Orest Wowkodaw: Hi. Good morning. Curious about the contracting strategy relative to your production base. We saw your five year average book, I guess, creep up to 28 million pounds from 27 million. Is the idea there that we should expect that to continue to move higher, almost at the point where it could be above like, well above your production range? And then, we see effectively the McCarthy River expansion I would assume approved. At what level do we start thinking about bringing Tier 2 capacity back?
Tim Gitzel: Grant, do you want to take that?
Grant Isaac: Yeah. Happy to do that. So Orest, great question because it gives us an opportunity to remind folks that we are still transitioning as Cameco to our full Tier 1 run rate. Our plan this year, McArthur, at 18 million pounds on a 100% basis, Cigar at 18 million pounds on a 100% basis. Inkai, Sean’s already talked about it, is really the return of that Tier 1 cost structure. And we’re not there yet, but you’re seeing the benefit in our cash cost — unit cash costs, which were down substantially. So great operating performance there. But it is a reminder that we are actually not in full production mode yet. We have not made the decision, as Tim just talked about around McArthur River, Key Lake expansion to 25 million pounds on a 100% basis.
We’re doing that evaluation right now. And then there’s the Tier 2. So between what’s possible at our Tier 1 up flex, that’s another 15% of production, potentially 30, if we brought back our Tier 2s. So what gets us there is actually we need to see more demand in the market. It’s tied to my earlier point that we don’t front-run demand with supply. We wait for that demand security of supply-driven demand to come to the market, we capture that demand, and then we call for higher level of production. So as we’re in this transition, we do have a bigger over contracted gap than we have typically had as a run rate over contracted gap in the back — in the past. But much, much smaller than it was when we had McArthur River, Key Lake in care and maintenance, for example.
So as we’re transitioning through this, it’s about capturing appropriate demand at the right price indicators for us than calling for that production. In terms of where we — how we get to Tier 2, think about that more like, Tier 2 is competing with greenfield pricing. This market absolutely needs new uranium production. There’s no doubt about that. The good news for Cameco is, we can grow with this market without greenfield dollars for a very long time. But a key point of that is bringing back Tier 2s. And the way we look at those Tier 2s is we say when the market discovers greenfield pricing, and we’re going to know that because we’re going to see capital being deployed, like, meaningful capital being deployed for folks to advance a greenfield mine and a greenfield mill.
And of course, that hasn’t occurred yet, and that’s pretty obvious to see. But when those prices are being signaled, we will offer utilities a very simple alternative. We’ll say, you can take the risk with a greenfield project and all of the challenges with a greenfield, the mine development, the licensing, the permitting, the supply chain, the productivity factors, you can take all those chances with a greenfield may be in the hands of someone who’s never done it before or for that same greenfield pricing, we could bring back already existing, already licensed, already permitted Tier 2 capacity that is proven. It’s operated in the past, the supply chain is there and the skilled labor is there. But for us, it’s about waiting for that demand to form and not getting in front of it and front-running it because we’ve seen how others have destroyed shareholder value by doing that in the past.
That is not the game we play. So think about those Tier 2s as being an alternative to high-risk greenfield.
Orest Wowkodaw: Thanks for the color.
Tim Gitzel: Thanks, Orest.
Operator: Our next question comes from Lawson Winder of Bank of America Securities. Please go ahead.
Lawson Winder: Thank you, operator, and good morning, Tim and Grant. Nice to hear from you all. Thank you for your update. I just wanted to ask about the sales, and you had provided guidance in your annual report just through a chart that indicated that sales in Q1 would be around 8.5 million pounds for uranium. They came in at 7.3, which — it looks like a pretty substantial difference. Can you just speak to some of the reasons that might have driven that and just generally in the business, some of the factors that drive that seasonality in sales? Thanks.
Tim Gitzel: Grant?
Grant Isaac: Yeah. Thanks for noticing that. Obviously, we put out that table as part of our Q4 every February that gives you directionally what the quarters are going to look like in terms of uranium volumes. That table is derived by the collection of non-binding delivery notices that we get from the utilities usually six months prior to that table being constructed. So we received non-binding delivery notices that helps us build a schedule. Later on, those are converted to binding delivery notices and there can be sometimes slippage between one quarter or another. And whenever you see that, it’s always important to then step back and look at our broader outlook table and see if we’ve changed our committed sales for the year.
And obviously, you see we haven’t done that. So that’s a pretty — that’s the evidence that really this is about just volumes shifting from Q1 into Q2 into Q3, as opposed to being lost or sales that commitments that somehow went away. So a little bit lower than what we thought when we constructed those delivery patterns last fall. But ultimately, the calendar year, we’re still holding that same guidance for sales.
Lawson Winder: And if I could just follow up on that, any guidance as to what Q2 might look like at this point, given where we are in the quarter. And then also, if I could, wanted to ask about your contracting conversations and where the discussions are around caps and floors. Later last year, yourselves and your competitor — one of your competitors had indicated sort of $90 floors and $120 caps. Is that still kind of the range that we’re talking about? Thanks very much. That’s it from me.
Tim Gitzel: Yeah. Thanks a lot, Lawson. Grant?
Grant Isaac: The Q2 deliveries, yeah, we don’t — I don’t have an updated disclosure for that, Lawson. So sorry, that’s probably not a satisfactory answer. But just continue to look at that annual number. It hasn’t changed. So we’re going to deliver those volumes, they are committed and the utilities will take deliveries. I don’t know what others are doing in the market, and I don’t know exactly what they say. But ultimately, if you look at the trade press, if you look at where TradeTech and UXC are at, you’re seeing that floors in the market on a market-related contract are constructing up to be kind of just under the long-term price, and ceilings are stretching out into the hundreds, $120, $130. And that’s just really a function of the fact that while the spot market is not a place to sell uncommitted volumes, the spot market sentiment helps drive the callers around market-related contracting.
I think when others say things like $90 floors, they’re doing the escalation for you Lawson. They’re not actually telling you the price today, they’re saying, but by the time we’re done delivering it, they’ll have escalated till 90. Now that might be technically accurate, but I find it a bit misleading in the market when folks do that. But ultimately, let’s say, we’re talking about four prices and market related contracts that start with a seven escalated in U.S. dollar terms. This is a pretty constructive market for an incumbent producer. It’s early in the contracting cycle, haven’t seen prices this early at this stage of the contracting cycle. And we know prices need to still incent greenfield and they just haven’t done that yet. So it’s feeling pretty good to us.
Lawson Winder: Many thanks.
Tim Gitzel: Thanks, Lawson.
Operator: Our next question comes from Greg Barnes of TD Securities. Please go ahead.
Greg Barnes: Yes. Thank you. Just a couple of questions around Westinghouse. One, any commentary around the order backlog on AP1000s and how discussions are going with additional utilities outside of what’s already signed? And secondarily, any commentary around the potential restart of Springfields? Thanks.
Tim Gitzel: So Greg, I would just say on the AP1000, lots of interest like lots around nothing that we’re going to announce and walk through. But you probably saw just over the last couple of weeks in Ukraine that Khmelnytskyi 5 and 6, they’re looking at AP1000s there. I think they poured the first concrete for some of those. So that’s kind of — that’s moving ahead. And Ukraine, I think, is committed to up to 9 nuances. Now of course, it’s all subject to what’s going on there, Greg, as you know. But good order there. Bulgaria, Kozloduy (ph), I think, 7 and 8. They’ve chosen the AP1000. I think the feed contracts inside for those. And of course, those are all using Westinghouse fuel as well as a fuel component with those. I can tell you there’s a lot more conversations going on.
I just talked to the leadership there. Westinghouse a couple of days ago in North America, in Europe and in Asia. So lots going on, on that front. Anybody who — Grant or did you have anything? Or Dominic, anything to add? And maybe, Dominic, you could say a word about Springfield? I’d like Dominic come in the conversation. So anything on the new builds and/or Springfields, Dominic?
Dominic Kieran: Yeah, of course. Greg, good morning. So maybe a couple of words of side on Springfield. So yeah, thanks for the question. So we kind of view Springfield as quite a strategic asset, not just for the U.K., but for the sort of the global fuel market. And alongside our partner, Brookfield, we are indeed supporting Westinghouse who are looking at options for that site and how we can use Springfield, obviously, to support that market. And clearly, you mentioned the restart of conversion. We have an active project looking at could a restart could actually be new build of a conversion facility. As Grant alluded, the fuel market is strong. So we think there is absolutely sort of customer demand for that. and we are just supporting Westinghouse who are looking at options at the moment. So yeah, thanks for the question.
Greg Barnes: Great. Thanks very much.
Tim Gitzel: Thanks, Greg.
Operator: Our next question comes from Brian MacArthur of Raymond James. Please go ahead.
Brian MacArthur: Good morning and thank you for taking my question. It kind of follows on to Greg. But can I ask it this way. You made a comment a number of times that Westinghouse looks a lot better than when you first bought it. Is that because of, A, the AP1000 outlook? Is it a fabrication outlook? Is it helps your uranium business more? Is it better margins on contracts on the servicing. Any color or maybe it’s all of the above. I don’t know. I’d just be curious if you could expand on what you’ve seen that’s different and better within Westinghouse and since the deal was done?
Tim Gitzel: Yeah, Brian. Thanks for the question. I’d say it’s probably all of the above. I mean — and then I’ll turn to Grant in a minute because when we were valuing and did the work, the due diligence on Westinghouse, we put value on certain things and not on others. And AP1000, we didn’t put a whole lot of value on any new build, and now we’re seeing that move ahead. So that’s good. The AP300, you’ll remember the SMR didn’t exist or it wasn’t planned for, I should say, when we went out for Westinghouse, that’s there now, and we’re getting a lot of interest in that. Obviously, the eVinci is there. We’re picking up a whole bunch of those Eastern Europe fuel supply, the VVERs that are running, there’s 35 of them in Eastern Europe.
I think we’re getting most of the fuel for all of them. And so just things like that, Brian, that we hadn’t really calculated that, obviously, the Russian move into Ukraine has sped things along for us and for Westinghouse. So Grant, do you have anything you want to add to that?
