Cameco Corporation

Thank you for standing by. This is the conference operator. Welcome to the Cameco Corporation first quarter 2024 results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. Following the introductory remarks, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, You may signal an operator by pressing star and zero. Webcast participants are asked to wait until the Q&A session before submitting their questions as the information they are looking for may be provided during the presentation. The Q&A session will conclude at 9 a.m. Eastern Time. I would now like to turn the conference over to Rochelle Girard, Vice President, Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Welcome to CAMCO's first quarter conference call. I would like to acknowledge that we are speaking from our corporate office, which is on Treaty 6 territory, the traditional territory of Cree peoples and the homeland of the Métis. With us today are Tim Gissel, President and CEO, joining the call today from Washington, D.C. Grant Isaac, Executive VP and CFO. Heidi Schake, Senior VP and Deputy CFO. Brian Riley, Senior VP and Chief Operating Officer, Sean Quinn, Senior VP, Chief Legal Officer and Corporate Secretary, and Dominic Kieran, Global Managing Director of Cameco UK Limited. I'm going to hand it over to Tim in just a moment to briefly discuss the momentum that continues to build behind nuclear energy and how the continued execution of our strategy and transition back to our Tier 1 cost structure has positioned us to benefit from the tailwind. After, we will open it up for your questions. Today's call will be approximately one hour, concluding at 9 a.m. Eastern Time. As always, our goal is to be open and transparent with our communications. However, we do want to respect everyone's time and conclude the call on time. Therefore, should we not have time to get to your questions during this call, or if you have detailed questions about our quarterly financial results, we will be happy to follow up with you after the call. There are a few ways you can contact us with additional questions. You can reach out to the contacts provided in our news release. You can submit a question through the contact tab on our website, or you can use the ask a question form at the bottom of the webcast screen, and we will be happy to follow up after this call. If you join the conference call through our website event page, there are slides available which will be displayed during the call. In addition, for your reference, Our quarterly investor handout is available for download in a PDF file on our website 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 that actual results could differ materially. You should not place undue reliance on forward-looking statements Actual results may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today, except as required by law. Please refer to our most recent annual information form in the 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, Rochelle, and good morning, everyone. We appreciate you taking the time to join today's calls. As Rochelle mentioned, I'm joining the call remotely from Washington, D.C., where this afternoon I'll be attending the Energy Transition Metals Summit hosted by the Northern Miner. In the days to come, we will also be meeting with some of the key policymakers here in D.C. to discuss current and future industry fundamentals. And importantly, we'll talk about how we're going to translate the significant government and public support for the expansion of nuclear power generation into meaningful actions that generate tangible results to the benefit of the entire planet. As Cameco and as an industry, we're ready to respond to the global need for carbon-free, reliable, and secure nuclear energy for decades to come. We've said it several times over the years, and it's worth repeating. Our invitation to symposiums and high-level discussions now taking place around the world is a testament to Cameco's deep understanding of how the nuclear fuel market works and acknowledgement of the strong relationships we've established over several decades of experience. Let me tie together a few key themes today before we get to your questions. First, nuclear is being recognized by governments, power suppliers, and industrial power consumers as a carbon-free energy source that is key to net zero and energy security. On that basis, Cameco, along with our investments in Westinghouse and Global Laser Enrichments, is key to the nuclear industry and therefore key to the path to net zero. And within that broad positive demand context and in the face of uncertain supply, our strategy and experience provide us with unmatched leverage to add significant long-term value while ensuring strong downside protection. And our results so far in 2024 remain on track, for delivering that value and establishing that protection. So thinking back to this time last year, we were highlighting 18 months of growing momentum and interest in the nuclear space and in Cameco. And I can absolutely say that now, 12 months later, the interest and positive outlook have only improved. I would even qualify that further and say it has improved significantly. First, it's improved based on the impact of the global emphasis on clean energy. We believe nuclear power is essential for the ongoing clean energy transition. If the world is going to meet its net zero targets, we need carbon-free baseload and dispatchable power that can be located where it's needed and is always available and consistently reliable. I don't need to tell you that nuclear is one of, if not the only, energy source that meets all of those requirements. And we don't just need a bit of it, we need a lot of it. From a sustainability and scientific perspective, both the international community and large power-consuming industries are calling for a tripling of nuclear energy from where it is today. And if we are to follow that path, it means a very significant increase in the number of new builds on the horizon, translating into significant value across the fuel cycle and reactor life cycle. Next, the outlook has improved based on today's focus on secure energy. Nations must ensure that their critical energy infrastructure and fuel supplies are not excessively reliant on risky jurisdictions, unreliable partners, and unstable actors. And again, nuclear checks those boxes. Fuel supplies and services for nuclear energy are sourced from multiple safe jurisdictions and suppliers in the Western world, And the nature of the fuel itself allows for long-term inventories and storage. So not only can you keep years of reloads behind a reactor, but that reactor can provide carbon-free and reliable energy for months without refueling, giving governments and utilities a runway to adapt should circumstances change. And finally, keeping both clean energy and energy security in mind, the outlook is more positive in the context of the current debate around AI. data centers, and the considerable energy needs that are coming with the rapid evolution of technology. I recently read that using generative AI to provide search results in the same way we use Google requires a tenfold increase in power requirements. Ten times. And gone are the days of rolling out new technology without worrying about future potential runaway environmental impacts. Companies driving the technology forward are doing so while keeping carbon footprint and 24-7 reliability top of mind. And again, nuclear is the clear winner. You don't even have to take my word for it. We're seeing both industrial power users and tech sector experts voicing support for nuclear energy. With some now taking action and signing agreements to ensure their facilities can access zero carbon and reliable nuclear energy now, and into the future. Clean and secure electrons are on the critical path for the generative AI development, putting nuclear and chemical on the critical path to the digital revolution and strategic reindustrialization. So grouping all that together, it is clear that we need to deploy zero carbon global and secure energy production to move the world forward, and the world is now acknowledging the benefits of nuclear. I attended the inaugural Nuclear Energy Summit a couple months ago, which took place in Brussels, with presidents and prime ministers from 32 countries. The goal was to join forces to back supportive measures in areas including financing, regulatory cooperation, technological innovation, and workforce training, enabling the expansion of nuclear power to help boost energy security, address climate change, and meet our collective net zero targets. Because, as I said, without nuclear, there is no net zero. Without nuclear, there is no global and secure energy. And without nuclear, the next generation of energy-intensive technologies could result in increasingly detrimental environmental impacts. Nuclear is key to addressing those challenges, and that's where chemical comes in, playing a key role in current and future power generation. We believe that at Cameco we have the right strategy, the right people, and the right assets to deliver long-term value. Along with our investments in Westinghouse and Global Laser Enrichment, we expect to benefit significantly from the tailwinds. From the front end of the fuel cycle and through the reactor life cycle, from fuel supply to plant services to new builds and advanced reactors. We've never been in a better position with licensed and permitted brownfield assets in safe, sovereign jurisdictions, and the capacity to grow to meet our commitments. So the future looks bright. Turning briefly to the quarter, our first quarter performance was as expected, highlighting the benefits of aligning our operational, marketing, and financially focused strategy in a market where we are seeing that persistent positive momentum for nuclear energy like never before. The run rate at our operations is on pace to meet our annual production guidance. Operationally, our production results in the first quarter were strong and on track with our 2024 plans, with production rates and total production costs in our uranium segment continuing to reflect the transition back to our Tier 1 cost structure. In fact, we didn't change our 2024 operational or financial guidance metrics in any of our business segments after the first quarter. However, we can't overlook the geopolitical events that have been amplifying global supply chain and transportation risks. Those risks have continued to have a significant impact on nuclear fuel procurement strategies and the fuel cycle, especially in terms of transportation, which is not getting any easier. It's an elevated risk that we have a team focused on each and every day, and as it evolves, our stakeholders can be confident that, as always, Cameco will be transparent with our related disclosure. In the market, we continue to be selective in committing our unencumbered Tier 1 in-ground uranium inventory and UF6 conversion capacity. We don't focus on the small, irrelevant spot market, but on high-quality term demand where the majority of uranium fuel and services are secured. In Q1, we successfully layered in additional long-term contracts increasing our annual commitments to an average of about 28 million pounds per year from 2024 through 2028. Every contract we add reflects the sentiment and dynamics in the market at the time it is negotiated. So in today's market, that allows us to take those price peaks and carry them into the future, creating value for years to come while maintaining significant downside protection for when the cycle turns. From a risk-managed financial perspective, our strong balance sheet and the expectation of strong cash flow generation tied to our contracting strategy guides our conservative capital allocation priorities. In 2024, that includes focused debt reduction and prudent refinancing plans. As for our Westinghouse segment, results for the first quarter were as we expected, as guided in Q4. and we continue to expect our share of adjusted EBITDA from Westinghouse this year to be between $445 million and $510 million. It was and is a great investment where the prospects continue to improve and where we still anticipate EBITDA growth at a compound annual growth rate of 6% to 10% over the next five years. So I'll stop there. Thank you for your interest today, and we are happy to take your questions.

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 1 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 from the question queue, please press star then 2. Webcast participants are welcome to submit questions through the box at the bottom of the webcast frame. 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 then 1 at this time. Our first question comes from Neil Mehta of Goldman Sachs. Please go ahead.

Yeah, good morning, team, and thanks for the time and the big picture thoughts. I had a couple of specific questions, one on Westinghouse. You reiterated the annual guide, but the adjusted EBITDA did look a little softer in the quarter. A lot of that was on March, and so can you just walk us through the seasonality of that business, what gives you conviction on the full year, and any color you can provide on that segment?

Yeah. Thanks, Neil. And thanks to you for your participation now in chemical. We appreciate it. Listen, I'm going to turn this over to Heidi Shockey, I think, just to talk about the EBITDA on the quarter and for the year. And it was a kind of a special quarter in that regard with kind of the purchase price allocation work that had to go on there. So I'd just say in general, I can tell you we're delighted with the whole Westinghouse piece. It's a It's even better than we thought when we bought it. The potential there in all elements of their business is really good. And so, yeah, there's some accounting pieces that came up in the quarter. So, Heidi, can I just push it over to you just to give us a little bit of an overview of Westinghouse on the quarter and the EBITDA on our guidance for the year there?

Sure, Tim. Thanks. Yeah, there was a few accounting pieces that impacted our results this quarter. for Westinghouse, the first of which, it's really to do with the purchase accounting. So we had to fair value our assets and our inventory when we had the acquisition. And so generally we're going to see higher amortization on the asset balances and the intangible assets. On the inventory side, all the inventory that they held on the date of acquisition would have been fair valued, and so as they sell that off, you won't see any accounting margin on that. We still get the cash flow, of course, but the margin in terms of results is very low. A lot of that inventory will be sold off here in Q1, Q2, so you'll see that diminish over time. And then, of course, we had some acquisition-related transition costs that also hit the quarter, and those will come off over the course of the year. But in terms of their operations, there's also seasonality to their operations. So the outage season is in the year. Typically, near the end of the year, you'll see higher results just really tied to that outage season where they do a lot of work for the utilities.

Thanks, Heidi. And Tim, to follow up a big-picture question just on long-term price, we've been tracking – On your website, the term price kind of grinding here from $68 at the end of last year up to $77.50. And just your perspective on conversations you're having with nuclear buyers and do you still see upward pressure on term price in your conversations?

Yeah, Neil, I'm going to turn it over to Grant who looks after the marketing side. but I can tell you we are seeing it bump along. Well, it's gotten more than bump along. If you go back a year or two, we weren't anywhere near the kind of 75-80, average 77-50 on the term price. We're just, as Grant has said many, many times, I think in the early innings of this game, you just see overall these conferences where you're talking tripling nuclear power over the next 25 years. And some would say, well, that's never going to happen. Okay, well, it doubled. And you say, well, then we need all the uranium that we've got now and doubling it again. And so the pressure is going to be there on the price. We haven't hit a price, I think, an incentive price for new production. We're not seeing a whole lot. We're seeing a little bit coming out. So yeah, the pressure is going to be there for, I think, a long time to come. But Grant, let me turn it over to you. You're the better expert on the market.

Thanks, Tim. Neil, great question, and thank you for focusing on kind of that term market because that really is what to watch in order to figure out where this market is going. The term price remains in a constructive build, and that is very simply because we are seeing this continual pivot to more security of supply contracting. You know, the contracting where utilities are become increasingly concerned about the availability of future supply. That concern is reflected in some important contracting characteristics. You've heard me talk about them before. Number one is tenors go out. So utilities come to the market and they're looking for more material over a longer period of time. And then you start to see volumes going up, not just because more years are being added, but utilities are taking bigger bites out of each year And then, of course, we're seeing timeframes be extended, utilities looking for material well into the mid 2030s now. That is all reflective of this underlying security of supply pivot that's occurring. It's occurring because of the multiplication of the market that's going on. It's occurring because of some of the production challenges you're seeing with some uranium production. We continue to believe we're in the early innings of it because if you add up the amount of contracting that's in the market, it's not even at replacement rate yet. So we just find it to be very, very constructive because to have an average term price of $77.50 when we're not even at replacement rate yet, that's a pretty good place for us to be and a great place for an incumbent producer with tier one assets and brownfield leverage a great opportunity for us to take advantage of that value capture. So we're feeling very, very constructive of that underlying market fundamental.

Thanks, Grant.

Thanks, Neil.

Our next question comes from Ralph Profiti of Eight Capital. Please go ahead.

Thanks, Operator, and good morning, everyone. Thanks for taking my questions. Tim or Grant, INCAI guidance of 8.3 million pounds, this is currently a tentative target and under discussions. Can you talk a little bit about progress on securing sulfuric acid supply and maybe one step further, is there any range of production volumes that you could potentially see that's at risk in that guidance number? And just thinking about sulfuric acid shortages only, perhaps leaving out even more unpredictable logistical challenges. Any context around volume at risk would be helpful.

Yeah, Ralph, it's Tim. I'll start because Sean Quinn and I just came back from there. We were over there last week, had obviously meetings with the Kazakhs and their joint venture partners. Obviously, sulfuric acid is an issue. It's short. It's tight. Other industries are keeping the supplies they have and using them. They're having trouble accessing their regular channels of sulfuric acid from the Russians and others because the Russians are sanctioned and not able to produce like they were. So you know their plan is to bring the Italians in to build a new plant. I'm not sure that's even started yet. So I think we're into this pickle for a couple years until that new plant gets built. So I know Sean had direct conversations with the CEO of JV Inc., Kazatomprom. So, Sean, do you have anything to add? 8.3 was the best information we had when we put out our information, obviously. Sean, do you have anything to add to that?

Not a lot, other than in our conversations with Kazatomprom, they're getting more comfortable that 8.3 million is achievable this year. They're obviously working hard on the sulfuric acid, both the supply and the logistics challenges that you mentioned, but really not much more detail than that other than some increasing comfort that that will be achievable.

Okay, got it. Thank you. As a follow-up, I'd like to Come back to something that Grant talked about, which is this supply pivot and how characteristics of these contracts are changing in terms of tenor volume and timeframes. And it sounds like that's becoming perhaps more important than the actual volumes secured in the term market, which so far at 26 million pounds or so year-to-date is kind of sort of underwhelming when we look at what is replacement rate and what we did actually last year. Would that be a fair comment?

Grant, please. Yes, sorry, Tim. Ralph, I might characterize it by just saying more to come. When we evaluate the types of conversations that we're involved in in our pipeline, it is indicating a lot of security of supply interest, and we're presuming it's a leading indicator for what you might see in the term market. So we are expecting strong contracting volumes through 2024. If there are any delays, it might be reflective of perhaps two things. One is a bit of uncertainty around where some of these legislative efforts are going with respect to things like Russian supply. You know, we're very close to seeing legislation in the U.S. That legislation I think has been well planned from a utility supply point of view unless, of course, the Russians retaliate to that legislation by restricting supply in the immediate term. The market is not priced in that risk. But that's maybe causing a bit of a pause or maybe a slowdown, I would say, in final negotiations for term material out past that 2028 phase-out window. And the second thing is, Don't forget we have a bunch of new customers as a result of this bifurcation, multifurcation in the market. Customers in Central and Eastern Europe who were traditionally captive to Russian supply and not accustomed actually to buying components in a big way, receiving instead a fabricated fuel bundle from the Russians. And there is a learning curve to go up for this demand, to kind of learn how to buy the uranium and the conversion and the enrichment and the fabrication services, as well as the outage services. So it's kind of the learning effects of new customers combined with maybe this overhang of legislative challenges or opportunities in the market may be causing a bit of pause, but the underlying security of supply sentiment is growing stronger and stronger, Ralph.

Quite helpful. Thanks, everyone. Thanks, Ralph.

Our next question comes from Gordon Johnson of GLJ Research. Please go ahead.

Hey, thanks for taking my question, guys. Appreciate it. So just two questions. First, you guys talked about this just now with respect to the potential Biden ban of product coming in from Russia. Can you talk a little bit more about the actual impact here because it seems like it's an executive order it doesn't take effect until 2028 so it seems like the real impact will be muted unless like you guys said the Russians react but I just want to make sure I have that correct if you could provide your insights and then a follow-up thank you well Gordon I'll start and then Grant can chip in but part of the reason I'm down here is to have those meetings first to see where that legislation is at we'll be going through the different

Secretariat to talk to the people in charge and just see where that's at. I mean, that has already had a chilling effect. It's going to have even more of a chill when it gets passed. And so, you know, we talk about 2028. Well, you can still buy until then. If you're looking at the market now, there's not a whole lot of material available until then, and most utilities are looking in that window. So, Grant, I'll pass it over to you to give your view on that.

Yeah, very close to seeing a legislative ban. In fact, I believe if it wasn't for one senator, we would have seen a ban in place by now on the legislative side. Absent a legislative opportunity, Gordon, our strong sense is there might be an administrative action, as you mentioned, either at the secretary level or even at the executive order level, in order to codify the intent of to shut out Russian supply by 2028. So let's first talk about the potential impacts there. As we've mentioned a number of times, utilities have been largely, I would call it self-sanctioning, because of the underlying Russian suspension agreement, which was already sunsetting in 2028. So a lot of that forward contracting was already looking to avoid Russian supply, But meanwhile, contracts that have been signed in the past were being delivered into. So there's kind of two elements to a ban from a U.S. point of view. The number one is, you know, when is the ban effective? Is it going to be effective sooner than 2028 or is that the date certain? And number two, what is the strength of the waivers that might be granted to utilities to take in supplies between now and 2028, for example? If you have a strong band but weak waivers, it might not have much of an effect. But if you have a strong band and strong waivers, meaning that utilities really have to demonstrate that there is no other alternative for them to fuel their reactors. you know, it's really in the national security interest and only then will they get a waiver for importing the Russian material, then that will really be a strong signal to focus on sovereign, safe jurisdictions for supply. Now, the final piece, and I already mentioned it, but it's worth mentioning again, is all of this presumes it's up to the West to decide when the Russian material is done. And what we forget about is there's the other side to that coin, and that is the risk that if a ban comes in place, and a ban with, say, strong waivers come in place, that the Russians don't react by simply saying, oh, you don't want our material come 2028? I'll tell you what, you can't have it now. That kind of voluntary export restraint on the part of the Russians has absolutely not been priced into the market and has not been anticipated in terms of future supply. And I would say you would have to go back at and look at an analog like the Cigar Lake flood event to see that kind of shock that it would create. So that piece really isn't well thought through in the market. But the ban itself, come 2028, the self-sanctioning, it has been kind of well-planned, subject to strong waivers and subject to a Russian retaliation.

Yeah, that's very helpful. That was the biggest risk I saw. The Russian retaliation would really be what caused prices to move, and I agree that's not priced in. One quick follow-up, if I can. There seems to be a constituency of people out there who are saying, you know, Cameco forward sold a lot of their pounds at $70, and thus, you know, they're not going to benefit from this increase in prices. Yet, when I go through your financials, and just correct me if I'm wrong, it looks like to me, you guys have only committed 20% of your reserves. So that leaves about 800 million pounds for future contracts. And from what I'm hearing in the market, those contracts are being signed at floor prices of 80 with ceilings at 135. Is that accurate? Can you comment on that? Thanks for the question, guys.

Yeah, Gordon, thanks for that question. You're singing our song there because you're accurate with what you said. I think we have sold about 20% of our total reserve resource base and more to come. We've got lots of Grant, do you want to answer that again?

Yeah, Gordon, thanks for that question. And it is something that we occasionally hear. And let's just go through that in a little bit of detail. And sorry for folks that are very familiar with this explanation, but for those who aren't, I think it bears a little bit of time. There is a notion out there that a producer in the uranium space should produce uranium and sell it into the spot market. And I think If that debate isn't clearly over for folks, it's just because they're not paying attention. We saw significant downward price action in the spot market in March on the back of a couple hundred thousand pounds dangled over the spot market. So you're talking about an industry consuming about 180 million pounds a year and a couple hundred thousand pounds being aggressively moved into the spot market had a $6, $7 effect. over the course of a couple of days. And why is that? It's because of a very simple fact, and that is there is not a reactor anywhere on the planet that is loading a fuel bundle in 2024 that needs uranium in 2024. The uranium that's in that fuel bundle was bought years ago, at least in 2021 and probably even years before that. So there is never high-quality fundamental in-year demand for uranium. Utilities instead are looking for their material out into the future. That's the high quality fundamental term market. And that is the market that matters to a uranium producer. And when you look at that market, here's a really important fact. Cameco never sells below the market. So if the market is the term market, what's being negotiated today, Cameco is always able to capture leading prices in the market. We are able to take advantage of our incumbent production, our brownfield leverage, our reputation as a reliable supplier, and discover the best pricing in the market in terms of floors and ceilings and market-related contracts or the base escalated portion, the fixed portion in the term market. We don't miss that market at all. In fact, in many cases, we're helping lead the discovery of prices in that market because of all the advantages we bring to the table relative to somebody who might be producing from a jurisdiction that's not considered sovereign safe, or somebody who doesn't have the reputation of reliable supply like we do, or doesn't have multiple sources of supply like we do. So those incumbent advantages create this opportunity for us to capture leading value going forward. So where the market is today is exactly where Cameco is. We never missed that market. And the inverse is not true. If we had preserved 5 million pounds to sell through the spot market when it hit $106, first of all, the market would never hit $106 because it would see that material sitting there. And the second we showed up with 100,000 pounds of fresh production, the market would back up. And you don't even have to take my word for it. Look at what happened to Kazatomprom during their volume strategy days when they were selling material through the spot market in big volumes. Or look at what happened to Paladin in their spot exposure days. So no surprise, looking forward, the responsible producers of uranium have landed on a very common message, which is you build homes for your production and before you call for it. You stay off the spot market because it's not capable of absorbing those volumes because there's never any high quality in-year demand for uranium. And that strategy is what captures the most amount of value going forward. And when you're a producer like Cameco, you're at the top of that market in finding that forward value. So you look at Cameco, our exposure is second to none. And our pipeline of reserves and resources means we have about 800 million pounds we haven't even tried to sell yet. That is best-in-class exposure to this constructive market.

Thanks for the question.

Thanks, Gordon.

Our next question comes from Andrew Wong of RBC Capital Markets. Please go ahead.

Hey, good morning. Thanks for taking my questions. So just wanted to go back to contract terms. Can you just talk about the escalators that are being built into contracts today? We're in a more inflationary environment. Rates are higher. Demand is stronger. Have those escalators gone up? And maybe just talk about how those might affect pricing in the future period since we don't really hear much about the escalators.

Thanks, Andrew. Grant? Yeah, the situation for escalators on contracts has really improved dramatically for suppliers of uranium. And remember what we're talking about here is in a term contract, there's those two bookends. You can have a term contract that's base escalated. So you start at today's term price, average term price of $77.50. And then the negotiation is how does it escalate to first deliveries and then how does it escalate through the delivery window? The other types of escalators are actually on market-related contracts because the floors and the ceilings have escalators built into them. So a floor price you get today is subject to an escalator, a ceiling price subject to an escalator. And when I say the environment for escalators has improved, what I mean is that In the post-Fukushima window, when we saw a lot of material hitting the market, a lot of uncommitted material oversupplying, we actually saw some producers who were willing to even discount a standard inflation indicator. So you take a CPI indicator and they would offer 0.75 of the normal CPI indicator. Now what we're seeing is indicators that are capturing escalation at least at industrial escalation, and in some cases having success building in regulatory cost or industrial cost escalators. And this is just a function of the security of supply pivot that I talked about. And it's exactly why when the market is oversupplied and prices are soft, Cameco chooses to leave pounds in the ground rather than pulling them out of the ground and trying to pound them into a market where you don't have any negotiating leverage. And now as this market has changed and security of supply is back in the market, it gives incumbent producers incredible advantages and escalators are one of those advantages. So that environment has definitely changed.

Okay, that's great. And then maybe just Switching to something else here, can you talk more about the Don Lake project? It looked like drilling and exploration there hit some pretty significant mineralization last year. What's the exploration plan for that project going forward, and maybe when might we hear some of those results?

Yeah, thanks, Andrew. Yeah, we don't often talk about exploration projects. which is probably one of the best in the world. And we've got some of the best property in the world, including the Don Lake property, which is close to our existing infrastructure. So, yeah, we have had a bit of success there. Sean, do you want to say a few words about our Q22 or Don Lake project and just where that's at?

Sure. And I'll just start by noting it's across the Penn Slime. We have ISO Energy and their hurricane deposits. but we had a very active winter program, and we're analyzing the results, sharing them with our joint venture partner in Urano. And then we'll be moving into a summer drill program, assessing the results of that, and I think might anticipate having some results to share with the market after the conclusion of that summer program. Thanks, Andrew. Thanks, Andrew. Okay, great. Thanks.

Our next question comes from Alexander Pierce of Bank of Montreal. Please go ahead.

Great. Thanks. Good morning, all. So just turning back to contracting again, it looks like you may have added a few million pounds to your near to midterm contracting book. I think you flagged as 28 million pounds per year now for the next five years. In the previous course, you provided a total number of contracts, under contracts, so I wondered if you could provide an updated number for us there. Thanks, Alex. Sorry, Tim.

Go ahead, Grant.

Yeah, sorry. We moved away from kind of giving those quarterly updates, Alex, on where we were at with contracting. We did it for a period of time because we were seeing the market recovery before others were seeing it. And we thought we were there to play a pretty important role in convincing folks that contracting was underway and we were seeing the return of term contracting. But now the data are pretty clear. So what we want to do, obviously, is kind of go back to our maximum negotiating position, which is on an individual basis, not revealing what's committed at any time in the market when we're negotiating with customers. And that's just a position we want to be in because we just don't think we have to convince anybody that the term contracting cycle is underway. Now, to your question about adding some near-term demand, what I want to emphasize there is you often hear us talking, Alex, about staying off the spot market. So I don't want anybody to interpret us adding near-term commitments as well. You're saying one thing and doing the other. Occasionally, we'll be in a term contract negotiation with the utility. And we'll be talking about a classic term window starting two years from now, going out for seven to ten years. But that utility might say to us, but we'd really like you to find some material in the near term. So it is fundamental end user demand. It's not material we're putting to a trader to then churn through the spot market. And it's also demand that we can deploy when we want to deploy it. So we have it in our back pocket. It's like our up to 2 million pounds of potential market purchases. We can deploy it when it makes sense for maximum value creation for us. So it's a good strategy for us to follow when it works. But there are other times where we simply say, we can't find you any material in the near term. So sometimes we will add those commitments, but it's never commitments to a trader for material that gets churned through the market because that is not value creating.

Okay. Fair enough. Thanks, Graham. Maybe I can ask a second question then, just in terms of where you stand on the MacArthur River expansion. Obviously, the last update, you're investigating what it could cost.

Same probably as last quarter, Alex. We are investigating. We've got a team looking at whether we can expand and what it'll take to expand. Obviously, as we've said over and over, kind of ad nauseum, we'll let the market call for those pounds, and then we'll move ahead and bring up the production. So we're just doing the background work that we need to do now to look at the different circuits in the mill and in the mind. We know we can get there. We're just kind of evaluating what it'll take to get there. So we'll have more news on that as the year goes on, but we're progressing.

Great. Thanks, Tim. Thanks, Grant.

Yeah, thanks, Alex.

Please note we are nearing the 10-minute mark for questions, and any we don't get to can reach out to the IR team. Our next question comes from Orest Waukadao of Scotiabank. Please go ahead.

Hi, good morning. I'm 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. Is the idea there that we should expect that to continue to move higher almost to the point where it could be above, like well above your production range? And then we see effectively the MacArthur River expansion, I assume approved. At what level do we start thinking about bringing Tier 2 capacity back?

Grant, do you want to take that? Yeah, happy to do that. So, Oris, 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. You know, our plan this year, MacArthur at 18 million pounds on a 100% basis, Cigar at 18 million pounds on a 100% basis, Inkay, 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 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 MacArthur 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 two. So between what's possible at our tier one up flex, that's another 15% of production, potentially 30 if we brought back our tier twos. 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 levels 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 past, but much, much smaller than it was when we had MacArthur 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, then calling for that production. In terms of how we get to tier two, think about that more like tier twos 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 twos. And the way we look at those tier twos 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 know, 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, you know, a greenfield that 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 two 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 twos as being an alternative to high-risk greenfield.

Thanks for the call.

Thanks, Orest.

Our next question comes from Lawson Winder. of Bank of America Securities. Please go ahead.

Thank you, operator, and good morning, Tim and Grant. Nice to hear from you all. Thank you for the update. I just wanted to ask about the sales. And you had provided guidance in your annual report 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, you know, 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. Grant?

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 receive non-binding delivery notices that helps us build the 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 the evidence that really this is about just volumes shifting from Q1 into Q2 into Q3. as opposed to being lost or sales 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.

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 I 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, you know, $90 floors and $120 caps. Is that still kind of the range that we're talking about? Thanks very much. And that's it for me.

Yep. Thanks a lot, Lawson Grant.

The Q2 deliveries, yeah, I don't have an updated disclosure for that loss, and so, sorry, that's probably not a satisfactory answer, but just continue to look at that annual number. It hasn't changed, so you know we're gonna 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 trade tech 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, you know, 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. You know, 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, oh, but by the time we're done delivering it, it'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 face it, we're talking about floor prices in 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. Many thanks. Thanks, Lawson.

Our next question comes from Greg Barnes of TD Securities. Please go ahead.

Yes, thank you. Just a couple of questions around Westinghouse. One, any commentary around the audit 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. So, Greg, I would just say on the AP1000s, lots of interest, like lots around now. Nothing... that we're going to announce and walk through. But you probably saw just over the last couple of weeks in Ukraine that Hemelnytsky 5 and 6, they're looking at AP-1000s there. I think they poured the first concrete for some of those. So that's moving ahead. And Ukraine, I think, has committed to up to nine new ones. Now, of course, it's all subject to what's going on there, Greg, as you know, but... a good order there. Bulgaria, Kozlodoy, I think 7 and 8, they've chosen the AP1000. I think the feed contract's been signed for those, and of course, those are all using Westinghouse fuel as well, so there's a fuel component with those. I can tell you there's a lot more conversations going on. I just talked to the leadership there at Westinghouse a couple days ago in North America, in Europe, and in Asia, so So lots going on on that front. Anybody, Grant or Dominic, anything to add? And maybe Dominic, you could say a word about Springfields. I'd like Dominic to come in the conversation. So anything on the new builds and or Springfields, Dominic? Yeah, of course.

Greg, good morning to you. Maybe a couple of words from my side on Springfields. So, excuse me. Yeah, thanks for the question. We kind of view Springfields as quite a strategic asset, not just for the UK, but for the global fuel market. Alongside our partner Brookfield, we are indeed supporting Westinghouse, who are looking at options for that site and how we can use Springfields, obviously, to support that market. And clearly, you mentioned the restart of conversion. We have an active project looking at – could be a restart, could actually be a new build of a conversion facility – As Grant alluded, the fuel market is strong, so we think there is absolutely customer demand for that, and we are just supporting Westinghouse, who are looking at options at the moment. Thanks for the question.

Great. Thanks very much. Thanks, Greg.

Our next question comes from Brian MacArthur of Raymond James. Please go ahead.

Good morning and thank you for taking my question. It kind of follows on to Greg, but can I ask it this way? You've 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 it helps your uranium business more? Is it, you know, better margins on contracts on the servicing side? 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 since the deal was done.

Yeah, Brian, thanks for the question. I'd say it's probably all of the above. I mean, and 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 AP1000s, 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 Avinci is there. We're picking up a whole bunch of those Eastern Europe fuel supply, you know, the VVRs that are running. I think 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. 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?

Yeah, of course I do, Tim. I just can't resist... Brian, it's a good question and I would echo Tim's comment on all of the above and maybe just highlight a few things. We like to first of all just talk about how strong that team is. It's a great team at Westinghouse and and they are executing very well on their strategy. We like to think about them as core. So in the core of the business, you're seeing the pickup of new customers, Central and Eastern Europe. You're seeing the pickup of existing customers who are saving reactors that we thought were going to shut down, and existing customers that are extending the life of reactors that we thought were probably going to retire after the end of their operating license. And those are big deals. When a reactor goes through a life extension, you're adding another 20 years of operation to it. That's a substantial tale of business that really wasn't part of the model, and it's just part of just the enthusiasm for nuclear. Springfields. Greg just asked about Springfields. The conversion market is at historic pricing. The Springfields plant has a conversion line. That would be in the core. And that would just be additional opportunity within the core of the business because it's part of that nuclear fuel and nuclear fuel supply. And then, of course, all the wraparound services, reactors that are being saved, reactors that are being extended, typically need more services wrapped around them. So the core is performing very well, and we're quite happy about it. But I just would echo Tim's comment on new builds. Newbuild is the area where I think the potential is very, very significant. Now, obviously, we wait until projects are at final investment decision stage before we count them in a meaningful way in the business plan. You get the first initial pickup of front-end engineering and design projects, but final investment decision is really what's required. But having said that, the quality of the conversation around new nuclear is far exceeds our highest case assumption even 12 months ago. And what I mean there is just the reality of how much power is actually required for industrial onshoring, for onshoring of manufacturing, for generative AI, and the whole investment in digital technologies. When you think about all of that effort that's going on in Western countries and all of the support that's being given for that, the critical path item is electricity. That is the critical path item to seeing all of those investments succeed. And the critical path item is very well served by a technology that is secure, dispatchable, reliable 99% of the time. So nuclear is getting a lot of attention. But if nuclear is part of the critical path item, then the nuclear fuel is part of the critical path. So it's that combination of saying we get to participate in the uplift on nuclear fuel, we now get to participate in the new build for that reliable electricity, and then that long tail of servicing it. It's a pretty exciting outlook. You have to forgive us for being as excited as we are, but there were a lot of lean years, so this is a pretty good opportunity for Cameco, for Westinghouse, potentially our GLE investment. This is a constructive market, the likes of which we haven't seen before, Brian.

Sorry, maybe one quick follow-up. Just on Springfield, I mean, a year ago it sort of sounded like when you talked with maybe excess capacity in UF6 in the market in the West, so maybe that market didn't look as positive. It sounds now that maybe you're more positive on the UF6 outlook as you look forward to Springfield. Is that fair, or are you thinking of using it for something else? Grant?

Sorry, Brian. I didn't catch which market's looking more positive.

Sorry. A year ago, UF6, you might have been a little more cautious given there was excess capacity, but now sort of Springfield sounds a little more positive.

Yeah. If you look at the breakdown of potential Western supply, it's very different for conversion than it is for uranium and enrichment. In the West, We need to see more investment in new uranium production, the need for greenfields like we've talked about, and we need to see more investment in Western enrichment in order for uranium and enrichment to match Western demand. The conversion space is actually a little bit different. What we really need is the four conversion plants to be running at full capacity, plus perhaps the addition of our global laser enrichment project producing a UF6 product, so it's already converted. Then you actually see a little more balance between Western demand and Western supply. And one of those four facilities is Springfields. So, you know, we're ramping up that Port Hope production. You're seeing Converdine come back in the U.S. to 7,000 tons of conversion. You've got the plant in France running at, we think, about 12 or 12.5 out of a potential 15. And that does require the Springfields plant to come back in order to kind of balance that western market. So the need is definitely there. And that's reflected in the very tight front end of the UF6 market and the historic pricing. But UF6 is like uranium. You don't start a UF6 plant and then knock on people's doors and say, do you want to buy UF6? Because they don't have in-year demand for UF6. It's got to be part of a committed sales portfolio. built out over time, then you call for the additional production. So for us, it's about combining that solid marketing strategy with then the right production decisions.

Thank you very much. I appreciate it. Thanks, Brian.

This concludes the question and answer session. I would like to turn the conference back over to Tim Gitzel for any closing remarks.

Yeah, thanks very much, Ariel, and thanks to everybody who joined us today. You can probably sense our excitement in not only the market and where it's at, but how our company's positioned in that market. It's pretty exciting times for us at Cameco. So we didn't get quite through the queue today, so as Rochelle noted, if you have any detailed follow-up questions related to the first quarter results or any questions that we didn't get to today on the call, please send Contact us or we'll contact you and we're happy to address them directly. As always, we're a responsible commercial supplier with a strong balance sheet, long-lived tier one assets and a proven operating track record. We're invested across the nuclear fuel and reactor life cycles and we believe we have the right strategy to achieve our vision of energizing a clean air world and we will do so in a manner that reflects our values. Embedded in all our decisions is a commitment to address the risks and opportunities that that we believe will make our business sustainable over the long term. So thanks again very much for joining us today. Stay safe and healthy and have a great day. Thank you.

This brings an end to today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.