Cameco Corporation

Thank you for standing by. This is the conference operator. Welcome to the Chemical Corporation's third 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 then 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 Corey Koss, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Cameco's third 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 the Cree peoples and the homeland of the Métis. With us today are Tim Gissel, President and CEO, Grant Isaac, Executive VP and CFO, Heidi Schake, Senior VP and Deputy CFO, and Rochelle Girard, Senior VP and Chief Corporate Officer. I'll hand it over to Tim momentarily to briefly discuss the strength of today's fundamental market dynamics, as well as our progress with the continued execution of our strategy, which has us returning to a Tier 1 cost structure and delivering strong production performance while maintaining a solid financial position. After, we will open it up to 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 would like to get into detailed financial modeling questions about our quarterly results, we would be happy to follow up with you after the call. There are a few ways to contact us with additional questions. You can reach out in 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'll be happy to follow up with you 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 on our website at Cameco.com. Today's conference call is open to all members of the investment community, including the media. During the Q&A 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 the number of assumptions and 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 for as required by law. Please refer to our most recent Annual Information Forum and MD&A for more information about the factors that could cause these different results and the assumptions we've made. With that, I'll turn it over to Tim.

Thank you, Corey, and good morning, everyone. We appreciate you joining us on our call today. I'm sure you all closely followed the U.S. presidential election this week. I'd like to offer congratulations to both President-elect Trump and to all of our friends south of the border for shaping the future of your nation by exercising your democratic right to vote. We look forward to ongoing bipartisan support for the nuclear sector across the political spectrum, not only in the U.S., but here in Canada and throughout the Western world. As we get started here today, I first want to ensure stakeholders look past the noise and understand the headline items in our disclosure this quarter. As I will touch on shortly, we continue to see a trend of improving operational performance in both our uranium and fuel services segments, bringing us back to a Tier 1 cost structure and supporting dividend growth. Our outlook for the year remains strong and consistent with our expectations. And long-term contracting activity is expected to continue gaining momentum with ongoing off-market interest and increased reported volumes added subsequent to the quarter. When it comes to our financials, equity earnings from Westinghouse were and will continue to be impacted by the amortization of the intangible assets that arose as a result of the required accounting for the acquisition. That is why we focus on and provide outlook for adjusted EBITDA as a performance measure for Westinghouse as it adjusts for these elevated amortization costs, which do not reflect the underlying business performance. Looking past the quarterly earnings, which, as always, can vary significantly, there's a clear underlying trend of improving operational performance and cash flow generation across our businesses and investments. This trend is backed by stable and rising market prices driving nearly a billion dollars in adjusted EBITDA for the first nine months before those acquisition-related purchase price adjustments. At Cameco, we are exceptionally well positioned, and we continue to see growing demand for nuclear power with the agreements to support nuclear that we've all been hearing about becoming signed commitments to build new reactors. In the third quarter, we continue to see the growing positive momentum and support for nuclear energy among governments energy-intensive industries, and within the general public. That support is generating durable full-cycle demand, which we believe is stronger than ever. For the past two years, we've regularly highlighted demand durability across the fuel cycle and the unparalleled opportunities emerging in the near, mid, and long-term markets. Those fundamental drivers, things like energy, Decarbonizations, sustainability, energy security, and growing energy demand all remain solid and unchanged. However, on the other side of that equation, future supply continues to be uncertain, with the need for improved long-term market prices to underpin supply economics and support ongoing investment. While the long-term uranium price has now crept up to its highest level in over a decade, We're still not seeing significant investments in the projects needed to satisfy future demand to run the existing reactors, let alone those reactors being saved and restarted, reactor life extensions, and new reactor builds. And as we can clearly see today, following the US ban on Russian uranium imports, uranium supply and services across the fuel cycle take time to respond. Despite the established need for more supply amid the current tight and uncertain market, long-term contracting through the first nine months of the year remained relatively slow. While that's far from unusual in the nuclear fuel cycle, where long-term prices are only quoted monthly due to the low frequency of executed transactions, there are a few key developments that are not only driving utilities to review procurement plans, but prompting producers to reevaluate sales strategies. Contracting continued to be impacted by things like the U.S. election, the Russian uranium ban, which took effect in early August, uncertainty with respect to the process to obtain waivers under that ban, and new demand emerging from energy-intensive industries, which could reshape the nuclear fuel cycle landscape in the decades to come. As we expected in our last quarterly call, the cautious approach by fuel buyers and has started to give way to an increase in utility interest both publicly in the market and off-market through bilateral negotiations with producers. As contracting picks up, we continue to be selective in committing our uranium inventory and UF6 conversion capacity in order to maintain a contract book that preserves exposure to the rising prices while maintaining downside protections. We're seeing significant interest in the extremely tight conversion segment of the fuel cycle, which remains at historic prices far higher than anyone in our market had anticipated. However, in the uranium market, the first nine months remained lighter, with increased volumes subsequent to quarter end followed a couple of larger uranium contracts signed in October. Those deals boosted long-term contract volumes from $1. just over 50 million pounds at September 30th to about 90 million pounds as of last week. That said, long-term contract volumes still remain well short of a replacement rate, so it's important to reiterate that requirements can be delayed and can be deferred, but buying the uranium fuel required to keep the lights on cannot be avoided. Future needs are still future needs. And not only do we need to catch up on over a decade of undercontracting, but the world also has a fleet of retiring fossil fuel generation that needs to be replaced. Nuclear addresses all the key considerations influencing energy policies and international plans for replacing carbon-emitting energy sources. Future energy supply must be secure, carbon-free, reliable, and uninterrupted, and in each of those categories, nuclear is in a class of its own. Amid intensifying geopolitical challenges and various sustainability-related factors, procuring the required nuclear fuel from responsible, reliable, experienced, and sustainable suppliers like Cameco is more important than ever. Therefore, the positive momentum for nuclear energy and the tightness of full-cycle supply puts Cameco in a unique position to add significant value with what we believe are the world's premier Tier 1 fuel cycle assets alongside our investments across the reactor lifecycle. With a strategy centered on full cycle value, we've continued to optimize those assets as we shift back to a Tier 1 cost structure. With strong production performance through the first nine months of the year and a solid financial footing, Our board has approved an increase of our dividend from $0.12 in 2023 to $0.16 per common share for this year. And with fundamental improvement continuing across the market, we have recommended a dividend growth plan under which we expect to at least double the $0.12 dividend in 2023, growing it to $0.24 per common share through 2026. Turning to our results, I want to highlight a few developments this past quarter, starting in the marketing and operational areas of our strategy. In our uranium segment, we continue to evaluate the work and capital required to expand our MacArthur River and Key Lake operations from 18 million pounds per year to the license capacity of up to 25 million pounds per year. However, in the meantime, production at the Key Lake Mill has exceeded our expectations year to date, And we now expect production of about 19 million pounds, up from 18 million pounds previously. The improved 2024 outlook is primarily the result of various automation, digitization, and optimization projects we undertook while the operation was in care and maintenance. Although the market conditions were difficult at the time, we intentionally made counter-cyclical investments. Those investments are now paying off. We are not only bending our cost curve as that improvement work was completed ahead of the incredible inflationary pressure we're seeing today, but as we evaluate the capex required to increase production and step with demand in our contract book, we are potentially now able to achieve a higher baseline level of production before making any additional investments in the key MacArthur assets. Having more Tier 1 production in our portfolio is always a positive development for us. The additional pounds can be feathered into our long-term contracts, providing further optionality, flexibility, and a de-risking of our supply stack. The first source of supply is our Tier 1 primary production, which always has a home under long-term contracts before it's pulled out of the ground. Based on available production, we then manage our other levers, including inventory, long-term purchases, loan material, and market purchases. We carefully plan these supply sources years in advance, retaining access to multiple levers to manage risks, one risk being that a given source runs short of expectations. That's what we're seeing at JV Inkay in Kazakhstan, which falls into our long-term committed purchase bucket of supply. We now expect production of about 7.7 million pounds of uranium from Incai, down from last year's production and from our previous 2024 expectation of 8.3 million pounds. The decreased outlook at Incai is primarily due to the ongoing challenges related to sulfuric acid in that part of the world. There was enough acid procured to achieve the original planned production volume, but the timing of the deliveries of that acid shifted, pushing the development and production schedule into 2025. A portion of our share of this year's production, about 2.3 million pounds, has now arrived at a Canadian port, with shipments to Blind River now underway. However, our remaining allocation for this year is still under discussion with Kazatomprom. Of note, we are currently finalizing an updated National Instrument 43-101 Technical Report for the Inki Mine, in which we will update the expected reserves, production profile, costs, sensitivities, and technical information. So in the third quarter, we had to account for the higher production from Key MacArthur, partially offset by the increased uncertainty on the quantity and timing for our full share of production from JV Inki. So we put our supply levers to work. realigning our expected market and long-term committed purchases for the year. We decreased our committed purchases from 9 million to 8 million pounds and shifted our market purchases from up to 2 million pounds to now be up to 3 million pounds for 2024. And although we have either taken delivery of or have commitments for the majority of our expected 2024 market purchases, we may look for additional opportunities to add to our inventory position. In the fuel services segment, production was also strong. In fact, it was 60% higher than our third quarter last year. This was largely thanks to the commissioning of a new closed-loop water system at Port Hope. This additional process infrastructure not only provides positive benefits from a water usage and sustainability perspective, but it allowed us to eliminate the annual summer maintenance outage for the first time, partially offsetting the impact of the temporary operational issues that affected production in the first half of 2024. As expected, and as I highlighted, the performance of our Westinghouse investment this year continues to be impacted by purchase price accounting, which is, of course, not unique to this transaction, but something that is normal course in the case of any acquisition. It's important to look through these impacts as our outlook for Westinghouse's performance this year and over the next five years is positive and unchanged. In fact, when we look at the underlying long-term trends for the industry, we continue to see more opportunities for Westinghouse emerging than we had valued at the time of acquisition, making it a very timely transaction that has fit perfectly into our long-term strategy. Stepping over to the financial aspect of our strategy, we continue to be in great shape. As always, normal quarterly variability in customer deliveries impacted our results. In addition, earnings from our equity-accounted investees impacted our adjusted net earnings this quarter. As I noted earlier, our overall financial results continue to be influenced by the required Westinghouse purchase accounting and other non-operational acquisition-related costs. Equity earnings from J.B. Inkei were also lower because of the continued delay to the transportation of our share of production from the Inkei mine. We do not take ownership of our share of Inkei's production until it arrives at our Blind River refinery, and therefore J.B. Inkei cannot record revenue on those pounds. Ours is a complex long-term industry that does not lend itself well to quarterly estimates. That's why we provide an annual outlook. which following the third quarter remains largely unchanged for both Cameco and for Westinghouse, with the exception of the realignment of our supply sources and the impact of a stronger U.S. dollar on average realized price, revenue, and adjusted EBITDA from Westinghouse compared to the original assumption used. During the quarter, we continued to focus on debt management, We made an additional repayment of $100 million US on the floating rate term loan we used to finance the Westinghouse acquisition, bringing the year-to-date reductions to $400 million. And in the days ahead, we'll continue to prioritize repayment of the remaining $200 million outstanding. We've remained diligent in managing liquidity and the capital resources and tools required to deliver on our strategy, maintaining a strong balance sheet guided by our investment grade rating. To provide flexibility and maintain good financial hygiene, we plan to file a new base shelf prospectus to replace the one that expired in October. Before we wrap up, I want to highlight a few changes to our executive team. At the beginning of October, David Dirksen was appointed Senior Vice President and Chief Marketing Officer. David's been with Cameco since 1998, most recently as vice president marketing. He's also held roles in tax and treasury, corporate strategy, and corporate development. Lisa Aiken has taken over David's previous role as vice president marketing. I have no doubt that the deep uranium market experience that both David and Lisa bring to their new roles will serve Cameco well. as we position the company to leverage opportunities through these very exciting times for the nuclear industry. So with that, I thank you for your interest today and I'll stop there and we'd be delighted to take your questions.