Q2 2023 Cameco Corporation Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the chemical Corporation's second quarter 2023 conference call. As a reminder, all participants are in listen only mode and the conference is being recorded.
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Participants are asked to wait until the Q&A session before submitting their questions as the information. They are looking for may be provided during the presentation I would now like to turn the conference over to Rachelle Girard Vice President Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone welcome to chemicals 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 peoples in the homeland of the May T.
With us today on the call are Tim get so president and CEO Grant Isaac Executive Vice President and CFO hiding Sharkey Senior Vice President and Deputy CFO , Brian Reilly, Senior Vice President and Chief operating 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 continues to drive an improving 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 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 webcast screen and we will be happy to follow up after this call.
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 Q&A session. Please limit yourself to two questions and then return to the queue. Please.
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.
You 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, except 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 Michelle and good day to everyone. We appreciate you joining us for today's call.
Hope everyone's enjoying the summer or winter months, depending on where you are tuning in from.
Because many people vacationing in July and August is typically a quieter time in the business community.
However, I can tell you with absolute confidence that business for cameco has not slowed down nor has interest in the nuclear sector.
The momentum that's been building over the past 18 months continues.
Our financial performance, which reflects the expected quarterly variation in our contract deliveries. This year is benefiting from our strategic decisions with gross profit improving as we transition to our tier one run rate.
And we've seen an uptick in the breadth of new investor interest in cameco, It really surpasses anything I've seen in my more than 16 years at cameco.
In addition to interest from our traditional resource investors, we're seeing interest from energy investors clean energy investors infrastructure investors and generalists.
We believe this increased interest reflects the recognition that chemicals are proven reliable nuclear fuel supplier.
Supplements tier one mining assets with critical fuel service capabilities.
And it is an endorsement of our strategy to capture full cycle value.
It's also an acknowledgment that cameco has a deep understanding of how the nuclear fuel market works and.
And then we have the type of experience that gets us invited into the room on important policy decisions are being made.
How best to support the nuclear fuel cycle.
And of course, it's an appreciation of the compelling opportunity to invest in the growing demand for nuclear power and a clean and secure energy future.
In fact that growing demand is placed security of nuclear fuel supplies at the top of our customers' lists.
With more than 118 million pounds of long term contracting industry wide. So far this year.
Happy to say, we believe there is clear evidence that the broader uranium market is moving toward replacement rate contracting.
Type of contracting necessary to promote the price discovery, we've already seen in the enrichment and conversion markets.
Contracting and price discovery that'll be needed to incentivize the investments in expanding existing supply in developing the new supply that'll be necessary to satisfy growing long term requirements.
Let's look at the key driver for those growing requirements for nuclear fuel supplies and services, which is the increasing support for more nuclear power.
All over the World, we're continuing to see government policies and corporate decisions that are generating positive news flow in support of strong growth for nuclear.
Very importantly, those policies and decisions are being followed up with proposals commitments and actions.
These are the type of activities necessary to support the broader nuclear fuel cycle and Reenergized nuclear power is a fundamental source of clean secure and low cost energy.
We don't have enough time on our call today to cover all the highlights from around the world, which really says it all in terms of the volume good news.
But there've been a few announcements that are cut or interest, especially right here in Canada.
The nuclear power industry is witnessing support for adding new capacity and refurbishing existing capacity in Canada like never before starting with Bruce power, who with support from the Ontario Government announced it will undertake an environmental assessment to add as much as four eight gigawatts of nuclear capacity to.
Almost seven gigawatts it already has in place.
The added capacity could make the Bruce site, the largest nuclear complex in the world.
The fact that additional large scale nuclear installations, using well established technology are being considered in Canada speaks to the extraordinary industry and market transition that is underway.
With respect to existing nuclear capacity, Ontario power generation announced that it applied for and received approval to extend the operation of its Pickering reactor until 2026.
In the meantime at the request of Ontario Government is now considering a refurbishment project for Pickering to keep safe clean and reliable nuclear energy flowing from that facility for another 30 years.
So that's positive local news on big traditional nuclear power demand.
But as many of you listening today with no small modular reactors or ESSA Mars have also been capturing a lot of attention.
In Canada, the province of Ontario is leading the way in that regard as well.
It's working with Ontario power generation to begin planning and licensing three SM ours at the Darlington nuclear site.
These <unk> are in addition to the initial <unk> project at Darlington for which site preparation and licensing activities are already underway.
And those are just a few of the highlights from right here in Canada.
Internationally and moving faster than policymakers are big commercial consumers of power, who are making firm plans for investments to support carbon free nuclear power to help achieve their net zero commitments.
For example at the end of the second quarter, Microsoft signed an agreement with nuclear energy producer constellation energy to bring a data center in Virginia closer to operating 24, 7% on 100% carbon free electricity.
That's in addition to our previous clean energy credit deal at Microsoft signed with <unk> in Canada late last year, which is expected to support those ongoing <unk> deployments I mentioned earlier.
Also Brookfield properties announced its plan to power its portfolio of U S office space.
Rolling about 70 million square feet utilizing only zero emission electricity by 2026.
Set to begin the transition to clean electricity supply in 2024 Brookfield plans include an evolution to direct purchasing of clean power, including from nuclear.
Those are just a handful of examples of the ongoing positive sentiment being publicly expressed through both government policy announcements and private sector initiatives that are driving full cycle demand growth.
Can find several more in our MD&A.
This full cycle demand growth is driving increased requirements for the uranium and various services required to fabricate fuel and reactors.
However, it's important to remember that demand doesn't drive just in time spot purchasing interest from customers as it is often seen in other commodities.
As always in the nuclear industry customers are looking to secure supply on a much longer term time horizon.
They are seeking supply solutions today that guarantee their reactors run well into the next decade without a costly risk of interruption.
And the risk that the required supplies and services might not be available when they are needed is becoming more significant every day.
With demand growth looking more robust than ever and with the industry expectation that by 2030, both primary and secondary suppliers will not be sufficient.
The industry needs to invest in more capacity.
But expanding or building new capacity across the fuel cycle will take time.
In may at the World nuclear fuel markets meeting in the Hague. It was clear that all of the major producers across the fuel cycle have learned the lessons of the past.
Presentation. After presentation expressed a similar sentiment that in order to solve the urgency of supply there needs to be urgency in demand.
It was clear the major suppliers are not prepared to take the risk of expanding or bringing on new capacity without long term contracts to support their investments.
I've been around this industry for a long time and involved in every one of the new uranium projects developed in the Athabasca basin in northern Saskatchewan since the late 19 seventies.
Let me tell you from experience, bringing on a new project anywhere is not easy. Despite some of the promises being made by those who have never done it.
And today the calls to increase uranium conversion and enrichment capacity are happening in a complex global environment.
An environment, where supply chain issues general inflation skilled labor limitations rising interest rates and increasing regulations and ESG standards are not making it easier or cheaper to build new assets or even operate existing assets.
In addition to production challenges, let's not forget the geopolitical uncertainties are leading to concerns about origin of supply.
Some utilities are seeking to exclude Russia and their future contracting decisions.
There's always the ongoing risk of formal sanctions.
And then tied to the origin risk there was a recent reminder, that moving nuclear material around the globe to various points in the fuel cycle is also more difficult than it once was.
Concerns with the ability to obtain insurance coverage for shipments out of Russia surfaced.
While the issue appears to have been resolved for now these are shipments that are absolutely required.
Any delays could be very impactful on the market.
Depending on the magnitude and length of delay we believe it could be a shock event akin to the cigar Lake flood in 2006.
And let's not forget that the trans Caspian corridor still isn't a reliable delivery route for uranium from Central Asia to the west.
After one shipment earlier this year, which was actually a delayed shipment from last year.
We have not received any further uranium via this route in 2023.
However, we expect transit of our 2023 production from JV income to begin in Q3.
Delays are a small problem for cameco is we have other sources of supply to meet our commitments.
Transportation could be a much bigger issue for the industry. If these suppliers can't make their way west.
<unk> strategy of contracting disciplined production discipline and risk managed financial discipline is set within the context of the transitioning market environment. We are currently in the.
The market that is expected to durably strengthen the long term fundamentals for nuclear power in uranium supplies and services, while emphasizing energy security and sustainability.
And at Cameco, we recognize that to capture value from the opportunities that are in front of us we must get two things right.
Volume and timing of our production.
In terms of volume we have to bring on production to meet growing demand and we have to do it on time and on budget.
Then with respect to timing, we understand that it would be a strategic mistake to bring on production before we have contracts to deliver those pounds into.
So let's look at the uncovered requirements curve to see why that's the case.
It's true when you look out to 2030 and beyond there are a lot of uncovered requirements and that is what gets us excited about the future.
But it's really important to understand the structure of our market and how that demand will come to the market.
Uncovered requirements of 2030 does not equate to in your spot market demand in 2030.
As I said earlier utilities, driven by security of supply want line of sight to the nuclear fuel supplies and services they need to keep their reactors running reliably and without the risk of costly outages. They.
They will not rely on the spot market, which is small and discretionary purchase the run rate requirements of their reactors.
Utilities are starting to contract now to cover their requirements 2030, and beyond which is what we mean when we say we are in the long term contracting cycle to date.
Customers are layering in long term contracts with reliable suppliers, who have supply with the right origin.
So what that means is that by the time 2030 rules around utilities will have very little India requirements that arent already covered under long term contracts.
Therefore as has always been the case that will have little need to participate in the spot market at that time.
In fact, the spot market in 2030 will look similar to in year spot demand this year.
Small and discretionary far from a level that would support a significant volume of uncommitted supply coming out of the ground.
Therefore, cameco will continue to be balanced and disciplined in our contracting activity layering in contract volumes, where it makes sense for us while building a diversified customer base.
We will remain selective in committing our unencumbered in ground uranium inventory and you have six conversion capacity under long term contracts.
But indeed, our book of business is growing.
You can see that our average delivery volume from 2023 through 2027 has increased from 26 million pounds per year to 28 million pounds per year from last quarter as we translate our previously announced accepted volumes into executed contracts.
And that's only within the five year window shown in the table.
We also have delivery commitments that spend more than a decade some out to 2040.
And we continue to have a large and growing pipeline of contracting discussions underway.
Make no mistake, though in our uranium segment, we are not looking to lock in today's prices.
We're looking for market related pricing mechanisms under our long term contracts.
That means that while these contracts support our production planning decisions they will not be priced today, but rather will be based on the future price of uranium and in some cases may include floor price protection and ceilings.
We want to maintain exposure to the future incentive prices needed to promote investment in new supply to satisfy growing long term demand.
So while our approach to contracting gives us the ability to participate in further price increases. It also provides strong downside protection should headwinds arise in the macro or industry environment.
And as uncovered requirements translate into additional long term contract commitments chemical retains the flexibility at our existing tier one assets, including the option to expand and extend production.
If we took advantage of all of these opportunities are annual share of tier one uranium supply could be about 32 million pounds.
As for our tier two assets, we plan to keep those on care and maintenance unless we can secure long term contracts that provide returns similar to what we can achieve on our tier one assets.
And our strategic contracting and production decisions are translating into better earnings and cash flow as we return to our tier one run rate.
With $2 5 billion in cash and $1 billion in total debt and a $1 billion Undrawn credit facility our balance sheet is strong.
We will retain our conservative financial management to support our continued balanced and disciplined contracting and supply decisions.
To provide us with the ability to self manage risk and to provide us with the capacity to pursue value added investments like Westinghouse.
We expect Westinghouse will be able to participate in the growing demand profile for nuclear energy and downstream services from their existing footprint.
The team here continues to work toward closing the Westinghouse investment later this year.
Once it closes we will be able to provide more details on the exciting prospects, we see for that business, which with the positive momentum in the nuclear industry that I outlined at the beginning of the call are only getting better.
So with the market transitioning to what appears to be replacement rate contracting. These are busy and exciting times for cameco.
As a proven and reliable supplier across the fuel cycle, we remain committed to operating sustainably.
We will protect engage and support the development of our people and their communities.
Protect the environment something we've been doing for over 30 years.
And our vision of energizing, a cleaner world keeps us focused on delivering long term value in a market where demand for safe secure reliable and affordable clean nuclear energy is growing.
Before I conclude I want to recognize some upcoming changes to our board of directors.
Joining our board as of September 1st our Chief Tammy Cook Shearson.
Who currently serves as chief of lack the Rog Indian band and as the President of <unk> Management Limited partnership.
And Dominique midyear, who is the executive Vice President in charge of new nuclear in International development for Ontario power generation prior.
Prior to his retirement.
The depth of knowledge of these two individuals will further strengthen our board and provide new and diverse perspectives.
We look forward to the contributions that these two individuals will make to our board and to cameco.
One last thing before we get to your questions.
Over the last several days we've been closely following the evolving situation in these year in Central Africa.
As the former Vice President of the mining business unit for Riva now Randall.
He was responsible for the uranium mines in Niger for a number of years and during that time grew very fond of the country and its people.
We find the situation and easier today to be very concerning for the people of Niger and are certainly hoping for a peaceful resolution of the situation.
In the very near future.
So with that I will say thank you for your interest today and we are happy to take your questions.
Thank you we will now begin the question and answer session in the interest of time, we ask you to 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, you'll hear a tone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any Keith.
Withdraw from the question queue. Please press Star then two webcast participants are welcome to submit questions through the box at the bottom 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 Ralph <unk> of eight capital. Please go ahead.
Thanks, operator, and good morning, Tim and grant.
Tim you talked about this move to 100% replacement rate contracting and greater and it seems as though you're also potentially speaking to this having a finite life.
Or at some point its followed by a quiet period and you know.
I'm just wondering how you reconcile this replacement rate ratio.
With the wedge of unfilled requirements in the context of how long you think this contracting cycle may last.
Well Ralph Thanks for the question, Yes, we are as you say moving into the Aero replacement rig contract and we are we haven't been in.
Granted 10 years, or so and so how long will it last week I guess you said if you look at the uncovered requirements going forward and there is a significant significant chunk of material yet to be to be.
Covered over the next few years, but I'll move it over to ground our expert Greg wondering onto Ross' question, yes.
We would absolutely characterize the term market as very constructive right now for the reasons that Tim was articulating we've got a durable demand profile of demand that is reactors being saved reactors going through life extensions, obviously, new builds and now the real prospect of adding to the <unk>.
The requirements of course, small modular reactors and micro modular reactors and this is all creating a very durable demand outlook, which is growing the uncovered requirements. So no surprise, we're starting to see more contracting to date year to date, we are already at more term contracting in the.
Uranium business than we've seen in at annual rates in the last decade, you have to go back to 2012 to see a number higher than this so obviously the security of supply urgency of demand cycle is underway, we would still call. It early because despite all of that contracting isn't making a march.
Of Dent in that uncovered requirements, Kurt we are adding more demand to the curve faster than we're taking it away through contracting across the industry. So to your question. When these security of supply cycle set it. They typically last several years. If you go back and you look at the various points of strong contracting through the.
Decades of the commercial uranium cycle. When these cycles said they do last a number of years utilities cover their run rate requirements, but it is true that then at some point a bit of complacency steps are set to end a step back they don't have as much immediate demand.
We think theres more demand coming and this is going to be the the feature of the market for a while we're not even contemplating what that step back looks like yet because of the growth of the uncovered requirements curve.
That's quite helpful very very much thanks.
And.
Tim does any of the nice year.
Source material get processed in any of the downstream conversion facilities of chemical operations, where now you are sort of faced with.
Sources and uses of supply decisions, where you may have to move material around.
Yeah, not that won't affect us Ralph there might be a bit that comes in but mostly goes into France. As you can imagine through through the French entity.
Okay understood. Thank you everybody slug of it yes, thanks, Rob.
Our next question comes from Rs <unk> of Scotiabank. Please go ahead.
Hi, good morning, and nice to see the continued momentum here.
In.
The past several quarters, you've disclosed the amount of pounds that you added to the long term contract book I didn't see that disclosure. This quarter can you give us any update there.
Yes.
I think we said, we werent going to be reporting on a quarterly basis, but Greg you can speak to our normal process.
You've been around this story for a long time. So you know that we would just Alan in annual basis talk about the uranium and convergent services that we had brought into our portfolio and we do that in sort of February in Q4.
He captured and our pipeline, which is the negotiations we have underway to capture value out into the future and I've been saying for some time now that pipeline as big and despite the fact, we've taken a lot of demand translated into two and executed contracts, we still have a big pipeline. So the replenishment of the <unk>.
And into the pipeline continues to be very strong that's what our marketing team is focused on and and those folks just do an incredible job negotiating the type of contracts that provide us with great upside participation in the market really strong downside protection should there be any macro headwinds and that long tail.
Of cash flow and earnings that come from having such a robust contracting portfolio, which we can then serve as we resume our tier one costs from our tier one infrastructure. So that margin improvement flows through to our owners. We're we're very excited about how constructive it is.
Thank you and can you give us maybe just a quick flavour aware current floors and ceilings aren't on on new contracts.
Yeah, I can sort of speak to what our experience is I I don't know where others are but our preference right now in the term contracts space is fort market related volume. So we're willing to commit volumes out into the future, but we just want to price them out into the future. We're not looking to price them today those would be called.
Fixed contracts are based escalated contracts on market related they are often color to their call alert in part because utilities have lived through price cycles before and they've seen spikes and so they will ask for ceilings and if they ask for ceilings, we'll ask for floors, both floors and ceilings are escalated. So that's another important to.
Mentioned to remember for cameco in today's market mid fifties spot.
We can drive 50 dollar escalated floors, and we can drive 80 dollar escalated ceilings.
I'm, assuming others would be somewhat close to that but probably not quite as attractive and then with each contract. We just like to turn those indicators higher you know with with every contract that comes to the market insecure future supply well, there's less future supply for the next slice of demand, which then makes for an even more.
More constructive conversation and that's how we go and build that contract portfolio with good upside protection and incredible downside protection.
Thank you <unk>.
Mmm source.
Our next question comes from Greg Barnes of <unk> Securities. Please go ahead.
Just think kept wondering is if at this point you can get a little more granular on the timing of the closing of the listing house dealing with any comments on the.
UK commentary they announced today on their regulatory approval process would be would be helpful too.
Great. Thanks for the question is to hear from you, we and bruises.
And practice of the group, we had 30 to start over the unlimited Sean we're down to just a couple and one of which you mentioned I don't know if we have time and I think we're still looking at Q3.
Before the end of the year for the closing on Westinghouse and so we're going to be until you would go to the team of many.
Working on it and so we're hoping this fall to be able to close I agree, but I don't have a whole lot more detail for you right now.
Yeah.
Is the UK launched it <unk> now so far into this process unusual or is this kind of practice for them.
We started them all off on the same foot and some reacted really quickly at least we got the U S. In China right off the bat and that's one of the ones, we still have to get in the UK, So pretty normal practice group.
Okay. Thank you that's it for me yeah. Thanks for <unk>.
Our next question comes from Grace signs of Energy Intelligence. Please go ahead.
Hi, <unk>.
Okay.
I didn't really notice.
He could give any reason or detail on that.
Great you were cutting in and out on us, but I think you asked about the transportation roads.
Oh to Kazakhstan.
So we we as you saw from our the information we published in the MBNA that we're still working on that we haven't had any.
I haven't had any shipments come through the passage way of yet. This this year, we're hoping Q3 will be able to get one through again, we're working on that day to day were you in touch with the different countries and governments involved.
Not a problem obviously is leading the charge on that so we are hopeful that we will see some deliveries come through there sometime this year.
Alright. Thank you just one quick follow up just kind of got shipped all of its material from in-kind through the Trans caffeine right now where does any of that gets sent to China.
We are sending it all if we can through the transgress being rude at this point [laughter].
Alright, Thank you yeah. Thank.
Thank you thanks Bruce.
Our next question is a follow up from Greg barns of TB Securities. Please go ahead.
Yes. Thank you just a few grant for 118 million pounds contracted it to date.
What kind of line of sight do you have on what the rest of the holes in terms of lumps onto a contracting for the industry as a whole not just became a coke.
Great question.
When we look at our own pipeline, if negotiations and I said earlier that it remains quite large we've got a lot of past be under negotiation a lot of conversion service under negotiation.
If I then sort of reflect that is it must be indicative of what others are seeing I think we can expect.
Quite a bit of demand to come to the market in the second half of the year I'm not prepared to say, we can just simply annualize 118 million path to simply double it I don't know for sure but.
I think this is a year, where we can expect to see a material increase over last year's.
Contracting right and as we know in our industry contracting begets contracting I made as more and more of the known production is spoken for under longterm contract. It'll just increased pressure on those who have not contracted yet to get their hands on uneven smaller slice of certain supply.
And then obviously attention will turn to the contracting and prices required to get real Greenfield moving.
And that's all in front of us and that's about all value, we intend to capture but but we are expecting a constructive term market to continue through this year and if past is prologue. These last several years.
Right. That's just a follow up question regarding the operations themselves <unk>.
The cash cost than the last technical report, so 16 to $18 dollars, a pound depending on which device you're talking about that we've had inflation.
<unk> pushes and supply chain dishes and the rest of it what do you think the cost profiles look like know what each operation from this point.
Yeah.
It is a great question. Greg there are there are two things going on simultaneously moving in different directions, obviously as we ramp up production at something like Macarthur and <unk>, we're going to have the unit cost effect and that'll be very positive more production lower unit costs that will be offsetting but then.
Of course.
When you look at the just just the challenges that had been in the market the challenges on supply changed the challenges on inflation. The challenges are finding skilled labor or inappropriate contractors at the right time that kind of offset that improvement, but on balance we would just kind of go back to our annual information.
<unk> form numbers, that's the update to our technical reports and we're looking at that 16 to $18 cash cost and that's what we're negotiating towards and we're very excited obviously about meeting the growth in this market meeting the new demand meeting our contract from <unk>.
Already licensed already permitted existing facilities that we simply just have to get back up and running.
Okay, great. Thanks Grant.
Our next question is a follow up from arrest while cause I was Scotiabank. Please go ahead.
Hi, Thanks for taking the follow up uhm on the same lines as that Greg's question, but they'd be a little bit different at what point do you need to see the contract book.
Or I guess at what level do you need to see the longterm contract book before we start hearing more about life extensions at trick or like for example, and even potentially taking macarthur up to the full license capacity of 25 million pounds.
Yeah, great great.
Great question is one where we would say <unk>.
Whether it's the excellent work done by trade Tech for example tree that in our team where there is very clear urgency of supply building in the market. We just simply respond to that by saying we need to see an urgency of demand. So, yes, 118 million pounds a year to date in the.
Turn market is a good indicator of urgency of demand and and yes, a 55 dollar U S price is a much better price than the $17.75 per pound that it was when we brought Macarthur and T lake into supply discipline, but it's not at the level.
From a pricing point of view that is required to make serious investment and expansion or quite frankly in greenfield. So we would need to see more urgency of demand as evidenced by more term contracting coming into the market and stronger price formation and then we would capture that in our contract portfolio.
Those are the milestones to watch for those of what those are what will determine our production decisions. The expansion decisions Arthur River. The extension decisions that cigar Lake. So the market is constructive right now it has to be more constructive to incent us to grow that base of production.
Okay, and just as a quick follow up.
Do you think are you happy with your current portfolio of growth options within uranium or do you see any opportunity.
Four M&A in terms of adding undeveloped deposit.
Well, we're we're a really happy worst with what we've got we've got nauseous that are built in licensed and ready to go and so we're just as you know in the process of wrapping them up and as branches said.
Looking at whether we need to extend and expand those we've got to your to US is that her license and permitted on standby, but under the right conditions could go ahead. So we're not looking.
Looking too far afield in our own house here and we've got some great assets that we want to bring it back in.
<unk>, we might just juxtaposed out a little bit with the last price cycle people reflect on that 0607 window a lot of contracting was done a lot of strong price formation, but at that time <unk> was looking to add a new mine the cigar like mine as a supply source in order to fulfill those contracts this time around because.
Of our supply disciplined we left a lot of pounds in the ground and a low price environment. Those pounds are now available in a much higher price environment. So we're we're meeting this new contracting cycle from we think an extraordinarily strong brownfield leverage position, which gives us a very attractive capital profile, we're only talking.
Replacement and maintenance capital, we're not talking Greenfield capital in order to meet it. We just think it's a much different value proposition for investors and cameco in this contracting cycle than it was in past cycles. This is our deliberate execution of our strategy.
Thank you.
Our next question is a follow up from Ralph Perfidy of eight capital. Please go ahead.
Thanks to my grant for the follow up we have seen a little bit of volatility in the <unk> pounds, both from our deliveries and.
Shipments perspective, and just wondering when it when when it comes to delivering those pounds and this sort of uncertain market are you, making up those pounds in the spot market because the actual inventory situation that chemical has been relatively stable and the purchase commitments have actually moved lock step with the sales guidance. So just wondering how you make up for that volatility.
Well I'm, just going to go backwards, a little bit and provide some context, because we we just have to set our purchasing to meet are committed sales in the proper context of our strategy. So as you know and a lot of color a lot of folks on this call now what we do is we build the homes first.
Through the contracting cycle and then we source those commitments and we source of obviously from production, we've got production increasing with a ramp up with Mcarthur River key Lake We've got production from cigar production from <unk>.
We source through inventory and we source through purchases and occasionally will source through loans, but but let's focus on the big three the the production inventory and purchases with respect to purchases.
If we have.
A delay in production you remember, we set kind of quarterly and annual guidance on production, but if we missed that the pounds are still there we get them a little bit later, so occasionally we might have to go into the market and supplement with some purchases when we purchase and sale. For example, if we had to purchase two two ripped.
Place in Chi pounds, just think about those in the proper context, we can purchase either in the spot market today, and we will do that occasionally it's a very thin market and our presence or demand would would be noted and would probably create upward price pressure amoco showed up in the spot market. So sometimes we also purchased.
Under long term purchase commitments.
Somebody might be offering pounds at a fixed price out into the future and when we look at the dynamics in the construction in the market. He might say those are cheap pounds today, and we always retain the right to harvest those those contracts whenever we want we don't have to wait until the.
The terminal date in the contract. So we can we can purchase in the spot market or we can purchase long term and just retain the option of when we pull that source in.
And then when you think about those spot purchases. The the final thing I would make is they have both a cost but they also have a benefit.
The cost of us purchasing obviously is.
It cost more to purchase it than it does to produce and so there is a margin impact that's definitely a cost.
Benefit, though is when our demand is in the market it tends to send out the spot market. It tends to be price constructive. So now our portfolio of committed sales that are market related are also capturing that higher price and it's capturing it over our true margin and then of course anything we are negotiating is now negotiating.
Waiting at higher price references so we always look at that short term in year cost against the in year and multiyear benefit when we make purchases never something we fear always something we do strategically and deliberately and that's how we would replace any shortfalls or timing shortfalls with.
Respect to either production from our Canadian assets or a rival of material from JV income.
And my daughter.
Alright, alright, so I might just add to that purchase volume does include are expected entitlement.
It gets moved out mainly because of the increase in the in your sales and our desire for working inventory I would just note that Islam Yeah got it. Thank you for that clarity grant and Michelle.
This concludes the question and answer session I would like to turn the conference back over to Tim gets all for any closing remarks.
Well. Thank you operator with that I just wanted to say thanks to everybody who's joined us on the call today, we certainly appreciate your interest and your support to.
Just say we are excited to see the positive momentum building for nuclear around the world <unk> expect to play an important role in providing the solution for the existential problems of D carbonization electrification and energy security.
More than ever we're being asked by countries leaders in government officials to participate in discussions on where that world Energy Pictures going.
And I can tell you that we had chemical work hard to gain that kind of standing on the world stage to be recognized as a global company.
Being a difference on a global scale and providing something the world desperately needs and as the interest continues to grow last month, we hosted a tour of our severely cooperation for investors Zelman the Canadian investors to the U S and just last week Ambassador David Cohen, The U S Ambassador to Canada toured Mcarthur River.
The I could tell you the positive feedback from these officials and their teams falling tours was nothing short of flattering and that's of course, thanks to the hard work of our people over the years, we built a reputation as a proven and reliable producer with key assets and stable jurisdiction with a long history of strong <unk>.
<unk> mental social and governance performance, we believe our vision of energizing a cleaner world will allow future generations to drive and to enjoy this beautiful planet.
Continue to do what we said we would do executing on our strategy and consistent with our values will do so in a manner. We believe we will make our businesses stable over the long term.
So thanks, everybody enjoy the summer stay safe unhealthy.
Yeah.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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