Cameco Corporation (CCJ) on Q2 2021 Results - Earnings Call Transcript
Operator: Welcome to the Cameco Corporation Second Quarter 2021 Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. . I would now like to turn the conference over to Rachelle Girard, VP, Investor Relations, Treasury and Tax. Please go ahead. Rachelle Girard: Thank you, operator, and good morning, everyone. Welcome to Cameco's second quarter conference call. I would like to acknowledge that we are on Treaty Six territory and the homeland of the Metis. Today's call will focus on the trends we are seeing in the market and on our strategy. As always, our goal is to be open and transparent with our communications. Therefore, if you have detailed questions about our quarterly financial results or should your questions not be addressed on this call, we will be happy to follow up with you after the 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. Timothy Gitzel: Well, thank you, Rachelle, and welcome to everyone on the call today. We appreciate you taking the time to join us. I hope you and your families are doing well and enjoying some rest and relaxation during the summer months. It's certainly the time of year when the uranium market tends to slow down as many participants step away for a summer break. Like I did in previous quarters, I'm going to start this call by reiterating our excitement for the future of the nuclear industry and for our role within that industry. The drivers of our optimism remain the same. First, there's an opportunity for nuclear power to play a pivotal role as the megatrend of increasing electrification, while phasing out carbon-intensive sources of energy continues to take hold around the globe, increasing the certainty of demand for nuclear power with a durability that I don't think we've ever seen before. Second, uranium supply is becoming less certain due to years of persistently low prices. And finally, the execution of our Tier 1 strategy, although driving costs in the near term, ideally positions us to achieve our vision to energize a clean-air world and deliver long-term sustainable value. It includes cutting our production below our committed sales volumes, being strategically patient in our marketing activities, conservatively managing our balance sheet, being vertically integrated across the nuclear fuel cycle and pursuing new opportunities within the nuclear fuel cycle. Operator: . The first question is from Ralph Profiti from Eight Capital. Ralph Profiti: Tim or Grant, I want to think a little bit more long-term in the context of this £16 million year-to-date and its impact on the contract book because I've noticed that the purchase commitments of -- that sit off-balance sheet haven't really changed, sitting at around £20 million. At what point does it become prudent to protect the contract book by increasing those longer-dated purchase commitments? Or are you more closely matching future contracting with production capability? Timothy Gitzel: Yes. Both, Ralph, thanks for the question. We've been -- as we've been reporting quarter-on-quarter, we've been layering on -- in contracts. Each quarter, over time, I think we said £16 million over the last number of years. I think we have about £19 million per year on average sales over the next 5 years, more in the front end than the back end. And it's a spot that we like to be in. I think we're comfortable where we're at. We will going forward want to match our sales with production. We've said that. We've said that to restart McArthur and Key. We'd like our portfolio to be in place so that we're not spring comes into the spot market. And so I think the answer to your question is yes to both parts of it. Grant, I don't know if you want to add anything to that? Grant Isaac: Yes. I just might add, Ralph. Think about it as kind of a market alignment strategy from a sourcing point of view. We have a number of criteria that are behind our portfolio decisions. And think about them that way, when we build a contract portfolio, it has a number of criteria. But the key to that is actually making sure that we've got line of sight to the sourcing. And we said for some time now that -- and Tim said it in his opening that responsible producers in the uranium market build homes. And so for us, it really is about matching where we see the sourcing of that material. Right now, that sourcing is largely coming from the market. We've got to go in and buy obviously. But over time, it will set the conditions that allow for the restart of McArthur, for example. That will then see us sourcing from Tier 1 production, which is a great day. I mean that's unequivocally positive for Cameco, of course. So for us, it's about this market alignment. It's about never finding ourselves in a position where we're contributing to an oversupply in the market, that wouldn't be a sensible thing to do. And when the market is suggesting that those pounds are needed and could be purchased or picked up on the spot. We'll do that, as you've seen us do quite aggressively. So think of it from that market alignment point of view. Ralph Profiti: Yes. Understood. That's helpful. My second question is on Kazakhstan and the 20% curtailment through 2023. Are you satisfied from a prudence perspective of that type of move? Do you think they could or should have done more? And I'd like to get your insights on what it says perhaps about their view of the market. Timothy Gitzel: Yes. Well, these days, Ralph, as you know, you can ask them some of those questions, I'm sure Galan would be more than happy to answer them. I think we were quite pleased to see that we extend the 20% reduction into 2023, I think a very prudent move on their part. Obviously, as a joint venture partner of theirs, we will comply with that. And so we can only do here at Cameco, what we can do, and you've seen us take leadership strides over there. I think Galan in the Kazakhs are doing what they think is necessary and the 20% reduction into '23, we think it is very positive. Operator: So the next question is from Andrew Wong from RBC Capital Markets. Andrew Wong: So the spot and the term price that get quoted by like UxC, they're roughly at par now, and the gap between those 2 benchmarks had been pretty small for a while. Could you just talk about what's causing that dynamic and what that's telling us about the market? Timothy Gitzel: I think I saw a little bit of backwardation in the UxC numbers this week. But grant, do you want to speak to that? Grant Isaac: Yes, Andrew, it's a great question. And at the risk of taking up all the remaining time on that. Let me just make a couple of observations. From the spot point of view, I'm not declaring that the spot price is where it needs to be, but it is up quite a way since the supply discipline has started, up about 60%, and that's reflecting, I think, progress in cleaning up that spot market. And we certainly contributed to that with our major purchase. We've left pounds in the ground, and we've gone and bought material instead off the market. Tim referenced some junior advanced exploration companies buying, you referenced some financials buying. That's all taking material out of that spot market. It's taking material out of the hands of the financial intermediaries. It's taking material out of the churn, and that has led to some, I would say, positive pressure in the spot market, which is all good. It has a ways to go, but that certainly is very, very constructive. It's what we absolutely needed to see. The term market has remained more discretionary, in part because while the spot market is being cleaned up, it still is a source of carry trade for utilities. So utilities who know that their uncovered requirements are growing and know that, that global wedge of demand is growing, still see opportunities to go into the spot market or have a financial intermediary, for example, offer them carry trade into the near part of their term demand. And it effectively buys them a bit more time to not really focus on the big term contracts, but to take smaller bites out of the term market. And so we're just not seeing that level of replacement rate term contracting occurring across the industry. And when we are seeing some of the bigger RFPs come to the market, we just -- we still see a few of the producers who are quite eager to, I would say, buy that business. And that's not all bad, by the way. I mean, we've been saying for quite some time. It's important for producers to build homes. All the new interest in the uranium market, which has been great, has forced us to kind of revisit some of the fundamentals in our business, the fundamental being the spot market is not the target market for production. And so when we see producers looking to build term contract homes, that's great news because it means that in the future, their production won't be hitting the spot market. However, that eagerness to build term homes, we're seeing in the form of, I would say, some very competitive bids to the RFPs that are on market. One competitive business that we can't compete with, and we won't compete with because strategically, it doesn't make much sense. But the good news is those homes are being built, and that demand is calling for pounds that maybe in the future would have hit the spot market. But so for the term market in total, it's just not there yet relative to the uncovered requirements. I think we would have expected more demand in the market than we've seen. I would just make the final comment that Cameco, though, is enjoying a little better situation than that, we talked about our off-market contracting, we talked about the pipeline of negotiations, Tim referenced that over £60 million that we've added to our contract portfolio, reflecting that there is term interest. It just isn't at the level right across the industry of replacement rates. So no surprise, spot market getting cleaned up, 60% increase in the spot price, more demand to come, we think, with some of the financials in particular. Certainly, we'll have some buying to do along the way. But the term market isn't quite there yet. Those 2 are connected, as the spot market tightens, it really will send the signal that the carry trade is going away that buying material in smaller bits is probably not going to satisfy security of supply concerns. So on balance, we think the potential is for the term market to break back to something closer to production economics, kind of break free of this anchor of the spot market, it's behind our optimism, Andrew. Andrew Wong: Okay. That's great. That's a lot of good detail. Maybe just like a longer-term kind of question. Can you share your thoughts on the development of these higher enriched fuels like HEU plus and HALEU for the advanced reactors. What kind of impact could they have on the market? And how can Cameco participate in this trend? You have that investment in GLE, which maybe longer-term could be part of that. Timothy Gitzel: Yes. Thanks for that question, Andrew. Yes, we're quite interested in the whole HALEU, advanced fuel market -- fuel for SMRs. Of course, SMRs, getting a lot of attention these days everywhere. Canada, I think there's 11 or 12 different models in front of the regulator, OPG looking to pick a model very soon, I think, within the next few months to build a demonstration project at Darlington. Bruce is involved and with our own Saskatchewan government. Looking at them, U.S., we know China is now maybe -- is leading the pack is built on the Russians are employing. So SMR is getting a lot of attention because they make sense. And if they can build them cheaper and have the mobile and in places where you don't have to have huge infrastructure, it makes a lot of sense. So that's not going to put a dent in the uranium market tomorrow morning. We are still relying on the 443 operating reactors and the 51 plus that are under construction. But we're looking as to how Cameco can get involved. We have all the elements. We've got uranium. We've got lots of it. We've got refinery, a nice refinery conversion. We've got our GLE project that we're standing up now in the U.S. to provide enrichment. We talked to a lot of companies, many, many companies about how we can play in, especially on the fuel side. And so yes, we're excited about it. It's nuclear. It's the nuclear of the future, I think. And so more to come on that from us. We don't have anything to announce. We signed an MOU with GE Hitachi on SMRs. On their SMR, they've got the X-300. I think that's a nice model, but there are others as well. And so more to come on that, but pretty exciting stuff for the future. Operator: The next question is from Orest Wowkodaw from Scotiabank. Orest Wowkodaw: I'm pleased to see that you've announced another £7 million of new long-term contracts this quarter, building on the £9 million from last quarter. I'm just curious if you're seeing now a real pickup in movement here from utilities from a recontracting perspective and whether these contracts are starting to build momentum on each other and whether we should anticipate more following now that sort of the door has been open? Any context would be appreciated. Timothy Gitzel: Brent, do you want to take that? Grant Isaac: Yes, Orest, I would say that there is no doubt that every time we talk about more of our future production being claimed, it does create interest from others, who are part of making those claims. But let me just be cautious here. It hasn't translated yet into kind of an industry level. We haven't seen that kick over to frequent on market RFPs that would suggest a real security of supply. Contracting cycle is underway across the industry. So for us, it is positive. I think it makes some of our customers wonder why they are -- why their colleagues are contracting and they're not and how much Canadian Cameco supply has already been claimed and what's left for them. So very positive for us, but it hasn't yet translated into kind of that security of supply shift at the industry level. Let's face it. in the past, that trigger has always been shock driven, whether it was the supply shock of, for example, 2006, the Cigar Lake development project flooding, whether it was the demand shock of 2010, the Chinese stepping into the term market for the first time and contracting a lot of uranium. It tends to be a bit of a shock event. That causes everybody to try to go through the door at the same time. And I would just say, if we look at the market, if we look at the forward view of productive capacity on a primary basis and on a secondary basis and just oppose that to uncovered requirements, this market is as vulnerable to a shock as it's ever been. So I think it's building in that direction, Orest, I just want to be careful not to call that today, but certainly positive for us. Orest Wowkodaw: And then just separately, I noticed in your release, there are some comments about some initiatives to materially reduce your holding costs, your standby cost with the shut-in, with McArthur River and I guess the other assets. Can you give us some insight in terms of what you're thinking there, what the time line might be to get some color? And what kind of impact this could have? Grant Isaac: Yes. Orest, what we're referring to there is the projects that we have underway at McArthur and Key. Remember, they've been in care and maintenance since 2018, actually, which is a long time to have the world's mine and mill complex in care and maintenance. But it hasn't been like quiet sites because what we've done is we've said, look, while these assets are down, this is the absolute best time to unpack every process, every procedure, look at opportunities for us to harness the very best of Digitization & Automation Technologies that we're seeing adopted elsewhere, not an R&D project, but really an applied technology project to take the best of what we see elsewhere, bring it to our facilities, do that while they're down so that when they come back, they come back even better than when we brought them down. So those are the types of initiatives that we're referring to. Making those investments countercyclically, it's prudent for us to do. It's one of the reasons why we've had such a very conservative financial management so that we can be poised to make those kind of prudent countercyclical investments when they make sense and right now is when it makes sense. Timothy Gitzel: Orest, I'd just add to that, that the most difficult piece of that often is the change management piece. When you've got a fully staffed site with 700, 800 people involved and you're trying to implement change. The change management piece, getting the people to adopt new habits, easy stuff. And so all our sites down, our people are up, I think we only have about 100 people on care and maintenance. It's the right time to implement those. And the day we do bring the people back, it will be -- we're going to have to train them differently, get them prepared differently for a different site, kind of a mine and mill of the future. So that's why we're doing it now as well. Operator: The next question is from Katie Lachapelle from Canaccord Genuity. Katie Lachapelle: Now that the spot physical uranium test arrangement has closed and started trading, I was just wondering if you could provide your thoughts on both when and how you think this new entity could impact pricing moving forward? And just based on your knowledge, is this something that you think utilities are recognizing and are maybe perhaps worried about. Timothy Gitzel: Thanks, Katie for the question. We're pretty excited to see Sprott in the business now. I think a lots of experience in metals funds and at the market, in the market with metals and have a big market presence, I think. And so Grant has been studying them and looking it's progress. Grant, why don't you go ahead? Grant Isaac: Yes. We certainly think that there is potential for this to be actually quite transformative to price discovery in the spot market. As I think a lot of folks know, you heard me say a lot of times, the spot market is not the fundamental market. It's a market where we've seen it punished, if you will, by uncommitted primary production that didn't have a home. It's why I keep talking about responsible producers being one who are building homes. And as that material came into the spot market, it often ended up in the hands of financial intermediaries, who would churn it through the market and really be able -- be in a position to offer the market down without actually making a transaction, just by hanging offer after offer over the spot market, and we'd see the spot market walk down, but nobody actually put their income statement on the line and consolidated the transaction. And that was possible because you had the offers outmatched the bids in the spot market. So a long terms of physical trust that is proposing to have a far more frequent bid in the market. A physical trust that is, I think, designed to impute what investors believe the price of uranium should be. And I think, by and large, most investors view that this price of uranium is not linked to production economics and that it does have to transition in order to create that link, and that would suggest that investors would be very supportive of that trust model, be happy to invest perhaps on a daily basis, allowing that fund to go in and have a far more frequent and consistent bid in the market. And we've seen in the past, if that occurred, that will back up some of the selling, it will back up some of the offers, and it will help contribute to a transition back to production economics away from surplus disposal. And I guess we sort of look at it as having plenty of upside and perhaps very little downside because if those folks decide to go a different route and maybe run the fund like it used to be run, well, we know what that's like. I mean, it will just go in the market every now and then and buy and then sit back and wait for the market to appreciate up to a point where you can go back in. It wouldn't be as fun, and it certainly wouldn't be transformative, but if they go to former route and actually do -- start to impute investors' view of where the price of uranium should be. It really will take a lot of the judgment and a lot of the, I would say, discretion that sometimes gets imputed by the trade report. It will take it out of their hands and make the spot price far more transparent and far more transaction based. Quite frankly, that's good for everybody. Operator: The next question is from Greg Barnes from TD Securities. Greg Barnes: Grant, several quarters now you've been saying that you have a large volume of off-market discussions with utilities regarding additional contracting activity. This quarter, you're saying negotiations continue on business opportunities remaining in our pipeline. That is a little less optimistic, I guess, than it has in the past couple of quarters. You've done a fair amount of contracting, is that slowing? I guess, is the question. Grant Isaac: Yes, sorry, absolutely did not mean to create the impression that it's a pipeline, and we're drawing it down. I mean, we're quite excited by the opportunities that are in there. We're not going to get every opportunity because, of course, as Tim said in his opening comments, we're being very strategically patient. We're trying to find those opportunities that make sense for us. And quite frankly, some of the folks want to take advantage of what our low prices, and we'll turn to other producers to satisfy that. So we're not going to get all the business in there. You don't want us to get all the business in there. But I would say, when we get on a call like this and we talk about the term market being quiet, one of the first calls I get is from our Vice President of Marketing, who says, what are you talking about? Because we're quite busy, let me remind you, dealing with all of these opportunities that would see coming our way. So I did not mean to send the impression that that Cameco's pipeline is shrinking in any way. As I mentioned to Orest, we sort of see it as we announced that more contract commitments have been layered on, that actually creates more interest in our pipeline and in our future supply because it starts to build a sense that, well, how much of Cameco's future supply has already been claimed. And if I want some of it in my diversified portfolio, I'd better talk to them. So absolutely did not mean to send that impression, Greg. Greg Barnes: Just the situation with the CRA and the new way of reassessing 2014. Trying to understand, again, learning in the MD&A, it said it would result in less adverse, albeit still a material adjustment to taxable income in Canada for 2014. But then you want to say your initial view is that this methodology would not result in materially different outcome for 2014. Timothy Gitzel: Greg. Can I get Sean Quinn to answer that. Sean's obviously been on this file for about 13 years. So Sean, why don't you answer Greg's question? Sean Quinn: Sure, Greg. The reason we've -- we don't think it's a materially different outcome at the end of the day as we think this new assessment ground that has been raised for 2014 would be unsuccessful pursued by the CRA. So at the end of the day, we don't think that there is a significant problem with that year. Operator: The next question is from Lawson Winder from Bank of America Securities. Lawson Winder: I'd like to ask again about the digital and automation and your statement that it has the potential to eliminate care and maintenance costs. Like how are you thinking about that? How is it possible that you could eliminate care and maintenance costs without restarting those mines? And yes, that's the question. Timothy Gitzel: Yes. Again, if we left that impression, that would -- absolutely, we're not eliminating care and maintenance costs. That's not possible. But when we do come back, we would have a more streamlined, more digitized system up at Key Lake and McArthur and which -- that's where we'd be more streamlined. Certainly, there's no way we're eliminating care and maintenance costs, not at all. Lawson Winder: And then just respect to specific numbers here. So I think the latest study was somewhere around CAD15 per pound marginal operating costs or C1 cash costs for McArthur River innovative study. Is there a potential to materially lower that as a result of your digital and automation work? Timothy Gitzel: So that's exactly the goal, Lawson, is to do that materially if we can, but we'll take anything. So if you can digitize, mechanize, robotize, if that's a word, some of the processes and circuits in the mill, especially, we'd want to bring down our operating costs absolutely. So that is the goal, clearly. Lawson Winder: If I might ask just one more. The £16 million now so far this year of contracting, how is that spread around the world? Is that more western or more Asian clients? Timothy Gitzel: Grant? Grant Isaac: Yes. I would say in terms of the regional distribution, you're seeing a bias towards, let's call it, are more traditional markets in North America, in Western Europe as opposed to the emerging markets, which, of course, you should take as very positive because it suggests that, that growing demand in those emerging markets has not yet shown up, which is obviously very good news. So yes, it's more the traditional customer base who have been through this before. I think who are recognizing that there's a fundamental story that's not building in their favor. And quite frankly, I think, maybe concluding that there's probably first mover advantages for them if they move now. So that would be more of the distribution. Operator: The next question is from Alexandre Pierce from BMO. Alexandre Pierce: So I noticed, obviously, you pushed up sales volumes expectations this year for fuel services. I was wondering maybe you could provide a bit of an update on the market there. And obviously, you're halfway through the year. Maybe you can give us a view on where you think conversion, et cetera, is going into next year? Obviously, there's a bit of some capacity changes over the next couple of years? Timothy Gitzel: Yes. Thanks, Alex. Grant? Grant Isaac: Yes. Alex, the conversion market, in particular, not as far as it was in 2020, that's for sure. I think you'll recall that in 2020, we sold forward as much conversion as probably we ever have in a twelve month window. So that was not just hitting replacement rate, but going well beyond. Been a bit of consolidation, I would say, in the conversion market, especially with the announcement ConverDyn coming back. Now it's a few years and quite a bit of money before they're back up and running. And that was also combined with Orano putting out some statements about not just successfully getting to the 7,500 tons of their first module, but maybe going to 15,000 tons, obviously, not an overly helpful announcement in the conversion space. But that's led to a bit of consolidation for sure. But as you can see, there's still opportunities for us. And those opportunities are in the near-term before full commissioning in France and before ConverDyn is back up and running and make no mistake, we'll take those opportunities because conversion remains very attractively priced, and those prices support our Fuel Services division very nicely. Operator: The next question is from Brian MacArthur from Raymond James. Brian MacArthur: There's some language in the MD&A talking about potentially deferral in project work and maybe impacted next year's production. I mean I realize these are very high-grade mines, and you have a lot of flexibility. But can you maybe elaborate a little bit on that? Is that more labor? Or are you actually seeing supply chain issues? So there really could be an impact on Cigar? And maybe a second question moving longer term. You talked about digitization of McArthur making it better, but there's also cautionary language that you may have issues for equipment for that going forward. I mean, you're trying to balance that, that you don't want to bring it back until you have contracts, but how are you ensuring that you actually have the pipeline of material ready to break that McArthur comes back when you want it as expected? Because as you mentioned, it has been down for a number of years. Are you getting a lot more concern on supply chain issues for equipment to actually be able to bring this back when you want to? Timothy Gitzel: Yes, Brian, thank you for those questions. Our securities' lawyers will be delighted., you did a deep dive into our risk factors. I think we sometimes wonder if anybody reads them. So thanks for doing that. Obviously, when you think about Cigar Lake, we always want to remind folks that when you curtail an asset, you're curtailing 2 things, aren't you? You're curtailing the in-year production, but you're also curtailing the activities required for future production. So what you're picking up is that risk to say, look, if we don't have Cigar Lake operating for COVID reasons, it's not just this year's production that gets affected, it's the development of the mine required for future production. And obviously, now that it's restarted -- we've restarted in-year production, and we've restarted mine development. And so we just -- it's prudent to flag that as a risk that if there are disruptions to the mine development plan for future production, that will affect future production. And quite frankly, we're not afraid of that as a risk, Brian, because that's actually connected to our supply discipline strategy. So it doesn't really -- it's not orthogonal to what we're trying to accomplish. At McArthur, Brian was -- Brian Reilly, our Chief Operating Officer, was on a number of quarters ago to sort of discuss where McArthur was from a risk point of view. And just to -- I would say, calm any nerves about the situation at McArthur at regular risk, as you say, it's been down for a while. There's no doubt about it, but we've continued to have, we think, the appropriate people there, both keeping the physical capital and the human capital in good condition and getting it ready or keeping it on standby so that when we do call for that production, it's there for us. At the moment, we don't see a significant penalty capital that we've incurred because it's been down. We've deferred capital for the time it restarts, but that's not the same as penalty capital. It's just capital we chose not to spend. So you're picking up, I think, some prudent risk language that we bury into those risk factors for sure. But by and large, that -- we're very confident with where we're at with Cigar Lake, and we're very confident with the state of care and maintenance at McArthur Key. And if we weren't, you'd actually see us have to spend some money and be very clear about those capital spends. Brian MacArthur: Great. Maybe switching to another topic. You did mention GLE again and it was asked earlier. So an extent you can because I realize it's competitive. What exactly -- I mean, we had a pilot plant years ago and whatever. Are we actually trying to scale this now or what's actually going on at GLE right now? Timothy Gitzel: So, Brian, we spent the last number of months of putting the deal together, where, along with Silex, Cameco takes over ownership of GLE and stands up the company. And so we're really in that process right now populating it with some real, real strong talent. And so -- and then we're looking as to where we can play. We've got options for GLE. The HALEU market, just pure enrichment. We've got those deal details that are available to us, if that makes sense. And so it's pretty exciting. We've looked for a long time for an entry point into the enrichment market. And those aren't easy. There's a lot of barriers to entry there. And so we think we might have a pathway here, and so we're going to push it along. Operator: Next question is from Gordon Johnson from GLJ Research. Gordon Johnson: A lot of our questions have been answered. But I guess, I just wanted to get your thoughts on your Uranium Trading Corporation being the second private financier to announce the purchase of uranium. And clearly, you guys already talked about Sprott. But just given we're seeing more of these transactions announced, wanted to get your thought on if we'll see more and kind of how you guys see that impacting the broader dynamic? Timothy Gitzel: Yes. It's a great question, and you're absolutely right to say it's been a very active part of the space. And it's pretty clear to us that some of the people are coming to it because of an understanding of the uranium market and the fundamentals and how uranium actually creates value through a marketing program, not being dumped into the spot market. But some are coming to us just because they're doing the statistical analysis and say, look, this is a commodity that's got a very low probability of going down and not very far and a very high probability of going up in probably a long way. So there is quite a variation, I would say, of the interest in it. Some of it is public, and you've heard about, and some of it is private. And I would say the most important aspect of a successful financial hold in uranium is to hold it, is to not think, well, we're going to get into the uranium business, and we're going to have this little trading book that we're going to flip, and we're going to create some positive carry and maybe sign a little contract or 2 with the utility in order to cover management fees, those don't work. And that's why they've come and gone. But that's not what we're hearing from the narrative now. The narrative really is kind of an understanding that this is a market that structurally is positioned for a transition. And better to be in now than after the transition occurred. And I would say a very helpful understanding that actually grabbing some material and hanging on to it more in a permanent capital framework is probably the wiser thing to do. So we're seeing interest. It's continuing, and it's more appropriate than I would say some of the interest we've seen in the past. Gordon Johnson: Okay. That's helpful. And I always ask this one, but I'll ask it again. The contracts in China are quite dated. Any update there with respect to renewals? And just the last question, taking a step back, widely popular EV CEO, Immamus mentioned recently that uranium makes sense. And it seems like the Biden administration is kind of warming up to the idea that if you want a real solution to CO2 uranium the way. We're seeing issues in California with respect to power outages and energy prices increasing. Can you guys talk about just from a broader perspective, if you're seeing a further change in increase in sentiment? Timothy Gitzel: Yes. Thanks, Gordon. I can get on the soapbox here for both the next half hour, if you like, talking about climate change and global warming, and then the megatrends of electrification and decarbonization and where everyone's going. Who hasn't set a net-zero target by 2030, 2035. And quite frankly, this is a personal thought. I think there's a lot of hope and a bit of hypocrisy in that we need to -- there's a bit of a gap between the rhetoric and reality. And going to start looking at action plans and how we're going to get there now with this massive electrification, all-electric cars by, I don't know, 1 year and billions being spent. And so that's all positive for us because I keep quoting our famous Energy and Mines Minister here in Canada, Seamus O'Regan, and there's no path to net-zero that doesn't drive by nuclear plant. And so that's real positive for us. The U.S. has been super positive. With the Biden administration, the first day they came in, they canceled Keystone and signed Paris. And since then, we've seen they make a lot of moves. The set of clean energy standard for clean electricity fossil-fuel-free electricity by 2035. The Secretary Grand Home, very positive on nuclear, John Carey, Gene McCarthy, all of those things. So we're watching the Exelon units to see if they get a survival line thrown to them. And so yes, lots of positive things going on in that front and all positive for us. We think we think nuclear has to be in the picture going forward. And so we're super positive. On China, we continue to talk to the Chinese. Grant, I don't know if you can give much of an update on that, but they're certainly in the market. Grant Isaac: Yes. I mean, China is an example of a country that is putting action to the rhetoric, a 2060 net-zero carbon target that has led to very significant near-term increases in nuclear's rule in their overall grid. You're talking about a handful more reactors in the next 5 years. You're talking about a target mid next decade of 200 gigawatts. That's a combination of what will be operating and what will be under construction. At that kind of target, China alone would be consuming 100 million pounds of uranium. As primary production last year was 120 million pounds. So one country would be calling for 100 million of 120 million supply stack. It's quite astonishing. The Chinese have kind of -- we used to think of them as China Inc., if you will, as one group, but you really actually see different behaviors from the different entities in China. You see one of the utilities has actually become very active in owning assets abroad and having a supply abroad and having, in particular, African material and in the future, some Kazakh material coming in directly to their account, which would offset some of their purchases, of course. We don't see the other utility being quite as aggressive with securing their own supply and probably, therefore, a far more market reliant going forward. And as I said in response to an earlier question, with respect to where our contracts currently are coming from the traditional markets, well, it's very positive when you think about these big emerging markets have not really come back yet. And we saw what happened. Last time they came back in a big way. So China is a country that's putting action to the words. Nuclear is key to getting that clean grid. And we actually think that, that demand is in front, not behind. Gordon Johnson: I could just give one more sneak, one more in. What would you guys say conversely is the biggest challenge you face? We've seen ups and downs in just the equity valuations, which isn't indicative of your overall business. But what would you say the biggest challenge you're hearing out there is for maybe some of the investors you're talking to it? And how would you address that? Timothy Gitzel: I don't know if I have a good answer to that. We're pretty happy with the way things are moving. Maybe the market is not moving quite as quickly as we like on the term market. But other than that, the company is in good shape. We're certainly in -- our balance sheet is strong. Our operations are running well, when we're not threatened by COVID or forest fires. And we're optimistic for the future. So I don't know. Of course, we worry about lots of things all the time. That's our job, but nothing in particular. Operator: The next question is from Jessica Sondgeroth from Nuclear Intelligence Weekly. Jessica Sondgeroth: I was just wondering if you could elaborate a little bit more on chemical's strategy with regard to the carry trade. I know we have some backwardation, and you mentioned some competitive offers from producers that seems to be driving some of that backwardation. And also with regard to future market trends once the market goes back into Contango, I wonder what your expectations of the carry trade might be then? Timothy Gitzel: Grant? Grant Isaac: Yes, great questions. We see the carry trade as being less impactful on the market than it had been in the past, obviously. And not just a function of the spot market fitting out. We've talked about 60% rise in the spot market since the supply discipline strategy. It's closed the gap with the term price. I think not too long ago, there was a lot of concern about inflation and where interest rates would be. Well, that undermines the carry trade as well. To the extent that maybe that concern is now replaced with the delta variant and the idea of more stimulus and perhaps lower interest rates? Well, again, that will come back in from the carry trade. But ultimately, carry trade works when you have uncommitted primary production coming into the spot market. And the good news is, from a producer point of view, that's going down. You've seen assets retired, Ranger, Common Act. You just -- there's less material showing up reflected in the higher spot price. And so the carry trade will be there, but probably a less important factor. And as it starts to tighten and the spot market gets closer to the term price, that's when the conversations really flip over to. Okay, well, now it doesn't seem advantageous to try to secure spot material and carry it into the near-term of my -- I might as well look at term demand. And so that, I think, is what reflects the £60 million plus that we've been successful in adding into our contract portfolio. We'd obviously like to see more utilities realize that, and that's to come because that demand is not going anywhere. It's still there and needs to be satisfied. So it just leaves us quite constructive, and I think that's captured in Tim's optimistic view. Operator: The next question is from Patrick Sogeti of Private Investor. Patrick Sogeti: My question is in this environment with sort of central banks printing no end in sight. Is Cameco managing their cash balance any differently, say putting maybe some of it into like maybe carrying a higher inventory or is something other than cash, which is losing the purchasing power at an increasing rate? Timothy Gitzel: Yes. Thanks for the question, Patrick. I'll turn that to the CFO. Grant Isaac: Yes, Patrick, thank you for that question. Obviously, our very conservative financial management has come with an opportunity cost, and that is, we've been sitting on cash, and that cash hasn't been earning a lot of money, but what it's been doing is, I think, creating a virtual guarantee for our owners that we can self-manage risk that as we go through the supply discipline strategy, as we deal with the purchasing we need to do to cover the gap between where our committed sales are and where our production is as we carry the care and maintenance costs. And then, of course, deal with unplanned shutdowns, things like COVID, our owners can be assured. There'll be no awkward lurches to the capital markets because we didn't have the financial resources to deal with this. As the business case improves, as we lock in more contracts, as we get more certainty and predictability around when that McArthur restart, is -- at that point in time, if we're still sitting on these kind of cash balances, there will be too much. And at that point, we'll have to look at ways to reduce that either give it back to the owners or if we've got a compelling use for it that can generate an acceptable return, we'd make the case for that. But right now, we're still kind of in this prudent role here of being very financially conservative. And then we'll look at things like when the market begins to transition in a more aggressive way, what is our role for buying not just the inventory, not just the material we need for our committed sales, but perhaps a little bit more. I mean, normally, it's not advantageous for Cameco to sit on an inventory. And the reason is we become an overhang. Time and time again, we find ourselves in conversations with our best customers, where we'd say we're looking at your uncovered requirements, and we think you should start buying uranium, and they'd say, well, we're looking at your inventory, and we think you should start selling. And so we created no advantage for us to be carrying that kind of inventory. But if it -- if we saw that transition, you could expect us to be a very aggressive buyer and deploying some capital that way. But the good news is those are choices that we have, and those choices are a result of the prudent financial management that we've been engaging in. This concludes the question-and-answer session. I would like to turn the conference back over to Tim Gitzel for any closing remarks. Timothy Gitzel: Well, thank you, operator. And I just want to say thanks to everybody that joined us on the call today. And we, as always, appreciate your interest and support. Just a couple of closing comments. I'd just say again that we're excited about the future we're seeing for nuclear power generation. We're excited about what we're seeing in the fundamentals of uranium supply and demand, and we're certainly excited about the prospects for our company. As you know, we're a responsible commercial supplier with a strong balance sheet, long-lived Tier 1 assets and a proven operating track record. And I can just tell you, we will continue to do what we say we would do. We'll execute on our strategy and consistent with our values, we'll do so in a manner that we believe will make our business sustainable over the long term. And as always, we'll continue to make the health and safety of our workers, their families and their communities are priorities. So with that, I say thanks, again, everybody, stay safe and healthy, and have a great summer. Thank you. Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.CCJ Ratings Summary
CCJ Quant Ranking
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Cameco (CCJ) Upgraded to Outperform by RBC Capital with Price Target of C$75
RBC Capital Upgrades Cameco (CCJ) to Outperform
On May 2, 2024, RBC Capital upgraded its rating for Cameco (CCJ) to Outperform, signaling a positive shift in their assessment of the company's stock. This upgrade came with an increase in the price target from C$70 to C$75, reflecting a more optimistic view of Cameco's future market performance. At the time of this announcement, Cameco's shares were trading at $48.35, as reported by TheFly in their article "Cameco price target raised to C$75 from C$70 at RBC Capital." This upgrade by RBC Capital is a significant indicator of the confidence analysts have in Cameco's potential for growth and profitability.
The optimism surrounding Cameco is further supported by a report from Zacks Investment Research, which highlights the positive outlook Wall Street analysts have towards the stock. According to Zacks, the average brokerage recommendation (ABR) for Cameco stands at 1.33, positioning it between Strong Buy and Buy. This ABR is based on the recommendations of 12 brokerage firms, with nine recommending a Strong Buy and two recommending a Buy. This consensus among analysts points to a strong belief in Cameco's market performance and its potential for growth.
Cameco's stock has shown a promising trend, with a recent increase of 2.80% to $48.24, marking a significant change of $1.32. The stock has experienced fluctuations over the past year, trading between $26.15 and $52.64, but the current trends and analyst recommendations suggest a positive outlook for the future. With a market capitalization of approximately $20.94 billion and a trading volume of 2.39 million shares on the New York Stock Exchange (NYSE), Cameco is positioned as a notable player in its sector.
The upgrade by RBC Capital, coupled with the optimistic analysis by Zacks Equity Research, underscores the potential for Cameco's stock. The increase in the price target to C$75 from C$70 by RBC Capital, along with the strong buy recommendations from analysts, reflects a growing confidence in Cameco's market position and its ability to generate value for investors. As such, Cameco (CCJ) is increasingly being viewed as a stock to watch closely in the coming period, with potential for significant growth and profitability.
