Grant Isaac: Yes, well, my comment earlier, Lawson, about Cameco’s not calling peak demand, or peak pricing, I was referring to uranium, but perhaps in conversion as well. I mean, this market has not really reckoned yet with a couple of big risks. And one of them is obviously the risk that not only does the legislative efforts to restrict Russian supplies in Western markets, become codified into law, but the risk that there’s a Russian retaliation. That would be a very constructive environment for conversion, because remember that Russian enrichment service shows up attached to something. It shows up in a cylinder that already has the uranium, already has the conversion. So that will continue to add pressure, to the conversion side of the business.
And then, of course, this market, I don’t think really appreciates at how difficult restarting production can be, whether it’s a uranium asset, whether it’s a conversion asset. I think a lot of folks are just assuming these things are easy and they build in a perfection scenario. So between those two really big risks that, there’s a ban on Russian material that the Russians actually react to by saying, okay, well, you can’t have it today, as well as the reality that’s going to set in, that all these big promises about new supply, whether it’s on the uranium side or the conversion side, are just going to take longer. That’s further price formation in the industry that needs to come. It’s why we don’t want to call a top. It’s why we don’t want to rush and secure all the contracts for conversion that would sell out Port Hope or encourage Westinghouse to do that for Springfield.
There’s more to come to this market. We’ve seen this story before. Now’s the time to remain patient and let that price discovery unfold.
Lawson Winder: Thank you all very much.
Tim Gitzel: Thank you, Lawson.
Operator: [Operator Instructions] The next question comes from Alexander Pearce of BMO. Please go ahead.
Alexander Pearce: Great. Thank you. Good morning all. So I just wondered if you could build on some of the market commentary you’ve made and in particular just the changes that you’ve seen so far this year and particularly what’s changed in terms of your discussions with utilities since you updated them because that’s been from last week.
Grant Isaac: Yes, we’ve seen a market that has behaved exactly like we told you it was going to, Alex. When the market begins to enter a security of supply cycle, actually the importance of the spot market goes down and the importance of the term market goes up. And look at the data. The spot market was smaller in 2023 than it was in 2022. So utilities focus less on the spot market. They focus more on the term market. Goes back to my earlier point about why we don’t try to sell stuff into the spot market. It’s thinly traded. It’s non-fundamental discretionary demand. So as utilities are shifting over, we’re seeing a market that hit about 160 million pounds of term contracting. It might be easy to conclude we’re at replacement rate, Alex, but I would just say we’re not quite there yet because there were two very, very big contracts that went through the market.
One that Cameco had with Ukraine and one that Kazatomprom had with the Chinese. If you back those out and ask on a distributed basis across all markets, are we at replacement rate? The answer is no. And so the good news is we’re in the early innings of a security of supply contracting cycle. We haven’t yet hit a distributed replacement rate and we’ve never been at this stage of the cycle at these prices before, which is why we want to continue to have that exposure going forward. But some of the common characteristics, tenors continue to go up. Utilities coming to the market for security of supply are looking for requirements covered on a longer term basis. Tenors are going out. Volumes are going up, not just because more years are being added, but because utilities are taking a bigger bite out of each of their requirements contracts.
And then, of course, time frames are going out. There are utilities who, Alex, are really well covered for the rest of this decade. They’re now worried about the next decade and they’re starting to look to contract into that window as well. So all of that very constructive for a view that the long term demand is building, not peaking, but building. And that what we want to remain is very disciplined to capture as much of that price discovery as we can.
Alexander Pearce: Great. Thanks, Grant. And then, Tim, you mentioned in your comments the ability to bring forward some of those purchase agreements if required. Are you able to quantify if indeed that did happen for this year for guidance and how much you’ve brought forward from future years into this year in these purchases?
Grant Isaac: It’s Grant again. Our plan in the outlook table was the plan all along on that 4.7 million. So we have that as an option to exercise more of those long term purchase requirements if we want. It’s why the disclosure on market purchase is up to 2 million pounds. That would be one of the levers why it’s not a hard 2 million pounds because we may not buy it in the spot market. We don’t have to, but if it makes sense for us, we will.
Alexander Pearce: Okay. Thank you.
Tim Gitzel: Thanks, Alex.
Operator: The next question comes from Brian MacArthur of Raymond James. Please go ahead.
Brian MacArthur: Good morning, and thank you for taking my question. It goes back to the last question. So in this table, and I appreciate now you’ve given the breakout, two things. Do you assume that you get your Inkai purchases every year? Because again, you also stated right now we’re not sure what we’re going to get. Again, those are, as you said, profitable pounds once you do the equity component. If not, how do you balance for that? Because again, the question is you could be getting 4 to 5 million profitable pounds from Inkai. And my third question on that is I can’t remember, are you getting 50% or 40% of the joint venture now under that agreement? Thanks.
Grant Isaac: Brian, let’s just start with yes, the table assumes that the volumes expected from Inkai in 2024 arrive. But of course, as we saw in 2023, there can be sometimes timing differences. We got about two-thirds of Inkai’s 2023 volumes in 2023, the remainder early 2024. This is something we can deal with as Cameco because we have other sources of supply. We have other mines. We have our inventory. We have all of the levers we’ve already been talking about. This is actually a much, much bigger problem for the front end of the nuclear fuel cycle because it’s close to 50% of the global production of uranium that isn’t arriving when it needs to arrive at Western markets. So for Cameco, it’s something we can plan for, something we can deal with. We eventually get those pounds and we can deal with the time issue associated with them. The overarching assumption is yes, we’re going to receive them. If we don’t, we’ll manage.
Tim Gitzel: Grant, I’d just add to that that the sharing is 60-40 once you reach the nameplate capacity of 4,000 tonnes per year, which is just over 10 million pounds. We’ve never hit that peak yet. Over the last number of years, we’ve basically received as a share of production what we would get at 40% of 10 million, so around 3.2 million pound.
Brian MacArthur: Great. Thanks. Just so I can be really clear, you also, as you mentioned, got last year’s shipments from Inkai. You presumably have those pounds in inventory and the other ones in the Canadian port. So would you not feel pretty comfortable that you’re going to have a lot of Inkai pounds to sell this year because they’ve already arrived and that’s embedded in those numbers?
Grant Isaac: Yes. Sorry. I hope my comments weren’t viewed as being unconfident. We’re very confident that that supply is going to show up. And if there are timing challenges, we deal with it within our inventory, within our other sources of supply. So extreme confidence.
Brian MacArthur: Great. That’s helpful. It’s just these pounds are very profitable. So the fact is the finances depending on when they come in.
Grant Isaac: Indeed.
Brian MacArthur: Okay. Thank you very much. And one quick last question. CRA, I don’t want to go back to this at all because I sort of figured it’s hopefully dealt with, but I do see you have to put some more money aside again. So we’ve done 2017. Does that mean they can do ’18 and ’19? You might have to put money aside this year? Or a letter of credit aside?
Tim Gitzel: I was going to say thanks for the question, Brian. But I’m sure – No, Brian, I’ll pass it over to Sean. Sean?
Sean Quinn: Sure. We did have the reassessments in 2017 and we put I think $70 million aside, which we expect we’ll have to post in the form of a letter of credit. The problem does diminish. The problem with the CRA continues, but the size of the problem diminishes over 2018, 2019, 2020 as the pounds that were sold through our offshore trading structure diminished. So I don’t have the exact size of the diminishment in front of me, but it does get smaller as we look forward.
Brian MacArthur: That’s very helpful. Thanks, Sean.
Tim Gitzel: Thank you, Brian.
Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Tim Gitzel for any closing remarks.
Tim Gitzel: Well, thank you, operator, and thank you to everyone who joined today. As Rachelle noted, if you have detailed follow-up questions related to the 2023 results or any questions that we didn’t get to today, please send those in to us and we’re happy to address them directly. We continue to believe that Cameco remains the best way to invest in the recovery of the nuclear fuel cycle and positive momentum behind nuclear energy. With 35 years of experience in this market, we’ve built a strong reputation as a proven and reliable supplier with a diversified production portfolio, a portfolio that provides us with the flexibility to work with our customers to ensure they maintain access to our reliable supplies to satisfy their ongoing fuel requirements.
The world has put a priority on achieving net zero carbon emissions in the decades to come, and it’s become clear that there’s no net zero without nuclear. And I would go a step further and say, in fact, there’s no nuclear without Cameco and Westinghouse. So it’s also becoming clear that there’s no net zero without Cameco. We believe we have the right strategy to achieve our vision of energizing the clean air world and we’ll do so in a manner that reflects our values. So thanks, everyone, again, for joining us today. Stay safe and stay healthy in 2024. Thank you.
Operator: This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
