Cameco Corporation

Thank you for standing by. This is the conference operator. Welcome to the Caneco Corporation fourth quarter 2024 results conference call. As a reminder, all participants are in a 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 one 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 begins 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 CAMCO's fourth quarter and annual 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 people and the homeland of the Métis. With us today are Tim Gitzel, 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 current market fundamentals, which we believe are stronger than they've been for decades, as well as our progress with the continued execution of our strategy, which in 2024 saw us deliver strong marketing, operational and financial performance. After we will open 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 communication. However, we 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 results, we would be happy to respond to any follow-up inquiries. There are a few ways to contact us with additional questions. You can reach out to the contacts provided in our news release. You can submit a question through the Send Us a Message link on the Investors section of 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 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 a number of assumptions and actual results could differ materially. You should not place any 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 forum in MD&A for more information about the factors that could cause these different results and the assumptions we have made. With that, I will hand it over to Tim.

Well, thank you, Corey, and good morning, everyone. We appreciate you joining us for today's call. Earlier this morning, we released our fourth quarter and annual 2024 results, and in a word, from both a quarterly and an annual perspective, those results were strong, and I'll touch on them shortly. We expect our strong performance to continue in 2025, supported by our long-term contract portfolio, our Tier 1 assets, and our strong financial position. The reason for our optimism is relatively simple. We continue to see supportive market conditions throughout the fuel cycle and across the nuclear sector. Those supportive tailwinds continue to improve the outlook for existing nuclear reactors, for the reactors returning to service after previously being slated for decommissioning, and for the nuclear new builds that are underway and those on the horizon. That positive outlook for the installed reactor base and for new growth is expected to benefit both Cameco as well as our investment in Westinghouse. In fact, we believe the outlook for nuclear power and nuclear fuel fundamentals is more favorable than it has been for decades. Global geopolitical uncertainty continues to bring energy security and national security into focus, alongside the need to ensure that energy is clean. As you've heard us say for over a year now, we believe that is putting nuclear into a durable growth mode. And as we see that growth translate into demand and evolve into a cycle of replacement rate contracting, we as a significant supplier of nuclear fuel and nuclear fuel cycle services expect to have the ability to durably grow from our existing assets. Any additional supply will therefore have a home in our long-term contract portfolio, which does not expose us to a discretionary spot market and provides upside potential and downside protection from geopolitical changes and trade policy decisions. Positive market conditions that we expect to benefit our core uranium and fuel services businesses are also presenting significant future growth opportunities for Westinghouse. with continued interest in their technology and expertise for new build opportunities in nations including Poland, Bulgaria, Ukraine, and Slovenia, just to name a few. We continue to believe that the risk to uranium and nuclear fuel supplies and services are far greater than the risk to that durable demand and the growth we see coming. That belief is anchored in how we've seen the nuclear fuel market evolve over the past couple of years. Fuel buyers tend to work backwards across the fuel cycle, starting downstream and working their way up to the uranium. In 2024, there was a lot of downstream focus, and with good reason. Whether it was the U.S. legislation to ban Russian-enriched uranium imports or Russia reacting with an export restraint, a lot of attention remained on Western sources of fabrication, enrichment, and conversion services. That makes sense for a global market that is diversifying away from the Russian fuel cycle. And even if those geopolitics were to change, the self-sanctioning by many Western utilities is translated to long-term contracts that will now be in place for years to come. However, that downstream focus has also meant that there's been a persistent distraction from a focus on the natural uranium. the product to which those services are applied and for which there is no substitute. When those downstream bottlenecks are resolved, utilities do not rely on the spot market for the uranium needed to meet their fuel requirements. A producer with an unhedged strategy that expects to see that kind of near-term demand to absorb their uncommitted supply has not spent much time at all buying and selling uranium. We have. And I can tell you, the spot market is not where utilities go to meet their annual run rate requirements. It's completely discretionary, and it's non-fundamental. Of the 46 million pounds of uranium that transacted in the spot market last year, only about 15% was bought by utilities. As is the case every year, a great deal of the spot activity was churn. Traders, brokers, and financial players passing around 100,000 pounds five times which becomes 500,000 pounds of reported volume. That's not a reliable source of supply for the more than 175 million pounds a year needed to fuel the global nuclear fleet annually. And that's not a source of supply that can underpin the long-term operation of a nuclear reactor for 60 or more years. Instead, utilities are buying uranium and the fuel cycle services in the long-term market. years ahead of time, sometimes even for the decade to come or longer. Despite relatively muted long-term contracting volumes in 2024, which remained below £120 million, well below the replacement rate contracting level, Cameco continued to successfully negotiate off-market contracts, selectively adding to our long-term portfolio. Start 2025, we have commitments to deliver an average of about 28 million pounds of uranium over the next five years, with commitment levels higher than average in 2025 through 2027 and lower than average in 2028 and 2029. Our long-term book of business in the uranium segment now totals approximately 220 million pounds of uranium with a large and growing pipeline under negotiation. The pounds we are adding have pricing terms that provide downside protection while allowing us to retain exposure to improving demand. And at £220 million, it only represents about a quarter of our current reserve and resource base, meaning we can be strategically patient in our contracting as that demand forms. We are already seeing demand in the conversion segment driving prices to historic levels, And we also added to our fuel services long-term contract book last year, which now totals approximately 85 million KGU of UF6, supporting our fuel services operations for years to come. We expect the strength we are currently seeing in the other segments of the fuel cycle to continue moving upstream to uranium, because there is no way to avoid buying uranium for a nuclear fuel bundle. We've heard the negative, bearish views of those concerned about the pace of long-term contracting, but we don't share those concerns. In fact, a delay only serves to enhance our optimism. That's because demand is being pushed into a shorter contracting window where supply is tight and requirements are growing. And those requirements are only tied to high-confidence demand, such as the current operating reactor base and the 62 reactors under construction today. The industry growth story today does not rely on the blue sky potential demand from jurisdictions that are only thinking about adding nuclear, or from data centers in the tech sector, or from a meaningful build out of small advanced reactors. Those potential developments only add to the positive outlook for nuclear energy, which is already strong. Based on global fuel requirements, utilities have bought less than 40% of the uranium they need to operate through to 2040. That translates to about 2.1 billion pounds of uranium that is yet to be purchased, and it's putting an awful lot of pressure on supply in the mid-2030s, a time when several major global primary supply sources are thinning out, and the investments in construction of new mines required to replace them have not even started. In fact, our own Cigar Lake mine is expected to reach the end of its mine life in 2036. We plan our supply accordingly with our tier two assets and a pipeline of potential future projects in mind. But Cigar Lake satisfies 10% of global demand. That's an 18 million pound hole in supply that the market has not yet fully appreciated. And bringing on new production of that scale is incredibly challenging. So we continue to see exciting times ahead for us in the nuclear sector, and we've positioned ourselves to benefit while remaining protected should it not evolve as expected. We have more than 35 years of experience operating across the fuel cycle, and we've designed our strategy of full cycle value capture to be resilient. We have good visibility into when and where we need to deliver material. allowing us to carefully plan and prudently invest in our existing and potential supply sources well into the future. When we consider the supply tools and flexibility we have in place to work with our customers in satisfying their ongoing fuel requirements, we can be selective and opportunistic with our sourcing of supply. And we can be disciplined when considering future investments in our primary supply pipelines, We will continue to align our production with our contract portfolio and market opportunities, demonstrating that we are responsibly managing our supply in accordance with our customers' needs. We will also continue to look for opportunities to improve and operate our assets with more flexibility and efficiency, while working to improve our safety performance and reduce our impact on the environment. Our balance sheet is strong. and we expect it will enable us to self-manage risk, including risks related to global macroeconomic uncertainty and volatility, as well as uncertain trade policy decisions. Looking briefly at 2024, our discipline strategy has delivered a number of highlights worth noting. We delivered strong fourth quarter and annual net earnings and adjusted net earnings, which reflect a return to our Tier 1 production level, as well as higher sales volumes and an improvement in average realized price. Those earnings incorporate the expected full-year net loss from Westinghouse, which was primarily due to the impact of purchase accounting. So we view adjusted EBITDA as a measure that better reflects Westinghouse's strong underlying performance. And Westinghouse's adjusted EBITDA was indeed very strong. In our uranium segment, we delivered just under 34 million pounds of uranium in 2024 and produced about 23.4 million pounds. Production was slightly higher than our expectation as a result of very strong production from the MacArthur River Key Lake operation. In fact, the operation's 20.3 million packaged pounds last year sets both a new annual production record for the Key Lake Mill as well as a world record for annual production from any uranium mill. The increased run rate at the mill was made possible by our off-cycle investments in automation, digitization, and optimization projects to improve the Key Lake Mill during care and maintenance, supported by our access to stockpiled ore. It's critical to remember that when you see higher Tier 1 primary production from Cameco, it has a home. and does not flow into the spot market, as some like to speculate. The additional pounds are not only positive for our bottom line, but they have a home in our portfolio and merely serve to offset a drop from our other sources of supply, such as inventory, long-term purchases being pulled forward, or product loans. In addition, in 2024, the production flexibility from MacArthur Key offset lower production from our other Tier 1 sources. Uranium production at Inkai continued to be impacted by the ongoing supply chain issues in Kazakhstan, most notably related to the stability of sulfuric acid deliveries. As a result, total 2024 production from Inkai on a 100% basis was 7.8 million pounds, about 600,000 pounds lower than in 2023. Cigar Lake also came up a bit short of its plan due to some challenges earlier in the year at the McLean Lake Mill. In 2025, with the long-term contract book we have put in place and an ongoing pipeline of both on- and off-market contracting discussions, our plan is to produce 18 million pounds on a 100% basis at each of MacArthur River Key Lake and Cigar Lake. At INCAI, production plans for 2025 and subsequent years remain uncertain, and we remain in discussions with J.B. INCAI and our partner Kazatomprom to determine our purchase allocation for 2025. Over the coming years, we are undertaking capital projects to help ensure reliability and sustainability of our existing operations, including projects to address aging infrastructure and potential bottlenecks at Key Lake, and the advancement of freezing at MacArthur River. And while no decision has been made on changes to future production levels, we will continue to position ourselves for future production flexibility in alignment with our contract book. And if our contract book supports it, we expect to be in great shape to take advantage of that flexibility thanks to our financial discipline. Our balance sheet is strong. And we expect strong cash flow generation in 2025. Successfully refinanced $500 million in unsecured debt in 2024, extending the maturity to 2031. And of note, we did so with credit spreads that reflected a higher credit rating than we have currently been assigned. As of January 2025, we have also fully repaid the $600 million U.S. floating rate term loan that was used to finance the acquisition of Westinghouse. Although we're only about 50 days into the new year now, there are already a few key developments subsequent to 2024 year-end that are worth highlighting. To start off the year, JV Inc. production was halted on January 1 at the direction of Kazanomprom, the controlling partner in the JV, due to the delayed submission of certain regulatory documents to the Ministry of Energy. Production resumed on January 23rd, but we are still working with Kazatomprom and JV Inc. to determine the impact of the production suspension, as well as the continued issues with sulfuric acid supply on the operations 2025 production plans. Also in January, Westinghouse reached a resolution in its technology and export dispute with KEPCO, and KHNP, which establishes a framework for additional deployments to the mutual and material benefit of all parties. And we've now received our first distribution from Westinghouse. $100 million US was paid out to the partners, of which our share was $49 million US. Before going to Q&A, a quick comment on the topic that's on everyone's mind as we approach March. the threat of U.S. tariffs on Canadian energy. It's been a focal point ever since the new U.S. administration took office in January, and it's an area we are carefully monitoring. However, keep in mind that our industry faced a similar threat several years ago related to a Section 232 investigation in the U.S. related to critical minerals, including uranium. In any cases where there is a changing policy that could potentially impact our operating environment, we manage risk and plan accordingly to optimize the value of our portfolio. In the past, we've taken actions such as positioning material ahead of expected deliveries and revising our contract terms to protect us from unexpected future implementation of taxes or tariffs. the U.S. threatening the imposition of a 10% tariff on Canadian energy products, we have proactively taken some steps to minimize the potential impact. While we currently do not expect that a direct 10% tariff would have a material impact on Cameco's financial results in 2025, there continues to be uncertainty around the exact details of how any potential tariff may be applied. So with that, I'll stop there, and we are happy to take your questions.