Q3 2024 Cameco Corp Earnings Call
Thank you for standing by this is the Congress operator, welcome to the Chemical Corporation third quarter 2024 results Conference call.
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The Q&A session will conclude at nine a M eastern time.
Speaker Change: I would now like to turn the conference over to Kurt Cory Kos, Vice President Investor Relations. Please go ahead.
Speaker Change: Thank you operator, and good morning, everyone welcome to <unk> third quarter Conference call.
I'd like to acknowledge that we are speaking from our corporate office, which is on treaty six territory. The traditional territory of the free peoples in the homeland of the Medici.
With us today are <unk>, President and CEO Grant Isaac Executive VP, and CFO Hardy Sharkey senior VP of Deputy CFO, and Rachelle, Girard senior VP and Chief Corporate Officer.
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 one cost structure and delivering strong production performance, while maintaining a solid financial position.
After we will open it up to your questions today's call will be approximately one hour concluding at nine a M. Eastern time as always our goal is to be open and transparent with their communication. However, we do want to respect everyones time and conclude the call long time.
Speaker Change: 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.
Speaker Change: There are a few ways to contact us with additional questions you can reach out to the contacts provided in our news release, you can submit questions 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 with you. After this call.
Speaker Change: 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 the PDF on our website at chemical Dot 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 cute.
Speaker Change: 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.
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 form and MD&A for more information about the factors that could cause these different results and the assumptions we have made.
Jim: With that I'll turn it over to Jim.
Jim: 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 would 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: So 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 continued to see a trend of improving operational performance in both our uranium and fuel services segments, bringing us back to a tier one 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: 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 $1 billion in adjusted EBITDA for the first nine months before those acquisition related purchase price adjustments.
Speaker Change: 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 continued 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 de Carbonization 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 the need for improved long term market prices to underpin supply economics and support ongoing investment.
Speaker Change: While the long term uranium price has now crept up to its highest level in over a decade, we're still not seeing significant investments in the projects needed to satisfy future demand to run the existing reactors, 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: Well that's far from unusual in the nuclear fuel cycle, where long term prices are only quoted monthly due to the low frequency of executed transactions.
Speaker Change: There are a few key developments that are not only driving utilities to review procurement plans, but prompting producers to reevaluate sales strategies.
Speaker Change: Contracting continued to be impacted by things like the U S election.
Speaker Change: The Russian uranium ban, which took effect in early August on.
Speaker Change: Uncertainty with respect to the process to obtain waivers under that ban.
Speaker Change: 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 are starting 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 you have six conversion capacity in order to maintain our contract book that preserves exposure to the rising prices, while maintaining downside protection.
Speaker Change: We're seeing significant interest in the extremely tight conversions 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 later with increased volume 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 two 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: So it's important to reiterate that requirements can be delayed and it can be deferred.
Speaker Change: But buying 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.
Speaker Change: But the World also has a fleet of retiring fossil fuel generation that needs to be replaced.
Speaker Change: Nuclear addresses all of 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.
Speaker Change: And then each of those categories nuclear is in a class of its own.
Speaker Change: Amid intensifying geopolitical challenges in various sustainability related factors.
Speaker Change: Hearing the required nuclear fuel from responsible reliable experience and sustainable suppliers like chemical is more important than ever.
Speaker Change: Therefore, the positive momentum for nuclear energy and the tightness of full cycle supply puts chemical in a unique position to add significant value with what we believe are the worlds premier tier one fuel cycle assets alongside our investments across the reactor lifecycle.
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 in a solid financial footing. Our board has approved an increase of our dividend from <unk> 12 in 2023 to <unk> 16 per common share for this year.
Speaker Change: And with fundamental improvement continuing across the market. We have recommended a dividend growth plan under which we expect to at least double the 12 cent dividend in 2023.
Speaker Change: Growing it to 24 cents per common shares 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 working capital required to expand our Mcarthur River and key Lake operations from 18 million pounds per year. So the license 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.
Speaker Change: And we now expect production of about 19 million pounds.
Speaker Change: 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.
Speaker Change: Those investments are now paying off.
Speaker Change: We are not only bending our cost curve is that improvement work was completed ahead of the incredible inflationary pressure we're seeing today.
Speaker Change: But as we evaluate the capex required to increase production in step with demand in our contract book.
Speaker Change: There 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 one production and 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 derisking of our supply stock.
Speaker Change: The first source of supply as our tier one primary production, which always has a home under long term contracts before it's pulled out of the ground.
Speaker Change: Based on available production, we then manage our other levers, including inventory long term purchases loan material and market purchases.
Speaker Change: We carefully plan these supply sources years in advance retaining access to multiple levers to manage risks.
Speaker Change: One risk being that a given source run short of expectations.
Speaker Change: That's what we're seeing at JV income 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 <unk>.
Speaker Change: Down from last year's production and from our previous 2020 for expectation of eight 3 million pounds.
Speaker Change: The decreased outlook at <unk> is primarily due to the ongoing challenges related to sulfuric acid in that part of the world.
Speaker Change: There was enough asset procured to achieve the original planned production volume, but the timing of the deliveries of that asset 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 the 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 <unk> mine and which we will update the expected reserves production profile cost sensitivities and technical information.
Speaker Change: So in the third quarter, we had to account for the higher production from key Mcarthur, partially offset by the increased uncertainty on the quantity and timing for our full share of production from JV income.
Speaker Change: So we put our supply leavers to work realigning our expected market in long term committed purchases for the year.
Speaker Change: We decreased our committed purchases from 9 million to 8 million pounds.
Speaker Change: Shifted our market purchases from up to 2 million pounds to now be up to 3 million pounds for 2024.
Speaker Change: This additional process infrastructure not only provides positive benefits from a water usage and sustainability perspective, 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: Sure.
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 in.
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 continued to be influenced by the required Westinghouse purchase accounting.
Speaker Change: And other non operational acquisition related costs.
Speaker Change: Equity earnings from JV income were also lower because of the continued delay to the transportation of our share of production from the <unk> mine.
Speaker Change: We do not take ownership of our share of <unk> production until it arrives at our blind River refinery and therefore, JV Inca I 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 chemical and for Westinghouse.
Speaker Change: With the exception of the realignment of our supply sources.
Speaker Change: 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.
Speaker Change: During the quarter, we continued to focus on debt management we.
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 will continue to prioritize repayment of the remaining $200 million outstanding.
Speaker Change: We remain diligent in managing liquidity and 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: You can see the prices are holding pretty firm and enrichment conversion are hitting new highs and were 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 your observation is absolutely right Ralph.
Ralph: Okay great.
Speaker Change: I wanted to ask a question on your comments about Westinghouse and Oh here long term.
Ralph: EBITDA growth rate sort of 6% to 10% that's a that's a few quarters old and certainly the market dynamics have shifted I'm just wondering when youll be in a position.
Ralph: To sort of address that growth rate and how youre 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% to 10%, but I'm going to ask you. The graphs on the board for chemical Westinghouse in there working with them right now on our present and future outlooks. So grant why don't you to take.
Speaker Change: Sure Yeah happy to do that high route.
Grant Isaac: A couple of key points on Westinghouse obviously, we've maintained the guidance for this year from an adjusted EBITDA basis as you saw in our outlook table and as you mentioned, we had a 6% to 10%.
Speaker Change: Growth rate over the next five years for Westinghouse and I think your comment or your question is a good way theres been a lot of tailwind to the nuclear industry and you've seen a lot of news flow around westinghouse's extraordinarily good position with respect to that tail those tailwind.
Speaker Change: We would just say is we think that remains a very conservative outlook, we tend to wait until some of the bigger projects. For example, the Newbuild of AP 1000 hit the final investment decision in order to kind of adjust that upward growth, our new build so lots of excitement lot of prospects.
Speaker Change: For new builds for those who havent seen the D. O S latest lift off report and how prominently the AP 1000 features in that I would encourage everybody to have a look at that but right. Now that is really just a conservative view, we take the announcements that have been made for new builds for example, and all were factoring in is the.
Speaker Change: Growth is 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 timeframe that is <unk>.
Speaker Change: <unk>, but let's be very clear Westinghouse is incredibly well positioned given all of the tailwind in the nuclear space.
Speaker Change: Yeah, Greg Thanks for those important answers.
Speaker Change: Thanks for your questions Ralph.
Speaker Change: The next question is from Adam, which I with Goldman Sachs. Please go ahead.
Speaker Change: Good morning, Tim and grant and team. Thank you for taking my questions I wanted to just first start on ink Guy so given some of the uncertainty surrounding that deposit at least in the near and medium term. How are you thinking about the tier two 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.
Speaker Change: Growth opportunities specifically on the mining side.
Speaker Change: Thanks for the question. So you mentioned, Inc. We're working our way through our income you saw in our reporting that to.
Speaker Change: You know theres, some some asset issues, there's asset 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, they're a bit but you know.
Speaker Change: We remain committed to the JV NK project in the future of the tier two are not yet.
Speaker Change: Here is talk about our tier ones.
Speaker Change: Yeah, we've got firepower with our tier one assets.
Speaker Change: Especially the Mcarthur River key Lake.
Speaker Change: Project, which we continue to evaluate how we can derisk and debottleneck.
Speaker Change: That project to a at some point.
Speaker Change: Increased production from.
Speaker Change: A million pounds right now.
Speaker Change: Moving closer to our license capacity of 25, so well honestly that's the best project on the planet at the moment. So we will focus on that will focus on our tier ones and then when the market calls for us to move to tier two we've been keeping them on care and maintenance now for the last number of years.
Speaker Change: We'll pull those out those arent greenfield those are brownfield way shorter to to restart than anything green field and so we've got those in our pocket as well and then we've got a few projects that we haven't even started yet we do have our own greenfields that we are you know that are well situated close to existing.
Speaker Change: Facilities in friendly jurisdictions with competent teams with great relations with our neighbors indigenous and otherwise we would go to those first so we have got their own package of.
Speaker Change: Projects are ready to go whether it's increasing our tier ones, bringing on our tier twos or looking at Greenfield. So as grant just said a minute ago, we are incredibly well positioned and ready to go when the time goes forward.
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. So we need to see a stronger contracting cycle in conversion right now that conversion demand is really chasing production at the three existing western facilities.
https://www.youtube.com.au
Speaker Change: Other 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. So it actually goes hand in glove with some of the announcements that you've seen that the constellation Microsoft announcement to bring back unit one of three mile I'll.
Speaker Change: That new capacity coming to the grid, the hyperscale or co investing in that new capacity all the FERC announcement that if confer that goes with it.
Speaker Change: In excess of trillion dollar enterprise values that need electronics are going to have to invest in those electrons themselves. That's a great new story for Newbuild.
Speaker Change: I don't look at it as a speed bump at all I look at it as a very very clear signal that very large pockets of demand are coming to buy electronics and they happen to want the quality of electron that comes out of a nuclear power plant carbon free 24 hour fully dispatcher, both base load power. So I very much view it as.
Speaker Change: Good news and I'm going to go back to something I said earlier, if folks on this call haven't seen the doughy left off report.
Speaker Change: They need to go and have a look at it and see the role that the AP 1000 could possibly play and probably draw the same conclusion.
Speaker Change: Is that existing technology fully operating as the bogo plants <unk>.
Speaker Change: Generation three reliable technology that doesn't have any technology or fuel risk is extraordinarily well positioned to meet this demand and this demand thats being told needs to be co invest it I liked this outcome Andrew.
Speaker Change: That's great. That's really good color. Thank you and then maybe just on Mcarthur key lake producing it really well.
Speaker Change: The potential there for that facility to produce about 20 million pounds, and maybe you don't even need to spend some extra capex to really expand production there.
Speaker Change: Yes, Andrew Youre exactly on track that's what we're that's what we're evaluating right now are continuing to look at and I was up there earlier this week with our board all we can.
Speaker Change: <unk> debottleneck the existing facilities to get to 25 and I give our teams credit you know in those tough times, we were in when we had to take the take the units down it.
Speaker Change: That both Mcarthur 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 automotive automation in it.
Speaker Change: And capital into those.
Speaker Change: Those assets to really get them ready because we knew they were coming back those are the best assets on the planet Theyre not going to sit idle forever.
Speaker Change: And so we are the work we did during that period now we're seeing it.
Speaker Change: Bear fruit.
Speaker Change: And so you see we bumped up our 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 those are elite assets in the nuclear space I can tell you the lead assets in the nuclear space and we have the lead team running.
Speaker Change: So we will see what we can do with those assets going forward, but we're going to try and push them as hard as we can without having to put a lot of capital in great. Andrew I'm, just going to jump in on the end of it though and just remind folks that would ever cameco talks about increasing production.
Speaker Change: It does not need mean production that's coming to the broader market. It doesn't mean that cameco is oversupply so.
Speaker Change: We increased production after we secured the demand that production that could possibly come out at Mcarthur 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.
Speaker Change: Great. Thank you very much.
Speaker Change: Thanks, Andrew.
Speaker Change: The next question is from Alexander Paris, with BMO capital markets. Please go ahead.
Speaker Change: Mono.
Speaker Change: So I have a follow up on one of the other questions on inventory.
Speaker Change: First off can you confirm that you think some of the issues that the asset. So far this year are transitory and are you seeing an improvement already or have you kind of over the hump as it were and then you've got a fairly complex ownership agreement.
Speaker Change: And so I was just wondering if you can help us with how we should think about your share of production going forward for the asset and there is there any opportunity to catch up on some of the share that you've the volumes that you've lost so far this year.
Speaker Change: Yeah.
Speaker Change: So I think yes, and yes, yes, we're getting over some of the issues, obviously asset continues to be an issue sulfuric acid.
Speaker Change: In Kazakhstan, we don't take Russian.
Speaker Change: So that's one of the issues with our joint venture debt, maybe limited a bit. We are we have made a commitment to not to deal with the Russia. 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.
Speaker Change: For our production this year, so we had to reduce it by a little bit.
Speaker Change: Yeah complex ownership agreement Yeah, we've been there for 25 years, we've got a bunch of complex ownership agreements with them will sorted out we are in discussions with them now.
Speaker Change: 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.
Speaker Change: It is important to us we're happy to be there, we're happy to be partners with Kazatomprom, but.
Speaker Change: In the bigger ticket chemical Westinghouse is a smaller portion of our business.
Speaker Change: Great. Thank you.
Alex: Thank you Alex.
Speaker Change: The next question is from Lawson Winder with Bank of America Securities. Please go ahead.
Speaker Change: Hi, Good morning, Thank you operator, Hello, Ah Congrats nice to hear from me. Thank you for the update as always.
Speaker Change: Wanted to get your thoughts on views on uranium pricing and in particular, just preferring to.
Speaker Change: The late summer uranium price survey from <unk>, So I mean as it often does it it indicated a pretty significant disconnect in pricing in terms of where utilities think pricing will go and where suppliers thing pricing will go well in the year.
Speaker Change: Year end and longer term.
Alex: And it is.
Alex: Things that do utilities in fact believes in that lower pricing.
Alex: Give them a lower contracting volumes this year, they've been softer than in the past several years.
Alex: So it does seem that the utilities are in fact waiting out for lower pricing beyond potentially just attempting to aid in their own negotiation.
Alex:
Alex: Our utility is making a mistake that might cost them more in the future and then.
Speaker Change: Do you think there's a logical explanation for why they might be seeing a different.
Alex: Supply demand.
Alex: Situations.
Alex: Differently and then historically what is typically led to the breaking of these type of stalemate.
Speaker Change: Building on <unk> question and grant you touched on it for a second but with regard to long term contracting can you provide any color on where negotiations, but floor and ceiling prices on what levels of is that generally how does that compare to negotiations earlier in the year, saying the summer just generally how are those for them.
Speaker Change: Ceilings evolving thank you kindly.
Speaker Change: Yeah happy happy to do that right.
Speaker Change: I'm actually going to expand a little bit and just talk about the connective tissue that can sometimes happen between the spot market in the term market because it helps explain I think in part why.
Speaker Change: There has been a bit of a slowdown in term contracting.
Speaker Change: 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. So when we're negotiating a long term.
Speaker Change: On track and we want it to be market related they almost invariably have a floor and ceiling conversation around the Florida today at $70 a little over 70 escalated ceilings at 130 escalate. It when you see the spot market soften like it's done and who are the culprits there.
Speaker Change: 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 $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 10 Bucks, then shouldnt florist fall by $10 Shouldnt ceilings fall by $10 and because we're strategic in because we're patient.
Speaker Change: For us it's always about.
Speaker Change: Pricing appropriately for the future and our message is the spot market coming off because somebody has sold 50000 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 at out and beyond so it's gotten.
Speaker Change: The thing to do with where floors and ceilings should be and when we see that kind of narrative come through the market. We have chemical will step back and say, okay, well, we'll just we'll wait until.
Speaker Change: A better sense returns to the market. So right now it's not that the term demand is strictly in the hands of the utilities.
Speaker Change: Theres, a counterparty and that Catherine party as a producer who might not be satisfied with a conversation that floor should fall in 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 in our contracting what what somebody is doing in a clumsy way in the spot market today with a small amount to pass 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 too to send that signal accordingly.
Speaker Change: Okay. So sticking with the 70 130 escalated Ryan does that seems to be the default at the minute but.
Speaker Change: Stay tune that could scale up in the next six months do you think.
Alex: Yes.
Alex: If you look at the fundamentals and you look at that long term price that continues to rise on really small volumes 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 that higher prices are required higher prices or <unk>.
Alex: Required to insert the primary supply that needed not just to replace primary mine depletion.
Alex: But to replace secondary supply, which has dwindled dramatically and then to grow with the market that is all very suggestive that this uranium price has yet to see the kind of move that enrichment and conversion has may simply because the enrichment and conversion demand hasnt fully made its way into uranium.
Alex: Yet.
Speaker Change: Awesome. Thanks Grant.
Alex: 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 wanted to go back to the 11 to 13 million pounds in the fourth quarter.
Speaker Change: On the uranium side can I assume that when you do that the.
Speaker Change: Something is any utilities that hot upward flexibility in their volumes in those old contracts that are coming due at that time.
Speaker Change: It's all reflected in there I E. You couldn't end up with 14 million pounds in the fourth quarter or is there still black book that you're not assuming that might come through.
Speaker Change: Given where long term prices are.
Speaker Change: Yeah, Brian its a great question getting into a lot of detail, but normally there wouldn't be that kind of upward surprise. If you will simply because recall that the typical delivery commitment requires a non binding notice of delivery say 12 months out from.
Speaker Change: When the utility wants it may be converted to a binding notice of delivery six months out so everything is pretty much baked in the cake now if they wanted to flex up they've already sent us that binding notice there there really arent those kind of surprise opportunities left.
Speaker Change: And just did you write new contracts is that the same way, they're still set up you sort of have at six.
Speaker Change: Six months notice in a year or that term changing as part of the <unk>.
Speaker Change: Negotiation strategy as we write new contracts as well as price in all of these for it and since we talked about our volume options changing in the market.
Speaker Change: Many factors are changing as the market tightens as you look out into the future in which utilities are looking for material and Theres only a couple of producers that are going to have projects.
Speaker Change: Projects in production out into that window, leverages shifting over to the seller and as the leverage shifts over to the seller, it's reflected and appropriate pricing mechanisms higher floors higher ceilings better escalators on the floors and ceilings it translates into lower <unk>.
Speaker Change: Flex in a contract.
Speaker Change: Don't have to be be offering as much flex as the market tightens.
Speaker Change: It translates into different requirements for.
Speaker Change: For notice periods. So that we have more time to plan. The production. So we just we save our 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.
Speaker Change: 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.
Speaker Change: Great. Thanks, very much for the detail.
Brian Macarthur: Thank you Brian.
Speaker Change: And our final question from Gordon Johnson with G. L. J research. Please go ahead.
Speaker Change: Hey, guys. Thanks for taking the question just a quick one typically there's some 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 and 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 ports.
Speaker Change: With respect to what to expect in uranium prices moving forward. Thanks.
Speaker Change: Yeah, a couple of good questions. There if you think about seasonality I mean, there is a few factors going on there.
Speaker Change: You've heard us say before that actually the uranium calendar of the nuclear fuel cycle calendar.
Speaker Change: Starts in September and actually ends the following spring. So it's not based upon a January to December calendar. So typically the World Nuclear Association Conference. Every September is kind of a kickoff to a contracting here and then that leads to having all the customers at all.
Speaker Change: Other 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 and a little stronger for pricing. It continues into the spring and then in the past the fuel buyers have kind of gone away.
Speaker Change: For a little bit of a break and we usually saw some softness from a demand point of view in the summer. So that the seasonality is just reflected by the fact that the nuclear calendar is really September to the end of August as opposed to January to December, but don't forget the effect of month end games.
Speaker Change: That happens on the uranium price wet.
Speaker Change: It comes as a surprise.
Speaker Change: Sometimes it's a head scratcher for us for as long as we have been in our business.
Speaker Change: That whether it's the price reporters or or the or the equity markets looking at uranium.
Speaker Change: They're surprised that some people show up with very small volumes and dumped 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 or there or are there a trader thats moving material that they can't carryover reporting period.
Speaker Change: <unk> tend to be soft last month and with soft at 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 term ism in it.
Speaker Change: But we can always look through that fundamentally this market needs more supply that.
Speaker Change: That supply needs to be incentives and higher prices are the only thing that's going to cure that structural gap.
Speaker Change: Thanks for that and you've kind of answered my next question, which was coming out of the I guess the world Nuclear Symposium in London September four through six.
Speaker Change: Have you seen stronger contract et cetera, but I guess can you address that are you seeing 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 I.
Speaker Change: I like to hear from you guys. What do you see as the biggest near term headwinds and <unk>. Thanks for the questions.
Speaker Change: Yeah, I'll just finish on the on the contract certainly.
Speaker Change: Coming out of the WMA.
Speaker Change: There and we had said this we were on.
Speaker Change: We were on a podcast and we said there is a lot of off market activity going on at.
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.
Speaker Change: The upward trend in pricing.
Speaker Change: Stalled a little bit with sorry, 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.
Speaker Change: And we just don't play that game will step back from the market and be patient and be disciplined because.
Speaker Change: Spot market that softening a little bit today has nothing to do with appropriate prices out into the future. So.
Speaker Change: <unk> was strong a lot of off market activity that proof has now worked its way through the market.
Speaker Change: Thanks for the questions guys.
Gordon Johnson: Thanks Gordon.
Alex: That's all the time, we have for the.
Speaker Change: A question and answer session today I'd like to turn the conference back over to Tim get solved for closing remarks.
Speaker Change: Well, thank you very much operator, and thanks to everyone who joined today as Cory noted at the start of the interim if you have any detailed follow up questions related to the third quarter results or any questions that we didn't get a chance throughout todays call. Please send those in or call us and we're happy to address those directly.
Speaker Change: At Cameco, we are a responsible commercial supplier with a strong balance sheet long lived tier one assets and a proven operating track record we are invested across the nuclear fuel in the reactor life cycles and believe we have the right strategy to achieve our vision of energizing a cleaner world and we will do so in a manner that reflects.
Speaker Change: Our values.
Speaker Change: We're committed to addressing the risks in advancing the opportunities that we believe will make our business sustainable over the long term.
Speaker Change: 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.
Speaker Change: For participating and have a pleasant day.
Alex: Okay.
Alex: [music].
Alex: Yeah.
Alex: Sure.
Alex: Yes.
Alex: [music].
Alex: Yeah.
Alex: Mhm.
Alex: [music].