Earnings Call: Q2 2021

Jul 28, 2021

Thank you for standing by. This is the conference operator. Welcome to the Cameco Corporation 2nd Quarter 2021 Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Section. I would now like to turn the conference over to Rachelle Girard, VP, Investor Relations, Treasury and Tax. Please go ahead. Thank you, operator, and good morning, Welcome to Cameco's Q2 conference call. I would like to acknowledge that we are on Treaty 6 territory in the homeland of the Metis. Segment. Today's call will focus on the trends we are seeing in the market and on our strategy. As always, our goal is to be open and transparent with our communications. SEC. We will be happy to follow-up with you after the call. There are a few ways to contact us. You can reach out to the contact provided in our news release. Segment. You can submit a question through the contact tab on our website or you can use the submit question tab on the webcast and we will be happy to follow-up after this call. Segment. With us today on the call are Tim Gitzel, President and CEO Grant Isaac, Senior Vice President and CFO Brian Reilly, Senior Vice President and Chief Operating Officer Alice Wong, Senior Vice President and Chief Corporate Officer and Sean Quinn, Senior Vice President, Chief Legal Officer and Corporate Secretary. I'm going to hand it over to Tim to talk about the growing demand for nuclear power, SEC. In addition, for your reference, our quarterly investor handout is available for download in a PDF file on our website at cameco.com. SEC. Today's conference call is open to all members of the investment community, including the media. During the Q and A session, please limit yourself to 2 questions and then return to the queue. SEC. 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. SEC. Please refer to our annual information form, the MD and A for more information about the factors that could cause these different results and the assumptions we have made. With that, I will turn it over to Tim. Well, thank you, Rochelle, and welcome to everyone on the call today. We appreciate you taking the time to join us. I hope you and your families are doing well and enjoying some rest and relaxation during the summer months. Like I did in previous quarters, I'm going to start this call by reiterating our excitement for the future of the nuclear industry and for our role within that industry. The drivers of our optimism remain the same. First, there is an opportunity for nuclear power to play a pivotal role SEC. As the megatrend of increasing electrification, while phasing out carbon intensive sources of energy continues to take hold around the globe, Increasing the certainty of demand for nuclear power with a durability that I don't think we've ever seen before. 2nd, uranium supply is becoming less certain due to years of persistently low prices. Cutting our production below our committed sales volumes, being strategically patient in our marketing activities, And pursuing new opportunities within the nuclear fuel cycle. Let's start with the fundamentals for nuclear energy. We're seeing a mega trend emerge, which is focused on increasing electrification, while at the same time achieving massive de carbonization goals. This megatrend has led to a mega challenge, that challenge being 3 fold. 1st, to bring safe, clean and reliable baseload electricity to about 1 third of the population who currently have no access or limited access to electricity. This mega challenge of increasing electrification is occurring precisely while countries and companies around the world are focused on reducing their carbon footprint. Many have committed to achieving net zero carbon targets and many more are expected to follow. And these clean air and climate change commitments in particular by companies are creating accountability. In the past, we have that has been reliant on governments and public policy to take the lead. Now there are more than 1600 companies who have made net zero commitments And will therefore play a critical role in shaping what energy policy will look like. Companies will no longer just be energy takers. They Energy. And they will need a source that can provide safe, clean, reliable and affordable electricity 24 hours a day, 7 days a week, 3 65 days of the year. And this accountability or as we like to refer to it as Electron accountability creates a durability and demand for nuclear we have not seen in previous cycles. SEC. In a world where 85% of our electricity still comes from fossil fuel sources, there's no clear pathway to sustainably achieve both electrification and decarbonization, while maintaining a stable electricity grid without nuclear in the toolbox. The European Commission has proposed a supplement to current legislation that if passed will confirm nuclear as sustainable. In the U. S, the Biden administration's 2022 fiscal year request for the Department of Energy's nuclear office SEC. In late June, 5 U. S. Democratic senators introduced the Zero Emission Nuclear Power Production Credit Act of 2021 that if enacted Bill Gates and the company he co founded TerraPower just announced plans to build a 345 Megawatt Next Generation Reactor at a retiring coal power plant in Wyoming, a proposal which was well received in the state. We at Cameco are exploring ways to further our reach in these innovative non traditional commercial uses of nuclear power and the nuclear fuel cycle. For example, we've made an investment in global laser enrichment. We're also participating in the Center For Next Generation Nuclear Technologies with Bruce Power. And we also recently entered a non binding memorandum of section of the call. We are standing with GEH Hitachi Nuclear Energy and Global Nuclear Fuel Americas to explore several areas of cooperation to advance the So the outlook for nuclear is very bright and we at Cameco are well positioned to respond to the growing need for nuclear fuel SEC. Increasing demand for nuclear means increasing demand for uranium, segment. One of the indicators we like to look at to illustrate the opportunity is uncovered requirements. SEC. £1,000,000,000 of uranium have been consumed in reactors and only about half of that or £800,000,000 have been placed under long term contracts. This has led to a growing wedge of uncovered uranium requirements. The wedge is as big as it was back in the early 2000s, And with the recognition of the importance of maintaining the existing nuclear Keep in mind, this is just talking about traditional demand. It does not consider any of the alternative uses of nuclear I talked about earlier. We're also seeing increased demand for uranium from financial funds and junior uranium companies. Segment. Through the end of June this year, more than US550 $1,000,000 has flowed into the uranium market via junior uranium companies and financial funds. This money has been used to purchase approximately £16,000,000 of uranium with more expected. SEC will result in more active spot market purchases and improved liquidity and price discovery. We believe there is growing recognition among these players that statistically the current uranium price has a much greater likelihood of going up This view is supported by the fundamentals. The growing uncovered requirements are Cameco's supply curtailments alone, both planned and unplanned, along with our purchasing activity have resulted in at least Since the end of 2020, we've seen 2 long producing mines come to the end of their reserve life. Loss of the Ranger mine in Australia Our Cigar Lake mine is done about 8 years from now and that's another £18,000,000 per year that will be gone from the market. Given the timelines it takes, we should be investing now to replace that lost production, but at today's prices, it makes SEC. In fact, given the persistently low prices, Not only have we seen planned supply curtailments, lack of investment and the end of reserve life for some mines, We've seen shrinking secondary supplies and trade policy issues, all of which have been amplified by unplanned supply disruptions. Segment of primary supply coming from countries that consume little to no uranium and nearly 90% of consumption So we believe that in the current market, the risk to uranium supply are far greater than the risk to uranium demand. These are the fundamentals that get us excited and why we remain a pure play supplier of the uranium fuel needed to produce clean, carbon free baseload electricity, Which brings me to the final factor driving our optimism, our strategy and why we remain committed to doing what we said we would do. Let me remind you what it is that we said we would do. 1st and foremost, this is where it all starts for us. We are focused on protecting the health and safety of our workers, their families and their communities. We're doing that. Every day we make decisions about how best to manage our operations and protect and support our workforce. Earlier this month, we evacuated all non essential personnel from the Cigar Lake mine and suspended production temporarily due to the proximity of a forest fire. Our fire preparedness was instrumental in successfully protecting our site and assets and the proactive response from our site demonstrated the thoroughness of our risk management. Happily and thanks to our preparedness, In addition, we continue to monitor the COVID-nineteen situation and have regular dialogue with public health authorities. Let me be clear, The health and safety of our workers will always be our priority. We will not hesitate to take further action if we feel our ability to operate SEC. 2nd, apart from the disruptions to our operations, we have not wavered from the execution of our strategy. There are 3 fronts on which we are executing our strategy, operational, marketing and financial. On the operational side, we've implemented our planned supply discipline, cutting production well below our delivery commitments. SEC. This includes the curtailment of production at Rabbit Lake, our U. S. Assets and of course at the McArthur River Key Lake operation. These actions have left a lot of pounds in the ground and kept them off the market. Consequently, we've been purchasing material on the spot market to meet our committed deliveries. In addition, we have shown sales discipline sticking to our value strategy. We have been strategically patient. We're seeing our patience pay off and we're continuing to build our contract portfolio. In addition to the £9,000,000 added in April, SEC. We successfully finalized and executed a further £7,000,000 under a number of sales contracts, which had been under negotiation, bringing the total for the year section of the line of the company. Since 2019, that is a total of over £60,000,000 added to the contract portfolio. It's important to remember that our contracting activity is done within the context of global market realities. The primary driver for our contracting activity is always value. And while having great assets The spot market is not the fundamental market in our business. It is a very thinly traded market. In our business, a responsible producer creates real value by building a long term contract portfolio that Supports the operation of productive assets, is leveraged to greater returns as prices increase and provides downside protection. Therefore, to create long term value where appropriate, we layer in volumes over time in accordance with market conditions. We do not want to commit our Tier 1 pounds too far into the future under contracts that won't generate an appropriate portfolio return And we do not want to exhaust our Tier 1 assets in a low price environment. As the market improves and we move outside of the carry trade window, We expect to continue to layer in volumes capturing greater upside using market related pricing mechanisms. We also expect to lock in value at higher prices to carry that value through the next price cycle, always with a view to our preference for a sixty-forty split of market related and fixed price contract. We continue to have a large pipeline of uranium business under negotiation. SEC. They understand that from a security of supply perspective, today's prices do not reflect production economics. They recognize the 1st mover advantage gained from securing their future access to our Tier 1 pounds today as opposed to in the future. And we have some competitive advantages. We have significant idle Tier 1 capacity that is fully licensed and fully permitted that will be among the 1st pounds to meet growing demand in the market. We are an independent commercial supplier And emerging is the focus on ESG matters, SEC, which is great news for us. At Cameco, serving the interest of our stakeholders has always been at the heart of what we do, SEC. Long before there was a focus on ESG issues because it's the right thing to do and we recognize the significant business value that it adds. Our Board and our employees, contractors, communities, suppliers, customers, governments and our providers of capital expect us to manage this company in a long term sustainable fashion. We're very proud of our over 30 year commitment to protect, that we're well positioned to sustainably meet our customers' needs. And finally, on the financial side, we have been very deliberate in shoring up our balance At the end of the second quarter, we again were in a negative net debt position with $1,200,000,000 in cash, 1,000,000,000 in long term debt and a $1,000,000,000 undrawn credit facility. Segment. However, there are costs to our strategic decisions which are reflected in our financial results and the outlook for 2021. As a mining company, there is significant cost to not operating our mines, Which is why having Cigar Lake running is a critical part of our strategy. Yet imagine where the market might be today had we not curtailed sector. There will be more than £145,000,000 and growing above ground and available to the market. We've made responsible and delivered decisions to preserve the value of our Tier 1 assets in an oversupplied market and in the case of Cigar Lake SEC. The largest of these costs are for care and maintenance of the assets we have on standby and the cost of the uranium we must purchase to replace lost production. Let's put these costs into perspective. In 2021, care and maintenance costs are expected to represent between CAD7.40 and CAD9.35 per pound, that's about 15% to 20% of our expected average unit cost of sales. And our purchase costs segmentation. The Company's production are expected to be about 20% or CAD7 per pound higher than production costs at Cigar Lake for the past 2 years, further increasing our unit cost of sales. The good news is they do not represent the run rate of our business. We planned with these costs in mind and we expect much better days ahead once we return to Tier 1 cost structure. We're taking the steps today to support the future restart of our Tier 1 assets and to create a more flexible asset base. We want an asset base that allows us to align our overall production decisions with our contract portfolio commitments and opportunities that allows us to eliminate the care and maintenance costs incurred while our Tier 1 production is suspended and that allows us to benefit And we have concluded that we have the right vision, strategy and values to deliver long term sustainable value. Our vision, which is to energize a clean air world, recognizes that we have an important role to play SEC. As we seek to achieve our vision, we're committed to doing it in a manner that reflects our values. Those values have not changed. They have always guided our actions And on pursuing excellence in all that we do and inspiring others to do the same. Our actions are deliberate. We are a responsible, commercially motivated supplier with a diversified portfolio of assets, including a Tier 1 production portfolio that is among the best in the world. We are well positioned to take advantage of a market where demand for nuclear power, Both traditional and non traditional is growing, where we believe the risk to uranium supply is greater than the risk to uranium demand, SECURITIES. And where we believe our strategic decisions and strategic patience provide us with resiliency in the face of unprecedented challenges Thank you for joining our call today. And operator, with that, we would be happy to answer any questions. Thank you. We will now begin the question and answer session. Webcast participants are welcome to click on the Submit Question tab near the top of the webcast frame and type their question. SEC. The first question is from Ralph Profiti from 8 Capital. Please go ahead. Tim or Grant, I want to think a little bit more long segment. In the context of this £16,000,000 year to date and its impact on the contract book, because I've noticed that the purchase commitments off that sit off balance sheet haven't really changed sitting at around £20,000,000 At what point does it become prudent to protect the contract book By increasing those longer dated purchase commitments or are you more closely matching future contracting with production capability? Segment. Yes, both. Ralph, thanks for the question. We've been as we've been reporting quarter on quarter, we've been layering in contracts Each quarter over time, I think we said £60,000,000 over the last number of years. I think we have about £19,000,000 per year on average sales over the next 5 years more in the front end than the back end. It's a spot that we like to be in. I think we're comfortable where we're at. We will going forward want to match Our sales with production, we've said that to restart McArthur and Key, we'd like our portfolio to be in place so that we're not spring pounds into the spot market. And so I think the answer to your question is yes to both parts of it. Grant, I don't know if you want Add anything to that? Yes, I just might add, Ralph, think about it as kind of a market alignment strategy from a sourcing point of view. We have a number of criteria that are behind our portfolio decisions and think about them that way. When we build a contract portfolio. It has a number of criteria, but key to that is actually making sure that we've got line of sight to the sourcing. And we said for some And Tim said it in his opening that responsible producers in the uranium market build homes. And so for us, it really is about matching where we see The sourcing of that material, right now that sourcing is largely coming from the market. We've got to go in and buy obviously. But over time, it will set The conditions that allow for the restart of McArthur for example that will then see us sourcing from Tier 1 production which is a great day. I mean that's Unequivocally positive for Cameco, of course. So for us, it's about this market alignment. It's about never finding ourselves In a position where we're contributing to an oversupply in the market that wouldn't be a sensible thing to do. And when the market is Suggesting that those pounds aren't needed and could be purchased or picked up on the spot, we'll do that as you've seen us do Quite aggressively. So think of it from that market alignment point of view. Yes, understood. That's helpful. My second question is on Kazakhstan and the 20% curtailment through 2023. Are you satisfied from a prudence perspective of that I'd like to get your insights on what it says perhaps about their view of the market. Yes. Well, these days, Ralph, as you know, you can ask them some of those questions. I'm sure Gallant will be more than happy to answer them. I think we were quite pleased to see them The 20% reduction into 2023, I think a very prudent move on their part. Obviously, as a joint venture partner of theirs, we will comply With that, and so, we can only do here at Cameco what we can do and you've seen us sector. The 20% reduction in the 23%, we think it's very positive. The next question is from Andrew Wong from RBC Capital Markets. Please go ahead. Hi, good morning. Thanks for taking my questions. So the spot in the term price that get quoted by like UxC, They're roughly at par now and the gap between those two benchmarks has been pretty small for a while. Could you just talk about what's causing that dynamic and what that's telling us about the market? I think I saw a little bit of backwardation in the U. S. Numbers This week, but Grant, do you want to speak to that? Yes, Andrew, it's a great question. And I at the risk of Taking up all the remaining time on that, let me just make a couple of observations. From the spot point of view, I'm not declaring that the spot price is where it needs to be, but it is up quite a ways since the supply discipline has started up about 60% and that's reflecting I think progress In cleaning up that spot market and we've certainly contributed to that with our major purchase. We've left pounds in the ground and we've gone and bought material Instead off the market, Tim referenced some junior advanced exploration companies buying, he referenced some financials buying. That's all taking material out of that spot market. It's taking material out of the hands of the financial intermediaries. It's taking material out of the churn. And that has It's what we absolutely needed to see. The term market has remained more discretionary in part because while the Market is being cleaned up. It still is a source of carry trade for utilities. So utilities And it effectively buys them a bit more time to not really focus on the big term contracts, but to take Smaller bites out of the term market. And so we're just not seeing that level of replacement rate term contracting occurring across The industry and when we are seeing some of the bigger RFPs come to the market, we still see a few of the producers Who are quite eager to I would say buy that business. And that's not all bad by the way. I mean we've been saying for Quite some time, it's important for producers to build homes. All the new interest in the uranium market, which has been great, has forced us to to revisit some of the fundamentals in our business. The fundamental being the spot market is not the target market for production. And so when we see producers looking to build term contract homes, that's great news Because it means that in the future their production won't be hitting the spot market. However, that eagerness to build term homes we're seeing In the form of, I would say, some very competitive bids to the RFPs that are on market. 1, competitive bids that we can't compete with and we won't compete with because strategically it doesn't make much sense. But the good news is those homes are being built And that demand is calling for pounds that maybe in the future would have hit the spot market. So for the term market in total, it's just not there yet. Relative to the uncovered requirements, I think we would have that's expected more demand in the market than we've seen. I would just make the final comment that Cameco though is enjoying a little better Situation than that, we talk about our off market contracting, we talk about the pipeline of negotiations. Tim referenced the over £60,000,000 that we've added to our contract portfolio reflecting that there is term interest. It just Isn't that the level right across the industry of replacement rate? So no surprise, spot market getting cleaned up, 60% increase in the spot price, More demand to come, we think with some of the financials in particular. Certainly, we'll have some buying to do along the way. But the term market isn't Those 2 are connected. As the spot market tightens, it really will send a signal that the carry trade is going away that buying Material in smaller bits is probably not going to satisfy security of supply concerns. So on balance, we think the Potential is for the term market to break back to something closer to production economics and a break free of this anchor of the spot market. It's behind our optimism, Andrew. Okay. That's great. That's a lot of good detail. Thank you. Maybe just like a longer term kind of question. Can you share your thoughts on the development of these higher enriched fuels like AGU plus And how are you for the advanced reactors? What kind of impact could they have on the market? And How can Cameco participate in this trend? You have that investment in GLE, which maybe longer term could be part of that. Thank you. Yes, thanks for that question, Andrew. Yes, we're quite interested in the whole Hallyu advanced fuel market fuel for SMRs. Of course, sector. Getting a lot of attention these days everywhere. Canada, I think there's 11 or 12 different models in front of the regulator, Looking to pick a model very soon, I think within the next few months to build a demonstration project Darlington, we know Bruce is involved and be part of our own Saskatchewan government. Looking at them, U. S, we know China is now maybe leading the pack, is built on the Russians are floating. So SMR is getting a lot of attention because they make sense and if they can Build them cheaper and have them mobile and in places where you don't have to have huge infrastructure, it makes a lot of sense. So That's not going to put a dent in the uranium market tomorrow morning. We are still relying on the 443 operating reactors and the 51 run We're looking as to how Cameco can get involved. We have all the elements. We've got Uranium, we've got lots of it. We've got refinery, a nice refinery conversion. We've got our GLE project that we're standing up now in the U. S. To provide segment. We talked to a lot of companies, many, many companies about how we can play in especially in the fuel side. And so, yes, we're excited about it. It's nuclear. It's the nuclear of the future, I think. And so, more to come on that from us. We We signed an MOU with GE Hitachi on SMRs. On their SMR, they've got the X300. The next question is from Orest Wowkodaw from Scotiabank. Please go ahead. Hi, good morning. I'm pleased to see that you've announced another £7,000,000 of new long term contracts this quarter Building on the £9,000,000 from last quarter, I'm just curious if you're seeing now a real pickup in segment. Moving here from utilities from a recontracting perspective and whether these contracts are starting to build momentum on each other And whether we should anticipate more following now that sort of the door has been open. Any context would be appreciated. Yes, Orest, I would say that there is no doubt that every time We talk about more of our future production being claimed. It does create interest from others who aren't part of making those claims. But let me just be cautious here. It hasn't translated yet into kind of an industry level. We haven't seen that kick over to Frequent on market RFPs that would suggest a real security of supply Contracting cycle is underway across the industry. So for us, it is positive. I think it makes Some of our customers wonder why their colleagues are contracting and they're not and how much Canadian Cameco supply has already been claimed and what's left for them. So very positive for us, but it hasn't yet translated into kind of that security of supply shift at the industry level. Let's face it, in the past that trigger has always been shock driven, whether it was the Supply shock of, for example, 2006, the Cigar Lake development project flooding, whether it was the demand shock of 2010, the Chinese stepping into the term market For the first time in contracting a lot of uranium, it tends to be a bit of a shock event that causes Everybody to try to go through the door at the same time. And I would just say if we look at the market, if we look at the forward view of productive capacity on a primary basis and on a secondary basis and juxtapose that to uncovered requirements. This market is as vulnerable to a shock as that's ever been. So I think it's building in that direction, Orest. I just want to be careful not to call that today, but certainly positive for us. Thank you. Thanks for the color, Grant. And then just separately, I noticed in your release there's some comments about Some initiatives to materially reduce your holding costs, your standby costs with the shut in with McArthur River and I guess the other assets. Can you give us some insight in terms of what you're thinking there, what the timeline might be to get some color and What kind of impact this could have? Yes. Orest, what we're referring to there is the projects that we have underway at MacArthur and Key. Remember, They've been in care and maintenance since 2018 actually, which is a long time to have world's best mine and mill complex in care and maintenance. But it hasn't been like a quiet sight because what we've done is we said, look, while these assets are down, this is the absolute best time To unpack every process, every procedure, look at opportunities for us To harness the very best of digitization and automation technologies that we're seeing adopted elsewhere, not On R and D project, but really an applied technology project to take the best of what we see elsewhere, bring it to our facilities, Do that while they're down so that when they come back, they come back even better than when we brought them down. So those are the types of initiatives that we're referring to, Making those investments counter cyclically, it's prudent for us to do. It's one of the reasons why we've had such a very conservative financial management, so that we can be poised to make those kind of prudent countercyclical investments when they make sense and right now is when it makes sense. Or I'd just add to that, the most difficult piece of that often is the change management piece when you've got a Fully staffed site with 700, 800 people involved and you're trying to implement change. The change management piece getting the people New habits is tough. And so while our sites down, our people are up, I think we only have about 100 people on care and maintenance. It's the right time to implement those and the day we do bring the people back, it'll be we're going to have to train them differently, get them prepared differently For a different site, kind of a mine and mill of the future. So that's why we're doing it now as well. Thank you. The next question is from Katy Lechappelle from Canaccord Genuity. Please go ahead. SEC. Hey, good morning guys. Thanks for taking my questions. Now that the Sprout Physical Uranium Trust arrangement is closed and started trading, I was just wondering if you could provide your thoughts on both when and how you think if new entity could impact pricing moving forward. And just based on your knowledge, is this something that you think utilities are recognizing and are maybe perhaps worried about? Thanks, Katie, for the question. We're pretty excited to see Sprott in the business now. I think you've got lots of experience in metals funds and at the market In the market with metals and have a big market presence, I think. And so, Grant has been studying them and looking at Sprott. Grant, why don't you go ahead? Yes. We certainly think that there is potential for this to be actually quite transformative to Price discovery in the spot market. As I think a lot of folks know, you've heard me say a lot of times, the spot market is not Talking about responsible producers being ones who are building homes. And as that material came into the spot market, it often ended up in the hands of financial intermediaries who would churn it through the market and really be able be in a position to offer the market down without actually making a transaction just by hanging offer after offer Because you had the offers outmatch the bids in the spot market. So along comes a physical trust that is proposing to have a far more frequent bid in the market, a physical trust that is, I think, designed to impute what investors believe SEC. The price of uranium should be and I think by and large most investors view that this price of uranium is not linked Production Economics and that it does have to transition in order to create that link. And that would suggest that investors would be very supportive Of that trust model, we'd be happy to invest perhaps on a daily basis allowing that fund to go in and have a far more frequent and consistent bid in the market. And we've seen in the past, if that occurred, that will back up some of the selling, it'll back up Some of the offers and it will help contribute to a transition back to production economics away from surplus disposal. And I guess we sort of look at it as having a plenty of upside and perhaps very little downside because If those folks decide to go a different route and maybe run the fund like it used to be run, well, we know what that's like. I mean, it Just go in the market every now and then and buy and then sit back and wait for the market to appreciate up to a point where you can go back in. It wouldn't be as fun and it view of where the price of uranium should be. It really will take a lot of the judgment and a lot of the, It'll take it out of their hands and make the spot price far more transparent and far more transaction based. Quite frankly, that's good for everybody. The next question is from Greg Barnes from TD Securities. Please go ahead. Yes, thank you. Grant, in several quarters now, you've been saying that you have a large volume of off market discussions section. Yes. This quarter you're saying negotiations continue on business opportunities remaining in that pipeline. That sounds a little less optimistic, I guess, than it has in past couple of quarters. You've done a fair amount of contracting. Is that Yes, sorry. Absolutely did not mean to create the impression that It's a pipeline and we're drawing it down. I mean we're quite excited By the opportunities that are in there. We're not going to get every opportunity because of course as Tim said in his opening comments, we're being very strategically patient. We're trying to And we'll turn to other producers to satisfy that. So we're not going to get all the business in there. You don't want us to get all the business in there. But I would say, When we get on a call like this and we talk about the term market being quiet, one of the first calls I get is from our Vice President Marketing who says what are you talking about because we're quite busy let me remind you dealing with all of these opportunities that we see coming our way. So Did not mean to send the impression that Cameco's pipeline is shrinking in any way. As I mentioned to Auris, We sort of see it as we announced that more contract commitments have been layered on, that actually creates more interest In our pipeline and in our future supply, because it starts to build a sense that, well, how much of Cameco's future supply has already been claimed. And If I want some of it in my diversified portfolio, I'd better talk to them. So absolutely did not mean to send that impression, Greg. Okay, thanks. Just the situation with the CRA and their new way of reassessing 2014. Trying to understand, again, the wording in the MD and A. It said there was a less adverse, albeit still material adjustment to taxable income in Canada Then you want to say your initial view is that this methodology would not result in a materially different outcome for 2014. Great. Can I get Sean Quinn to answer that? Sean has obviously been on this file for about 13 years. So Sean, why don't you answer Greg's question? Sure, Greg. The reason we've got is we don't think it's a materially different outcome at the end of the day is we think this new Assessment ground that has been raised for 2014 would be unsuccessful if pursued by the CRA. So at the end of the day, we don't think that there was a significant problem with that year. Okay, okay. Fair enough. Thank you. Thanks, Craig. The next question is from Lawson Winder from Bank of America Securities. Please go ahead. Hi, good morning guys. Thanks for taking the call. I'd like to ask again about the digital and automation and your statement That it has the potential to eliminate care and maintenance costs. How are you thinking about that? How is it possible that you could eliminate care and maintenance costs without Restarting those mine. And yes, that's the question. Yes, again, if we left that impression that would We're not eliminating care and maintenance costs. That's not possible. But when we do come back, we would have That's where we'd be more streamlined. Certainly, there's no way we're eliminating care and maintenance costs, not at all. Segment. And then just respect to specific numbers here. So I think the latest study was somewhere around CAD15 per pound Marginal operating costs or C1 cash costs for Macarthur River in your latest study. Now is there potential to Lower that as a result of your digital and automation work? So that's exactly the goal, Lawson, is to do that Materially if we can, but we'll take anything. So, if you can digitize, mechanize, robotize, if that's a word, Some of the processes and circuits in the mill especially we want to bring down our operating costs absolutely. So that is the goal clearly. If I might ask just one more. The 16,000,000 pounds now so far this year of contracting, How is that spread around the world? Is that more Western or more Asian clients? Thanks. Yes. I would say in terms of the regional distribution, you're seeing a bias towards, let's call it, our more traditional markets in North America, in Western Europe as opposed to the emerging markets which of course You should take as very positive because it suggests that that growing demand in those emerging markets has not yet shown up, which is obviously Very good news. So yes, it's more the traditional customer base who have been through this before. I think who are recognizing that there's a fundamental story that's not building in their favor. And quite frankly, I think maybe concluding that there's probably 1st mover advantages for them if they move now. So that would be more of the distribution. Thanks so much. Thanks, Lars. The next question is from Alexander Pierce from BMO. Please go ahead. Thank you. Good morning. So I noticed obviously you pushed up sales volumes expectations this year for fuel services. I was wondering maybe you could provide a bit of an update on the market there and obviously you're halfway through the year. Maybe you can give us A view on where you think conversion, etcetera, is going into next year. Obviously, there's a bit of some capacity changes over the next couple of years. Yes. Thanks, Alex. Graham? Yes. Alex, the conversion market in particular, not as hot as it was in 2020, that's for sure. I think you'll recall that in 2020 we sold forward as much conversion as probably we ever have in a 12 month window. So that was not just hitting replacement rate but going well beyond. Been a bit of consolidation I would say in the conversion market especially with the announcement Converdine coming back now. It's a few years and quite a bit of money before they're back up and running. And that was also combined with Arano putting out some statements about not just successfully getting to the Full announcement in the conversion space, but that's led to a bit of consolidation for sure. But as you can see, there's still opportunities for us and those Opportunities are in the near term before full commissioning in France and before Congradyne is back up and running. And make no mistake, We'll take those opportunities because conversion remains very attractively priced and those prices support our fuel services division very nicely. Okay. Thank you. Thanks, Alex. The next question is from Brian MacArthur from Raymond James. Please go ahead. Good morning and thanks for taking my questions. There's some language in the MD and A talking about potentially deferral project work and maybe impact to next production. I mean, I realize these are very high grade mines and you have a lot of flexibility. But can you maybe elaborate a little bit On that, is that more labor? Are you actually seeing supply chain issues, so there really could be an impact on cigar? And maybe a second question moving longer term. You talked about digitization of MacArthur making it better, but there's also cautionary language that You may have issues for equipment for that going forward. I mean, you're trying to balance that that you don't want to bring it back until you have contracts, How are you ensuring that you actually have the pipeline of material ready to break that McArthur comes back when you want it as expected? Because as you mentioned, it has been down for a number of years. Are you getting a lot more concern on supply chain issues for equipment to actually be able to bring this back when you want to? Yes, Brian, thank you for those questions. Our securities lawyers will be delighted you did a deep dive into our risk factors. I think we sometimes wonder if anybody reads them. So thanks for doing that. Obviously, when you think about Cigar Lake, we always want to remind folks that when you curtail an asset, You're curtailing 2 things, aren't you? You're curtailing the in year production, but you're also curtailing the activities required for future production. So what you're picking up is that risk to say, look, if we don't have Cigar Lake operating for For COVID reasons, it's not just this year's production that gets affected. It's the development of the mine required for future production. And obviously now that it's restarted, We've restarted in year production and we've restarted mine development. And so we just it's prudent to flag that as a risk If there are disruptions to the mine development plan for future production, that will affect future production. And quite frankly, We're not afraid of that as a risk, Brian, because that's actually connected to our supply discipline strategy. So it doesn't really It's not orthogonal to what we're trying to accomplish. At McArthur, Brian Riley, our Chief Operating sector. I would say Calm any nerves about the situation at McArthur. Regular risks, as you say, it's The physical capital and the human capital in good condition and getting it ready or keeping it on Standby so that when we do call for that production, it's there for us. At the moment, we don't see a significant The same as penalty capital, it's just capital we chose not to spend. So you're picking up, I think, some prudent risk language that we bury into those risk factors for sure. But by and large, we're very confident with where we're at with Cigar Lake and we're very confident with The state of care and maintenance at McArthur Quay. And if we weren't, you'd actually see us have to spend some money and be very clear about those capital segment. Great. Thanks for the color. Maybe switching to another topic. You did mention GLE again, and it was asked earlier. So to an extent you can because I realize it's competitive. What exactly I mean we had a pilot plant Years ago and whatever. We are actually trying to scale this now or what's actually going on at GLE right now? Well, Brian, we spent the last number of months putting the deal together where along with Silex Cameco takes over ownership of GLE and stands up the company. And so we're really in that process right now populating it with And so and then we're looking as to where we can play. We've got Options for GLE, the Halli U market just pure enrichment. We've got those DOE tails that are available And so it's pretty exciting. We've looked for a long time for an entry point into the enrichment Market and those aren't easy. There's a lot of barriers to entry there. And so we think we might have a pathway here. And so we're going to push it along. Great. The next question is from Gordon Johnson from GLJ Research. Please go ahead. Hey, guys. Thanks for taking the questions. All of our questions have been answered, but I I just wanted to get your thoughts on Uranium Trading Corporation being the 2nd private financier to announce the purchase of uranium. And clearly, you guys already talked about Sprout. But just given we're seeing more of these transactions announced. I wanted to get your thought on if we'll see more and kind of how you guys see that impacting the broader dynamic? Yes, great question and you're absolutely right to say it's been a very active part of the space. And It's pretty clear to us that some of the people are coming to it because of an understanding of the uranium market But some are coming to us just because they're doing the statistical analysis and say, look, this is a commodity that's got a very low probability of going down and not Very far and a very high probability of going up and probably a long way. So there is quite a variation, I would say, of the interest in it. Some of it public and you've heard about and some of it is private. And I would say the most important Utility in order to cover management fees. Those don't work. And that's why they've come and gone. But that's not what we're hearing from the narrative now. The narrative really is kind of an understanding that this is a market that SEC. And I would say a very helpful understanding that actually grabbing some material and hanging on to it more in a permanent capital Framework. It's probably the wiser thing to do. So we're seeing interest. It's continuing And it's more appropriate than I would say some of the interest we've seen in the past. Okay, that's helpful. And I always ask this one, but I'll The contracts in China are quite dated. Any update there with respect to renewals? And just Last question, taking a step back, widely popular EV CEO, Elon Musk mentioned recently that uranium makes sense. And it seems like The Biden administration is kind of warming up to the idea that if you want a real solution to CO2 uranium is the way. We're seeing issues in California with respect to power outages and energy prices increasing. Can you guys talk about just from a broader perspective if you're seeing The megatrends of electrification and decarbonization and where everyone's going, who hasn't set a net zero target By 2,030, 2005 and quite frankly, and this is a personal thought, I think there's a lot of hope and A bit of hypocrisy in that we need to there's a bit of a gap between the rhetoric and reality and we've got to start looking at action plans and how we're going to There now with this massive electrification, all electric cars by, I don't know what year and billions being spent. And so That's all positive for us because I keep quoting our famous Energy and Mines Minister here There is no path to net zero that doesn't drive by nuclear plant. And so that's real positive for us. The U. S. Has been super positive SEC. With the Biden administration, the first day they came in, they canceled Keystone and signed Paris. And since then, we've seen them make a lot of moves. They set a clean energy standard for clean electricity fossil fuel free electricity by 2,035. Secretary Granholm, very positive on nuclear, John Kerry, Gina McCarthy, all of those things. So we're watching the Exelon units to see if they get a The Chinese, Grant, I don't know if we can give much of an update on that, but they're certainly in the market. Yes, I mean China is an example of a country that is putting action To the rhetoric, a 2,060 net zero carbon target that has led to very significant near term increases in Nuclear's role in their overall grid. You're talking about a handful more reactors in the next 5 years. You're talking about a target Mid next decade of 200 gigawatts, that's a combination of what will be operating and what will be under construction. At that kind of target, China alone would be consuming £100,000,000 of uranium. Primary production last year was £120,000,000 So one country would be calling for 100,000,000 of 120,000,000 supply stack. It's quite Astonishing. The Chinese have kind of we used to think of them as China Inc, if you will, as one group, but You really actually see different behaviors from the different entities in China. You see one of the utilities has actually African material and in the future some Kazakh material coming in directly to their account, which would offset some of their purchases of course. We don't see the other utility being quite as aggressive with securing their own supply and probably therefore far more market reliant going forward. And as I said in response to an earlier question, with respect to where our contracts currently are coming from the traditional markets, well, it's very, Very positive when you think about these big emerging markets have not really come back yet and we saw what happened last time they came back in a big way. China is a country that's putting action to the words. Nuclear is key to getting that clean grid. And we actually think that That demand is in front, not behind. Hey guys, thanks a lot. If I could just What would you guys say conversely is the biggest challenge you face? We've seen ups and downs in just the equity valuations, I don't know if I have a good answer to that. We're pretty happy with the way things are moving. Maybe the market is not moving Operations are running well when we're not threatened by COVID or forest fires and we're optimistic for the future. So I don't know. Of course, we worry about lots of things all the time. That's our job, but nothing in particular. The next question is from Jessica Sangera from Nuclear Intelligence Briefly. Please go ahead. Hi, guys. Thanks for taking my call and good morning. I was just wondering if you could elaborate a little bit more on Cameco's strategy with regard to the carry trade. I know we have some backwardation and you mentioned some competitive offers from producers that seems to be driving some of that backwardation. And also with regard to future market trends, Once the market goes back into contango, I wonder what your expectations of the carry trade might be then? Great questions. We see the carry trade as being less impactful on the market than it had been in the past And that's just a function of the spot market fitting out. We've talked about 60% rise in the A lot of concern about inflation and where interest rates would be. Well, that undermines the carry trades as well. To the extent that maybe that concern is now replaced With the delta variant and the idea of more stimulus and perhaps lower interest rates. Well, again, that will come back in from the carry trade. But ultimately, Carry trade works when you have uncommitted primary production coming into the spot market. And the good news is From a producer point of view, that's going down. You've seen assets, retired Ranger, Common Act. There's less material showing up reflected in The higher spot price and so the carry trade will be there, but probably a less important factor. And as it starts to Titan in the spot market gets closer to the term price. That's when the conversations really flip over to, okay, well now it doesn't seem advantageous to try to secure spot material and carry it into the near term of my demand. I might as well look at term demand. And so that I think is what reflects the $60,000,000 plus that we've been successful in adding into our contract portfolio. We'd obviously like to see more utilities realize that and that's to come because that demand is not going anywhere. It's still there and needs To be satisfied, so it just leaves us quite constructive and I think that's captured in Tim's optimistic view. My question is in the in this environment with sort of central banks printing Is Cameco managing their cash balance any differently, management has come with an opportunity cost and that is we've been sitting on cash and that cash hasn't been earning a lot of money. But what it's been doing I think creating a virtual guarantee for our owners that we can self manage risk that as we go through the supply discipline strategy, as We deal with the purchasing we need to do to cover the gap between where our committed sales are and where our production is. As we carry the care and maintenance costs and then of course Deal with unplanned shutdowns things like COVID. Our owners can be assured there'll be no awkward lurches to the capital markets because We didn't have the financial resources to deal with this. As the business case improves, as we lock in more contracts, as we get more certainty and Around when that McArthur restart is at that point in time if we're still sitting on these kind of cash balances There will be too much and at that point we'll have to look at ways to reduce that either Give it back to the owners or if we've got a compelling use for it that can generate an acceptable return, we'd make the case for that. But right now, We're still kind of in this prudent role here of being very financially conservative. And then we'll look at things like when the market begins to transition in a more aggressive way, what is our role For buying not just the inventory, not just the material we need for our committed sales but perhaps a little bit more. I mean normally It's not advantageous for Cameco to sit on an inventory. And the reason is we become an overhang. Time and time again we find ourselves in Well, we're looking at your inventory and we think you should start selling it. And so it created no advantage for us to be carrying that kind of inventory. But if we saw that transition, you could expect us to be a very aggressive buyer and deploying some capital that way. But the good news is Those are choices that we have and those choices are a result of the prudent financial management that we've been engaged segment. This concludes the question and answer session. I would like turn the conference back over to Tim Gitzel for any closing remarks. Well, thank you, operator. And with that, I just want SEC. Thanks to everybody that joined us on the call today. We as always appreciate your interest and support. Just a couple of closing comments. I'd just say again that SEC. And as always, we'll continue to make the health and safety of our workers, their families and their communities our priority. So with that, I'd say thanks again, everybody. Stay safe SEC. This concludes today's conference call. You may disconnect your lines. 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