Q4 2022 Cameco Corp Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the Chemical Corporation fourth quarter 2022 conference call.
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I would now like to turn the conference over to Rachelle Girard VP of Investor Relations Treasury and tax. Please go ahead.
Thank you operator, and good morning, everyone welcome to <unk> fourth quarter conference call I would like to acknowledge that we are speaking from our corporate office, which is an <unk> six territory. The traditional territory of Cree people and the homeland of the May Tee.
With us today on the call are Tim <unk>, President and CEO Grant Isaac Executive 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 in just a moment to discuss how the improving growth outlook for nuclear power is translating into an improving growth outlook for cameco. After we will open it up for your questions.
As always our goal is to be open and transparent with our communications. 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.
Can reach out to the contacts provided in our news release.
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 webcast screen and we will be happy to follow up after this call.
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 Dot com.
Today's conference call is open to all members of the investment community, including the media.
During the Q&A 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.
It should not place undue reliance on forward looking statements.
Actual results may differ materially from these forward looking statements and we do not undertake any obligation to update any forward looking statements we may make today.
As required by law. Please refer to our most recent 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 Rachelle and welcome to everyone on the call today. We appreciate you taking the time to join us.
Maybe a bit late but I want to wish all of you a happy new year and I hope that you and your families are doing well.
Over the holiday break I spent some time, reflecting on the past year at Cameco and of course looking forward to the possibilities that lie ahead for 2023 and beyond.
In terms of 2022, the one word that kept coming to mind was transformative.
And as I think about 2023 and beyond the word that comes to mind is opportunity.
In all my time, leading cameco in all my time in the industry I am not sure there has ever been a time when there has been more to be excited about.
Starting at the company level.
Returning to stable operations at cigar Lake and in Port Hope after two long years of stops and starts due to the COVID-19 pandemic.
Continuing with the acquisition of a greater share of cigar Lake.
So the restart of production and Mcarthur River key Lake and the pending acquisition of a 49% interest in Westinghouse 2022 was a busy and transformative year for cameco.
Also let's not forget the 80 million pounds of long term uranium contracts in the 17000 tons of conversion services contract added to the portfolio.
Looking at one of the biggest contracting years, we've ever had with a record number of contracts.
This contracting success is expected to allow us to sustainably operate our assets to generate full cycle value for cameco, and therefore provide our customers with access to the fuel they need to operate the reactors safely cleanly reliably and securely.
And in 2023 and beyond we expect these transformative changes will create new opportunities for cameco and build an even stronger foundation for growth as we continue our transition back to a tier one run rate.
The announcement, we just made about a major supply agreement with NR go Adam is a great example of one of those growth opportunities.
We reached an agreement on key commercial contract terms that once finalized could see cameco provides sufficient volumes of uranium and conversion to meet all of Ukraine's nuclear fuel needs through 2035.
We are incredibly proud of the pivotal role that we at cameco will be able to play in helping Ukraine gain its energy independence.
With the potential to supply about 67 million pounds over 12 years. This contract could be the single largest supply contract in <unk> history.
I want to thank my friend <unk>, Adam President petrol Coke and his team for their friendship encourage.
And for the trust they've placed in cameco.
We are proud to be your partner.
The supply agreement with Ukraine is a good reminder of why we believe that cameco remains the best way to invest in the recovery in the uranium market.
I'll come back to 2023, and our plans for the year and beyond in more detail later, but first I want to take a look back from an industry perspective.
At the industry level 2022 started with a couple of stark reminders of the deepening geopolitical and origin risk in our industry.
Yes.
In January Kazakhstan experienced the most significant instability since it became independent <unk>.
Raising concerns about the security of more than 40% of global uranium supply.
But sadly an undeniably the most transformative event for both our industry and the world in 2022 from a supply and demand perspective was the Russian invasion of Ukraine at the end of February .
It is set in motion what I believe is a geopolitical realignment.
Our realignment that is already transforming the way countries are planning for their future energy needs and that highlights the crucial role for nuclear power.
More than ever the world is looking for an energy solution that can solve three very significant challenges.
The need to provide clean energy the need to provide secure energy and the need to provide affordable energy.
And if you still need convincing that there is no solution for tackling the global climate crisis, and the energy crisis without nuclear energy.
You might have dialed in to the wrong call.
As you all know nuclear energy provide safe reliable affordable carbon free base load electricity, while also offering energy security and independence.
As a result in 2022, we saw what I believe are transformative tailwind for our industry developing.
Thanks to the strategic and deliberate decisions Cameco has made over the past decade, and our Conservative financial management, We believe the company is extraordinarily well positioned well.
Well positioned for these tail wins driven by the focus on clean energy by an energy crisis and by the geopolitical realignment that is occurring.
We also believe we are well protected from the current macroeconomic headwinds.
We have a strong balance sheet.
But growing durable contract portfolio and our customer's nuclear power plants are part of the critical infrastructure needed to guarantee the availability of 24 hour electricity to maintain essential services.
But as always we will take a balanced and disciplined approach.
So as we begin 2023, we're excited about the opportunities for growth ahead of us with demand for safe reliable secure affordable and carbon free baseload electricity coming from across the globe.
Today, there are 57 reactors under construction with nine units that could reach the start of commercial operation This year.
I'm not going to tour you through country by country as I suspect you've already taken that tour and Thats why youre on the call today.
Almost every day there is an announcement supporting the prevention of early reactor retirements.
Life extensions of the current reactor fleet the expansion of existing reactor programs or new reactor programs.
We have highlighted many of these developments in our MD&A.
Also around the world, we're seeing momentum building for small modular reactors and advanced reactors and for non traditional commercial uses of nuclear power.
Uses such as hydrogen and ammonia production district heating and nuclear power Chipping.
There are numerous companies and countries pursuing projects in these areas.
As a result, there is demand growth occurring for nuclear fuel supplies and services in the near medium and long term.
So it's easy to conclude that the demand outlook is durable and very bright.
To meet this growing demand, we know that more supply will be needed and therein lies the challenge.
Low prices have led to growing supply concentration by origin in a growing primary supply gap.
Along the way the secondary supplies that have played such a crucial role in our industry have been drawn out of the market.
So taking the challenge of filling that gap to a whole new level is a desire by utilities to reduce their reliance on Russian nuclear fuel supplies in the future.
Currently the global nuclear industry relies on Russia for the supply of approximately 14% of uranium concentrates.
27% of conversion and 39% of enrichment.
Utilities are now considering and planning for a variety of potential scenarios.
<unk> from an abrupt end to Russian supply to a gradual phase out.
It's still early days and while supply uncertainty is not yet driving contracting at a replacement rate we are getting closer.
We're seeing utilities, beginning to pivot toward procurement strategies that more carefully weigh the risk to supply, including the origin risk.
As a result, the industry saw about a 113 million pounds in long term contracting in 2022.
And we believe there is significant opportunity for cameco to grow as we help our customers de risk their fuel supply needs.
But what is really exciting for us is that we do not have to build new capacity to capture that growth.
Our growth is expected to come from brownfield leverage our existing suite of tier one operating assets.
We just need to turn up the assets, we already have a position we have not enjoyed in previous price cycles.
We're also excited about our strategic partnership with Brookfield renewable to jointly acquire Westinghouse Electric company.
Our excitement stems from being able to extend the base of our reach in the nuclear fuel cycle at a time when there is tremendous growth on the horizon for our industry.
We are extending our reach with an investment in assets like ours.
That are strategic that are proven that are licensed and permitted and that are located in geo politically attractive jurisdictions.
Assets that we expect will be able to participate in the growing demand profile for nuclear energy from their existing footprint.
And assets that we expect will augment the core of our business expand our ability to compete for more business and offer more solutions to our customers across the nuclear fuel cycle.
So with the continued improvements in the market and our growing long term contract portfolio. It's time to revisit the production plans, we laid out at the start of 2022.
With approximately 180 million pounds of uranium and over 55000 tons of conversion and long term commitments our customers are sending us clear signals that they recognize the significant challenges the supply side of our industry faces.
And that they see the value in securing access to cameco strategic proven tier one assets that are in geopolitically attractive jurisdictions.
The volume is almost 250 million pounds and over 80000 tons of conversion. If you include all potential <unk> requirements.
Therefore, we've decided to no longer makes sense to target 15 million pounds of production on 100% basis at Mcarthur River key Lake in 2024, but the planned for 18 million pounds of production.
Also we've decided not to pull back production to $13 5 million pounds on a 100% basis at cigar Lake in 2024.
We plan to continue to operate cigar lake at 18 million pounds per year.
As a result in 2023, we're planning for our share of production from Mcarthur River key Lake and cigar Lake to be $20 3 million pounds with a target to increase that to $22 4 million pounds in 2024.
But thats not the extent of our tier one supply growth.
We also maintain the ability to expand and extend production from our existing tier one assets.
With planned production of 18 million pounds per year in annual license capacity of 25 million pounds at Mcarthur River key Lake there is an opportunity for further tier one production growth.
And we know there is additional uranium at cigar Lake.
But there is some work to do to determine the economics required to extend the mine life beyond its current reserve base.
As well until the end of 2023 <unk> is expected to operate at 20% below its annual license production rate.
However, its license allows for production at 20% above that rate or $12 5 million pounds, a year, which would bring our share of its production to about 5 million pounds per year.
So if we took advantage of all of these opportunities are annual share of tier one uranium supply could be about 32 million pounds.
And we have our tier two assets, which we plan to keep on care and maintenance unless we can secure long term contracts that provide returns similar to what we can currently achieve on our tier one assets.
In addition to our plans to expand uranium production. We're also working on expanding production at our Port Hope you have six conversion facility.
To satisfy our growing book of long term business at a time when conversion prices are at historic highs.
We are targeting annual production of 12000 tons by 2024.
The improving market fundamentals are growing contract portfolio for both uranium and fuel services and our plans for increased production set us on a path that provides line of sight to a significant improvement in our financial performance.
Key to our ability to continue to align our production decisions with our portfolio of contract commitments and opportunities are the investments we have and will continue to make in digital and automation technologies.
We expect these investments will allow us to operate our assets more safely.
More efficiently and with more flexibility.
We also expect they will help support the 30% reduction in greenhouse gas emissions, we are targeting for 2030 compared to a 2015 baseline.
With our experience operating in this industry, we understand that to create long term value and provide supply reliability for our customers, we must build a home for our production under a long term contract before we pull it out of the ground.
So we will continue to make strategic supply decisions in all segments of our business and in accordance with our customers' requirements.
As an independent commercial supplier, we can provide our customers with access to proven and reliable productive capacity.
With substantial Canadian productive capacity or supply meets increasingly stringent ESG requirements.
It can provide diversity from state owned enterprises and helped to alleviate utilities future supply from origin and trade policy risks.
As you know the financial aspect of our strategy is to ensure we have a solid balance sheet and the ability to self manage risk.
And at the end of the year, including the proceeds from an equity issue to support our planned acquisition of a 49% share of Westinghouse we.
We had $2 3 billion in cash and $1 billion in long term debt and $1 billion in an undrawn credit facility.
And we expect to begin to see a significant improvement in our cash flow. Thanks to the planned ramp up in production at Mcarthur River key Lake and at the Port Hope you have six conversion facilities.
As well the higher prices that are being discovered in our currently improving market are expected to flow through our existing contract portfolio and further contribute to an improving financial performance.
And with an inventory of unencumbered tier one and tier two pounds in the ground.
Rising prices will also create the opportunity to negotiate new long term commitments with appropriate pricing mechanisms commitments that will underpin the long term operation of our productive capacity.
So we're optimistic about the growth and demand for nuclear power, both traditional and non traditional we're optimistic about the growth and demand for nuclear fuel products and services.
And we're optimistic about the opportunity for cameco, and capturing long term value across the nuclear fuel value chain and supporting the transition to a net zero carbon economy.
We will continue to do what we said we would do.
Let me just remind you what we said we would do.
We are aligning our production decisions with our contract portfolio and the market fundamentals.
We're being strategically patient in our marketing activities.
And we are conservatively managing our balance sheet to ensure that we can execute on our strategy and self manage risk.
This strategy has positioned us well to take advantage of the fundamentals I spoke of earlier.
We have operating tier one assets that are licensed permitted long lived and our proven operations that have expansion capacity.
We are fully permitted and proven tier two assets that don't make sense at today's prices, but when you think about them in the context of alumina supply 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.
Thanks to our disciplined contracting strategy, we have had a contract portfolio that has protected us well during the worst down cycle in our business.
And as the uranium market improves further we will continue to secure homes for our in ground inventory that has not yet been committed.
And we're more than just mining.
Something we don't talk about much or even in fact get much credit for is our advanced uranium projects and our exploration portfolio.
We believe our portfolio of resources rivals any particularly when you consider the proximity of those resources to existing infrastructure.
We expect these resources will add value well beyond the current price cycle.
Then we have our investments across the nuclear fuel cycle in refining and conversion and can do fuel fabrication for heavy water reactors, where we're focused on continuing to lock in significant value for this segment of our business.
Additionally, we are positioning <unk> to respond to the growing need for uranium fuel to generate safe clean reliable and affordable electricity by exploring new opportunities that we expect will further our participation in the nuclear fuel value chain.
New opportunities like the pending acquisition of a share of Westinghouse.
We expect the acquisition will augment our current suite of assets and allow us to better meet our customers' nuclear fuel cycle needs for Lightwater reactors in areas, where we have not previously participated.
Through our fuel manufacturing capabilities and investment in global laser enrichment.
We are exploring fuel fabrication of new fuels, including high assay low enriched uranium or how are you.
We're also planning to participate in the responsible cleanup of leftover byproducts from our previous generation of enrichment facilities no longer in operation.
<unk> has an agreement with the U S Department of energy that would allow us to repurpose legacy waste by re enriching depleted uranium tails into commercial source of uranium and conversion products to fuel nuclear reactors.
And we are involved in developing the capability to produce commercial low enriched uranium fuel using lasers for the world's existing and future fleet of light water reactors with what we believe will be greater efficiency and flexibility than current enrichment technologies.
These opportunities aligned with our commitment to manage our business responsibly and sustainably and to increase our contribution to global climate change solutions.
Our decisions are deliberate.
We are a responsible commercially motivated supplier with a diversified portfolio of assets, including a tier one production portfolio that is among the best 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.
We have determined that our strategy of operational flexibility supply discipline and financial discipline will allow us to achieve our vision of energizing a clean air World.
And it is a strategy that we expect will deliver long term value in a market where demand for safe secure reliable and affordable clean nuclear energy is growing.
Okay.
Before I conclude I just want to recognize some changes to the executive team here at Cameco.
<unk> has been appointed executive Vice President and remains our Chief Financial Officer.
Joining the executive team from Finance is Heidi Shockey, who will be our senior Vice President and Deputy Chief Financial Officer. So I just wanted to congratulate both of them.
And with that we're happy to answer any questions you might have.
Thank you we will now begin the question and answer session in the interest of time, we ask you limit your questions to one with one supplemental if you have additional questions you are welcome to rejoin the queue.
To join the question queue. You May Press Star then one on your telephone keypad Youll hear a tone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw from the question queue. Please press Star then Q webcast participants are welcome to submit questions through the box at the bar.
Some of the webcast frame the cameco Investor Relations team will follow up with you by E Mail after the call.
Once again anyone on the conference call, who wishes to ask a question May Press Star then one at this time.
Our first question comes from Rs <unk> of Scotiabank. Please go ahead.
Hi, good morning, and congratulations on the continued momentum of the business.
Im curious on your.
Portfolio approach now to the asset base.
You're obviously, bringing back.
Mcarthur River quicker to full nameplate and not take <unk> I'm, just wondering what would it take to push mcarthur to that 25 million pound license capacity with respect to timeline and capital.
Hi, <unk> nice to talk to you. Thanks for the question. So yes, we as we announced we are not going to continue with our strict supply discipline, we indeed.
Said, if we have the contracts in place to increase production with so we're going to run it to 18 18, if you like 18 at Mcarthur key 18 at cigar Youll remember a few years ago and it is a few years ago. Now we were already at 20 million pounds and Mcarthur over 20 million pounds at Mcarthur. So that's not a big stretch for us.
We have licensed capacity license APA.
Approval is an approval to go up to 25 million pounds that would require a small bit of capital in a bit of time to get to get the mill ready to go to that level, but certainly not anything that we couldnt manage I don't have it.
<unk> cost and timeline for you, but Brian do you want to comment on that yes look in terms of the mine, we would have to revisit that workforce and mobile equipment. So there would be additional resources required at the mine to increase capacity in the mill a little more work, particularly on the back end of the circuit.
So we've got a number of studies underway now to look at engineering design and out of that we'll be able to determine capital costs, but still early days.
But well.
We'll be able to report back on that sometime into the future grants Yokohama, Yes, maybe <unk>, let me just wrap it in a bit of a strategic comments.
Remember, we do not plan production until we have the homes for it so.
The most important narrative here is that we need to see continued market support in the form of long term contracts, we remain in supply discipline, even with this announced production increase if you think about our tier one asset base.
Even with what we're talking about today will still be at about 75% supply discipline relative to the tier ones and 62% supply discipline relative to the tier two so we are still at supply discipline mode, because strategically we need to see continued market improvement in the form of long term contracts we do.
Do not produce from these assets to dump into the spot market or to build an excess inventory that does not create long term value.
And just.
Just following up on that grant.
Assuming continued contract momentum here.
The next source of.
<unk> likely to come from if you want to crank that up is it is it likely going higher on Carter or is it.
Somewhere else in the asset base.
Of course, we would push our tier one assets. So mcarthur would be our first stop obviously you saw in our disclosure that we've got room at <unk> to move that forward as well. So those would be our first two subs and we got there is we see a nice suite of tier two projects that if.
Someone is willing to look at those.
Rabbit Lake are ready to go and others so but.
But we would definitely go with our tier one assets and from a value point of view or is it really is critical to emphasize to everybody that we're talking about a base of assets already licensed already permitted already constructed they will attract some sustaining capital some replacement capital a little bit of growth capital.
But we are not talking about greenfield. So this truly is an extraordinary amount of brownfield leverage at a turn in the market.
Thank you very much.
Our next question comes from Ralph <unk> of eight capital. Please go ahead.
Good morning, Tim Thanks for taking my questions two of them if I may 1st one.
Is just on the.
Ukrainian contract worth and Jerome.
Can you discuss a little bit because you said in your commentary that this has the potential to be the single largest supply contract.
What percentage of the contract book does that represent now and how fast can.
We think about that.
The amount of excess contracting that is available to chemical overstate. The next 10 to 12 years are you sort of 50%.
Occupied in terms of your production capability of that 32 million pounds.
So ill pass it over to grant to talk about that I'll tell you the coverage getting a little bit for sure on our sales going forward, but I just wanted to say on the on the integral Adam Ukraine country.
That's a big deal for Us Big deal, obviously and the delivery since financial since all of that stuff, but it's bigger than that we've been working with them for I think we went over their 2018 and in 2020 and and.
We met with them.
I remember in December .
2021, and talk to them, we're getting close and then of course the events.
Of 2022 February happened.
So it's more for us, it's almost more than just the financial or the supply transaction.
We're standing shoulder to shoulder with them as they try to diversify their energy supply and their fuel sources and move away from the Russians and so this is a big ticket for US you saw it's kind of two parts.
The nine reactors that they are operating now will supply those.
Over a 12 year period to 2013.
For Asia units, we'll see what happens with those in Hawaii is in there and working on that so.
I just wanted to make that commentary. It says this is a big piece for US Greg you want to talk about what percentage it might work out to I think you can do the math, yes, a couple of comments from a market point of view on the <unk> contract as well, it's indicative of several things that's indicative of what we've been saying, there's a security of supply trend going through the market. This is.
Security of supply contract at its very core it's indicative of our pipeline when we tell folks that our pipeline is robust.
You really have to believe us and this is evidence of it it is indicative of our competitive advantages as a proven reliable independent and integrated commercial supplier of nuclear fuel. This is possible because we're also a converter.
Being just a uranium company wouldn't have afforded us the full fleet opportunity that we're enjoying here, it's indicative of the improving tenors volumes and time frames that we've been talking about through 2022, so it's indicative of that.
And it's indicative of the type of price exposure that we look for at this point in the cycle when.
When we see a security of supply cycle underway, we want price exposure from both our portfolio committed sales that are market related and then what youre, referring to which is the pipeline.
We haven't sold yet so what I can say is we are far from sold out if you look at our price sensitivity table. We have on average 21 million pounds per year over the next five years more heavily weighted to the near term of course, our guidance, 29% to 31 million pounds of sales in 2023.
So sales going back up and just a reminder to folks those are committed sales those are not sales we have to yet make in 2023. These are non discretionary requirement sales that we will deliver into in 2023 and as the as the years go out obviously less exposure so really for us it will.
Less than 10% of the overall portfolio as the sales number grows as more customers come into long term contracting and yet as we look out we have a lot of price exposure to come for pounds that are still in the ground that we have not yet committed.
Okay.
That's helpful. I appreciate the context.
As a follow up.
As the market is gradually gotten stronger in chemical continues to maintain this disciplined approach.
What's the risk that other players.
That are not as disciplined in holding back supply actually starts to impact the market are we insulated from those types of trends or is there still risks in the market that weather either existing entrants or new entrants can sort of suppressor elongate the time at which we actually have a price recovery in the term market, yes, that's terrific.
Question Ralph.
The way we look at it is of course, we build a portfolio that we think offers the best of all worlds to investors. We take quick moves that can happen in so called commodity spaces, but we turn those into long tail cash flows and revenues through long term contracts, we don't just ride up.
A tight spot dynamic and then write it back down like we've seen other uranium producers do and probably the best way to illustrate this is a lot of people. These days are looking at that uncovered requirements, which and I think it's slide nine to accompany Tim's comments and what we see as it gets.
But it often in two ways first of all some people look at the uncovered requirements wedge and if you look at it for 23, 2024, and 2025 utilities have very little discretionary demand and some people incorrectly conclude that that means theres not going to be a lot of demand coming to the market well thats not right utilities will buy that.
Initial b very well covered in year end next year, but that doesn't mean demand 2025, 2026 and beyond cat create price pressure today. So that curve will always look that way so to your point when you when were in 2030. For example, there are some folks out there are advocating that theyre going.
Bring production into uranium and they say, we don't have to worry about our contract portfolio today, because look demand is going to be 200 million pounds in 2030, well demand will be 200 million pounds could even be more by 2030, but that wedge will look exactly the same the uncovered portion will be very very small in <unk>.
<unk> thousand 32031, and then let me just put it into perspective, because I know a lot of people like to look at the spot market in 2022 utilities bought 8 million pounds in the spot market. So terra contracting is going up spot market purchasing actually went down they were 13% of the spot market.
In weekly terms utilities were putting 150 million pounds of demand per 150000 pounds of uranium demand in the market per week.
If somebody comes along and says well I'm going to build a 5 million pound mind and sell it into the spot market they've got to sell a 100000 pounds per week in the spot market. That's foolish if someone comes along and says well I'm going to build a 25 million pound my <unk>.
And I am going to be spot exposed because I want to take advantage of all of this priced yet to come they're going to be pushing 500000 pass through the spot market in a year, where there is no requirements. So for us it is about giving investors exposure under long term contracts to rising price environment and protecting them.
From that kind of behavior in the market and if you want to see the performance of our contract portfolio just look at it post Fukushima we outperformed the market in those years with our contract portfolio. Because we gave you upside participation and protected you from downside if we saw that kind of behavior. So could we see it.
Hopefully not hopefully investors understand the market structure and they're not prepared to finance a project that has a silly spot market strategy to it but if they do <unk> investors are protected.
Yes.
Yeah.
I appreciate the color, Tim and grant in <unk>.
Gratulation is on the appointment thank you.
Thanks.
Our next question comes from Greg Barnes of TD Securities. Please go ahead.
Yes. Thank you grant and Tim you said in the past that contracting begets contracting so I know the forecast from some of these forecast is worth 100 million pounds again, it's contracting in 2023, but with this Ukraine contracts. So I think that's up to a huge start. So you think this is going to encourage.
More utility to come into the market, perhaps softer than previously anticipated.
Hey, Greg Thanks for the question of grants on a roll here, so I'll, let them keep going on the market.
Yes, Greg.
It kind of goes back to that that pipeline conversation, we keep having we were we were amused here at <unk> just a couple of weeks ago. When one of the trade reporters kind of characterize the market activity is being slow and we've got a marketing team, who just kind of sat around and looked at each other and said which market is slow like we are not.
Seeing it at all so perhaps we just have more of a view and a better view into the market than some of the trade reporters too.
I think people could forgive me for saying it might start feeling like the summer of 2010 and get a big new entrant stepping into the market tying up western capacity.
Others have not moved to fill those requirements it could feel like that kind of catalyst when the Chinese stepped into the market for the first time in the term market for the first time in a big way in the summer of 2010, so it's off to a great start.
And I would say that.
The type of contracting volumes will be noticed by others, who have needs out in the exact same window for both uranium and.
And for conversion.
Just to follow up on cigar Lake part of the rationale for curtailing production. There was to give you more time to assess phase two at cigar Lake.
So the fact that youre going to continue to run at 18 million pounds by certain means youre accelerating phase II forward to some extent given the limited life you have left of phase one.
Yeah, Greg. So you are right. We are working hard on that now and we're pretty excited we've seen some of the potential therefore, the extension to phase one as we call it.
So yes, we're working on that.
So there is going to continue to produce hopefully seamlessly into the 2000 <unk>.
Yeah.
Okay. Thank you thanks, Greg.
Once again, if you have a question. Please press Star then one.
Our next question comes from Lawson Winder of Bank of America Securities. Please go ahead.
Thank you operator, and good morning, Tim and grant to hear from you both and thanks for the update.
I wanted to ask about.
Well first of all the fuel contract pricing so the revenue guidance for 'twenty three it implies.
Fuel contract pricing around $26 U S.
Spot conversion pricing approaching $40.
Per kilogram in.
The EU and North America would it be reasonable to expect that some of these higher prices would start flowing through in future years.
Yes, absolutely you know that we have a trailing value capture approach to our on tracking so as prices improve.
In the spot market, we see that strengthening price and we want to convert that into long tail term contracts. So there is a bit of a lag effect. We don't we don't match the spot market going up and then we don't go down with the spot market as we lock in that value over a longer period of time. So if you think about uranium the uranium segment, where more capacity.
As required prices will have to go up to Incent more supply. It is about price exposure in the conversion side, where you have idle capacity, that's going to come back. It is about price capture at this point and then that gets baked into our contract portfolio and creates a longer tail of financial performance and loss maybe just.
Remember too that price that we put in there that's a combined price for all the products in our <unk> service is not just USA.
Okay.
Absolutely. Thanks for both those comments and then for my follow up I just wanted to ask about the <unk>.
<unk> expectations on the timing around the closing of the Westinghouse acquisition and in particular, just your thoughts on the.
Sam our reviews, so the state administration for market regulation in China, and whether or not you have any concerns about that particular review.
Yes, thanks for that loss and I'm going to pass it over to Sean Quinn, whose all over the solutions Eric Thanks, Bob I'll start with just a general overview of the regulatory approval process.
We haven't seen any showstoppers.
We're working on a merger control slash competition law approvals in various nuclear regulatory.
<unk> control approval.
And just foreign investment approvals there.
They all take time of course, but we haven't seen any showstoppers and we still think we're on track for the second half of this year in terms of China itself. We have submitted what's called a simplified application don't have any feedback yet, but we were quite confident at this point that.
We will be fine in China, but we don't have any feedback from the actual regulatory authorities there.
Probably fair to say, Sean that with respect to China, nothing will really have changed from a competitive supply point of view recall loss in that what the Chinese have always wanted from cameco is yellow cake, they're interested in doing all the fuel processing themselves and that's what they would continue to get.
From Cameco.
From Westinghouse.
Obviously, there were some initial reactor builds but now China has its own version of the AP 1000, which they built and so westinghouse's wave two business is really around reactor services and some fabrication.
Really there is no change from a supply point of view chemical will be doing what it did before Westinghouse will be doing what it did before and there isn't any overlap so we feel pretty confident about our position there.
Okay.
Fantastic. Thank you very much.
Thanks Lawson.
Our next question comes from Alex Macpherson of all Saskatchewan. Please go ahead.
Hi, Good morning, everyone. Thanks for taking my question.
So Alex we saw your article already in all Saskatchewan. This morning, well done thank you.
Thank you.
I wanted to ask about the plans to.
Increase the ramp up at Mcarthur and sort of what that means on the ground in Saskatchewan in terms of.
Workforce and capital both to get to 18 million pounds, and then potentially too.
Fall 'twenty five.
Well so we're in good shape now you know we started a ramp up over over a year ago now and so we are we're still working on a few of the Kinks at the mill, but the mine they're in good shape I think they've got something like 120, or 122 million pounds behind freeze curtain, which is important.
For us for our mining we've we've ramped up the team there we've hired hundreds of people as you know over the last year. So.
It's really a question of first getting two to 15 and Mcarthur and key and then to <unk> 18 in 2024 and as grant said earlier if we.
If we see the business if we see the contracts come then we'll think about dialing it up a little farther and as I said earlier is a bit of capital. It has to go and not a whole lot and maybe a few more people here and there, but we're it's incremental to feel like Alex.
It's not a big not a big push for us.
Great. Thank you very much.
Nice to talk to you.
Our next question comes from Chris <unk> of Energy Intelligence. Please go ahead.
Okay.
Hi, This is grace from energy intelligence nice to talk to you guys.
So my question is just about.
Thank you in China, and chemical would consider opening an account there is there should we need to make into a trading hub.
Or if they would move uranium kimco movie uranium to China.
Yes.
Yeah. Thanks, Chris We appreciate your question and obviously, we're watching what's going on in <unk> and whether that gets set up and we were hearing its movement and we have no intention.
At the moment of setting up an account there we have our own facilities and accounts to look after so we're watching it with great interest, but for now we haven't.
Our intention of opening an account with <unk>.
Okay. Thank you.
Hello up question, sorry is just this chemical plan to continue exporting material from Kazakhstan to Trans Caspian trade route and to what extent would that impact cost if thats the case.
Yes, we sure do we were happy to get the first shipment through as we reported in and we're working on another one Shawn I know you've been you were talking about it yesterday. So wanted to just give the latest update on the share of SPN route.
Our second shipments relating to our 2022 purchases.
<unk> is due to the port of <unk> already.
Might even be loaded on the boat to make the trip across.
We are working towards making applications for our 2013 shipments at this time through the fantastic well.
Alright, thank you thanks.
Thanks, Chris.
Our next question comes from John Tumazos of John Tumazos, very independent research. Please go ahead.
Thank you and congratulations on all the progress.
Concerning the cash contract, which is significant since the seventh largest.
Nuclear power generator in the world.
With the Zapper Risha tranche claw back.
Spot sales first.
Falls back into.
Sovereign control.
Then second.
Have you planned for that contingency.
If the Ukrainian government.
Yes.
They seem to have some funding deficits.
Do you have any assurances from Ottawa.
Ukraine.
Auto will pick up the tab or you would pick up the tab.
Kevin country appears very bankrupt.
Thanks for the question John .
Turning to the Ukraine contract.
As you saw in our disclosure.
We separated the two sets of units the nine units that Ukraine is integral item is operating now and operating quite well.
Listen this isn't our first contract with Ukraine, we've been dealing with them for some years now and they are one of our best customers and have paid every time there is not an issue there on the <unk> units, yes, we're concerned about those so as the IAEA and they're over there.
With inspectors and others trying to get those under control and back under Ukraine control and so thats why we separated the two charges, we're very confident that the Ukraine will indeed return to Zap region and take control of those units, but we will wait to see so in the meantime, we've taken all of those contingencies and risks into considered.
And this contract and it's still just an outstanding contract and we're proud to be partners with integral Adam.
Sure.
Sorry.
We're gonna be late paying you.
For.
The uranium units.
Would you consider would you continue shipping or how long would you continue shipping or would you just rollover to the spot market or a different customer.
Well, John we don't play on the spot market, that's not where our sales go we've been absolutely crystal clear and consistent on that we do not sell into an oversupplied spot market anytime so we.
We're very comfortable with the Ukrainians as I say, we've been dealing with them for years, we've had other contracts they have always paid.
No problem.
Have some issues, we will deal with them in but right now that is not an issue for us so as I say, we're proud to work within our Guatemala.
Thank you thanks, Sean.
Our next question comes from finally of Atlas Brown. Please go ahead.
Okay alright, thank you.
Hey, guys just a question probably for Greg.
Just wondering if you can comment on.
Where you see the effective tax rate in 2023, and maybe 2024.
These.
Tax rate.
Okay.
Hello, I'll get cash.
We.
We've been guiding towards an effective tax rate that approaches.
<unk> statutory rates in Canada more production from Canada.
Our sales through Canada is going to result in a statutory rate but.
But that is an income tax expense, it's not the same as cash tax because remember we do have a very large deferred tax asset. So from a cash tax point of view, we do expect.
Two to chew through that asset over a period of time, but but in general yes, we do expect to approach more of a statutory rate with some efficiencies capable from our global structure and finally I would just point out too just keep in mind that the earnings from the equity accounting come in to our earnings on a net tax basis, so that <unk>.
As an impact as well when you think about that.
Okay, and just to clarify it.
Okay coaster, but.
For 2023 would be somewhat still similar to 2022 on effective basis.
For the income not cash.
I'll have to get back to you on that one I don't have a specific number here in front of it.
Okay. Thank you.
Thanks, a lot.
Thanks.
This concludes the question and answer session I would like to turn the conference back over to Tim <unk> for any closing remarks.
Well, thanks, very much operator, and thanks to everybody who joined US on the call today, we appreciate your support.
The exciting pretty exciting times for chemical and the future of nuclear power.
Excited about the fundamentals in the nuclear fuel market. We're certainly excited about the prospects for our company as we continue to ramp up production to satisfy our long term supply commitments and invest in opportunities across the fuel cycle, you've heard us say this before I'll say it again, we're 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 are well positioned to respond to changing market dynamics and benefit from the long term growth, we see coming driven by the need for safe reliable secure affordable and carbon free base load electricity we.
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 that we believe will make our business sustainable over the long term.
We will continue to make the health and safety of our workers their families and their communities our top priorities. So thanks, everybody stays safe and healthy and we'll talk to you again soon.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
Okay.
Okay.
Yes.
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