Q2 2022 Cameco Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the Chemical Corporation second quarter 2022 conference call as.
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I would now like to turn the conference over to Rachelle, Girard, Vice President Investor Relations and 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 speaking from our corporate office, which is on treaty six territory. The traditional territory of Cree people and the homeland of the May 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 communication. 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 ask a question form at the bottom of the web cast screen and we'll be happy to follow up after this call.
With us today on the call are Tim gets all 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 Senior Vice President Chief Legal Officer, and corporate Secretary.
I'm going to hand, it over to Tim to talk about the long term fundamentals for our industry. The current market dynamics and about chemicals 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.
In addition for your reference our quarterly Investor Handout is available for download in a PDF file on our website at Cameco dotcom.
Today's conference call is open to all members of the investment community, including the media.
During the QA 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.
Please refer to our annual information form and MD&A for more information about the factors that could cause these different results and the assumptions. We have made with that I will turn it over to Tim.
Well, thank you Michelle and good morning, everyone.
We appreciate you joining us on our call today I Hope you are getting some time off to enjoy the summer.
I want to start today by reflecting on our recent essay from U S C.
There are two reasons for this first it drove home a number of the themes you've heard US express for some time now, but the fundamentals of the uranium market.
In a world that increasingly recognizes the important role nuclear energy will play.
Demand for uranium fuel is going up.
Inventories are going down.
And then the market that is bifurcated due to geopolitical concerns western capacity is lagging.
Those themes arent new.
However, the second reason I raise it is that we believe the conclusion to the Esa sent the wrong message.
It said this.
Let's just hope nuclear fuel supply availability does not derail nuclear energy's latest promising advance.
This statement implies that the responsibility for maintaining the growing momentum for nuclear power rests with the supply side of the industry.
We believe that responsibility is misplaced.
The reality is there's a simple solution to the looming supply challenge.
DSA should have concluded by driving home the point that the responsibility and solution for the looming supply challenge.
Yes, with the demand side.
Utilities need to recognize its time to exercise the power of their procurement to avoid a supply crisis that could as they stated derail nuclear energy's latest promising advance.
And this is true right across the fuel cycle from uranium production to conversion and enrichment.
Those of US who have experience of operating in this industry understand that are responsible producer does not invest in new capacity.
Without line of sight to having a long term profitable commitment that creates a permanent home in which that fuel will be used.
Cameco is strategic and deliberate decisions over the past decade are a great example of this.
Driven by these signals that our customers have given us we've taken a balanced and disciplined approach.
Our decision to proceed with the next phase of our supply discipline, which is now well underway is in direct response to the procurement decisions by some really forward thinking utilities.
These utilities want a line of sight to the future supply needed to fuel their reactors and ensure the continued reliability of electricity supply from nuclear power.
They are contracting decisions provided us with the signals uncertainty we needed to begin the process of increasing production, but more is needed.
Our current plans do not until a return to our full productive capacity.
As a result, the company remains in the supply discipline mode, which positions us extraordinarily well in this rapidly changing market.
We will continue to make responsible supply decisions in accordance with the signals are customers are sending.
Let's look at the market fundamentals and a bit more detail starting with demand.
We have talked before about how the benefits of nuclear energy have come clearly into focus with the durability that is being driven by the accountability for achieving the net zero carbon targets being set by governments and companies around the world.
With 90% of the world's economy now covered by net zero targets attention is turning to the challenge of cleanly and reliably solving the problems of energy poverty.
Energy replacement and energy growth.
Adding to that challenge is solving the energy crisis experienced in some parts of the world, while pivoting away from reliance on Russian energy without jeopardizing net zero commitments.
Therefore, not surprising that concerns about energy security are amplified in at the top of the list for many governments, creating further pressure to reexamine their energy policy decisions.
Policymakers and business leaders around the world are recognizing that energy policy must balance the objective to achieve a clean energy profile with the need for affordability and security.
Too much focus on intermittent weather dependent renewable energy has left some jurisdictions struggling with power shortages and spiking energy prices or a dependence on Russian energy supplies.
The good news for US is that in their quest to restore balance or pivot away from Russia. Many are turning to nuclear.
Nuclear power fits nicely at the center of the policy triangle, providing safe reliable affordable carbon free Baseload electricity, while also offering energy security and independence.
Which is why in addition to all of the developments I noted last quarter, we saw a number of supportive initiatives and announcements this quarter, which we outlined in our MD&A.
Suffice it to say, we're seeing governments and companies turned to nuclear with an appetite that I'm not sure I've ever seen in my four decades in this business.
Therefore, it's easy to conclude that the demand outlook is durable and very bright.
But supply is quite a different picture.
For some time now we've said that we believed the uranium market was as vulnerable to a supply shock as it has ever been due.
Due to persistently low prices.
Low prices have led to growing supply concentration by origin and a growing supply gap.
And unlike in the past, we don't have the same stock of secondary supplies to fill the gap.
After years of drawing on these one time sources the secondary supply capacity is now declining significantly into the future and productive.
Capacity is not poised to respond.
So taking the challenge of filling that gap to a whole new level with the continued conflict in Ukraine. There is also growing uncertainty about the ability to continue to rely on nuclear fuel supplies originating or transporting out of Russia.
Whether as a result of sanctions or because of conflicts with company values.
Currently the global nuclear industry relies on Russia for approximately 14% of its supply of uranium concentrates.
27% of conversion supply and 39% of enrichment capacity.
Utilities are now faced with considering and planning for a variety of potential scenarios.
Ranging from an abrupt end to Russian supply to a gradual phase out.
The market was confronted with one of these scenarios in late June .
Amendments to Canadian sanctions caused the owner of a Canadian shipping vessel to conclude it would be in violation of Canadian laws. If it were to load and deliver enriched uranium product scheduled for pickup in St. Petersburg.
While an exemption by the Canadian government as resolve this issue for now.
Lights, the tenuous nature of reliance on Russia, or Russian ports for supply.
It's one of the reasons why last quarter, we decided to avoid using Russian rail lines and ports to move our share of <unk> production to a blind River facility.
Instead, we are delaying our deliveries from Kazakhstan, while we work with our partner to enable shipping V. A trans Caspian wrote.
We do not have a confirmed date for when the first shipment could proceed however.
However, we have the ability to mitigate the risk with inventory long term purchase commitments and product loans if necessary.
It's still early days, but we're already seeing some utilities beginning to pivot toward procurement strategies that more carefully weigh the origin risk there.
They are working their way through their fuel supply chain to determine where there are vulnerabilities.
As a result, we have temporarily seen their focus shift from securing uranium.
The more immediate need in their supply chain for enrichment and conversion services, where Russian capacity plays a much bigger role.
But make no mistake, we expect uranium will follow.
After all it is the product, which all services are applied.
With more than 45 million pounds in new uranium contracts added to our portfolio since the beginning of the year 2022 has already been a contracting success and we continue to have a significant and growing pipeline of contract discussions underway.
However for the moment, we too are focusing our efforts on capturing the record high conversion prices under long term contracts in our fuel services segment.
And with what we expect will be more uranium demand ahead of US we will continue to exercise strategic patients.
The primary driver for our contracting activity is always value.
We like to leverage our current uncommitted in ground inventory provides us to the further market improvements we expect to see.
So, let's talk more about cameco and what we're up to.
As a commercial supplier our decisions have uniquely positioned the company to capitalize on the increasingly undeniable conclusion that nuclear power must be an essential part of the clean energy transition.
And even more so in a world where origins matter.
With demonstrated tier one assets strategic tier two assets and our focus on vertical integration, we've taken a balanced and disciplined approach to our strategy of full cycle value capture.
As I just noted on the contracting front, we've been balanced and disciplined in layering in volumes, where it makes sense for us and then building a diversified customer base.
We're also taking a balanced and disciplined approach to our supply decisions.
The next phase of our supply discipline, which involves not only Mcarthur River key lake, but starting in 2020 for cigar Lake is balanced with our contract portfolio and where we think the market transition is currently at.
Even though we've seen considerable pricing pressure, resulting from the geopolitical uncertainty we will not change our production plans.
We will not front run demand with supply.
We need good long term contract homes in our portfolio and we need to see further improvements in the uranium market before we make changes to our production plans.
And I think we've shown we can be trusted when we say we will remain disciplined.
Finally, while we're talking about balance we've shown balanced financial discipline.
We will retain our conservative financial management to support our continued balanced and disciplined contracting and supply decisions.
Having said that we will deploy capital where it makes sense.
Increasing our ownership share of cigar lake from 50% to just over 54% made sense and I can tell you we will take those pounds any day.
Cigar Lake is one of the world's best and most prolific tier one production assets on the planet.
It's a proven permitted and fully licensed mine and a stable jurisdiction that operates with the tremendous participation in support of our neighboring indigenous partner communities.
And of course, we know it very well because we operate it.
At the Mcarthur River mine and key Lake Mill, we continue the process of transitioning from care and maintenance to operational readiness.
The current workforce at these sites is now approximately 670, including employees and long term contractors.
With a view to achieving about 850 prior to the start up production later this year.
Our operational readiness activities are transitioning from construction to early stage commissioning of our mining and milling circuits in Mcarthur River and key Lake.
Critical automation and Digitization projects at the key Lake mill are being tied into existing infrastructure.
In addition asset condition assessments and subsequent repair and reassembly of all equipment is now winding down.
However, we have seen some delays to our work schedule at the key Lake Mill.
We have encountered some challenges with respect to the availability of critical materials equipment and skills.
In addition, after four years on care and maintenance, we have experienced some normal commissioning issues.
As we work to safely and systematically integrate the existing and new assets with updated operating systems.
We've adjusted our schedule to accommodate the slower ramp up at the mill and anticipate first production will be deferred until later in the fourth quarter. This year.
As a result, our revised plan is for up to 2 million pounds of production this year.
It's yet another good reminder, for the demand side of our industry about the challenges of bringing on supply in the current environment.
However, the slower ramp up at the key Lake Mill has been offset at cigar Lake.
We've been successful in catching up on development work in production at cigar Lake and we're expecting production of 18 million pounds on a 100% basis.
Therefore, with the additional production at cigar Lake and the risk mitigation measures. We have in place we expect to deliver on all of our commitments and therefore, we don't need to rush the process and Mcarthur River key Lake.
This is just one of the advantages that being a multi asset multi jurisdictional producer affords us.
That makes us a stable reliable and long term source of supply to ensure the reliability of our customers' reactor fleets.
So what's the result of our disciplined actions.
The solid balance sheet and the ability to self manage risk.
At the end of the second quarter, we again, we're in a negative net debt position with $1 4 billion in cash about $1 billion in long term debt and a 1 billion Undrawn credit facility and this doesn't include the $778 million owed to us by the CRA.
Once production at the Mcarthur River key Lake Operation resumes, we expect to begin to see a significant improvement in our financial performance.
As production achieves a reasonable level, we will no longer expense operational readiness costs to cost of sales and we will be able to source more of our committed sales from lower cost produced pounds.
As we saw again this quarter the higher prices in the currently improving markets are beginning to flow through our existing contract portfolio.
And with an inventory of unencumbered pounds in the ground rising prices will also create the opportunity to layer in new long term commitments commitments with appropriate pricing mechanisms that will underpin the long term operation of our productive capacity.
We've also continued to utilize some of our long term purchases. We put these arrangements in place as a means of risk mitigation.
We will balance this activity with our spot market purchases.
As such we expect to maintain the financial capacity to execute on our strategy, capturing long term value, while self managing risk, including from the global macroeconomic and geopolitical uncertainty we are seeing today.
So what does all this mean for cameco well it means we're optimistic.
Optimistic about the growth and demand for nuclear power, both traditional and non traditional.
We're optimistic about the growth in demand for uranium in for downstream fuel services.
And we're optimistic about the incumbency opportunity for cameco and capturing long term value.
Therefore, we will continue to execute on the next phase of our supply disciplined strategy.
And more importantly, we'll continue to do what we said we would do.
We have operating and idle tier one assets that are licensed permitted long lived and our proven operations that have expansion capacity.
Fully permitted and proven tier two assets that don't make sense at today's prices, but when you think about them in context of a looming supply in origin gap, there's a potential pathway for them to add value for us in the future, but we will continue to be very disciplined in our evaluation on that front.
And just as a reminder, our interest extends beyond just mining.
We're vertically integrated across the nuclear fuel cycle with refining conversion and fuel fabrication.
As utilities look to secure access to nuclear fuel supplies in jurisdictions that are stable reliable and politically dependable.
We will also look to continue to build our fuel services contract book.
Yes.
And we're looking to expand our reach.
For example, through our fuel manufacturing capabilities and investment in global laser enrichment.
We're exploring fabrication of new fuels.
<unk> high assay low enriched uranium or how are you.
And you can clearly see the benefits of chemical being involved with ventures like this.
Thanks to our reputation as a reliable fuel supplier and a long history of cooperating with the U S government on various projects.
The technology has the opportunity to participate in the growing commercial opportunity for enrichment capacity in the U S.
Its why <unk> was able to navigate the regulatory process in the U S and gain access to the dove tails material.
This while utilities like constellation energy and Duke energy were willing to signed letters of intent to collaborate with <unk> to help diversify the U S nuclear fuel supply chain.
Including measures to support <unk> deployment of Silex laser enrichment technology in the U S.
We're also participating in the development of small modular reactors and have entered a number of non binding arrangements to advance their commercialization and deployment in Canada and around the world.
And we have an interest in the nuclear sustainability services, the backend of the fuel cycle, including aiding in the responsible cleanup of enrichment facilities no longer in operation.
These opportunities align with our commitment to manage our business responsibly and sustainably and to increase our contribution to global climate change solutions.
Our decisions at Cameco 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 in the world.
We're committed to operating sustainably by protecting engaging and supporting the development of our people and their communities and to protecting the environment something we've been doing for over 30 years.
Our strategy, which includes contracting discipline supply discipline and financial discipline will allow us to achieve our vision.
<unk> of energizing a cleaner world.
Thereby delivering long term value in a market where demand for safe secure reliable and affordable clean energy is growing.
So thanks for your interest today, and we're happy to take any questions you might have.
Thank you we will now begin the question and answer session.
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Our first question comes from Andrew Wong with RBC capital markets. Please go ahead.
Hey, good morning.
So the uranium market looks to be improving and.
Tim like you've said in your prepared remarks.
The duration and Darren so this improvement looks to be longer lasting.
And we have mcarthur restarting so kind of your cash flows are set to improve pretty significantly over the next few years could you maybe talk about your plans on capital allocation over the next few years, where do you expect to kind of.
Spend some of that cash.
As that comes in.
Good morning, Andrew Thanks for the question.
You hit it.
If all of the scrip there things are looking a lot better for us the market clearly, we think theres a durability there that's going to continue and we see lots of countries. It's amazing if you read the press watching the countries that are turning to nuclear taking a look at nuclear turning back to nuclear I think in Germany.
And others in Europe .
We are really struggling with their with their energy situation. So yes. We think we think is there we see 54 reactors under construction, we see lots of countries.
Willing to build we see lots of push on SME <unk>. So yes, the demand side looks really good supply side looks tighter. We're certainly delighted to have some world class tier one assets cigar Lake.
The JV, Inc, and now Mccur key that we're just bringing back on so we think we're in pretty good shape conversions looking really really good. So yeah. We do think our financials will improve over time and you've heard us talk about capital allocation before and just how we think about that but <unk> sitting beside me and grant why don't you walk everyone through.
Maybe you want to say a little bit about the market and then about our capital allocation plans are well under market just make the point that you made we were bullish on the outlook for uranium nuclear fuel prior to all of these incredible tailwind that have.
<unk> emerged I don't think anybody can conclude that it isn't even a stronger picture a stronger outlook for <unk> than it was even EBIT last quarter I mean take slide three from our investor presentation today or just just look through slides pages seven to nine of our MD&A and just the list of headline news that is.
As happened in our industry all positive so Andrew Couldnt agree more that the recovery of our cash flow and earnings has only just begun.
We positioned for these moments in the market to build these this long tail of sticky revenues earnings and cash flow and that becomes the.
The basis of our capital allocation so for US. It is important to remember we are still in supply discipline as good as the news is we need to see it translate into those procurement decisions that call for the production that we have and we're not there yet our plan is still to wrap up mcarthur.
But not to full capacity our plan at the time in 2020 for us to bring cigar back so as Tim said at the outset, we just found that <unk> hit all the right points in drew absolutely the wrong conclusion.
However of the procurement of the utilities is what's going to make sure that the western capacity is there to meet the western demand in a bifurcated market. So we need to see that continue to build we have been building at 45 million past year to date <unk>.
<unk> committed sales forward, that's over 60% of the reported long term business in the market. This year, it's an extraordinary performance for one company that's not.
90 million pounds on an annualized basis, I'm, not saying that thats, where we even want to be I. Just I just want to emphasize to those who might say its only 5 million pounds in quarter. Two it's 45 million pounds year to date and over 60% of the long term market, so far and so as that business builds that will afford us the.
The opportunity to go back and revisit our supply discipline indications as as we revisit those we may find ourselves making different decisions at our production plans going forward that will then.
Suggest that maybe our current conservative financial management.
To give way to two things one our.
Are there growth opportunities required for cameco.
There, where we can take advantage of a bifurcated market, calling for more western capacity and we will look at that end and obviously, if we can convince our owners that that makes sense. We would go forward on that or we may find ourselves in a position where the cash flows.
A long term sticky cash flows that come from building that contract book will cover any growth ambitions in which case.
We would have to conclude.
Time to return some value to our owners because we don't need to hang on to the conservative financial position all of that is predicated on this continued bill which is predicated on more procurement in the market calling for Pat So at the moment, we're still supply discipline is the right position to be yet, but I would just say.
We're just extraordinarily well positioned for what's going on in the market.
Okay. Thanks.
Thanks for all that so maybe just switching gear to awards in Chi.
Could you just talk about a little bit more about the decision to delay shipments from there or is it mostly because you can't receive the material because of sanctions or restrictions or is it because of the.
The risk mitigation and.
Maybe just not wanting to ships through Russia for like ethical moral or other reasons.
Yes, Andrew it's a bit of all of that for sure. It has to do with we do not.
At this point want to be using Russian rail lines or ports to ship our material is <unk>.
Country for.
For our values as a company and so we're looking at the options. We're looking at that Trans Caspian Road, you've heard grant and others talk about it then.
So we haven't got to.
Any kind of a final decision on whether that's going to be available to us or when we know what it has been used sometime in the past but not.
<unk>.
The available right now for our materials. So I think they're working on it's Sean I don't know Shaun Quintus here looks after our Kazakhstan transports, Sean do you have any comments.
We stated I think what's covered in the MD&A, we are apart with our partner and JV income.
And the Safari, sorry, with the support of our partner because Adam from JV <unk> working on getting a significant shipment through the trans Caspian route.
We expect to know more about that over.
Next few weeks.
And once the material gets here there is no sanctions that apply to Kazakh material of any description. So there's no concerns on that side.
Yes, I might just jump in here as well Ken.
From a market perspective, I think we just need to frighten us appropriately which is this is just more supply discipline and of course this has forced supply discipline, but this distribution distributor.
As more supply discipline and the industry more uncertainty about the availability of primary production. If you think about it from mechanical perspective, we have risk mitigation in place to deal with this we have non Kazakh production operating that supply disciplined rates of course, plus we have idled assets, but we have other assets outside.
That jurisdiction, we have in inventory for a moment just like that that inventory is located in western markets. We have access to long term purchase commitments that we've entered into that we could bring forward today in order to access material. We have licensed facilities that would allow us to borrow pads if needed.
<unk>.
Very easy risk for us to manage its not for the entire industry. The entire industry is incredibly reliant upon a lot of material coming out of central Asia in arriving at western facilities. In 2022. So it's just yet another supply risk and should be thought of in the frame of more supply.
Disciplined this sort of forced by a logistical.
Transportation set of issues, but should be thought of in the same context that we all think about supply discipline.
That's great. Thank you very much.
Thanks, Andrew.
The next question is from Gordon Johnson with G. L. J research. Please go ahead.
Hey, guys. Thanks for taking my questions.
I guess the first one I had was answered.
I guess with respect to the contracts.
The contract pricing has been rather robust I'm just I'm just talking about USG contract pricing has moved up from $42 50 in February .
So about $50 50.
In June on the first quarter Conference call you guys highlighted U S. C said, there was about $60 million worth of contracting 40 million of which as jurors now they are saying there is roughly $72 million of contracting first question can you tell us how much of that contracting is yours and if you have benefited from this rise in contracted pricing.
I have a few follow ups.
Yes, I think thanks, Gordon I think grant touched on that in the first question would go ahead and yeah. When we look at the reported term activity by say UFC at $72 million half year to date and were 45 of that so we're over 60% of the reported term business which is of.
Of course, our really strong performance for us.
What we are what that's proof of it is what we've been saying all along that we enjoy some incumbent advantages here. We are a proven reliable producer multi asset integrated supplier with by the way a real ESG performance that we can point to that is important for procurement.
<unk> today and.
We can take advantage of.
Although market that's increasingly bifurcated.
We also observed that the terms and conditions that we are able to.
I would say <unk>.
Pain in this market are outperforming the prices that are reported which suggests to us that that while we are enjoying ecommerce advantages maybe there are some <unk>.
Forced sellers in the market, who are willing to discount their material in order to lock up the volumes, but that's okay.
That would be expected in a bifurcated market.
All I know is that our origins are are pretty coveted and we're going to be very disciplined and placing them in contracts that makes sense to us.
Now have about 170 million pounds under long term contract commitments looking ahead, our averages about 22 million pounds per year for the next five years. This is that long tail of revenues cash flow and earnings that we've talked about so we create this incredible benefits for folks they get to play the upside that only.
Comes in the commodity and resource space, but when you get to lock it in for a period of time, that's more akin to kind of the infrastructure returns. So it's the best of both worlds for an investor.
Okay, and then just a quick follow up.
We're looking at.
Enrichment SW.
<unk> and conversion prices that have kind of went.
Significantly higher it just looking at the chart over the past year, yet spot prices.
Prices haven't necessarily followed so specifically Greg can you tell me when you expect or if you expect spot prices to follow and also if you guys expect to sign additional contracts.
Those spot prices potentially move higher thanks for the questions. Congrats on the results. Thanks, Kurt Yes. Thank you Gordon let me just.
Back up a little bit and remind everybody on the call that.
While uranium often gets treated through a commodity lands.
Would be wrong to conclude that you simply backup dump truck of uranium oxide and dump it into a reactor core and it's not the core model.
Once you have the <unk>. It actually begins a very long journey through a number of really important services to arrive that often are very bespoke fuel bundle.
To meet the particular needs and in fact that particular location within any one nuclear power plant and we often have forgotten about that because the service side of the industry, especially in Richmond and conversion had been so well supplied for many years prices were low as a result, and I would say fuel buyers were.
We're very comfortable about the services they had procured.
That all changed on February 24th when Russia invaded you Craig.
<unk> the spotlight back on to those services Russia's 40% of the global supply of enrichment and Theyre nearly 30% of the global supply of conversion and for utilities that Matt moving from a very comfortable view of their forward service commitments to suddenly reevaluate.
<unk>, where they were getting those services for us. So we've seen a lot of attention pivot away from uranium.
Downstream to enrichment and conversion so no surprise, we've seen effectively a doubling of the enrichment price we've seen more than a doubling of the conversion price. In fact conversion is sitting at historic levels, We've never seen conversion prices this high before.
Thats, representing this focus on new areas of service that are.
Exclusionary of Russia, and that's a big challenge.
But eventually you'll need the product. These are just services that they need to be applied to the product. The product is uranium and there is no substitute we've never seen a D linked cycle for the reason that you eventually need the uranium so just like in 2021 and the beginning of 2022, there was a lot of focus on uranium it's now shifted.
<unk> Street, but it has to come back because you need the uranium to plug into those services you procured so we expect to see that.
But.
Short of a shock on the uranium side it could take a bit longer for utilities to put in place all of that replacement service business. We're.
We're seeing obviously the benefits on the conversion side, we can be strategically patient on the uranium side and the leverage.
When that demand comes into the market. So your final question, absolutely, we expect to deleverage to our uranium market that starts to price it the cost required for western capacity to meet western demand.
Okay.
The next question is from Rs <unk> with Scotiabank. Please go ahead.
Hi, good morning, hope everyone's well and by the way. Thank you very much for releasing your results earlier than normal at 30 minutes or so was very welcome. Thank you.
My.
Question really has to do with where things are at in the market I mean last quarter, you talked about utilities refocusing their procurement efforts on enrichment and conversion that we saw at no incremental pounds added to your book.
So three months have gone by and you've obviously added another 5 million pounds to the book, but can you give us a sense of where that process is that.
In terms of utilities like are we are you starting to see utilities coming back to procure your Raymond uranium or are we still kind of early days of figuring out conversion enrichment.
Thanks for the question worst and acknowledgment to Stephanie was happy to get up at $3 30. This morning, I think to let the results.
Grant over to you to stay on the market.
Yes.
I would say your observation is correct in that.
Utilities are bye.
By and large.
Trying to replace a reliance upon Russian suppliers of enrichment and conversion with non Russian sources and that is a very big focus in the market right now, which is what's driven such strong price improvement in those two services.
What's driven incredible attention to their global laser enrichment project that were a part of for example.
So that downstream activity is quite strong and that is I would say delayed.
Some inevitable pure uranium demand.
Normally utilities do this they sort of start at the reactor level count the fuel bundles. They have then they turn to the fabricators and assess the in process material. They have and then they turn to the <unk> Richard.
Turn to conversion and then and then focus on the uranium to plug into that change. So it is correct to say that the market has lost some of that focus on uranium.
We saw through 2021 and into early 2022 spurred obviously by some of the events in Kazakhstan early in the year, but this isn't this is just delayed.
The demand will come back and it's more likely to come back in a lumpier fashion. So there's no doubt that the focus is a little more downstream at the moment, but we'll come back upstream it has here.
Product needs to eventually be bought to plug into that service chain, but I don't want to leave the impression nobody's looking for uranium.
We're not at 45 million pounds, a year to date, because there's no demand in uranium. So there is quite substantial demand in uranium relative to the last couple of years.
Relative to replacement rate note, we're not there yet that's why we're still in supply discipline mode. It makes sense for us to be signaling that the procurement on the Iranian side, it's just not sufficient yet but.
But let me give you another leading indicator that we thought we've talked about.
We often talk about our pipeline.
And to give you a bit of a sense of how much activity is in there and it's a fact that from origination through to execution.
We have more pounds under discussion than we've had since the Fukushima window, so as a bit of a leading indicator I would say there is demand it is not yet replacement rate.
But there.
And once we see the services replaced.
And confidence of the utilities that they've got their enrichment lined up and excluding Russia and they've got their conversion, we could actually see demand in the uranium side come at a far more concentrated fashion than would've been the case prior to February of 2000 and for it. So that's the way we look at it. We're just we're leveraged to that move.
And we think it's the absolute right space recipe.
Thanks, Greg.
Separate follow up.
Could you how are you currently thinking about in Chi.
From an asset perspective.
We've seen obviously, a number of western companies exit Russian assets.
How do you currently think about Kazakhstan, and and Kai specifically.
From a risk perspective.
Or.
We watch it very close in fact I was over there.
Ago.
<unk> had a visit.
In the country obviously.
It's an important asset for us and K and we're watching the political situation there but.
Now it remains a good jurisdiction for us to operate in and we're happy with our partnership and our joint venture and it's working well are a bit concerned with the transportation issue in getting our material out of there. So we just continue to keep a very very close eye on net investment and right now we're happy to be there.
Okay. Thank you.
Yes.
The next question is from Lawson Winder with Bank of America Securities. Please go ahead.
Okay.
Hello. Good morning. Thank you for the update nice to hear from you all today I wanted to ask about the conversion business.
And try to get a better idea for what the potential upside is here, even just keeping sort of volumes flat so with your disclosure.
Really evidence sort of what the size of the contract book is also not entirely evident just looking conversion sort of what the average traces and your current contract book.
Okay.
Perhaps you could give us kind of.
Kind of those levels. So we can square that with spot is now above $30.
Per kilogram.
Maybe help us thinking about the potential to increase the EBITDA contribution from conversion. Thanks.
I want to talk about the conversion market.
Loss and as you know and thanks for the question as you know not a segment, we've been particularly drawing attention to for a long time. It was a forgotten part of the industry and one where we were awarding folks that that as inventories were drawn down one of the realities of the inventory drawdown is that it often showed up as <unk>.
So already converted material.
As those inventories have been drawn down the need to replace it requires fresh conversion. We started the fundamentals start to improve and then of course also exacerbated by the Russian invasion of Ukraine.
So a lot more attention on the conversion space than we're accustomed to which is great.
But our disclosures you are right we bundle our fuel services division into one segment and we don't draw out specifically, what's going on in conversion, but I would remind you that on an annual basis. We tell you what our book looks like we've got 49 million kilograms of conversion sold under long term contract again like uranium that long tail of revenue cash.
Slow and earnings that underpins the entire field services group conversion is.
Almost exclusively sold on fixed price basis, so in a world where conversion prices have hit historic levels, but lets remember conversion has more ability more idle productive capacity that can come back to the market, then I would say uranium or enrichment enjoy so we need to be mindful of.
That what I'm talking about there is the conversion business in the U S plans to restart at the <unk> plant.
The French facility is still ramping up there's an idle facility in the UK all of that suggests to US. These are these are great prices and it's time to lock those in so expect the performance of the fuel services Division just to continue to be very robust on the back of that historic pricing as we layer in more and more.
Conversion.
But we're just always going to be challenged with the disclosure doesn't reach down to the full conversion level.
But I would say the historic proportion where fuel services was.
<unk>, 15% and 20%.
Our EBITDA in uranium with the rest of that.
It's probably going to rebalance significantly with these historic prices. So we just expect to lock in really strong performance for a multi year basis take take these strong.
Spot moves and lock them in for the long term so we.
Have high hopes for the conversion business.
And it's just absolutely critical.
Two the nuclear fuel cycle and western capacity, meaning western demand.
Maybe just a quick follow up on that in your comment on the nature of the contracts being mostly fixed price do you see.
Do you have a desire to perhaps shift to a bit more of an index price.
Basis for that business.
Then.
Follow up question that I really wanted to get to was just on labor Macarthur at Mclean Lake and maybe just to understand it.
The expiring collective bargaining agreement at Mcarthur has anything to do with the slower than expected ramp up and then.
You think about renegotiating that contract.
Which expires at year end.
What would be a reasonable expectation and the current inflationary environment for.
Sort of like pay increases based on your knowledge of past inflationary environment. Thank you.
And I'll just take the second part of that and then I'll pass it to growth on the fixed versus variable pricing.
Certainly we have an outstanding workforce at Mcarthur River, we're bringing them back we were down to a minimal number for the last couple of years they've come back we've been blessed with a competitive advantage of having over 50% of our employees being from the north around their mindsets that many who have come back many new ones and so there.
Getting that asset ready to go Mcarthur is ready to go to final touches on it too.
Or a delay at key lake but.
Normal bargaining process are not going to preempt that are forecast, what's going to happen. We'll go both sides in good faith and we've got a great relationship with our union up there so that expires at the end of the year and we'll watch and see how that plays out. So grant you want to talk about conversion pricing term versus spot.
Similar to the way, we look at uranium and I would say the enriches look at the enrichment space and the way we will certainly look at the enrichment space when we're in it.
It is a function of where capacity is at and because conversion does have.
Line of sight to additional western capacity to come back in the next few years actually this is a good time to be capturing those prices on a fixed basis before that capacity comes back. So I would say right. Now. This is the type of pricing environment that is very favorable for lock.
In that value and and as <unk> comes back ramps up as the French facility is expected to ramp up as decisions are made about the Springfield facility in the UK now is not the time, we'd want to be indexed to those product that production coming back. So we're quite happy with the move in the conversion market.
We're quite happy to be the only operating conversion plant in North America, right now and full cycle value capture means were leveraged for a moment just like this.
Okay. Thanks, very much very helpful nuances.
Thanks Lawson.
The next question is from Alexander Paris with BMO. Please go ahead.
Thanks, I just wanted to turn back to the potential trends Caspian rig fuel incurring material could you be a little bit more specific on what and where the current hurdles is it is it more of a case of getting the right agreement.
<unk> is in place.
In Kazakhstan for reaching that material or is it more about.
Getting those in.
In place through the Azerbaijan et cetera into Canada.
Yes, Thanks, Alex I'll ask Sean Quinn to speak to that sure.
JV, Inc, guys working on that with because Adam Palm and there are.
Lots of logistics issues.
The actual flow would be up to the point of act up on rail.
And then over to <unk> and advertise them by rail to the Port authority on the Black Sea there can be loaded on a boat and theyre, putting all of those segments. Together. So there's just a lot of logistics supply work there.
And then there are also regulatory hurdles.
That need to be need to be.
In connection with.
The necessary approvals from the various government along the way and in particular, they need to get approval to transit to Azerbaijan and they have.
Approval for a certain quantity this year that will cover shipment to us.
And they are just putting it altogether.
And it will take I think.
<unk>.
A few more weeks of work to do that.
We hope to learn more as we move into the month of August .
Thanks.
Just to kind of convince up and it sounds like it's not a it's not a question of.
If it does sound more like a win.
Hugh.
I think I would still say, it's a bit of if and when in my mind, there will be happy when we actually see the shipments get loaded on a boat.
The part of <unk>.
Okay. Thank you.
Thanks, Alex.
The next question is from Greg Barnes with TD Securities. Please go ahead.
Thank you Glen and Tim is there a particular trigger.
It allows you to take your interest in <unk> up to 75%.
Okay.
Well, John can speak to that too because he's thanks, Greg nice to talk to you and Sean good Youre the agility trigger yes, hi, Greg could you just.
Or a bit muffled there is there a trigger to increase our percentage and Julie Okay. Yes, sure Theres a time trigger we have an option thats effective after roughly the end of this year and then it's just a question of us exercising the option.
Okay.
Just going back to conversion Grandma from your discussion on the last quarterly call. It sounded like youre not going to add more capacity at port hope.
They're pretty heavily contracted so.
Taking advantage of these higher prices is going to be more of a longer term issue.
<unk> for you when would these higher prices kick in in your contract book, If you are able to nail them down.
Well, it's already starting to happen the conversion move has been underway for a couple of years as you know and our goal is never to.
Like in a more of a classic commodity you see a strong spot price. You then increase production to take advantage of that strong spot price.
Our incentive at Cameco, we see strong spot prices and we actually move away from them. We don't we don't aim to target the spot market, we want to see that tightness persist long enough for us to lock that in.
In multi year value and that's what we're doing so we're just continually layering in as this conversion market moves up recognizing that these prices are going to attract Idaho production to come back to the market so rather than get carried away with our own production plans. The goal is to maximize the margin on our current <unk>.
Productive capacity.
While it is really the only game in town in North America, and then lock those in on the multi term basis, so you're already seeing that pick up and it will just continue to build it that it's that classic <unk>.
Following capture that we have in our contract portfolio to not just.
Couple of weeks at the top of a spike but to lock it in on a multiyear basis. So so.
That segment is expected to perform.
For a long time, and then actually have a stickiness to it even if productive capacity does come back in other locations will have locked in that value on a much longer term basis.
Okay. Thank you.
Thanks, Greg.
The next question is from Brian Macarthur with Raymond James. Please go ahead.
Good morning, Brian .
Mr. Mccarthy your line is open.
Sorry, good morning.
Just following up on conversion at one time, you did have a <unk>.
<unk>, if I remember with.
Springfield do you have any.
Option, two legacy, saying like you often have backup plans for.
Security of supply because you only do really have one facility and conversion do you have anything left there that if they bring that back that you have options on alternative supply there or anything into the core conversion market.
Not at this point, Brian we don't I think we exited shown what year was 2014 2014, and we left it completely Brian . So at this time, we don't have any optionality, there and I'm not sure that plants could even go with you. If you wanted to do so but the answer is no we don't.
Okay.
And secondly, like most of the endless.
Moment everybody's facing inflation, it's tougher to get.
Restart there.
Ofer.
Everybody talks about incentive price if we're gonna have a bifurcated market in part of your marketing strategy and you made comments about.
Utilities aren't there and it's not economic right now how much do you think that price has gone up when you started this strategy I mean in the old days people talked about 45 or $50 with maybe where it makes sense, but.
It's not easy to restart things, it's not easy to put green fields into production the western World Nothing is getting cheaper.
How much do you think that inflationary impact.
The fact that the industry and how does that play into your strategy about actually been doing contracts right now because one could argue the price might have to go on awful lot higher going forward, especially as you point out it continues to get delayed as utilities focus on.
Near term problems and enrichment.
Yes, Brian there are certainly.
Seeing from your reports and many others on other companies the effect of inflation on on Capex, it's a bit of an epidemic.
And then supply chain continues to affect everyone labor. So as I said, we're a bit blessed here. We've got some homegrown labor that comes back to us, but grant do you want to talk to an inflationary factor yes.
Brian Youre, raising a good point, but I want to reframe it a little bit because I put it in a different context I would just simply say.
That as the World is bifurcated and origins are mattering more when we speak about a western cost curve and we're saying that in order for western capacity to meet western demand, we're going to have to see investment and it's a fact that the western cost curve on the uranium side is more <unk>.
Spencer.
Inclusive of things like inflation, and regulatory hurdles and ESG requirements in the western So we bake all of that and when we say the incentive price on the western cost curve versus a global cost curve, that's excluding <unk>.
Russia, and making other origins more difficult to obtain is already factoring that in so so we agree with you that tab that one of the kind of exciting pieces for us is that that strike price for the last marginal pound of western supply is probably higher now it's not our.
Fly because we don't need to invest in greenfield to get I mean, we're still in supply discipline mode. We've got more production from our brownfield, we've got more brownfield expansion capabilities long before we have to think about that last western Greene.
Greenfield pound that needs to come to the market.
Brian we're slightly greedy enough to wait for that price as well, we're not looking to be sold out so to your point and we often hear this.
There are some that say well why haven't you done more contracting and there is some let's say why are you doing any and we think we're sort of right in between right, where we're exactly where we need to be we're not looking to be sold out right. Now we're not looking to just land volumes to bring back all of our supply at nameplate production, because we think <unk>.
Rice's have to adjust and reflect the need for western supply the need for western supply in an inflationary market the need for western supply that has es prove it ESG performance.
And we're patient to wait for those prices. So we agree with you we just bake it in to a different view of where that western cost curve is going.
So would it be 25%, but when you start it to you.
Three years ago with this strategy, 50% higher in your mind, well well, Brian we wouldn't we wouldn't quarrel with those in the industry that say that the western supply is probably if the global and the <unk>.
Last marginal power from a cost curve basis.
Fire to a bifurcated market with.
Somewhere in the mid seventies.
We wouldn't quarrel with those who have said that the price probably needs to be $22020, a pound higher than that we see that analysis being done by some and we wouldn't disagree with it. It makes sense. When you factor in I would turn to to trade <unk> and the work that that.
Those folks are doing there on the production cost indicator mindful that theyre talking about sort of the next five years, but extend that rationale and thinking out over the next 10 years, which is really a more appropriate time frame and you can quickly find yourself in that range and we wouldn't quarrel without analysis now the good news for US is we can get there.
And we can grow into that with brownfield leverage we don't we don't have to put our capital program for Greenfield to get there and be exposed to it.
But we think that those are good markers to think about.
And maybe if I can slip one more in just on <unk> now.
Obviously, it's very strategic but.
Is the biggest impediment the movie I mean, you've got the constellation in everybody's interest to move this forward faster is it now.
Nicole regulatory.
So what is the real.
What would you say is the real pause.
It'll NEC at the moment.
The answer is probably yes to that but Sean.
Okay.
I think we are developing degree of confidence on the technical side.
The big hurdles I would put in the financial cap basically the procurement going back to the procurement theme that grants and Tim mentioned at the beginning.
When the market is ready.
And there is.
A real call for production for enrichment services.
We will look at.
And natural uranium, which is the first output.
Facility.
We will be able to advance that project. This is the beauty of it Brian you've heard us say that before the triple threat.
That we can we can use it to re enrich those retails, which we have an agreement with the Doe.
We can use it just for pure enrichment, which the world sorely the western World Sorely needs. These days and then of course everybody is on the how we use scramble. These days with the Russians and everyone was expecting the Russians to provide the first 10 years of value and that is out the window and so there are certainly drivers now.
Now for the technology lots of interest.
Government and private and so we're pretty.
The future for Julie.
Great. Thanks, very much for answering all my questions.
Thanks, Brian .
The next question is from Paul Rubinstein, a private Investor. Please go ahead.
Hi, good morning.
Yes, it was actually going to ask you about <unk> or has that been.
Kind of beat to the punch there.
But.
Maybe if you could go into a little bit more detail about what's actually going on in Paducah in Wilmington, then.
Are we still waiting on that.
And if the deal doesn't come through.
What are your plans to move forward and what is it.
Is there some kind of timeline are we looking at a year from now.
Five years 10 years, where does things look.
One last thing.
Our silex technology.
<unk> at this point or is that still kind of experimental.
Thanks, Paul for the question on Julie Sean Quinn Please sure.
The back end there.
Well path.
Experimental stage with the technology.
<unk> technology scale up and development continues.
But between the Silex site in leukocytes, Australia.
Outside of Sydney.
We're continuing to refine the laser side of the technology.
The other end of the process separate systems, which are being further developed in Wilmington.
We will be looking at bringing all that back together over the course of the next number of months.
Okay.
Yes.
So on the technology front, we continue to develop it.
And.
On the commercial side, we are anxious to see what comes out of the.
<unk>.
Numerous U S government initiatives.
To look at dealing with the bifurcation of the market.
And the.
Current reliance on Russia.
Russian enrichment and conversion services.
And the need to develop.
Sure.
Supply of <unk> to support the.
<unk> advanced SM or industry as a whole.
There are as I mentioned, a number of legislation legislative initiatives being considered that would provide financial support so we're pursuing those.
So it's really then back to the.
Procurement.
Man that we're waiting to see development, coupled with that U S government support that will determine the pace of commercialization.
And we've mentioned sorry, I would add just to that that we are on track supplier to we're on track to.
Keep our commitments to the department of energy under the tails reprocessing agreement that Tim mentioned a bit earlier.
You should note that too.
How many pounds of.
With that.
Kind of equivalent to.
Okay.
If the Paducah is once the Paducah facility is up and running I think the.
Youth theory equivalent production per year is around $5 million. If my memory is correct and Thats up 45 year life that we're looking at that.
Okay.
Yes, it can be very clear on that.
And then as far as long term strategy of it looks like.
Thank you guys are.
Moving toward.
Strategy.
Uh huh.
It's kind of a package deal as far as.
Contracting goes where.
Rather than contracting just for you.
Or just for conversion or just for enrichment.
The utilities would comment and just do the whole thing together.
There.
And.
Yes.
Speaking very well.
We'll get our chief salesman to respond to that.
<unk> okay.
Ponant parts, we get we get the question yes.
Paul Good question I wouldn't say moving toward we've always been in that cat. So don't forget so with Bruce power we.
We provide fabricated fuel bundles to Bruce power. So we do everything right across the chain and we've always been vertically integrated.
I'll always be vertically integrated and we have ambitions for more vertical integration. If it makes sense now what we're up against is a utility desire thats long entrenched in a lot of our customers to buy on a component basis and the reason they bought.
Wanted to do that is so that they have line of sight to what's going on in each of the components versus say buying just a fuel bundle that you can think of as a battery to put in their cattle. The boil water turned turbines and produce carbon free electricity, but there are some markets, where they are accustomed to buying <unk>.
A fuel bundles to think about that eastern European Crescent that has been heavily reliant upon Russia thats looking to break away they've got no experience with buying components and what they want is that final fuel bundle and so right. Now you can expect to see greater partnering between the <unk> of the world.
The <unk> of the world the westinghouse's of the world in order to offer that western supply directly to the utility so for us if it makes sense and we can drive value across those components.
Bundle and have integrated sales, if we can capture more value by selling on a component basis, because maybe one component is higher in price conversion at historic levels. What we will do that too. So we've always been vertically integrated we always will be but our focus is on value and packaging it up or component tightening it to drive.
Value, we'll make those decisions on a case by case basis.
Okay.
Thanks, a lot Paul.
Thank you.
The next question is from kit Keane with SM bleak peak level. Please go ahead.
Alright, Thanks for taking my question.
I Wonder if you could go back to the delay at key Lake.
I think earlier this year, you're expecting 5 million pounds and now up to 2 million now I'm wondering what the key driver there.
In terms of the delay as you mentioned critical materials and some other things can you expand on that.
Yes, Ken Thanks for the question I'm going to ask our Chief operating officer, Brian Reilly to speak to the leisure Thanks, Tim and look.
Several key drivers, let me just step back to the extent that.
Our operational readiness program is in transition. So we are in transition from a construction phase two early stage commissioning and I wanted to separate the mill from the mine, which is important as well. So we have completed the first circuit.
At key Lake Mill in terms of early stage commissioning and we've had to make adjustments in the adjustments are really based on two drivers. One. This is a brownfield site, it's a brownfield site.
It's been in care and maintenance for the past four years. So we were up against some mechanical issues, but nothing that we cant result, we've had to make some adjustments.
Driver is focused around the changes we've made and we've made significant changes we've installed a number of automation and digitization projects that really have changed.
The way, we operate the mill and we've upgraded the operating system. So those are the key drivers and until one actually completes the commissioning phase.
It's difficult to understand what those issues are so so we have we've had to make some adjustments at the mill and hence we've had to re forecast.
I also want to while I've got access to the to the microphone here speaks to the mind because.
It's a different.
Trajectory at the mine we're in good shape. We are on track we have two sources of ore that we we will supply to the mill when when required we've got 4 million pounds of inventory sitting at the base of the base of the mine. So we're in the process of.
Commissioning of the underground processing circuits. We also have about 30 million pounds of frozen inventory, which we can access from.
10 different production areas and that will provide the ore supply for the next two years and so the.
The mine is in good shape. The mill, we've made some adjustments we've we've disclosed those adjustments, but the objective hasn't changed all through the process We'll commission.
The mine and the mill and a safe orderly in a systematic fashion and we're preparing these assets for the next 30 years.
Could I would just add to what Bryan said, because you'll hear about it if I don't from our cigar Lake team that things are going very well there in there.
Forecast production of 15 million pounds and now we've changed that to 18, we've caught up on some development and so being a.
A multi facility multi mine company.
As benefits and we're seeing it.
This instance.
And then last question.
Somewhat related same market conditions improve and spur you to expand production next year or the year after that or whenever conditions may warrant.
Can you remind me rough.
Roughly how quickly or how difficult or what the timeline would be for <unk>.
Expanding your production capacity.
<unk> Lake or Mcarthur and key Lake Mill, just give me a sense of kind of what kind of lead time is involved there.
Yes.
Good as grant said, we're in supply discipline that at the moment. So we're actually planning to bring cigar lake down in 2020.
<unk> 24 to 15 million pounds. So obviously, we can vary between 15 and 18 not without much difficulty Mcarthur, we have license approval to go to 25 million pounds.
Our plan in 'twenty for us to be.
<unk>.
No.
Million pounds, sorry, 59 got it backwards, yes. So.
<unk>.
Our.
Our ability to increase production at Mcarthur, we would have to do a little bit of work I don't think theres much capex at all and so we can move up so we've got that we've got that flexibility at our two sites and as grant said, we'll watch we'll wait for the market we see the signals.
From the market that we need to increase our production if we have the.
The view to sales going forward, we will adjust our production, but for now we're in supply discipline, we're going to stay there until until further notice.
Thanks.
The next question is from Justin <unk> with uranium Empire. Please go ahead.
Okay.
Good morning, and thanks for a great call and thanks for taking my questions.
Could you speak briefly to the Port hope facility in terms of historical total capacity could production relative to nameplate capacity in terms of percentage wise.
Let's say over the past three to five years and currently operating at full capacity do you expect to be and if we expect convert I'm back online mid 2023, French operating relatively close to full capacity and the facility in the UK you mentioned also idled.
Are you considering increasing capacity at port hope for conversion.
Hi, Justin good to speak with you thanks for asking the question.
And again, it's a focus on conversion that we're not accustomed to its great to see by the way so happy to talk about it.
The Port Hope has actually had the opposite challenge not operating at full capacity, but operating well below because of the conversion market with Jeff So under priced for so many years.
It is licensed for 12500 tonnes of capacity per year, we haven't run it at that rate.
However, we haven't we haven't achieved that nameplate ever we have in the past.
The last sort of priced by ran it at a rate for several months that would have annualized out to full nameplate production, but then the conversion market just fell away for the reasons that I talked about so much supply coming to the market already converted showing up as you have six conversion price fell below $5 a K to you for a period of time as a result supply disc.
<unk> and conversion actually began a few years before getting uranium it began with the <unk> Springfield facility in the UK shutting down in 2014, when we canceled our toll converting deal Eric and then of course, we began to toggle back production at Port Hope.
Then the cadre dine facility went into care and maintenance and then of course I think there were difficulties ramping up in France and that happened while inventories were being drawn down and conversion suddenly was required again, so conversion fundamentals, we're already improving and then along comes to February 24th and the need to exclude Russia from the convert.
<unk> space, but as I said earlier.
Right now it's about looking at historic conversion prices looking at maximizing margins, but being mindful that there are some facilities that are poised to come back and not front running demand with supply.
Right now Congress <unk> planning to come back and I think I have at times have even talked about expanding that French facility can run at 15 at nameplate to 15000 tons and has expectations to get there.
Some talk about the facility in the UK Springfield is a site is very important.
Two the UK nuclear infrastructure as the U F. Six production site I think there are some challenges, but when conversion hits historic prices, obviously, it creates incentives to at least have a look at it. So we just have to be very disciplined there and we like our position in port hope, but but I would say the market is.
The market is signaling that it needs conversion, but.
Until we see actual procurement, we're just not going to respond to.
All people say they want it so less increased production well no in our business. The way you prove it is through the power of procurement, so we'd need to see that pick up in a meaningful way to then even give any thought to further increases at port hope. So at the moment conversion is tight and the only way to loosen that up is to begin to procure more and.
That will lead to the production decisions that would increase so I think that's the way to think about those that part of the fuel cycle.
Excellent great answer. Thank you so much and just a quick follow up.
With regards to the conversion enrichment markets.
Already hearing that some western and Richards have made a significant jump in their tails assays.
When we consider that utilities are seeking out conversion enrichment first which makes a lot of sense and over the past number of years, that's over the past decade really.
<unk> been able to buy U S takes hand over fist from and Richard from under feeding from tails re enrichment and that is at least in the west looking to be declining if not disappearing.
In terms of availability very very quickly.
Can you guys cut a.
A little bit finer point on expected Timeframes in terms of <unk>.
Utilities wrapping their heads around available conversion enrichment capacity, let's say out in the middle of this decade.
And.
And seeking out further <unk> procurement.
Going forward is this something that you were expecting to happen in a significantly higher volume as soon as even this year.
Yes, but let me let me back it up into a couple of components. So obviously you get the first demand out lift that the uplift that just comes from the fundamentals right. It's the improving.
Clean energy focus the energy security focus the energy affordability focus and we're seeing that come as demand in the short term reactive programs being saved in the medium term reactive programs getting life extensions and in the long term, it's newbuild not just a big reactors, but also advanced reactors.
Small modular reactors, so you've got that demand out lift uplift that's driving the need for uranium right through to fuel fabrication. Then you add to this the bifurcated market challenge, which which I think is at the heart of your question the only way.
For the western market to bridge through.
The Russian replacement challenge in the short term are waiting additional capacity.
Installed at Western and Richard is overheating, so the only way to get more out of an enrichment plant. That's at capacity is to throw more uranium into it so theres more uranium demand thats going to come from that over feet. So thats kind of a shorter to medium term lift on uranium demand that I don't think people are.
Or even really paying a lot of attention we are but I don't think enough people are paying attention to that overfeed piece, and then don't forget Theres a third uplift in demand and that is everybody's inventory is going to go up because of the higher commitments. So you see that our purchases are going to go up in year, because we've got more commitments we've got more.
<unk>, we need to carry more inventory cameco is going to need to buy more but thats going to happen all along the supply chain.
The converters.
And Richard the Fabricators everybody's working capital is going to go up and Oh by the way utilities going through a supply crisis inventory tends to be pro cyclical and we will actually see demand come into the one time demand for inventory at probably higher inventory targets than they were ahead of time, So I think youre absolutely right.
Layering in these components to say that the only way for us effectively to do this is demand is going up right across the fuel cycle, but actually theres going to be some shorter term pressures that are required in order to exclude Russia on a very rapid pace until such time as there is more enrichment capacity.
We're looking out into 2028 into that window before you you've effectively expanded enrichment capacity, which says to US there is a bulge of uranium demand just related to overfeed, that's going to have to come in order to break through that exclusionary process. So I think youre thinking about it the right way I would just articulate it from that buildup there.
The fundamental demand there is the exclusionary demand and then there's the inventory demand and you add that all up and it explains why we are bullish.
Okay.
Yeah.
Fantastic. Thank you guys so much.
Justin Thank you.
This concludes the question and answer session I would like to turn the conference back over to Tim Gatesville for any closing remarks.
Well, thanks, very much operator with that I just wanted to say thanks to everybody who joined US today, we as always appreciate your interest and support and the great questions. We get let me leave you just with a couple of comments today.
Our world today is facing some pretty significant challenges, including and we've talked about these decarbonization and electrification, while ensuring energy affordability and security without jeopardizing. The ambitious net zero targets that have been set there's a lot of uncertainty in the world energy landscape and a lot of countries are having to take a hard look.
But were they should get their fuel.
More than ever the world's looking for a stable reliable and politically dependable fuel supply.
I believe we are witnessing a fundamental change that will alter the way countries approach their energy needs going forward.
And I think that anyone who look seriously at the global issues. We're facing would say there is no solution without nuclear.
So we see a lot of opportunity ahead of us with demand for safe reliable affordable and carbon free base load electricity coming from across the globe.
As a responsible commercial supplier with a strong balance sheet long lived tier one assets and a proven operating track record and line of sight to return to our tier one cost structure. We at Cameco believe we're extraordinarily well positioned to respond to the changing market dynamics.
We're excited about the future we're seeing for nuclear power generation. We're excited about the fundamentals for nuclear fuel supplies and we're excited about the prospects for our company.
We will continue to do what we said we would do executing on our strategy and consistent with our values. We will do so in a manner. We believe will make our business sustainable over the long term.
And we'll continue to make the health and safety of our workers their families and their communities our priority.
So thanks, everybody stays safe and healthy and have a nice summer.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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