Thank you for standing by. This is the conference operator. Welcome to the Cameco Corporation fourth quarter 2019 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. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Rachelle Girard, Vice President of Investor Relations. Please go ahead, Ms. Girard.
Thank you, operator. Good day, everyone. Thanks for joining us. Welcome to Cameco's fourth quarter conference call. Today's call will focus on the trends we are seeing in the market and on our strategy, not on the details of our quarterly financial results. If you have detailed questions about our quarterly financial results, please reach out to the contacts provided in our news release, and we will be happy to help you with those details. 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. Tim will begin with comments on our strategy and the market. After, we will open it up for your questions.
If you joined the conference call through our website event page, there are slides available which will be displayed during the call. Slides are also available for download in a PDF file through the conference call link at cameco.com. Today's conference call is open to all members of the investment community, including the media. During the QA session, please limit yourself to two questions and then return to the queue. Please note that this conference call will include forward-looking information, which is based on a number of assumptions, and actual results could differ materially. Please refer to our annual information form and MD&A for more information about the factors that could cause these different results and the assumptions we have made. With that, I will turn it over to Tim.
Well, thank you, Rachelle, and welcome to everyone on the call today. We appreciate you taking the time to join us. Happy New Year, everyone. Hard to believe another year has come and gone. In fact, we're into a new decade. Despite the challenges the nuclear industry faced in the previous decade, we continue to believe we have the right vision and strategy for our company. So just why do we think we have the right vision and strategy? First, it's because our vision, which is to energize a clean air world, is clearly aligned with the world's growing demand for energy while helping to avoid some of the worst consequences of climate change. Second, it's because our strategy of production discipline, marketing discipline, and patient balance sheet management is working.
In 2019, we achieved replacement rate term contracting of 36 million pounds. We begin 2020 with over CAD 1 billion in cash and negative net debt. Important is that over the past number of months, we are seeing the other segments of our industry transitioning. As a result, we remain committed to our strategy. I want to remind you of the long-term fundamentals in our industry because they are central to both our vision and our strategy. I think it's an important reminder because as I read analyst and trade reports and watch the resulting day-to-day volatility, I fear people are losing sight of the very positive long-term fundamentals for our industry as they are caught up in the short-term noise. Our board and our stakeholders, including employees, communities, customers, governments, and shareholders, expect us to manage this company in a long-term, sustainable fashion.
We can't and we won't get distracted by the noise, we can't and won't lose sight of the underlying long-term fundamentals in our industry. The fundamentals are really quite simple. Demand is on an upswing, and utilities have a growing wedge of uncovered requirements precisely at the same time that supply is on a downswing and today's prices are insufficient to reverse this trend. Our optimism and confidence in a uranium market transition is growing. I'll talk more about this later, but first, I want to review our strategy. Our strategy is to take advantage of the long-term growth we see coming by focusing on our Tier-one assets. It's designed to add long-term value. We've taken a three-prong approach in the execution of our strategy: operational, marketing, and financial.
We have cut production far below our committed sales, which requires we purchase material in order to fulfill those commitments. We have strengthened our balance sheet to ensure we have the financial capacity to execute on our strategy and self-manage risk. Why is this our strategy? We're optimistic about the drivers of long-term growth in our industry. There is increasing recognition by policymakers and some environmental groups that nuclear power will be an indispensable tool for addressing what is being referred to by many as the climate change crisis. We recognize that today's low price is creating tomorrow's opportunity for us. The fact that we have Tier-1 production shut down tells us this market needs to transition to ensure those pounds will be available to fuel growth. The market needs to transition to one where price is set by the production cost curve.
Let's talk more specifically about our strategic actions, including our spot market purchases. First, let me be clear, we continue to do what we said we would do. Our operational decision to reduce production well below our committed delivery volumes requires us to be active on the demand side. We have to purchase material on the spot market. There's a lot of speculation and in fact some skepticism and criticism about our activity in the spot market, as some market participants try to capitalize on our need to buy material. This speculation, skepticism, and criticism won't deter us. We won't disclose exactly when and how much we're going to purchase annually. Why? To allow us to be more flexible and nimble in the market and to allow us to capture more gross margin.
Although we won't tell you exact volumes and timing of our purchases, we will share with you the purchasing framework we're using. Remember, our goal is to buy as cheaply as possible in order to maximize our gross profit. This means we have to adjust our purchasing activity to what we see in the market. Let me use 2019 to illustrate. In 2019, we said we plan to purchase a total of between 21 and 23 million pounds to meet our deliveries and maintain our desired inventory. Not all of this purchasing was spot material, but a large portion of it was. In total, we purchased 19 million pounds of uranium, more than double what we produced, but a bit lower than the outlook we provided. Given we made all of our delivery commitments, you may wonder how we bought less than planned. Well, we drew down our inventory.
Why did we wait to buy some material and temporarily draw down on our working inventory? Because it made sense to do that. As I said earlier, we saw some signals in the market that required us to adjust our approach to purchasing. We are willing to be patient. If others want to go out and sweep the cupboards for material, we will let them bring it to the market where we will buy it as cheaply as possible. This is entirely consistent with what we said we would do. That is, to responsibly manage our supply to meet our sales commitments. This does not change the overall quantum of purchasing required, just the timing. Let me be clear, neither does it represent a departure from our strategy. We have been upfront about the potential for variability in our sales volumes, our production, our purchases, and our inventory.
These are planned departures from the outlook we provide because they make sense and they benefit our margins. We will plan our activities to ensure we meet our delivery commitments, but they are not constrained by quarterly or annual deadlines. We make business decisions based on our firsthand knowledge and experience. If we start to see end user demand in the spot market and signals point to more expensive pounds tomorrow, we will not only advance our purchasing activity, we may actually build a bit more inventory to ensure we have the material where we need it, when we need it, and in the right form. Ultimately, with McArthur River/Key Lake on care and maintenance and production well below our sales commitments, we still have a lot more purchasing ahead of us than behind us. We were also active on the financial front in 2019.
In September, we retired CAD 500 million of debt or one third of our debt outstanding. In addition, we extended the maturity date of our revolving credit facility to November 2023, while also reducing it by CAD 250 million. It now sits at CAD 1 billion and remains undrawn. As well, Inkai repaid its outstanding loan with us and therefore began distributing cash dividends. These two items added over $100 million US to our cash balance. As a result of the strategic actions we have taken, as I noted earlier, we have about CAD 1.1 billion in cash on our balance sheet. The debt on our balance sheet sits at about CAD 1 billion with maturities in 2022, 2024, and 2042. Our balance sheet is strong. We have the financial result to execute on our strategy and the ability to self-manage risk.
We believe the risk related to our CRA tax case has diminished based on the unequivocal ruling we received from the tax court in September 2018. A decision we believe will be upheld on appeal. The appeal hearing has now been scheduled. It will be held on March 4th this year, 26 days from now. We believe a decision could come from the Federal Court of Appeal this year. If we are successful on appeal, as we believe we will be, we will be entitled to a refund of about CAD 5.5 million and a payment of the cost award for the legal fees incurred of over CAD 10 million, plus disbursements of up to CAD 17.9 million.
Let me remind you, while the decision applies only to the tax years 2003, 2005, and 2006, we believe there is nothing in the decision that would warrant a materially different outcome for subsequent tax years. If we can resolve the matter for all years being reassessed, there is about CAD 300 million of our cash and almost CAD 500 million in letters of credit that could eventually be freed up, which would further increase our financial capacity. You'll see from our outlook for 2020 that based on current uranium prices, committed delivery volumes, and our planned purchasing activity, from a gross margin perspective, 2020 could be a weaker year for us. This is a direct result of our deliberate value-oriented strategy.
We have made some decisions fully recognizing the cost in the near term, because we expect over the long-term, the benefits of those decisions will far outweigh the costs. It's why we've shored up our balance sheet. We have been unwilling to lock in contracts at today's low prices. As a result, our current committed sales volumes for 2020 are lower than the deliveries we made in 2019, and our average realized price is expected to be about 9% lower. From a cash perspective, we expect to continue to generate solid cash flow. Exactly how much will depend on the timing and magnitude of our purchasing activity, which as I previously noted, will depend on market dynamics. Our cash balances may fluctuate throughout the year, but we do expect to maintain a significant cash balance.
Our total planned purchases for the year are between 20 and 22 million pounds. On the cost side, our average unit cost of sales is expected to be about the same as in 2019. It continues to be impacted by the greater proportion of purchased material compared to production that will make up our supply and the ongoing care and maintenance costs. Our expected care and maintenance costs have increased compared to 2019. This is largely tied to an initiative we have underway at McArthur River and Key Lake. We plan to fully assess opportunities to improve operational effectiveness, including the use of digital and automation technologies. It makes sense to look at these opportunities now if it means we can substantially reduce operating costs and increase operational flexibility when it comes time to restart.
In our efforts to reduce costs, we'll also look across the organization for these types of opportunities. Of course, we will rigorously assess any opportunities before an investment moves ahead. Our planned capital expenditures in 2020 are up a bit compared to 2019 spending, still in line with the guidance we provided last year. With our continued commitment to a clean environment, we will be investing more in the Vision in Motion project in Port Hope. While the Government of Canada's long-term waste management facility is available to us, we want to take advantage of the opportunity to engage in some cleanup and renewal activities that address the legacy waste that we inherited at Port Hope. In addition, we have rescheduled some of the expenditures we planned at Cigar Lake in 2019 - 2020.
I will also remind you that we report our results and outlook based on a calendar year basis at a point in time. However, as I pointed out earlier, you need to think about our sales, inventory, purchases, and production all as variables and shouldn't be surprised to see as the year progresses, variances from the outlook we provided in our MD&A. We are not following a static recipe. We operate in a dynamic market, and we will adapt our activities accordingly. We're confident in our ability to transition through this period and capture demand that will provide leverage to higher prices. The off-market conversations we're having with our biggest and best customers bolsters that confidence. Our Tier-1 customers recognize the long-term fundamentals. They want access to long-lived Tier-1 productive capacity from commercial suppliers who have a proven operating track record.
They understand that from a security of supply perspective, today's prices do not reflect production economics. They recognize the first-mover advantage gained from securing their future access to our Tier-1 pounds at the incentive price today as opposed to where prices might be in the future. We have some competitive advantages. We have significant idle Tier-1 capacity that's fully licensed and fully permitted that will be among the first pounds to meet growing demand in the market. We are an independent commercial supplier and provide our customers supply diversity from state-owned enterprises. With substantial Canadian productive capacity, we can help de-risk their future from trade policy exposure. Emerging is the focus on ESG matters. Increasingly, utilities are required to ensure their suppliers adhere to more stringent environmental, social, and governance performance standards. I can tell you this is great news for us.
We integrate sustainability principles and practices into all stages of our activities from exploration to decommissioning. We have over 30 years of experience building a comprehensive program aimed at ensuring the support of the stakeholders with whom we work. It's not only to the benefit of our customers. Since 100% of our products go to producing clean carbon-free electricity, we are a growing part of the solution to the clean air and climate change crisis that the world is currently facing. On the sales side, as I said at the outset, I'm pleased to report that over the course of 2019 and to date, we have placed just over 36 million pounds under acceptable new long-term contracts.
That more than replaces the volumes we delivered in 2019. These contracts provide us with some downside protection while still maintaining exposure to improving prices and are expected to provide an acceptable rate of return on Tier-1 assets for our owners. Let me be clear, we need more of them before a restart decision is made, with more prospective business in the contracting pipeline than we've seen since 2011, we are confident those opportunities will come. We expect our conversations will lead to more contracts on the terms we need to support a restart decision. Keep in mind, the contracting process in our business is lengthy, so it may take this activity some time to show up in our committed volumes. We've been in this business for a long time, and we understand the commitment it takes to deliver long-term value.
Current market dynamics are not unfamiliar to us. We have seen them in past cycles. Price is set by the most desperate seller, which leads to productive capacity being replaced by one-time finite supply. This is not sustainable. We've seen three different reports, WNA, UxC, and TradeTech, all of which point to the growing uncertainty of uranium supply. These reports all recognize that current uranium prices are putting future supply availability at risk. Today, we believe the market is failing to send the appropriate price signals. As a result, we've seen a substantial loss in productive capacity that's not being replaced. We've seen the deferral of substantial productive capacity, and we've seen significant destocking. In fact, UxC's latest analysis shows that most utilities are at or below desired inventory levels. We need only look to the conversion market to see the implication of these types of faulty price signals.
The conversion price dropped so low it destroyed primary supply and reliance on finite secondary supplies increased. No one was concerned because we were hearing reports of large inventories, many of which are in the form of UF6. The market encountered some production challenges. Well, it turns out that it's not the volume of inventory that's important, it's the mobility of that inventory. In conversion, the higher the price went, the less mobile the inventories became. At the end of 2017, the spot conversion price was about $6 U.S. per kgU. Today it's over $20 U.S. per kgU, an increase even the trade reporters never anticipated. As in conversion, it's the end users who will bear the risk of the faulty price signals. The longer the transition takes, the longer it is before the decision to restart idle Tier-1 and Tier-2 production is made.
The longer those decisions take, the greater the potential there is for delays in startup plans and schedules. If it doesn't make sense to restart existing production capacity, it certainly isn't rational to invest in new greenfield capacity, which means those projects are pushed out even further. As a result, there is a greater likelihood that the uranium price will go well beyond what's required to incent Tier-1 production to return to the market and inventories will become less mobile. When we look at utilities' uncovered requirements and the success we're having on the long-term contracting front, we know there's acceptable business to be done. In fact, this activity has been a leading indicator in past uranium cycles, which is the reason for our confidence that the uranium market will undergo the transition already seen in the conversion market.
I can tell you, we will be more than happy to contract our Tier-1 pounds in that market scenario, as we are now doing with conversion. The discretionary market we see today is not sustainable. As I said earlier, the underlying fact is that the demand cycle is on an upswing while the production cycle has swung down. Like occurred in conversion, the market transition will likely only be recognized once it is in the rearview mirror. However, if the uranium market transition takes longer than expected, thanks to our strategy, we will be positioned to meet the delivery commitments under our contract portfolio and still generate cash flow while continuing to preserve our Tier-1 assets. Our strategy is designed to reward those who recognize the fundamentals as we do and patiently support our strategy to build long-term value.
We are a commercially motivated supplier with a diversified portfolio of assets, including a Tier-1 production portfolio that is among the best in the world. Our decisions are deliberate, driven by the goal of increasing long-term shareholder value. Ultimately, our goal is to remain competitive and position the company to maintain exposure to the rewards that will come from having low-cost supply to deliver into a strengthening market. Thanks for joining our call today, and operator, with that, we would be happy to answer any of your questions.
Thank you. We will now begin the question-and-answer session. In the interest of time, we ask you to limit your questions to one with one supplemental. If you have additional questions, you are welcome to rejoin the queue. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. Webcast participants are welcome to click on the Submit Question tab near the top of the webcast frame and type their question. The Cameco Investor Relations team will follow up with you by email after the call. Once again, anyone on the conference call who wishes to ask a question may press star and one at this time.
Our first question comes from Andrew Wong of RBC Capital Markets.
Hey, good morning. Thanks for having me on the call. Tim, correct me if I'm wrong. Your prepared commentary sounded much more positive, I think, than maybe the past several calls over the past year or two. Is that a reflection of the conversations you're having with customers? Are you seeing a shift in maybe some of the behavior or maybe some signals that more demand is actually coming now?
Good morning, Andrew. Thanks for the question. Nice to talk to you. You know what? I am growing more optimistic. I think that was our tagline somewhere, growing optimism. If you just look at the long-term supply-demand fundamentals, you have to say that something's got to happen here at some point. I think over the last seven years, consumption's outstripped long-term purchasing by a significant margin. We see, I think, uncovered 800 million pounds in the next 10 years, and I think it's almost double that if you go out to another five years past that. Supply coming off. Obviously, we've got some suspended supply here, Kazakhstan. Don't forget our friends in Ranger are in the last 10 months of that mine, and that's gone. That's been my whole career. That one's been running. COMINAK used to look after that one in Niger.
That's got about 11 or 12 or 13 months, and that's coming off. You got supply going down and demand going up, 450 reactors running. You got 50 in the pipeline. Let me just, at this point, throw in the ESG piece. Every meeting we come to with you or others, it's almost the first topic, ESG, and we are on the right side of that one. With our past performance at all of our operations and all of this talk now about climate change and climate crisis and keeping the temperature down and Greta Thunberg, and you name it, we're on the right side of that piece. We're getting invited to parties we haven't been to for a long time, and organizations like United Nations and IEA and IAEA and others are putting nuclear back on the table.
If I sound a bit more optimistic, it's because of those things, Andrew. I am more optimistic. We're patient. If anybody's patient, we are. We've had to be over the past years, I can tell you our optimism is growing.
From the customers, are you noticing a change in the conversations, like the tone that you're having?
Yeah. I said on my comments, don't get confused by the noise of the spot market, which is a whole lot of churn, not much coming out the end of that. We focus, as you know, we took down McArthur Key and said we wanted to refill our term contract portfolio, and once we did that substantially, we would turn it back on. I can tell you we've been having some real good conversations with certainly our bigger long-term, loyal customers that don't want to play the game into this new decade, and they see the supply-demand fundamentals as well. We put, I think, about 36 million pounds on the books last year, which was more than we sold. That's good news. I can tell you we've got more in the pipeline and so, yeah, we're optimistic going forward.
We think nuclear's going to play a role, and we're going to be right there.
Okay, thanks. Just the 36 million pounds that were added to the contract portfolio, could you just maybe talk a little bit more about the timing of those deliveries and maybe what's the exposure on fixed versus market-related terms? Thank you.
Yeah. Thanks, Andrew. On a term contract, obviously they start a couple of years out, and they're of different durations, usually in the 5-10 year range. That's good news. We like to have a mix in our pricing and base price escalated and market. We're certainly willing to take market exposure out into the new decade, and so that's what those contracts reflect.
Okay, thank you.
Thank you, Andrew.
Our next question comes from Gordon Lawson of Paradigm Capital.
Hi, good morning. How low are you willing to take your inventory levels? With inventories as low as they are now, what is your strategy to ensure that the spot market can continue to provide the gap?
Yeah. Thanks, Gordon. I think we pointed out in our materials that we're pretty much at the bottom of our inventory levels or the comfortable inventory levels. We'll obviously look at maybe replenishing that during the year. If you see the numbers in our MD&A, you'll know, last year, we just laid off on a few purchases we thought we might make and just went into our inventory and took them out there. I would say we're getting close to the bottom of where we want to be on inventory.
Just to add, Gordon, to the question of our confidence that the spot market will be there to supply those volumes. Actually, I would say we're not overly confident. One of the bit counterintuitive reasons why we took down our inventory a little bit as opposed to push ahead with purchases is because, as we've said before on our calls, we're really trying to redefine how people should think about spot. For us, spot should be what's available in a can or in a canister and can book transfer and financially close in a very tight period of time. Not what's available in the next six months, and certainly not the next 12 months.
For us, that's not a spot transaction. Despite all of the churn in the market that's out in that three-month, six-month window, for us, when we go in and try to find stuff that's actually in a can or a canister, it becomes a little bit difficult. What we're not willing to do is baseload somebody else's foolish production decisions. We're only looking for the stuff that's available right now. We couldn't always find it and had to draw down our inventory a little bit. We're actually not overly confident that it's there, but that's actually part of the strategy because in order to, I think, convince folks that that uncovered wedge of growing requirements is something that they need to pay attention to, we have to remove the sense that the spot market is going to be there to support discretionary buying.
One way to do that is to buy in the spot market.
Okay, thank you very much.
Thanks, Gordon.
Our next question comes from Greg Barnes of TD Securities.
Yes, thank you. Just Tim or Grant, on the 36 million pounds that you signed last year under long-term contracts, you said you get an acceptable return on them. Before, you said you'd only sign long-term contracts if they were getting you into that $40 U.S. a pound realized range. Are you going to realize prices close to that on these pounds?
Yeah. Thanks, Greg. Grant, do you want to comment on those?
From a framework point of view, we've been very consistent with saying that we obviously have a high bias towards market related. That's our preference. In fact, that for us is an important indicator that folks generally understand the price of uranium is going up. If you think about it, we have a bias towards market related. We'd sign a lot of term contracts that were market related. If a fuel buyer believed the price was never going to go up, they would have no problem signing market related as well and just transfer that risk over to us. Of course, that's not what's going on. Fuel buyers are looking to lock in today's price, and you'd do the same if you were in their shoes, but we're not willing to lock in at today's prices all of those volumes. We need that market leverage.
For us, it's about striking that appropriate balance where we have pounds that are going to be priced out into the future, in a market dynamic that we think is going to be very favorable for price formation out there. To the extent that we will agree on the fixed portion of it, today's prices are not sufficient. We need a better starting point. One, where by the time you escalate it to first deliveries, combine that with the market leverage, we're hitting that level that we talked about before, which we think is appropriate for Tier-1 production. That's about as far as we'll go, but that framework, I think, we've been successful. We've talked also about this pipeline. That is, we've got more pounds under discussion than we've had since 2011.
We're not going to be successful with all of that, of course, because we're trying to say today's indicators are not representative of the future. Some we'll be able to bring across the line, not all of it, but as the transition begins, and if we see an acceleration of it like we saw in the conversion market, then we like that opportunity. You know we only like to do contracting in an upcycle or when it's trending up. We don't like to do contracting in a downcycle. The fact that we have this off-market activity has been a strong leading indicator in the past, and it gives us confidence.
Okay. On the purchases for 2020, the 20-22 million pounds, can you break that down a little bit? How much of that is Inkai? How much of that is prior purchase commitments you already have? What is the balance of that?
Yeah. Sorry, Greg. We can't help you out much on that one. We're not disclosing that information, so sorry about that.
Can you give us an idea what the production you expect from Inkai, your share will be this year?
Sean, our production this year?
Sure. Total Inkai production should be 8.3 million pounds. We will collect 4.9 million pounds of that because of some adjustments we've made to the purchasing ratio with our partner.
Okay, great. That's helpful. Thank you.
Good. Thanks, Greg.
Our next question comes from Alexander Pearce of BMO.
Good morning, all. Just going back to one of the questions earlier on purchases. If indeed the spot market doesn't have enough material for you in your defined terms this year, and therefore, you don't have enough inventory to really draw down much more, how flexible are your delivery commitments in terms of, let's say, if you couldn't quite hit the target for this year? Can you delay some of those into next year?
Yeah. Alex, I would just say, obviously, meeting our committed sales is top priority for us. When we think about our inventory, when we think about our purchase plan, we think about access to material, it's always with that in mind. While I would say that we don't think the spot market might always be able to support our buying when we buy on those very tight terms, we're not going to jeopardize those committed deliveries. You'll probably see us in a market where other demand starts to show up, not just buy for our own account to meet committed sales, but also to restock a little bit if we sense that material is getting a bit scarce. Ultimately, that delivery commitment, we look at that, we're committed to it. It's part of our plans.
We're not worried we're going to miss a delivery, but where we source it from may change depending on the spot market availability.
You'll be more flexible on the purchasing side, potentially?
Well, in the scenario you're describing, we will be buying with extreme conviction and then looking for other sources in order to meet those committed sales. Actually, the purchasing conviction goes up, not down in that scenario.
Okay. Just a second question. I was interested to hear the initiatives in McArthur River, and I was hoping maybe you could give a bit more detail in terms of what you think the opportunities are there that you're looking into.
Thanks, Alex. I'm going to pass you over to Brian Reilly, our Chief Operating Officer. He's kind of got that under his control. Brian, do you just want to say a few words about our modernization?
Sure. The initiative at McArthur River is both strategic and opportunistic. It's strategic because the mining industry has changed over the last 10 years. We're looking at employing technology and innovation that will help reduce our costs, give us more flexibility, and ultimately produce safer production. It's opportunistic because both sites are in a care and maintenance mode. This is the time to do that work, and it comes with a certain amount of commitment from the company that we've got 20+ years of life of asset for these two facilities. It's an important project but both strategic and opportunistic.
Okay. Thank you.
Thanks, Alex.
Our next question comes from Jason Gould of Lifetime Wealth Management.
Hey guys. Thanks for taking my question. There seems to be a lot of confusion in the market regarding the run rate capacity of secondary supplies. The WNA report showed secondary supply run rate at less than £ 30 million pounds a year currently. Can you talk about your view of secondary supplies, and how does that compare to the sub 30 million pound run rate, that number from the WNA report?
Right. Grant, do you want to talk about secondary?
Secondary supplies continue to play an important role in our market, but it's the confusion about where they play that role that we think probably contributes to what you're alluding to. For example, folks will look at enricher underfeeding, and they will actually assume that enricher underfeeding is uranium that's available for the spot market. In fact, our experience is perhaps being the largest spot market buyer, is that that's not where that underfeed material is going. That underfeed material is going into contracts that enrichers were able to sign, perhaps EUP based, where they provide the uranium as well as the enrichment services. We do see enricher underfeeding, but we see it largely committed. We do see some reprocessing of some form as part of the Russian system, but largely committed. Those aren't the materials that we're seeing become available in the spot market.
In fact, what I would point to in the spot market is not inventory and secondary supply per se. It's uncommitted production. It's those who are producing that don't have a home for those pounds that are either directly putting it into the market, very small for direct, or passing it through a trader into the market. Secondary supply often gets blamed for that role in the market, but we actually see it more as an uncommitted production problem in the spot market. Secondary supply is there. It's come down a lot since the HEU agreement. There was a time secondary supply was 50 million pounds a year of supply into our market. Its role going forward will diminish, especially as demand picks up in the enrichment space and enrichers are able to increase the contract tails level.
Secondary supply is there, but it's playing less and less of a role and certainly playing less of a role in the spot market than most people I think are appreciating.
Okay. Just, you said it used to be 50 million pounds. Do you all have a ballpark estimate of what you think it is right now?
We wouldn't quarrel a whole lot with the UxC view. Again, a lot of people would take that view and then just imagine that's material available for the spot market. We think that's where the confusion becomes. Probably along the way, we're going to see a lot more scrutiny and maybe clarity on some of the counting of that secondary supply, because we wonder at times if, in fact, there's a bit of a double count going on. For example, within an inventory mobilization where perhaps one utility operator might deem that their target inventory's come down a little bit. They have some excess material that they choose to consume rather than put demand in the market. That's not also supply because it's not available for anybody to buy. It does have a demand effect. I already talked about enricher underfeeding.
I think sometimes that gets double counted in the market as both contributing to term supply as well as spot, but it can only count once. I think the carry trade business sometimes gets double counted through secondary supply. Carry trade represents past demand and supply that was then brought forward under a financial instrument and being delivered into, but it's certainly not today's supply and demand. We wouldn't quarrel, I think, with those overall numbers, but we would apply some downward factoring onto some of it. Just our experience. We just don't see those materials available.
Awesome. Great. Thanks, guys.
Thanks very much, Jason.
This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Gitzel for any closing remarks.
Well, thanks very much. With that, I just want to say thanks to everybody who joined us today on the call. We certainly, as always, appreciate your interest and your support. As I said earlier in response to that question, and as we head into the new decade, our confidence in the uranium market transition is growing, and the company's in good shape. We're ready. We're a commercial supplier, strong balance sheet. We've got great assets and a proven operating track record. We are going to continue to do what we said we'd do. We're going to execute on our strategy and navigate through all of the moving pieces in our industry. Thanks, everybody. Have a great day, and have a great weekend.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.