnt translated yet into kind of an industry level, we haven't seen that kick over to <unk>.
Frequent on market Rfps that would suggest a real security of supply contracting cycle is underway across the industry. So so for us.
But it is positive.
It makes some of our.
<unk> Wonder why there.
Their colleagues are contracting and theyre not and how much of your Canadian Cameco supply has already been claimed and what's left for them so very positive for us.
But it hasn't yet translated into kind of that.
They already have supply shift at the industry level, let's face it in the past that trigger has always been shocked driven whether it was the supply shock of for example, 2006, the cigar Lake development project flooding.
Other it was the demand shock of 2010, the Chinese stepping into the term market for the first time in contracting a lot.
Sicanian it tends to be a bit of a shock event that causes everybody to try to go through the door at the same time.
And I would just say if we look at the market. If we look at the forward view of productive capacity on a primary basis on on a secondary basis and juxtapose that to uncovered requirements.
What are your rate market is as vulnerable to a shock as it's ever been so.
I think it's building in that direction.
Wanted to be careful about that call that today, but certainly positive for us.
Thank you. Thanks for the color Grant and then just separately I noticed in your release there was some comments about some initiatives.
<unk> to materially reduce your holding costs your standby costs with the shut in with Mcarthur River and I guess the other assets can you give us some insight in terms of.
What youre thinking there what the timeline might be to get some color and.
What what kind of impact that's going on.
Yes.
Whereas what we're referring to there is the projects that we have on underway at Mcarthur and key remember they have been in care and maintenance since 2018, actually which is a long time to have the world's best mining mill complex.
In care and maintenance.
But it hasnt been like.
Wyatt sites, because what we've done.
Done is we've said look while these assets are down. This is the absolute best time to unpack every process every procedure look at opportunities for us too.
To harness the very best of Digitization and automation technologies that we're seeing adopted elsewhere.
On R&D.
R&D project, but really in applied technology project to take the best of what we see elsewhere bring it to our facilities do that while theyre down so that when they come back they come back even better than when we brought them down. So those are the types of initiatives that we're referring to may.
Making those investments counter cyclically.
It's prudent for us to do it as 1 of the reasons why we've had such a very conservative financial management. So that we can be poised to make those kind of prudent countercyclical investments when they make sense and right now as when it makes sense.
So I would just add to that the most difficult piece of that often is the change.
Management fees, when you've got a fully stuff to site with 7.800 people involved and you're trying to implement change the change management piece getting other people do the new new habits is tough and so while our sites down or people are off I think we only have about 100 people on care and maintenance, it's the right time to implement.
Implement those in the day, we do bring the people back it'll be we're going to have to train them differently get them prepared differently for for a different site kind of our mine and mill on the future. So that's why we're doing it now as well.
Thank you.
The next question is from Katie Lesser Pal from Canaccord Genuity.
Please go ahead.
Hey, good morning, guys. Thanks for taking my questions on now that the spot physical uranium Trust arrangement is closed and started trading I was just wondering if you could provide your thoughts on both when and how you think this new entity could impact pricing moving forward and just based on your knowledge is this something that you think utilities are recognizing on or maybe perhaps worried about.
Thanks, Keith for the question, we're pretty excited to see spread in the business now with lots of experience in.
And on metals funds in the market in the market with metals and a big market presence I think and so on a grant has been studying them and looking at the broad Grant why don't you book it.
Yes, we certainly.
But there is potential for this to be actually quite transformative too.
Price discovery in the spot market as I think a lot of folks know you've heard me say a lot of times the spot market's not the fundamental market, it's a market where we.
We've seen it punished if you will.
We think <unk> primary production that didn't have a home it's why I keep talking about responsible producers being once who are building homes and as that material came into the spot market. It often ended up in the hands of financial intermediaries, who would churn it through the market.
And really be able it would be in a position to offer the market down without.
I'm, making a transaction just by hanging offer after offer over the spot market and we'd see the spot market work down, but nobody actually put their income statement on the line on consolidated transaction and that was possible. Because you had the offers outmatched the bids in the spot market. So along comes a physical trust debt is proposing.
Without actually you have a far more frequent bid in the market.
Physical trust debt.
I think designed to impute, what investors believe that the price of uranium should be and I think by and large most investors view that this price of uranium is not linked to production economics in that it does have to transition in order to create that link in that would.
Posing that investors would be very supportive.
Of that trust model be happy too to invest perhaps on a daily basis, allowing allowing that fun to go in and have a far more frequent and consistent bid in the market and we've seen in the past if that occurred that will back up some of the selling it'll backups.
Suggest on the offers and it will help contribute to a transition back to production economics away from surplus disposal.
And I guess, we sort of look at it as having a plenty of upside in it.
Perhaps very little downside, because if those folks decided to go a different route and maybe run the fund like it used to be run well.
Well, we know what that's like I mean, it would just go in the market every now and then and buy and then sit back and.
And wait for the market to appreciate up to a point, where you can go back in it wouldn't be as fun and it certainly wouldnt be transformative, but if they go the former route and actually do.
Start to impute investor's view of where the price.
Well premium should be it really will take a lot of the judgment and a lot of the.
I would say.
Discretion that sometimes gets.
Imputed by the trade reported it'll take it'll take it out of their hands and make this spot price far more transparent.
If you were on far more transaction based quite frankly, that's good for everybody.
Oh from that's all from me guys. Thanks, Thanks Keith.
The next question is from Greg Barnes from TD Securities. Please go ahead.
Yeah. Thank you granted several quarters now you've been saying that you have a long.
And on the off market discussions with utilities regarding additional contracting activity. This.
This quarter, you're saying negotiations continue on business opportunities remaining in that pipeline.
That sounds a little less optimistic on it again and it has the past couple of quarters, you've done a fair amount of contracting in Atlanta.
I guess is the question.
Yes sure absolutely.
Absolutely did not mean to to create the impression that it's a pipeline and we're drawing it down I mean, we're we're quite excited by.
By the opportunities that are in there, we're not going to get every opportunity because of course it's.
Tim said in his opening comments, we're being very strategically patient, where we're trying to find those opportunities that makes sense for us and quite frankly, some of the folks want to take advantage of what our low prices and.
We will turn to other producers to satisfy that so we're not going to get all the business in there you don't want us to get all the business in there but.
But I would say.
When.
When we get on a call like this and we talked about the term market being quiet 1 of the first calls I get is from our vice President of marketing, who says what are you talking about because we're quite busy let me remind you dealing with all of these opportunities that we see coming our way so did not.
But the impression that the cameco is pipeline.
Is shrinking in any way as I mentioned or as we sort of see it as as we as we announced that debt more contract commitments have been layered on that actually creates more interest in our in our pipeline and on our future supply because it starts.
Mean defense that well how much of cameco future supply has already been claimed in.
Want some of it in my diversified portfolio better talk to them. So.
Absolutely did not mean to send that impression Greg.
Thanks.
The situation with the CRA and on the new way of reassessed from 2014.
<unk>.
Trying to understand again bleeding in the MD&A.
Results on less adverse, albeit still material adjustment to taxable income in Canada for 2014.
But Dan you want to say your initial view is that this methodology would not result in a materially different outcome for 2014.
To build a great can I get Sean Quinn to to answer that Jones, obviously going on.
On this well for both 13 years, so Sean lung cancer groups for sure Greg.
And the reason we have it.
We don't think it's a materially different outcome at the end of the day is we think this new.
Assessment grounded.
That has been raised for 2014.
Would be on successfully pursued by the CRA. So at the end of the day, we don't think that there was a significant problem with that year.
Okay, Okay fair enough. Thank you.
Thanks, Greg.
Okay.
The next question is from Lawson Winder from Bank of America Securities.
Please go ahead.
Hi, Good morning, guys. Thanks for taking the call I'd like to ask again about the.
Digital and automation on your statement.
That it has the potential to eliminate care and maintenance costs.
Like how are you thinking about that how is it possible that you.
You could eliminate care and maintenance costs without restarting those mine.
Yes, that's the question yes.
Jim.
Net approaches that was absolutely were not eliminated in care and maintenance costs, that's not possible, but when we do come back we would have.
A more streamlined more digitized.
The system up at key Lake and Mcarthur and which.
That's where we'd be more streamlined certainly there is no way for eliminating care and maintenance costs not at all.
And then just respect to.
So the numbers here. So I think the latest study was somewhere around $15 Canadian per pound marginal operating costs are for.
<unk> cash costs for Mcarthur River near latest study now is there a potential to materially lower that as a result of your digital and automation work. So that's exactly the golar from.
Just do that.
<unk>, if we can but we'll take anything so if you can digitize mechanize robot.
Some of the processes and circuits in the mill, especially we'd want to bring down our operating costs absolutely. So that is the goal clearly.
If I might ask just 1 more the 16 million pounds now so far this year of contracting how is that spread around the world is that more western or more Asian clients. Thanks.
Yeah, I would say in terms of the regional distribution Youre.
On this king.
<unk> towards let's call it more our more traditional markets.
In North America in Western Europe, as opposed to the emerging markets, which of course, you should take as very positive because it suggests that growing demand in those emerging markets has not yet.
Yet shown up which is obviously.
Very good news so yes, it's more of the traditional customer base, who have been through this before I think who are recognizing that.
That there is a fundamental story, that's not building in their favor and quite.
Frankly, I think may be concluding that theres, probably first mover advantages for them.
If they if they move now so that would be more of the distribution.
Thanks, so much.
Losses.
The next question is from Alexander Pearce from BMO. Please go ahead.
Thank.
Morning, So.
I, just don't see you've pushed up sales volume.
Patients this year for fuel services I was wondering if maybe you could provide a bit of an update on the market there and obviously you're halfway through the year, maybe you can give us.
On where you think conversion et cetera is going into a into next.
See thats bit of them some capacity changes over the next the next couple of years.
Yeah. Thanks, Alex.
Yeah, Alex that the conversion market in particular.
Not as hot as it was in 2020, that's for sure I think youll recall that in 2020.
We sold forward as much conversion.
As probably we ever have in a 12 month window. So that was not just hitting replacement rate, but going well beyond been a bit of consolidation I would say in the conversion market, especially with the announcement.
Convert I'm coming back now, it's a few years and quite a bit of money before they're back up and running and that was also combined.
Bind with Iran, or putting out some statements about not just.
<unk> successfully getting to the 7500 tons of their first module, but maybe going to 15000 tonnes obviously not.
Overly helpful announcements in the conversion space, but that's led to a bit of.
Consolidation for sure but.
But as you can see theres still opportunities for us in those opportunities are in the near term.
Before full commissioning in France, and before Congress is back up and running and make no mistake, we will take those opportunities because conversion remains very attractively priced in and those prices support our fuel services.
Division very nicely.
Okay. Thank you.
Thanks, Alex.
The next question is from Brian Macarthur from Raymond James. Please go ahead.
Good morning, and thanks for taking my questions.
Some language in the MD&A talking about.
Potentially.
Deferral project work and maybe impact next year's production I mean I realize these are very high grade mines and you have a lot of flexibility, but can you maybe elaborate a little bit on.
On that is that is that more labor or are you actually seeing supply chain issues. So.
You know there really could be an impact on cigar and maybe a second question moving longer term you talk.
About digitization in Mcarthur, and making it better but theres also cautionary language that you may have issues for equipment for that going forward I mean, you're trying to balance that that you don't want to you know.
Bring it back to you.
Contracts, but how are you ensuring that you actually have the pipeline of material ready to break that Macarthur comes back when you want it as expect it because as you mentioned it has been down for a number of years.
Are you getting a lot more concerned on supply chain issues for equipment to to actually be able to bring this back when you want to.
Yes, Brian. Thank you for those questions are securities.
<unk> lawyers will be delighted you did a deep dive into our risk factors I think we sometimes wonder if anybody read for them. So thanks for doing that.
Honestly when it when you think about cigar Lake.
We always want to remind folks that when you curtail it asset.
Youre curtailing 2 things arent here Youre curtailing the in year production.
But you're also curtailing the activities required for future production. So what you are picking up is that risk to say look if we don't have cigar lake operating for for Covid reasons. It's not just this year's production that gets affected is it's the development of the mine required for future production and obviously now that it's restarted we've restart.
It started in your production and we've restarted mine development and so we just it's prudent to flag that as a risk that debt. If there are disruptions to the mine development plan for future production that will affect future production and quite frankly, we're not afraid of that as a risk Brian because that that's actually connected.
<unk> 2 our supply disciplined strategy so it doesn't really.
It's not orthogonal to what we're trying to accomplish.
Macarthur.
Ryan was Brian Reilly, our Chief operating officer was on a number of quarters ago to sort of discuss where mcarthur was from a risk point of view and just to.
I'd say com any nerve.
Nerves about the situation at Mcarthur.
Right.
Regular risks as you say, it's been down for a while there's no doubt about it but we've continued to have we think the appropriate people there both keeping the physical capital and the human capital in good condition and getting.
Getting ready or keeping it on on standby for that when we do call for that production is there for us at the moment, we don't see a significant penalty capital that we've incurred because its been down we've deferred capital.
For the time it restarts, but that's not the same as penalty capital lets just capital we chose not.
And so you are picking up I think is a prudent risk language that we buried into those risk factors for sure.
But by and large.
We're very confident with where we're at with cigar Lake and we're very confident with the state of care and maintenance at Mcarthur key in and if we werent.
You would actually see us have to spend some money and be very clear about those capital expense.
Great. Thanks for the color on maybe switching to another topic.
You did mentioned GLA again, and it was asked earlier so to the extent you can because I realize it's competitive.
What exactly.
<unk>.
We had a pilot plant years ago, and whatever we actually trying to scale. This now or what's actually going on and a G. L. A right now.
Well, Brian we spent the last number of months of putting the deal together, we're along with Xilinx cameco takes over ownership.
Sure.
Julie and stand up the company and so we're really in that process right now of populating it with some real real strong talent.
And so and then we're looking as to where we can play we've got options for <unk> the value market just.
Pure enrichment, we've got those tails that are available to us if that makes sense.
And so it's pretty exciting.
Look for a long time for an entry point into the enrichment market and those aren't easy there is a lot of barriers to entry there and so we think we.
Might have a pathway here and so we're going on we're going to push it on.
Great.
The next question is from Gordon Johnson from GL chain Research. Please go ahead.
Hey, guys. Thanks for taking the questions other of our questions have been.
Been answered but I.
I guess I just wanted to get your thoughts on.
Uranium trading corporation being the second private finance here.
On to announce the purchase of uranium and.
And clearly you guys already talked about sprouts, but just given we're seeing more of these <unk>.
Transactions announced wanted to get your thought on.
We will see more and kind of how you guys see that impacting.
The broader dynamic.
Yes, great question, and you're absolutely right to say, it's been a very active part of the space and.
It's pretty clear to us that some of the people are coming to it because of an understanding of the uranium.
On market and the fundamentals and how uranium actually creates value through a marketing program not being dumped into the spot market.
But some are coming to us just because they're doing the statistical analysis and say look this is a commodity that Scott.
Very low probability of going down and not very far in a very high probability of going up and probably a long.
Long way. So there is quite a variation I would say the interest in it some of it is public and you've heard about and some of it is private and.
I would say the the.
Most important aspect of a successful financial hold in uranium.
It.
Is to hold it is to not think while we're going to get into the uranium business and we're going to have this little trading book that we're going to flip and we're going to create some positive carry and maybe signed a little contract or 2 with a utility in order to cover management fees.
Those don't work.
And that's why they've come and gone.
But that's not what we're hearing from the narrative now the narrative really is kind of an understanding that this is a market that structurally is positioned for a transition and better to be in now than after the transition occurred and I would say a very helpful understanding that actually grabbing.
On material and hanging on to it more on a permanent capital framework.
Probably the wiser thing to do so.
We are seeing interest.
<unk> and its more appropriate than I would say some of the interest we've seen in the past.
Okay, that's helpful and I always.
Always assets, 1, but I'll ask it again you know.
The contracts in China are quite dated any update there with respect to renewals.
And just last question, taking a step back you know widely popular EV CEO.
On must mentioned recently that uranium makes sense and it seems like the bite administered.
<unk> is kind of warming up to the idea.
On that you know if you want a real.
Solutions C O 2 uranium as the way, we're seeing issues in California with respect to power outages in energy prices, increasing can you guys talk about just from a broader perspective, if youre seeing a further change in increase in sentiment. Thank you for the questions.
Thanks, Gordon and can get on the soapbox here for both the next half hour if you like talking about climate change and.
On a global warming.
The mega trends of electrification, and decarbonization, and where everyone's going on who hasn't set a net zero target.
130035, and quite frankly, and this is a personal hooked on it I think theres a lot of open and EBITDA.
A bit of hypocrisy and that we need to theres a bit of a GAAP between the rhetoric and reality and got to start looking at action plans on how we're going to get there now with this massive electrification in all electric cars.
But.
I don't know what year and billions are being spent and so that's all positive for us because.
Keep quoting our famous.
Energy and mines Minister here count assumes or region.
There is no path to net zero that doesn't drive by nuclear plant and so that's real positive for us the U S has.
Cars bumper positive with the by the administration. The first day they came in they canceled Keystone and signed Paris.
Since then we've seen them make a lot of moves.
The set of clean energy standard for clean electricity fossil fuel free electricity by 2035.
Secretary Grand home very pause on nuclear.
Kerry <unk>.
Gina Mccarthy all of those things so we're watching the exelon units to see if they if they get to get a survival line thrown to them.
So, yes lots of positive things.
<unk> is going on in that front and all positive for US. We think we think nuclear has to be in the picture going forward.
And so we're super positive on China, We continue to talk to the Chinese Grant I don't know if we can give much of an update on that but there are certainly in the market. Yes, I mean, China is an example of a country that is putting.
Section to the rhetoric of 'twenty 60, net zero carbon target that is.
Led to very significant near term increases in nuclear and nuclear his role in their overall grid, you're talking about a handful more reactors in the next 5 years, you're talking about a target mid next.
Decade of 200, Gigawatts, that's a combination of leather will be operating in what will be under construction.
At that time to target, China alone would be consuming 100 million pounds of uranium.
Primary production last year was 120 million pounds, 1 country would be calling for a $100 million of.
120 million supply stack, it's quite astonishing.
The Chinese have kind of we used to think of them as China, Inc. If you will as 1 group, but you really actually see different behaviors from the different entities in China, you see 1.
1 of the utilities.
It's actually become very active in owning assets abroad, and having a supply abroad and having in particular African material.
In the future some kazakh material coming in directly to their account, which would offset some of their purchases of course, we don't see the other utility being quite.
<unk> with.
With securing their own supply and probably therefore far more market reliant going forward and as I said in response to an earlier question.
With respect to where our contracts currently are coming from the traditional markets well, it's very very positive. When you think about these big emerging markets have not really come back.
As a great yes, and we saw what happened last time, they came back in a big way so.
China is a country, that's putting action to the words nuclear is key to getting that clean grid and we actually think that that demand is is in front not behind.
Hey, guys.
What I can just get 1 more sneak 1 more and what would you guys say Conversely, as the biggest challenges you face, we've seen ups and downs and just the equity valuations, which isn't indicative of your overall business, but what would you say the biggest challenge youre hearing out there is for maybe some of your investors you are talking to it and how would you address that thanks guys.
I don't know why other good good answer to that.
We're pretty happy with the way things are moving maybe the market is not moving quite as quickly as we'd like on the term market, but other than that the company is in good shape. We're certainly.
Our balance sheet is strong our operations are running well when we're not threaten book.
Covid for <unk>.
Forest fires.
We are optimistic for the future so.
I don't know of course, we were.
Worry about lots of things all the time and that's our job, but nothing in particular.
The next question is from Jessica <unk> from nuclear Intelligence Beasley. Please go.
Hum.
Hi, guys. Thanks for taking my call and good morning, I was just wondering if you could elaborate a little bit more on chemicals, our strategy with regard to the carry trade I'm I know, we have some backwardation and you mentioned some competitive offers from producers that seems to be driving some of that backward.
Relation and also.
With.
Regard to you know future market trends on once the market goes back into contango I Wonder what your expectation of the carry trade might be then.
Yeah, great questions, we see.
Go ahead, and trade is being less impactful on the market than it had been in the past, obviously and Thats just a function of the spot market.
Thinning out.
We've talked about 60% rise in the spot market since the supply disciplined strategy. It's closed the gap with the term price.
I think not too long ago.
There was a lot of concern about inflation and where interest rates would be well that undermines the carry trade as well did the <unk>.
<unk> that may be that concerned us now replace with the Delta variant and the idea of more stimulus and perhaps lower interest rates, while again that will come back in from the carry trade, but ultimately carry trade works.
When you.
The care of uncommitted primary production coming into the spot market and the good news is from a producer point of view that that's going down you've seen assets retired Ranger Common act.
You just there's less material showing up reflected in a higher spot price and so the carry trade will be there but.
But probably less important factor and as it starts to tighten in the spot market gets closer to the term price.
That's when the conversations really flip over to okay, well now it doesn't seem advantageous to try to secure spot material and carried into the near term of my day I might as well look at term.
From demand and so that I think is what reflects the $60 million plus that we've been successful in adding into our contract portfolio.
Obviously like to see more utilities realize that.
And thats to come because that demand is not going anywhere its still there it needs to be satisfied.
So just.
<unk> quite constructive and I think that's what's captured in Tim's optimistic view.
Thank you.
Thanks Jessica.
The next question is from Patrick So Jacky for a private investor. Please go ahead.
Hi, good morning, guys.
My question is in the in this environment.
With the sort of central banks printing.
Yeah.
No end in sight.
Is as chemical managing their cash balance any differently.
Sales.
Putting maybe some of it into like a maybe carrying a higher inventory or something other than a.
Cash which is moving.
Purchasing power.
Increasingly thank you.
Yeah. Thanks, Thanks for the question Patrick on turned out to the Sia book, Yeah, Patrick. Thank you for that question obviously.
We.
Our very conservative financial management has come with an opportunity cost and that is we've been sitting on cash on that cash hasn't been earning a lot of money, but what it's been doing is is I think creating a virtual guarantee for our owners that we can self manage risk that as we go through this supply discipline strategy as.
Lee we deal with the purchasing we need to do to cover the gap between where our committed sales are and where our production is as we carry the care and maintenance costs and then of course deal with unplanned shutdowns things like Covid.
Our owners can can be assured there'll be no awkward lurches to the capital markets because we we didn't have the financial resources.
<unk> has to deal with it as the business case improves as we lock in more contracts as we get more certainty and predictability around when that Macarthur restart is.
At that point in time, if we're still sitting on these kind of cash balances.
That will be too much in it and at that point, we will have to look at.
At ways to reduce that either.
Give it back to the owners or if we've got a compelling use for it that can generate an acceptable return we'd make the case for that but right now we're still kind of in this <unk>.
<unk> role here of being very financially conservative.
And then we will look at.
Things like <unk>.
When when the market begins to transition into a more aggressive way what is our rule for buying not just the inventory not just the material we need for our committed sales, but perhaps a little bit more I mean normally.
It's not advantageous for cameco to sit on an inventory.
And the reason is we become an overhang it time and time again.
Find ourselves in conversations with with our best customers, where we'd say, we're looking at your uncovered requirements and we think you should start buying uranium and they'd say well we're looking at your inventory and we think you should start selling in and so we created no advantage for us to be carrying that kind of inventory.
But if it if we saw that transition you could expect us to be a very aggressive buyer and deploying some capital that way.
But the good news is those are choices that we have in those choices are a result of.
The prudent financial management that we've been engaged.
Perfect. Thank you.
Thanks, Patrick.
This concludes the question and answer session I would like to turn the conference back over to Jim Getz for any closing remarks.
Well, thank you operator, and with that I just wanted to say thanks to everybody that joined us on the call today.
Always appreciate your interest and support.
Just a couple.
Sorry, but closing comments I would just say again that we're excited about the future. We're seeing for nuclear power generation. We're excited about what we're seeing in the fundamentals of uranium supply and demand and we're certainly excited about the prospects for our company.
As you know, we're responsible commercial supplier with a strong balance sheet long lived tier.
Couple of core assets on a proven operating track record.
And I can just tell you we will continue to do what we see we would do we will execute on our strategy and consistent with our values. We will do so in a manner that.
We believe will make our business sustainable over the long term and and as always we'll continue to make the health and safety of our workers there.
Tier 1 on lease and their communities our priority so with that I'll say, thanks, again, everybody stays safe and healthy and have a great summer. Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
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Yes.
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Okay.