Cameco Corporation

Thank you for standing by. This is the conference operator. Welcome to the Cameco Corporation third quarter 2020 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 Rochelle Girard, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Cameco's third quarter conference call. We will be conducting the call a little differently this quarter than we have the past two quarters. We've had some very positive feedback on the QA format of our previous two calls, and we'll continue with that, but we also recognize there is benefit in a two-way dialogue. With most of the executive team back in the office and more certainty around our phone lines, we will allow time for investor and analyst questions. During the listen-only portion of the call, we will address the most common questions we've been hearing during our outreach with the investment community. There's been a lot going on both for the company and the industry, and we recognize there is significant interest and limited sources of information for our investors. Once we have concluded with this portion of the call, we will open the line up for your questions. As always, our goal is to be open and transparent with our communications. Therefore, we will make ourselves available to speak to you after the call as well, should your questions not be addressed on this call. There are a few ways to contact us. 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 submit question tab on the webcast, and we will be happy to follow up after this call. With us today on the call, are Tim Gitzel, President and CEO, Grant Isaac, Senior Vice President and CFO, Brian Riley, Senior Vice President and Chief Operating Officer, Sean Quinn, Senior Vice President, Chief Legal Officer and Corporate Secretary, and Alice Wong, Senior Vice President and Chief Corporate Officer. I'm going to hand it over to Tim to kick off the listen-only portion of the call. Then we will begin the listen-only Q&A portion of the call. After, we will open it up for your questions. If you join the conference call through our website event page, there are slides available which will be displayed during the call. 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, Rochelle. Good morning, everyone. Thanks for taking the time to join us today after what might have been a long night for many of you. I hope you and your families are doing well, both physically and mentally. So here we are. We're now over seven months into this COVID-19 pandemic, and I'm happy to say the company is in good shape. and we're excited about the future of our industry. In fact, I would say that over the course of this year, our belief in a bright future for our industry has strengthened. That's why we remain a pure-play supplier of the uranium fuel needed to produce clean, carbon-free baseload electricity. We also remain very bullish on the uranium market. So why is that? Well, first, around the globe, we're seeing an increasing focus on electrification. for various reasons. There are those that are installing baseload power. Then there are those who are looking for a reliable replacement to fossil fuel sources. And finally, there's new demand for things like the electrification of transportation. This is occurring precisely at the same time countries around the world are focused on decarbonization. And that has led to the recognition from a policy point of view that nuclear will be needed in the toolbox to sustainably achieve both electrification and decarbonization at the same time. China, for example, who has a goal to have 25 million electric vehicles on the road by 2030, recently stated that its objective is to become carbon neutral before 2060. A follow-on study from a climate scientist in that country predicted that to achieve this goal, will require an estimated quadrupling of nuclear power capacity in that country. That would be about 200 reactors for China alone, double that of the U.S. fleet, which is currently the largest in the world. So demand for nuclear is increasing. However, on the supply side, there are some big question marks about where uranium will come from to fuel the world's growing nuclear fleet due to persistently low prices, shrinking secondary supplies, and the end of reserve life and unplanned disruptions. These are the fundamentals that get us up in the morning and why we remain committed to doing what we said we would do. Let me remind you what it is that we said we would do. First and foremost, this is where it all starts for us. We are focused on protecting the health and safety of our employees, their families, and their communities. And we're doing that. Every day, we make decisions about how best to manage our operations and our workforce through this pandemic. So far, we've been successful. And with what appears to be a second wave of the COVID-19 pandemic, this remains our priority. Second, we have not wavered from the execution of our strategy. Let me remind you that there are three fronts on which we are executing our strategy, operational, marketing, and financial. On the operational side, we've implemented planned supply discipline, which includes the suspension of production at Rabbit Lake, our U.S. assets, and of course at MacArthur River and Key Lake. This supply discipline has left a lot of pounds in the ground and kept them off the market, almost 87 million pounds in total. On the marketing side, we've been purchasing material on the spot market to meet our committed deliveries. our purchasing activity has pulled more than 50 million pounds off the market and placed that material into long-term contracts. In total, that is almost a 140 million pound swing in the supply fundamentals. So we certainly have done a lot of heavy lifting. In addition, we've shown sales discipline, sticking to our value strategy. We've shown strategic patience, not committing our tier one pounds under long-term contracts, that don't provide an appropriate return, or risking having to deliver them into an oversupplied spot market. And we're seeing our patients pay off. While the on-market activity is modest, it is gaining some momentum. However, it's the off-market activity that gets us excited. We continue to see this area growing, and historically, it has been the leading indicator of a broader market transition. But remember, this is not a subscription-based business. Many of these are big, chunky agreements that take time to negotiate. For example, think of our Bruce Power contract in 2018 or the contract that we signed in 2010 with the Chinese and our 2015 contract with India. All of these agreements took time to negotiate, but the reward was worth the wait. Finally, on the financial side, we've been very deliberate in shoring up our balance sheet, so we have the financial capacity to self-manage risk and maintain our strategic resolve. And we were active on this front in October. We took advantage of favorable debt capital markets and further strengthened our balance sheet. We refinanced $400 million in debt coming due in 2022. with a record low coupon rate for us of 2.95% and we reset the maturity to 2027. I'm happy to say that we're performing well on all three fronts. Obviously our strategy was thrown a bit off course with the unplanned disruption of production at Cigar Lake in March. That was not part of our plan when we started the year. Having Cigar Lake running was always part of our strategy. It contributes to our financial capacity by helping to offset the care and maintenance costs of our supply discipline and the impact of our purchasing activity. So we're pleased to have it safely restarted, returning us to our strategy. It's not without challenges, though. There are still risks, and we need to be vigilant. Before we begin the Q&A, I want to highlight a few other items. First, of course, is related to our announcement last week. As you will have heard, the CRA is seeking leave to appeal to the Supreme Court of Canada despite two clear and decisive rulings in our favour from the Tax Court of Canada and the Federal Court of Appeal that determined we complied with both the letter and the intent of the law. It is incredibly disheartening and unfair for our employees and many other stakeholders to be once again thrown into uncertainty. We have prevailed at every stage of the legal process. You've heard me say this before. If the CRA feels the law aren't accomplishing what they want, then the government should change the laws moving forward, not pursue the same arguments over and over again before a different court, and expect a different outcome. Cameco has consistently worked hard to be a good corporate citizen. We've invested billions of dollars in Canada, contributed considerably to the well-being of our communities, and have been recognized as one of Canada's leading partners, employers and supporters of Indigenous people. As we've managed our way through the extraordinary challenges posed by the COVID-19 pandemic, we have not laid off any of our employees and have continued to provide support to our communities. At a time when Canadian businesses are facing unprecedented economic upheaval, challenging global markets and a worldwide pandemic, CRA's actions cast a chill over all companies in Canada trying to compete on the world stage. However, if leave to appeal is granted, we remain confident in our position, which has thus far prevailed at every stage of this process, and we will be ready. I also want to highlight the leadership role Cameco has played in trade policy and market access disputes, including the Section 232 dispute, the Nuclear Fuel Working Group, and the Russian suspension agreement renegotiation. These are important issues for us, and we've spent a lot of time on them and are quite pleased with the results, particularly the amendment and extension to the Russian suspension agreement. The amended agreement provides greater certainty for the industry and the nuclear fuel market moving forward and establishes a clear set of rules around access to the U.S. nuclear energy sector by Russian nuclear fuel suppliers. We believe it provides us with an opportunity as a commercial supplier to help U.S. utilities de-risk their reliance on Russian supply. Finally, I want to highlight our focus on delivering our products responsibly and addressing the ESG risks and opportunities that we believe will make our business sustainable over the long term. This is super important for us and we believe it is a competitive advantage. We're very proud of our 30-year commitment to protect, engage, and support development of our people, their communities, and to protect the environment. And I want to remind you that 100% of our product goes to producing clean, carbon-free baseload electricity. Our decisions are deliberate. We are a responsible, commercially motivated supplier with a diversified portfolio of assets, including a Tier 1 production portfolio that is among the best in the world. We are well positioned to take advantage of a market where we believe the risk to supply is greater than the risk to demand. So with that, I'm going to now turn things back over to Rochelle for a few questions, and then we will open it up for your questions.