Q3 2024 Cameco Corp Earnings Call

Music Gone wrong

Conference Operator: Thank you for standing by. This is the conference operator. Welcome to the Chemical Corporation third quarter 2024 results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded.

Conference Operator: Following the introductory remarks, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad.

Conference Operator: Webcast 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.

The Q&A session will conclude at 9 a.m. Eastern Time.

Conference Operator: I would now like to turn the conference over to Cory Kos, Vice President, Investor Relations. Please go ahead.

Cory Kos: Thank you operator and good morning everyone. Welcome to Cameco's third quarter conference call. I would like to acknowledge that we are speaking from our corporate office which is on Treaty 6 territory, the traditional territory of the Cree peoples and the homeland of the Métis.

Cory Kos: With us today are Tim Gitzel, President and CEO, Grant Isaac, Executive VP and CFO, Heidi Shockey, Senior VP and Deputy CFO, and Rachelle Girard, Senior VP and Chief Corporate Officer.

Cory Kos: I'll hand it over to Tim momentarily to briefly discuss the strength of today's fundamental market dynamics, as well as our progress with the continued execution of our strategy, which has us returning to a Tier 1 cost structure and delivering strong production performance while maintaining a solid financial position.

Cory Kos: After we will open it up to your questions. Today's call will be approximately one hour concluding at 9 a.m. Eastern Time.

Cory Kos: As always, our goal is to be open and transparent with our communication. However, we do want to respect everyone's time and conclude the call on time.

Cory Kos: Therefore, should we not have time to get to your questions during this call or if you would like to get into detailed financial modeling questions about our quarterly results, we would be happy to follow up with you after the call.

Cory Kos: There are a few ways to contact us with additional questions. You can reach out in 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'll be happy to follow up with you after this call.

Cory Kos: If you join 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 on our website at CAMICO.com.

Speaker Change: 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.

Speaker Change: Please note that this conference call will include forward-looking information which is based on the number of assumptions and actual results could differ materially.

Speaker Change: 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 make today except for as required by law.

Speaker Change: Please refer to our most recent annual information forum and MD&A for more information about the factors that could cause these different results and the assumptions we have made.

With that, I'll turn it over to Tim.

Tim Gitzel: Thank you, Cory, and good morning, everyone. We appreciate you joining us on our call today.

Speaker Change: I'm sure you all closely followed the U.S. presidential election this week.

Speaker Change: I'd like to offer congratulations to both President-elect Trump and to all of our friends south of the border for shaping the future of your nation by exercising your democratic right to vote.

Speaker Change: We look forward to ongoing bipartisan support for the nuclear sector across the political spectrum, not only in the U.S., but here in Canada and throughout the Western world.

Speaker Change: As we get started here today, I first want to ensure stakeholders look past the noise and understand the headline items in our disclosure this quarter.

Speaker Change: As I will touch on shortly, we continue to see a trend of improving operational performance in both our uranium and fuel services segments, bringing us back to a Tier 1 cost structure and supporting dividend growth.

Speaker Change: Our outlook for the year remains strong and consistent with our expectations.

Speaker Change: And long-term contracting activity is expected to continue gaining momentum with ongoing off-market interest and increased reported volumes added subsequent to the quarter.

Speaker Change: When it comes to our financials, equity earnings from Westinghouse were and will continue to be impacted by the amortization of the intangible assets that arose as a result of the required accounting for the acquisition.

Speaker Change: That is why we focus on, and provide outlook for, adjusted EBITDA as a performance measure for Westinghouse, as it adjusts for these elevated amortization costs which do not reflect the underlying business performance.

Speaker Change: Looking past the quarterly earnings, which, as always, can vary significantly,

Speaker Change: There is a clear underlying trend of improving operational performance and cash flow generation across our businesses and investments.

Speaker Change: This trend is backed by stable and rising market prices driving nearly a billion dollars in adjusted EBITDA for the first nine months before those acquisition-related purchase price adjustments.

At Cameco, we are exceptionally well-positioned.

Speaker Change: And we continue to see growing demand for nuclear power, with the agreements to support nuclear that we've all been hearing about becoming signed commitments to build new reactors.

Speaker Change: In the third quarter, we continue to see the growing positive momentum and support for nuclear energy among governments, energy-intensive industries, and within the general public.

Speaker Change: That support is generating durable, full-cycle demand, which we believe is stronger than ever.

Speaker Change: For the past two years, we've regularly highlighted demand durability across the fuel cycle and the unparalleled opportunities emerging in the near, mid, and long-term markets.

Speaker Change: Those fundamental drivers, things like decarbonization, sustainability, energy security, and growing energy demand, all remain solid and unchanged.

Speaker Change: However, on the other side of that equation, future supply continues to be uncertain.

Speaker Change: with a need for improved long-term market prices to underpin supply economics and support ongoing investment.

Speaker Change: Let alone those reactors being saved and restarted, reactor life extensions, and new reactor builds.

Speaker Change: And as we can clearly see today, following the U.S. ban on Russian uranium imports, uranium supply and services across the fuel cycle take time to respond.

Speaker Change: Despite the established need for more supply amid the current tight and uncertain market, long-term contracting through the first nine months of the year remained relatively slow.

Speaker Change: There are a few key developments that are not only driving utilities to review procurement plans, but prompting producers to re-evaluate sales strategies.

Speaker Change: Contracting continued to be impacted by things like the U.S. election, the Russian uranium ban, which took effect in early August,

Speaker Change: Uncertainty with respect to the process to obtain waivers under that ban and new demand emerging from energy-intensive industries which could reshape the nuclear fuel cycle landscape in the decades to come.

Speaker Change: As we expected in our last quarterly call, the cautious approach by fuel buyers has started to give way to an increase in utility interest both publicly in the market and off market through bilateral negotiations with producers.

Speaker Change: As contracting picks up, we continue to be selective in committing our uranium inventory and UF6 conversion capacity in order to maintain a contract book that preserves exposure to the rising prices while maintaining downside protection.

Speaker Change: We're seeing significant interest in the extremely tight conversion segment of the fuel cycle, which remains at historic prices, far higher than anyone in our market had anticipated.

Speaker Change: However, in the uranium market, the first nine months remained lighter, with increased volumes subsequent to quarter-end followed a couple of larger uranium contracts signed in October.

Speaker Change: Those deals boosted long-term contract volumes from just over 50 million pounds at September 30th to about 90 million pounds as of last week.

Speaker Change: That said, long-term contract volumes still remain well short of replacement rate.

Speaker Change: But buying the uranium fuel required to keep the lights on cannot be avoided.

Speaker Change: Future needs are still future needs and not only do we need to catch up on over a decade of under-contracting, but the world also has a fleet of retiring fossil fuel generation that needs to be replaced.

Speaker Change: Nuclear addresses all the key considerations influencing energy policies and international plans for replacing carbon-emitting energy sources.

Speaker Change: Future energy supply must be secure, carbon-free, reliable, and uninterrupted, and in each of those categories, nuclear is in a class of its own.

Speaker Change: Amid intensifying geopolitical challenges and various sustainability-related factors, procuring the required nuclear fuel from responsible, reliable, experienced, and sustainable suppliers like Cameco is more important than ever.

Speaker Change: Therefore the positive momentum for nuclear energy and the tightness of full cycle supply puts Cameco in a unique position to add significant value with what we believe are the world's premier tier one fuel cycle assets alongside our investments across the reactor life cycle.

Speaker Change: With a strategy centered on full cycle value we've continued to optimize those assets as we shift back to a tier one cost structure.

Speaker Change: With strong production performance through the first nine months of the year and a solid financial footing, our board has approved an increase of our dividend from $0.12 in 2023 to $0.16 per common share for this year.

growing it to 24 cents per common share through 2026.

Speaker Change: Turning to our results, I want to highlight a few developments this past quarter starting in the marketing and operational areas of our strategy.

Speaker Change: In our Uranium segment, we continue to evaluate the work and capital required to expand our MacArthur River and Key Lake operations from 18 million pounds per year to the licensed capacity of up to 25 million pounds per year.

Speaker Change: However, in the meantime, production at the Key Lake Mill has exceeded our expectations year to date, and we now expect production of about 19 million pounds, up from 18 million pounds previously.

Speaker Change: The Improved 2024 Outlook is primarily the result of various automation, digitization, and optimization projects we undertook while the operation was in care and maintenance.

Speaker Change: Although the market conditions were difficult at the time, we intentionally made counter-cyclical investments.

Those investments are now paying off.

Speaker Change: But as we evaluate the CapEx required to increase production and step with demand in our contract book, we are potentially now able to achieve a higher baseline level of production before making any additional investments in the key MacArthur assets.

Speaker Change: Having more Tier 1 production in our portfolio is always a positive development for us.

Speaker Change: And the additional pounds can be feathered into our long-term contracts, providing further optionality, flexibility, and the de-risking of our supply stack.

Speaker Change: We carefully plan these supply sources years in advance, retaining access to multiple levers to manage risks, one risk being that a given source runs short of expectations.

Speaker Change: That's what we're seeing at J.V. Inca in Kazakhstan, which falls into our long-term committed purchase bucket of supply.

Speaker Change: We now expect production of about 7.7 million pounds of uranium from Inkai, down from last year's production and from our previous 2024 expectation of 8.3 million pounds.

Speaker Change: The decreased outlook at InChi is primarily due to the ongoing challenges related to sulfuric acid in that part of the world.

Speaker Change: There was enough acid procured to achieve the original planned production volume, but the timing of the deliveries of that acid shifted, pushing the development and production schedule into 2025.

Speaker Change: A portion of our share of this year's production, about 2.3 million pounds, has now arrived at a Canadian port with shipments to Blind River now underway.

Speaker Change: However, our remaining allocation for this year is still under discussion with Kazatomprom.

Speaker Change: Of note, we are currently finalizing an updated National Instrument 43-101 technical report for the Inkai Mine, in which we will update the expected reserves, production profile, costs, sensitivities, and technical information.

Speaker Change: So in the third quarter, we had to account for the higher production from Key MacArthur, partially offset by the increased uncertainty on the quantity and timing for our full share of production from J.B. Inkeye.

Speaker Change: So we put our supply levers to work, realigning our expected market and long-term committed purchases for the year.

Speaker Change: We decreased our committed purchases from 9 million to 8 million pounds and shifted our market purchases from up to 2 million pounds to now be up to 3 million pounds for 2024.

Speaker Change: And although we have either taken delivery of or have commitments for the majority of our expected 2024 market purchases, we may look for additional opportunities to add to our inventory position.

Speaker Change: In the fuel services segment, production was also strong. In fact, it was 60% higher than our third quarter last year.

Speaker Change: This was largely thanks to the commissioning of a new closed-loop water system at Port Hope.

Speaker Change: This additional process infrastructure not only provides positive benefits from a water usage and sustainability perspective,

Speaker Change: but it allowed us to eliminate the annual summer maintenance outage for the first time, partially offsetting the impact of the temporary operational issues that affected production in the first half of 2024.

Speaker Change: As expected and as I highlighted, the performance of our Westinghouse investment this year continues to be impacted by purchase price accounting, which is, of course, not unique to this transaction, but something that is normal course in the case of any acquisition.

Speaker Change: It's important to look through these impacts as our outlook for Westinghouse's performance this year and over the next five years is positive and unchanged.

Speaker Change: In fact, when we look at the underlying long-term trends for the industry, we continue to see more opportunities for Westinghouse emerging than we had valued at the time of acquisition.

Speaker Change: making it a very timely transaction that has fit perfectly into our long-term strategy.

Speaker Change: Stepping over to the financial aspect of our strategy, we continue to be in great shape.

Speaker Change: As always, normal quarterly variability in customer deliveries impacted our results.

Speaker Change: In addition, earnings from our equity-accounted investees impacted our adjusted net earnings this quarter.

Speaker Change: As I noted earlier, our overall financial results continue to be influenced by the required Westinghouse Purchase Accounting and other non-operational acquisition related costs.

Speaker Change: Equity earnings from J.B. Inkeye were also lower because of the continued delay to the transportation of our share of production from the Inkeye mine.

Speaker Change: We do not take ownership of our share of Inkeye's production until it arrives at our Blind River refinery, and therefore J.B. Inkeye cannot record revenue on those pounds.

Speaker Change: Ours is a complex, long-term industry that does not lend itself well to quarterly estimates.

Speaker Change: That's why we provide an annual outlook, which, following the third quarter, remains largely unchanged for both Cameco and for Westinghouse.

Speaker Change: with the exception of the realignment of our supply sources and the impact of a stronger U.S. dollar on average realized price, revenue, and adjusted EBITDA from Westinghouse compared to the original assumption used.

During the quarter, we continue to focus on debt management.

Speaker Change: We made an additional repayment of $100 million U.S. on the floating rate term loan we used to finance the Westinghouse acquisition, bringing the year-to-date reductions to $400 million.

Speaker Change: And in the days ahead, we'll continue to prioritize repayment of the remaining $200 million outstanding.

Speaker Change: We've remained diligent in managing liquidity and the capital resources and tools required to deliver on our strategy, maintaining a strong balance sheet guided by our investment grade rating.

Speaker Change: Provide flexibility and maintain good financial hygiene. We plan to file a new base shelf prospectus to replace the one that expired in October.

Speaker Change: Before we wrap up, I want to highlight a few changes to our executive team.

Speaker Change: The beginning of October, David Dirksen was appointed Senior Vice President and Chief Marketing Officer.

Speaker Change: David's been with Cameco since 1998, most recently as Vice President Marketing.

Speaker Change: He's also held roles in tax and treasury, corporate strategy, and corporate development.

Speaker Change: Lisa Aiken has taken over David's previous role as Vice President Marketing.

Speaker Change: I have no doubt that the deep uranium market experience that both David and Lisa bring to their new roles will serve Cameco well as we position the company to leverage opportunities through these very exciting times for the nuclear industry.

Speaker Change: So with that, I thank you for your interest today and I'll stop there and we'd be delighted to take your questions.

Conference Operator: 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 question queue.

Speaker Change: To join the queue, you may press star then 1 on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys.

To withdraw your question, press star then 2.

Speaker Change: 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 email after the call.

Conference Operator: Once again, anyone on the conference call who wishes to ask a question may press star then 1 at this time.

Speaker Change: Our first question is from Ralph Profitti with Aid Capital. Please go ahead.

Thanks, operator, and good morning. Thanks for taking my questions.

Speaker Change: Tim, with respect to the long-term contracting that you mentioned in your prepared remarks,

Some of the fine behavior

Speaker Change: is shifting, specifically with respect to the prioritization of sort of downstream procurements, things like through conversion enrichment.

Speaker Change: And buyers are now starting to thinking about moving upstream as that part of the market gets fulfilled in terms of sort of, you know, crowding out some of that Russian material. Just wondering if that's, if that's, if this contract is sort of a signal that that could be happening.

Speaker Change: Yeah, Ralph, I will answer yes to that. You know, we're two years, two and a half years now into this Russian invasion into Ukraine and as Grant I think has pointed out many, many times

Speaker Change: Once that happened obviously that caused a bit of a crisis in the whole market but the utilities often start at the far end in the enrichment space and

Speaker Change: and work their way backwards. I don't think they're finished in enrichment yet.

Speaker Change: You can see the prices are holding pretty firm in enrichment conversion, they're hitting new highs and we're waiting for it to come down the pipeline really into the uranium space because we're going to have a problem there going forward as well. So I think your observation is absolutely right, Ralph.

Speaker Change: Okay, great. And I want to ask a question on your comments about Westinghouse and you know your long-term...

Ralph Profitti: EBITDA growth rate, sort of 6 to 10%. That's a few quarters old, and certainly market dynamics have shifted. Just wondering when you'll be in a position, you know, to sort of address that growth rate and how you're thinking about the range of that growth, given some of the market dynamics are certainly moving forward for us.

Speaker Change: We're holding to that 6-10%, but Grant, I'm going to ask you, Grant's on the board for Cameco Westinghouse and they're working with them right now on present and future outlooks. So Grant, why don't you take it?

Speaker Change: Take a shot. Yeah, happy to do that. Hi Raul the

Speaker Change: A couple of key points on Westinghouse. Obviously, we've maintained the guidance for this year from an adjusted EBITDA basis, as you saw on our outlook table. And as you mentioned,

Speaker Change: We have a 6-10% growth rate over the next 5 years for Westinghouse and I think your comment or your question is a good one. There have been a lot of tailwinds.

Speaker Change: to the nuclear industry and you've seen a lot of news flow around Westinghouse's extraordinarily good position with respect to those tailwinds.

Speaker Change: And what we would just say is we think that remains a very conservative outlook.

Speaker Change: We tend to wait until some of the bigger projects, for example...

The new build of AP1000

hit the final investment decision.

Speaker Change: in order to kind of adjust that upward growth on new builds. So lots of excitement, a lot of prospect for new builds. For those who haven't seen the DOE's latest liftoff report and how prominently the AP1000 features in that, I would encourage everybody to have a look at that.

Speaker Change: But right now that is really just a conservative view. We take the announcements that have been made for new builds, for example.

Speaker Change: And all we're factoring in is the growth that's coming from the front-end engineering and design work. None of these projects, whether it's Poland, Bulgaria, or Ukraine, for example, have hit a final investment decision. When that occurs, yeah, there will be an upward adjustment to that number. So it's conservative, it's consistent with the time frames that it takes, but let's be very clear, Westinghouse is incredibly well positioned.

given all of the tailwinds in the nuclear space.

Thank you for those important answers.

Thanks for your questions, Ralph.

Conference Operator: The next question is from Adam Widjaja with Goldman Sachs. Please go ahead.

Adam Widjaja: Good morning, Tim, Grant, and team. Thank you for taking my questions. I wanted to just first start on InkEye.

Speaker Change: So given some of the uncertainty surrounding that deposit, at least in the near and medium term, how are you thinking about the Tier 2 asset base that's currently on care and maintenance? And then a follow-up to that is, how should we be thinking about any potential inorganic growth opportunities specifically on the mining side?

Speaker Change: Thanks Adam for the question. So you mentioned INCHI, we're working our way through INCHI. You saw in our reporting that you know there's some some acid issues, there's acid issues in the country, but ours was a bit of a timing on acid issue. I think we got the allocation we need for the year we just didn't get it quite at the right time so we're having to adjust.

Speaker Change: Our production numbers there a bit, but we remain committed to the J.V. Inkay project and the future of that. Tier 2, not yet. You know, you hear us talk about our Tier 1's.

Speaker Change: We've got firepower with our Tier 1 assets, especially the MacArthur River Key Lake.

Speaker Change: project which we continue to evaluate how we can de-risk and de-bottleneck that project to at some point increase production from

million pounds

Speaker Change: We're at now, moving closer to our license capacity of 25.

Speaker Change: Honestly, that's the best project on the planet at the moment, so we'll focus on that. We'll focus on our Tier 1s, and then when the market calls for us to move to Tier 2, we've been keeping them on care and maintenance now for the last number of years.

Speaker Change: We'll pull those out. Those aren't greenfield, those are brownfield. Way shorter.

Speaker Change: to restart than anything green field. And so we've got those in our pocket as well.

Speaker Change: Then we've got a few projects that we haven't even started yet. We do have our own greenfields.

Speaker Change: that are well-situated, close to existing facilities, in friendly jurisdictions, with competent teams, with great relations with our neighbours, Indigenous and otherwise, we would go to those first. So we've got our own package.

Speaker Change: Projects are ready to go, whether it's increasing our Tier 1s, bringing on our Tier 2s, or looking at Greenfield. So, as Grant just said a minute ago, we are incredibly well positioned and ready to go when the time calls for it.

Speaker Change: Great, that's super helpful. My second question is just on conversion.

Speaker Change: Clearly remaining the tightest part of the fuel cycle and understand with the Westinghouse acquisition, the Springfield's asset seems really competitively positioned to service that part of the fuel cycle. So what are your latest thoughts on a potential restart here? And then what needs to happen realistically from a contracting perspective from the conversion side of the equation to accelerate any announcement here? Thanks.

Speaker Change: securing that fabricated fuel bundle, they start at the reactor and they work upstream. And as they do that, we've seen pressure on the enrichment space. We've seen a lot of pressure on the conversion space. And I would just.

Speaker Change: Conversion does require the last remaining Western conversion facility, Springfield, to come back to the market. That does need to occur.

It can do a lot of things.

Speaker Change: And so part of the thinking around Springfields is making sure that the appropriate investments are well leveraged.

Speaker Change: different lines at Springfield's may share common infrastructure so spending that money wisely is priority number one.

Speaker Change: So, you have to have a good, solid industrial plan to restart, and then, like everything else in the nuclear fuel cycle, it has to be coordinated with marketing.

Speaker Change: Conversion is like uranium. You don't build productive capacity and then start knocking on people's doors and trying to chase in your demand because it just doesn't exist.

Speaker Change: So we need to see a stronger contracting cycle and conversion. Right now that conversion demand is really chasing production at the three existing Western facilities. It hasn't really started to chase the type of pricing required to restart Springfields.

Speaker Change: But it's coming. So we'd be, just like in uranium, we're very strategically patient, and we're very disciplined. This asset has to come back, and the value opportunity for Westinghouse is very significant. We love our position in the conversion space.

Thanks, Joan. And next.

Conference Operator: The next question is from Adam Wong with RBC Capital Markets. Please go ahead.

Good morning, Andrew. Hey, good morning.

Adam Wong: So we've seen a lot of momentum on new nuclear and data centers.

We did see the U.S. government

Adam Wong: going to push back on that Amazon and Talon deal. Sounds like maybe more of a speed bump versus changing any major views on using nuclear to power data centers, but I'm just kind of curious your views.

Adam Wong: on that announcement. And then just broadly, we've heard a lot of remarks from U.S. utilities potentially

Adam Wong: even considering new builds recently and potentially within the next maybe 12 months. So maybe just your thoughts on a new build announcement in the U.S. sometime in the future and the AP1000 role within that. Thanks.

Speaker Change: Yeah, I'm not sure that's a speed bump. I'm not sure that's not a door opening for more new nuclear behind the meter but Gran, what are you...

Speaker Change: Yeah, you know, my ability to see the silver lining in every dark cloud is pretty astonishing, Andrew. I looked at the FERC announcement very different. I think maybe the market misinterpreted that. What it said to me was that the hyperscalers and the industrial onshores that are chasing electrons

Speaker Change: have to co-invest in new capacity rather than show up and start generating a lot of demand into existing grids and increasing the price. They have to co-invest in new capacity.

Speaker Change: So it actually goes hand-in-glove with some of the announcements that you've seen. The Constellation Microsoft announcement to bring back Unit 1 at Three Mile Island, new capacity coming to the grid, the hyperscalers co-investing in that new capacity.

Adam Wong: All the FERC announcement did is confirm that those with, you know, in excess of trillion dollar enterprise values that need electrons are going to have to invest in those electrons themselves. That's a great news story.

Adam Wong: for New Build. I don't look at it as a speed bump at all. I look at it as a very, very clear signal.

Speaker Change: and they happen to want the quality of electron that comes out of a nuclear power plant. Carbon-free, 24-hour, fully dispatchable baseload power. So, I very much view it as good news. And I'm going to go back to something I said earlier. If folks on this call haven't seen the DOE left-off report...

Speaker Change: and probably draw the same conclusion we do, which is that existing technology fully operating at the BOGO plants, generation three, reliable technology that doesn't have any technology or fuel risk.

Speaker Change: is extraordinarily well positioned to meet this demand and this demand that's being told needs to be co-invested. I like this outcome, Andrew.

Speaker Change: That's great. That's really good color. Thank you. And then maybe just on MacArthur Key Lake, it's producing really well. What's the potential there for that facility to produce above 20 million pounds? And maybe you don't even need to spend some extra capex to really expand production there.

Speaker Change: Yeah, Andrew, you're exactly on track. That's what we're, that's what we're evaluating right now. We're continuing to look at, and I was up there earlier this week,

Speaker Change: at both MacArthur River and Key Lake. We didn't sit on our hands. We actually stepped up and put some...

Speaker Change: put some thought and some money and some robotics and automation and capital into those assets to really get them ready because we knew they were coming back. Those are the best assets on the planet, they're not going to sit idle forever.

Speaker Change: And so the work we did during that period, now we're seeing it bear fruit.

Speaker Change: And so you see we bumped up production a bit this year. We're going to see how far we can push that without putting a big chunk of new capital into that. And like I say, those are elite.

Speaker Change: and we have the elite team running them and so we'll see what we can do with those assets.

Speaker Change: We're going to try and push them as hard as we can without having to put a lot of capital in. Andrew, I'm just going to jump in on the end of it though and just remind folks that whenever Cameco talks about increasing production,

Speaker Change: It does not mean mean production that's coming to the broader market. It doesn't mean that Cameco is oversupplying so

We increased production after we secured the demand

Speaker Change: That production that could possibly come out of MacArthur Key has a home in a long-term contract portfolio. I don't want to see anybody taking away from those comments that, oh, Cameco is being irresponsible with production decisions. That never happens.

Great, thank you very much.

Thanks, Andrew.

Conference Operator: The next question is from Alexander Pierce with BMO Capital Markets. Please go ahead.

Alexander Pierce: Morning all. So I have a follow-up on one of the earlier questions on InCai. First off, can you kind of confirm that you think some of the issues at the asset so far this year are transitory? And are you seeing, you know, an improvement already? Are you kind of over the hump as it were?

Alexander Pierce: You've got a fairly complex ownership agreement at that asset and so I was just wondering if you can help us with how we should think about your share of production going forward from the asset now. Is there any opportunity to catch up on some of the share that you've, of the volumes that you've lost so far this year?

Speaker Change: So I think yes, and yes, yes, we're getting over some of the issues obviously acid continues to be an issue sulfuric acid In Kazakhstan, we don't take Russian

Alexander Pierce: That's one of the issues with our joint venture that maybe limits it a bit. We have made a commitment not to deal with the Russians. So that had a bit of an effect on our asset supply. As I say, we've got enough now, but the timing wasn't particularly right.

Alexander Pierce: for our production this year, so we had to reduce it by a little bit.

Alexander Pierce: Complex ownership agreement, yeah, we've been there for 25 years. We've got a bunch of complex ownership agreements with them. We'll sort it out. We're in discussions with them now.

Alexander Pierce: Our team is talking about what the production allocation is for this year and going forward and we should be able to recoup there But you know, don't forget it's 10% I think of our production so

Alexander Pierce: You know, it's important to us, we're happy to be there, we're happy to be partners with Kazatomprom, but in the bigger ticket Cameco Westinghouse, it's a smaller portion of our business.

Great, thank you. Thank you, Art.

Conference Operator: The next question is from Lawson Winder with Bank of America Securities. Please go ahead.

Lawson Winder: Hi, good morning. Thank you, Operator. Hello, Tim Grant. Nice to hear from you. Thank you for the update, as always.

Lawson Winder: Do you think there's a logical explanation for why they might be seeing a different supply-demand situation, or at least perceiving it differently? And then historically, what has typically led to the breaking of these types of stalemates?

I'll just get our marketing guru, Grant, to answer that.

Grant Isaac: Yeah, a lot of a lot of questions there jabbed into your one question, Lawson. So let me just make a couple of.

Grant Isaac: observations. First of all, with all due respect to our friend at UXC, I deeply deeply discount that survey because, no surprise, that survey says those who buy uranium want lower prices and those who sell it want higher prices. I don't think empirically.

Grant Isaac: that is useful in any way, shape, or form, or should really inform anybody's opinion. What we should always do is look at the fundamentals in this market. The fundamentals in this market are very clear and they're very positive.

Alexander Pierce: The long-term price is up again, $81.50 now in U.S. dollar terms, and we're not even remotely close to replacement rate contracting. This is a market that has never seen these kind of uranium prices with so little demand in the market. That's a pretty positive signal.

Alexander Pierce: And the structural gap between uranium supply and uranium demand does not require a Russian ban on a global basis.

Alexander Pierce: There is not enough primary supply capacity and secondary supply availability.

Alexander Pierce: to meet the demand as it's growing in a very certain and predictable way. That is ultimately what's going to drive prices. And when you see a structural gap, that's a one-way trade. We need higher prices to incent the kind of investment.

Alexander Pierce: to generate the primary production that's going to fill that gap. So, that's very clear. That's unavoidable. How do we get there? Well, we get there through term demand.

Alexander Pierce: And when we think about that term demand, it's always important to remember that utilities decide when they're bringing their term demand to the market. And that term demand is actually set by a number of things.

Alexander Pierce: There are some utilities that are contracting. Let's not forget this. Let's not traffic in the assumption that there's no term demand happening.

Alexander Pierce: At the end of the third quarter, there was just over 50 million pounds contracted.

Alexander Pierce: But within three weeks, another 40 million pounds of uranium was reported as contracted.

Alexander Pierce: We've been saying there's a lot of off-market activity going on and in three weeks We added another 40 million pounds of long-term contracting in the industry There's a lot of off-market activity going on so there are utilities who know they need future supply And they're working accordingly

But there are some uncertainties.

Alexander Pierce: that are holding that up. And a big uncertainty there is not whether the Russian ban is going to stay or not. That's a legislative ban. It would require legislative action to overturn.

Alexander Pierce: The question is, how easy will waivers be between now and 2028? And that's driving some uncertainty in the market, or let's call it some pause from some of the fuel buyers.

Alexander Pierce: But, when you step back and look at the overall dynamics, and you see that market-related contracts

Alexander Pierce: are being priced at $70, low $70 escalated floors, $130 escalated ceilings.

Alexander Pierce: that utilities understand the uranium price is going up from the long-term price of 81.50

Alexander Pierce: because structurally it has to in order to get the supply there. So that survey that you referenced at the beginning doesn't capture any of these facts. The facts are pretty clear and the facts are optimistic, sorry, the facts are very positive and Cameco is incredibly well positioned.

for these facts.

Speaker Change: Yeah, thank you very much and just as a follow-up, cost is often...

cited as a

Alexander Pierce: a supporter to pricing, and pricing is quite a bit above the cost curve. What we've been seeing with some of the other miners that are producing other commodities is that cost inflation has become a theme again after disappearing for no less than just a couple of quarters. What are you guys seeing in terms of cost inflation? We obviously know that Inca has experienced significant cost inflation as a result of the new royalty, but just in Canada, are you seeing any cost inflation that leads you to believe that the curve is moving up, or are you seeing it in any other countries that would lead you to believe that cost curve is moving higher?

Speaker Change: Yeah, certainly the cost curve has been moving higher right across the resource space. There's no doubt about that and Cameco has not been immune to that, whether it's

Alexander Pierce: Purchasing reagents and energy on North American markets. We've seen some cost increases on the labor side, for example, in our market.

Alexander Pierce: But I want to go back to something that Tim highlighted, which is the AMPed Up, the automation and digitization project we did at MacArthur Key.

Perfectly timed.

Alexander Pierce: to where those assets were running in 2017 before we shut them down.

Alexander Pierce: And lower costs relative to where inflation would have otherwise taken them. And then, of course, additional production on the same asset base. So this is a really strong story about we bent the cost curve and actually got more production out of assets.

Alexander Pierce: at a time when supply chains had become difficult. The other factor that's influencing the global cost curve loss in

Alexander Pierce: is that in a bifurcated market, we simply need more western sources of uranium.

Alexander Pierce: conversion and enrichment and Western sources have historically been more expensive.

Alexander Pierce: than non-Western sources, primarily because non-Western sources, often from state-owned enterprises that don't have a commercial objective, never really adhere to any sort of production economics in their pricing.

Alexander Pierce: You bifurcate the market. You have Western demand chasing smaller Western supply. You need production economic pricing. That's why there's been upward pressure on enrichment.

Alexander Pierce: Massive upward pressure on conversion, and as I said earlier, that demand has not yet hit uranium in a full way, but it's coming.

Okay, thank you very much. Thanks Lawson for your questions.

Speaker Change: The next question is from Craig Hutchinson with TD Cowan. Please go ahead.

Thank you, Maureen, thanks for taking my question.

Alexander Pierce: Q4 is setting up to be quite a strong quarter at Westinghouse, based on your updated guides this morning. Can you provide some context on the seasonality and why Q4 is going to be so strong?

Alexander Pierce: And is that a seasonality factor and something we should expect in future years going forward? Thanks.

Speaker Change: Craig, thanks for the question. I'm going to ask Heidi Shockey to answer that one. Heidi?

Heidi Shockey: Hi there, Craig. It is true there is some seasonality with Westinghouse. Throughout the year we've said that the second half of the year is going to be stronger than the first half. First of all, because...

through the acquisition we

https://www.youtube.com.au

Heidi Shockey: That's unique to this year and won't carry on, but there is seasonality to their business. They have two outage seasons, typically, one in the spring and one in the fall. And the one in the fall kind of starts.

Alexander Pierce: end of August and goes until November. So it is primarily in the fourth quarter. We see a lot of more work and higher margin work in that period.

Speaker Change: Okay, great. I just have a follow-up question for you. On the sales forecast, again, it seems like Q4 is going to be quite strong. Can you talk to some of the factors that have pushed sales into the last quarter of the year? Thanks.

Thank you.

Speaker Change: Yeah, great question. So along with Westinghouse having a strong fourth quarter, Cameco, as you'll recall from our disclosure in Q4 when we put out our outlook, we were indicating

Alexander Pierce: Stronger sales volumes in the second half of the year, and if you look at deliveries year-to-date versus our outlook table, which hasn't changed

Alexander Pierce: Somewhere between 11 and 13 million pounds of uranium remains to be sold in Q4. These are committed sales.

Alexander Pierce: that we have to deliver into. So you got to go back to 2018 or 2019 to see kind of back-end deliveries loaded that way. Just it's a function of when utilities call for deliveries and it just happened to be.

Alexander Pierce: a strong Q4 for us in the uranium segment to go along with a strong Q4 in Westinghouse which is why it's so important to always remind people whenever you're looking at our quarterly results

Alexander Pierce: You should also simultaneously look at our Outlook table and our guidance and and you know and ask yourself has anything changed materially there and if it hasn't That should help you put the quarter in proper context so strong uranium segment in Q4 strong Westinghouse in Q4

Thank you.

Thanks, Craig.

Speaker Change: The next question is from Mohamed Sidibe with National Bank Financial. Please go ahead.

for the reinterpretation.

Yeah, the, uh...

The

Alexander Pierce: The delays in shipping from Inchai, I'll just go back and remind everybody, we made a decision when the Russians invaded Ukraine that we would not utilize

Alexander Pierce: the normal transportation channels to get material out of Central Asia. Normal transportation channels involved using Russian rails and Russian ports. What we wanted to do was take advantage

of the so-called Trans-Caspian Corridor route.

Alexander Pierce: which KazAtomProm had used before and had said, you know, was very reliable and very predictable. And I know all we've discovered in the last couple of years is it's neither reliable nor predictable. It just, it takes time to get material assembled in Kazakhstan, across the Caspian, the relevant permits through Azerbaijan and Georgia, into the Black Sea and out the Bosphorus.

Alexander Pierce: to make its way to our Blind River Refinery. So the good news is that corridor works.

Alexander Pierce: But it doesn't work in the predictable way the old Russian route worked.

Alexander Pierce: But make no mistake, those deliveries eventually show up and the economic benefit of those deliveries hits our results.

Alexander Pierce: We're just continuing to work that route, we're committed to that route, because we are not going to use the Russian route. So that's how you need to think about those delays, we eventually get the material, and in the meantime we use multiple sources, inventory, long-term purchases, perhaps some market purchases, to always meet our sales commitments.

Speaker Change: Thanks a lot, Grant, for that. And then just another question for me on the fuel services segment. So great quarter in terms of sales and improvement quarter of a quarter there, but on the cost front, costs are largely flat. Could you maybe give us some more color on what could drive costs maybe lower towards your guided costs for 2024 into Q4?

Speaker Change: Costs in the field services segment can vary quite a bit.

Speaker Change: We have a number of different products in that segment, and they're quite different in terms of cost structure, so from quarter to quarter it will vary, kind of based on the volume of sales of the various products.

Speaker Change: This year we're seeing a little bit higher costs than in the U.S. fixed segment because of the lower production than we forecast and, of course, some inflationary pressures. But it's likely just a...

Speaker Change: You know in the quarter a difference between the the mix of the products that we sold

Thank you.

Thank you, Howard.

Speaker Change: The next question is from Bryce Adams with CIBC. Please go ahead.

Thank you. Good morning all.

Speaker Change: Building on Lawson's question and Grant, you touched on it for a second.

but with regard to long-term contracting.

Speaker Change: Can you provide any colour on where negotiations for floor and ceiling prices are? What levels are those at generally? How does that compare to negotiations earlier in the year, say in the summer? Just generally, how are those floors and ceilings evolving? Thank you kindly.

Speaker Change: Yeah, happy to do that Bryce. I'm actually going to expand a little bit and just talk about the connective tissue that can sometimes happen between the spot market and the term market because it helps explain, I think, in part why there's been a bit of a slowdown in term contracting.

Speaker Change: So if you think about the spot market, it's always important to remember it's small, it's discretionary, it's not fundamental, and it's low quality demand. But it does

create

a reference point, if you will, for fuel buyers.

Speaker Change: When we're negotiating a long term contract, and we want it to be market related, they almost invariably have a floor and ceiling conversation around them. Floors today at $70, a little over $70 escalated, ceilings at $130 escalated.

Speaker Change: When you see the spot market soften like it's done, and who are the culprits there? Well, it's anybody who produces material and doesn't have a home for it. Those are the culprits for why the spot market is softening. When the spot market softens and comes off like it has, you know, $10,

Speaker Change: Utilities are inclined to believe that that should mean a one-for-one reduction in floors and ceilings, right? So if the spot market has come off ten bucks then shouldn't floors fall by ten dollars? Shouldn't ceilings fall by ten dollars?

And because we're strategic and because we're patient...

For us, it's always about

Pricing appropriately for the future and our message is

Speaker Change: The spot market coming off because somebody has sold 50,000 pounds of material in a clumsy way into a thinly traded market has nothing to do with the appropriate price of uranium two years from now and out and beyond. So it's got nothing to do with where floors and ceilings should be. And when we see that kind of

Speaker Change: Narrative come through the market we a chemical will step back and say okay well we'll just

Speaker Change: There's a counterparty, and that counterparty is a producer who might not be satisfied with a conversation that floors should fall and ceilings should fall, and we would be one of those producers. So we're being very disciplined.

Very patient in our contracting.

That's the connective tissue between long-term.

Speaker Change: long-term market and the spot market, and we're just trying to break that connection in our contracting. What somebody is doing in a clumsy way in the spot market today with a small amount of pounds has nothing to do with the appropriate future price of uranium, and we're just in a position where we can hold out for that to send that signal accordingly.

Speaker Change: Okay so sticking with the 70-130 escalator ranges that seems to be the default at the minute but

Speaker Change: Stay tuned, that could scale up in the next six months you think?

Speaker Change: You know if you look at the fundamentals and you look at that long-term price that continues to rise on really small volumes

Speaker Change: and then you look at the global cost curve and where it needs to be to make sure that the supply is there to meet the demand, it is suggestive.

Speaker Change: that higher prices are required. Higher prices are required to incent the primary supply that's needed not just to replace primary mine depletion

Speaker Change: But to replace secondary supply, which has dwindled dramatically, and then to grow with a market. That is all very suggestive.

Speaker Change: that this uranium price has yet to see the kind of move that enrichment and conversion has made simply because the enrichment and conversion demand hasn't fully made its way into uranium, yet.

Awesome. Thanks, Grant.

Thanks, Bryce.

Speaker Change: The next question is from Brian MacArthur with Raymond James. Please go ahead.

Speaker Change: Good morning and thank you for taking my question. I just want to go back to the 11 to 13 million pounds in the fourth quarter.

Speaker Change: that when you do that, the assumption is any utilities that had upward flexibility in their volumes in those old contracts that are coming due at that time, that's all reflected in there, i.e. you couldn't end up with 14 million pounds in the fourth quarter, or is there still flex in the book that you're not assuming that might come through given where long-term prices are?

Speaker Change: may be converted to a binding notice of delivery six months out, so everything's pretty much baked in the cake now. If they wanted to flex up, they've already sent us that binding notice. There really aren't those kind of surprise opportunities left.

Speaker Change: And just as you write new contracts, is that the same way they're still set up? You sort of have a...

Speaker Change: six-month notice in a year, or is that term changing as part of the

Oh, many factors are changing. As the market tightens...

Speaker Change: As you look out into the future in which utilities are looking for material and there's only a couple of producers that are going to have.

Speaker Change: projects and production out into that window, leverage is shifting over to the seller. And as the leverage shifts over to the seller, it's reflected in appropriate pricing mechanisms. Higher floors, higher ceilings.

Better escalators on the floors and ceilings.

Speaker Change: It translates into lower flex in a contract, you know, we don't have to be offering as much flex as the market tightens.

Speaker Change: It translates into different requirements for notice periods, so that we have more time to plan the production.

We save

Speaker Change: are contracting for when we're in an up-cycle precisely for these reasons, because it brings more leverage to us, more certainty and predictability to our account. That's why we position when we do, and when the market isn't offering that kind of demand, we leave our production in the ground.

Great. Thanks very much for the details.

Thank you, Brian.

Speaker Change: And our final question is from Gordon Johnson with GLJ Research. Please go ahead.

Gordon Johnson: Hey guys, thanks for taking the question just a quick one typically there's

seasonality with uranium prices and typically

Speaker Change: from what we've seen, prices have been weak in July, August, September, and then in October, November, December, they get stronger. Wanted to see if you guys are seeing some of that seasonality now. Clearly prices have been weak recently. And also, can you juxtapose that against the strength we've seen in enrichment prices and why that may be foretelling or not foretelling with respect to what to expect the Iranian prices moving forward? Thanks.

Speaker Change: Yeah, a couple of good questions there. If you think about...

Speaker Change: seasonality I mean that there's a there's a few factors going on there you've heard us say before that actually the the uranium calendar or the nuclear fuel cycle calendar

Speaker Change: And then that leads to having all the customers and all the suppliers in the same place at the same time starts to kick off a lot of contracting. That contracting carries on through the remainder of the year. That is what typically makes.

The year end...

a little stronger from pricing, it continues into the spring

Speaker Change: And then in the past, the fuel buyers have kind of gone away for a little bit of a break. And we usually saw some softness from a demand point of view in the summer. So that's, the seasonality is just reflected by the fact that the nuclear calendar is really.

Speaker Change: September to the end of August as opposed to January to December. But don't forget the effect of month-end gains that happens on the uranium price. When it comes as a surprise, sorry.

Speaker Change: Sometimes it's a head-scratcher for us, for as long as we've been in our business.

Speaker Change: that whether it's the price reporters or the equity markets looking at uranium, they're surprised that some people show up with very small volumes and dump them into the market right at the end of every month.

Speaker Change: And yet, we don't understand why they're surprised. We know exactly what's going on there. Folks are positioning ahead of an offtake.

Speaker Change: Or are there a trader that's moving material that they can't carry over a reporting period?

Speaker Change: Month ends tend to be soft. Last month end was soft. The month end before that was soft for precisely this reason. So you have the normal seasonality overlaid by a spot market that has a lot of short-termism in it.

Speaker Change: But we can always look through that. Fundamentally, this market needs more supply, that supply needs to be incented, and higher prices are the only thing that's going to cure that structural gap.

Speaker Change: Thanks for that. And you kind of answered my next question, which was coming out of the, I guess, the World Nuclear Symposium in London, September 4th through 6th.

Speaker Change: you know, have you seen stronger contracts, et cetera? But I guess, can you address that? Are you seeing stronger prices in the contracts? Maybe you already answered that, but if you could address that. And then another question, maybe a weak one, but.

Speaker Change: I'd like to hear from you guys. What do you see as the biggest near-term headwinds and tailwinds? Thanks for the questions.

Speaker Change: And no surprise, in the last three weeks, the trade press has posted another 40 million pounds of long-term contracts, kind of reflecting the quality and depth of those off-market conversations.

The upward trend in pricing stalled a little bit.

Speaker Change: with floors and ceilings around market related contracts stalled a little bit for the reasons I talked about earlier, which is as the spot price softens because somebody out there is dumping material into a thinly traded market

Speaker Change: It tends to create a situation where fuel buyers expect the floor and ceiling prices for future deliveries to fall accordingly, and we just don't play that game. We'll step back from the market and be patient and be disciplined because

Speaker Change: A spot market that's softening a little bit today has nothing to do with appropriate prices out into the future. So symposium was strong, a lot of off-market activity. That proof has now worked its way through the market.

Thanks for the questions, guys.

Thanks, Gordon.

Speaker Change: That's all the time we have for the question and answer session today. I'd like to turn the conference back over to Tim Gitzel for closing remarks.

Tim Gitzel: Well, thank you very much, Operator, and thanks to everyone who joined today. As Cory noted at the start of the intro, if you have any detailed follow-up questions related to the third quarter results or any questions that we didn't get a chance to answer on today's call, please send those in or call us, and we're happy to address those directly.

Tim Gitzel: You know at Cameco we are a responsible commercial supplier with a strong balance sheet, long lived Tier 1 assets and a proven operating track record.

Tim Gitzel: We're invested across the nuclear fuel and reactor life cycles and believe we have the right strategy to achieve our vision of energizing a clean air world, and we will do so in a manner that reflects our values.

Tim Gitzel: We're committed to addressing the risks and advancing the opportunities that we believe will make our business sustainable over the long term.

Tim Gitzel: So with that, thanks again for joining us today. Stay safe and healthy and have a great day.

Speaker Change: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.