Cameco Corporation (CCJ) Q1 2019 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Cameco Corporation First Quarter 2019 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. [Operator Instructions] I would now like to turn the conference over to Rachelle Girard, Vice President, Investor Relations. Please go ahead, Ms. Girard.

Thank you, operator, and good day, everyone. Thanks for joining us. Welcome to Cameco's first quarter conference call. Today's call we will focus on the trends we are seeing in the market and on our strategy, not on the details of our quarterly financial results. If you have detailed questions about our quarterly financial results, please reach out to the contact provided in our news release and we will be happy to help you with those details. With us today on the call are Tim Gitzel, President and CEO; Grant Isaac, Senior Vice President and CFO; Brian Reilly, Senior Vice President and Chief Operating Officer; and Sean Quinn, Senior Vice President, Chief Legal Officer and Corporate Secretary. Tim will begin with comments on our strategy and the markets, after we will open it up for your questions. If you joined the conference call through our Web site events page, there are slides available which will be displayed during the call. The slides are also available for download in a PDF file through the conference call link 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. 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, Rachelle, and welcome to everyone on the call today. We appreciate you taking the time to join us. As Rachelle point out, it is our intent to use this call to talk about what we are seeing in the market and about our strategy. Our results reflect the outlook we provided for 2019 and the normal quarterly variation in contract deliveries which are awaited to the second-half of the year. Progress in our business is not measured in weeks and months, but in years. And that's how we manage our business for the long term, not based on quarterly financial results. I want to start today's call by acknowledging the good news we announced yesterday. I am pleased to tell you that we have been awarded $10.25 million for legal fees incurred in our dispute with the CRA for the 2003, 2005, and 2006 tax years. And in addition to these legal fees, the award allows for recovery of an amount for disbursements which will be determined by an officer of the tax court. We are optimistic that we will recover all or substantially all of the $17.9 million in the disbursements we applied for and expect the award will be made before the end of this year. Just to refresh your memory, our total application for cost was for about $38 million including legal fees and disbursements. So depending on the disbursements awarded, we could recover up to almost 75% of the cost we applied for. While the timing of any payments are uncertain, this is certainly good news for Cameco. As I said on our last call, 2018 was a year with a lot of moving parts. And with the exception of receiving the cost award I just mentioned, that really hasn't changed through the first quarter of 2019. In fact, it seems a number of additional pieces have been added have been added which I will come back to a little bit later. The one consistency through all of this is that we at Cameco have been doing exactly what we said we would do, executing on our strategy to add long-term value. We've taken a three-prong approach in our execution: operational, marketing, and financial. On the operational front, we decided to preserve the value of our tier I assets for better days in our market. We suspended production at the McArthur River/Key Lake operation removing 18 million pounds of supply from the market. The suspension was temporary at first. And then based on continued market weakness, we transitioned to an indefinite suspension. And let me be clear, McArthur River/Key Lake is coming back supported by the very robust economic shown in the recent technical report for this operation and a significant value we expect it will create when it comes back into production. However, we do not intend to restart until we are able to commit those valuable pounds under acceptable long-term contract. Contracts that provide an acceptable rate of return on these assets for our owners rewarding them for their continued patience and support of our strategy to build long-term value. So for the time being, McArthur River/Key Lake along with our Rabbit Lake and U.S. operations will remain in current maintenance resulting in annual supply reduction of more than 26 million pounds. Our supply actions required demand actions as well. Our inventories in 2018 while significant were not enough to meet our delivery commitments. So, we were required to buy material in the spot market. This requirement not only continues in 2019, it ramps up. In our uranium segment, we expect to take delivery of between 19 million and 21 million pounds of purchased uranium just to meet our current 2019 delivery commitment. The majority of these volumes about 60% are expected to come from the spot market. In the first quarter, we took delivery of about 7 million pounds of purchased uranium. This material was drawn partially from the spot market, the rest from our long-term purchase commitments and from Inkai. In addition, we have secured a portion of the remaining material required, but have not yet taken delivery. So, we still have some purchasing activity ahead of us yet this year in order to fulfill our contracted sales. And remember because our contract book extends beyond 2019 like in 2018, we expect to also begin securing uranium this year to meet next year's delivery commitments. So, 19 million to 21 million pounds really represents the floor for our purchasing activity in 2019. There are some additional variables to keep your eye on as well that could further accelerate our purchasing in 2019. Those being additional sales commitments in either 2019 or 2020; an increase in our target inventory as a result of increased sales or tightening supply; and an unplanned production variance. Our supply and demand actions are backed up by a financial goal to strengthen our balance sheet and position ourselves to self-manage risk. And I am pleased to say we have successfully achieved this goal. At the end of the first quarter, we are sitting on $1.2 billion in cash. And we expect to continue to maintain a significant cash balance even if we decide to retire the $500 million in debt maturing later this year. We will also continue to generate cash from operations this year. It will as significant as last year as we would have the release of working capital associated with the inventory draw down in 2018, but it will be additive. So our balance sheet is in good shape. Remember there is also the upside depending on what uranium price is due for the remainder of the year; the outcome and timing of the TEPCO arbitration decision; and whether resolution of our CRA tax case can be achieved on terms consistent with our unequivocal win. So today, we are batting 3 for 3 in terms of the execution on our strategy. Turning to the market, fundamentally it's better than it was a year ago. From 30,000 feet, 2018 was a pivotal year for the uranium market. So why do I say that? It's because from a demand point of view, consumption has returned to pre-2011 levels. We have now filled in the pothole of lost demand, and that demand continues to grow. There are more than 50 reactors under construction, and as each one of these reactors gets turned on, it represents net new demand. In China alone, the fastest-growing nuclear energy market in the world, there are 45 reactors operating, and 11 units under construction, and it just approved construction of two new reactor complexes implementing the domestic Chinese Hualong One reactor technology, the Dragon, as they call it, the first new build approved in over three years. CNNC's Chairman Mr. Yu indicated recently that China expects to be able to build six to eight new reactors each year, if the project approval process returns to normal, which would allow it to meet its 2030 target of 120 gigawatts. In addition, we're beginning to see a number of other countries and organizations come up with some very positive policy messages. There's growing recognition of the role nuclear power must play in ensuring safe, reliable and affordable electricity while tackling climate change and air quality issues. Recently in the United States, a bipartisan group of senators reintroduced Legislation Bill 903, the Nuclear Energy Leadership Act or NELA as it's called. The bill is aimed at boosting U.S. nuclear energy innovation and ensuring advanced reactors can provide safe, affordable and reliable electricity. In addition the U.S. Secretary of Energy, Rick Perry announced the $3.7 billion loan guarantee to support completion of the two reactors currently under construction in the U.S. He indicated that the Vogtle project is critically important to the U.S. Administration's direction to revitalize and expand the U.S. nuclear industry calling it the Real Green new deal. In New Jersey, the Board of Public Utilities voted to award zero emission credits to three New Jersey nuclear power plants and the U.S. Supreme Court said it would not hear an appeal challenging the rights of Illinois and New York to subsidize nuclear power plants. In India where they are targeting 12 new reactors, the Secretary of the Department of Atomic Energy recently stated that the Indian Government supports nuclear technology as an irreplaceable source of clean energy. And I can tell you this growing recognition of the benefits of nuclear is not new. I've seen this movie twice before, nuclear falls out of favor politically and a number of countries announce they're going to reduce reliance on or phase out nuclear. Then the world steps back and examines its options for carbon free base load sources of electricity and realizes the options are limited. There's hydro, which is an option for some countries, but not all. And there's nuclear and they realized the nuclear could provide the power they need not only reliably but also safely and affordably and in a way that avoids emitting greenhouse gases. There's no doubt, there's a role for wind and solar. But they aren't base load. Our healthcare, education, communication and transportation systems can't just make do if the Sun doesn't shine and the wind doesn't blow. Then consider China and India's ambitions for increasing the number of electric vehicles on their roads. I can tell you if they're powered by carbon producing sources of electricity, they'll be doing more harm than good. So, clean air concerns and climate change aren't going away, you can look at the news every day and see an increased sense of urgency to limit the temperature increase of the Planet and perhaps that's what's different this time, it's that sense of urgency even the investment community is concerned. There's been a significant rise in the focus on environmental, social and governance or ESG issues. Many pension funds, mutual funds and investment firms are developing strategies to measure and address the impact of these ESG issues within their investment portfolios. Not surprisingly, the business and financial risks associated with climate change are front and center. So, support for nuclear is growing and the demand for nuclear fuel is certain and growing, supply is less certain and in fact declining. Over the past several years, we've seen meaningful production cuts and reductions in producer inventories, which have led to increased demand for uranium in the spot market from producers and financial players. With decreasing primary supply is result of curtailments and the competition for supplying the spot market from producers and financial players. The interest in long term contracting is once again starting to pick up. At Cameco, we're having off market conversations with some of our best and largest customers about what it takes to support the operation of our Tier-1 assets longer-term. These customers are recognizing the risk that over reliance on finite sources of supply poses to the security of the supply longer-term, and they want first mover advantage. In light of the market access and trade policy issues affecting our market, they're increasingly looking for stable commercial suppliers with long live Tier-1 assets and a proven operating track record and there aren't many of us. As a result, you can see in the expected realized price sensitivity table in our MD&A that our average annual delivery volume over the next five years has increased. The terms of our recent contracting activity remained consistent with our overall portfolio goals. However, not surprisingly, for near-term deliveries, there is not much leverage to higher prices, because it's still a buyers' market, and while price is a very important factor, we also must take into account who the customer is, the volume being contracted, duration, product form and regional diversification. Also, keep in mind most of our long-term contracts don't start delivery for two to three years after we sign them. Overall, including our 2019 deliveries, our total portfolio sales commitments, has increased by about 25 million pounds, the bulk of those commitments occurring after 2023 outside the range of the price sensitivity table. However, while these contracting activities encouraging. Make no mistake, there's still a long way to go before we decided to restart McCarthy river key lake. The reason I say this is because as I mentioned at the beginning of my remarks and list of moving pieces in our industry continues to grow, creating uncertainty as market participants are trying to digest the implications of these changing dynamics. I mentioned earlier market access and trade policy issues. These are issues that may make the availability of supply where it is needed, much less predictable. Of course, the most notable of these issues today is the investigation under Section 232 of the trade expansion act in the United States, which has the largest fleet of nuclear reactors in the world. On April 14, the Department of Commerce issued its confidential report to the president containing its findings and recommendations. President now has up to 90 days to decide whether to concur with the DoC findings and what actions if any, will be taken. Remember, we at Cameco are not a state-owned enterprise. And we were the largest producer in the U.S. before we put those assets on current maintenance. If the U.S. is looking for more domestic production, our assets would be among the best and the quickest to start producing. And of course, the U.S. will remain dependent on foreign supply to keep its reactors running. As the largest commercial supplier of uranium, we can help them out there too. But until the President makes this decision and the potential impact, positive or negative can be determined. It's a moving piece affecting our market. Another recent event that had some uncertainty is the announcement on March 19 by the President of Kazakhstan, Nursultan Nazarbayev that he was stepping down immediately. Speaker of the Senate, Kassym Tokayev assume the presidency, and subsequently called a snap election for June 9, 2019. I can tell you with 45% of the world's supply coming out of Kazakhstan the leadership transition will be watched closely, and there's still the uncertainty created by the May 31 expiry over [indiscernible] collective agreement with unionized employees at the McLean Lake Mill where we send our Cigar Lake ore. With Cigar Lake supplying 18 million pounds of uranium more than 10% of annual consumption, any labor disruption could create a significant swing in supply. Then let's take a look at what happened in the spot market in the first quarter. In late March, we saw some motivated spot market selling from a number of market participants. It seems these players had built up a uranium position in a dissipation of short-term demand in the market. However, they misread the timing of that demand. When it didn't materialize on the timelines they expected, they began to sell material into a very illiquid spot market also drawing a few other sellers into the market. And yet once the market had seemed to find a floor, we issued a request for proposal for a million pounds of uranium despite pricing those to the contrary, we found there was not enough material to meet our specifications. While there's no doubt we need to purchase material this year, let me be very clear, we will not be the buyer of last resort. Therefore, if we see this type of behavior, our strategy dictates that we step back from our purchasing activity, and there's a very real possibility we could see this behavior again. We're hearing that one of the Japanese utilities is looking to sell a modest amount of its inventory, less than 150,000 pounds per year for the next several years. While the volume sounds modest and we have not seen a broader shift in Japanese utility behavior, this selling could have an impact on market sentiment. If you recall on a previous call, they talked about the parameters of our strategy. I discussed our behavior in the scenario where there is a lot of supply in the spot market. In this scenario, we're buying uranium as cheaply as possible in order to maximize our gross profit not assist others achieve their profit targets. So, today the market dynamics are changing due to a lot of moving pieces. However, what isn't changing is our commitment to our strategy. It's a deliberate strategy that allows us to respond to the changing market dynamics and it puts long-term value ahead of quarterly results. We are a commercially motivated supplier with a diversified portfolio of assets including a Tier 1 production portfolio that is among the best in the world. And we have the ability to restart and expand these assets should we see the right signals. Keep in mind these would be among the first and lowest cost pounds in the market. We believe we have the best global exploration portfolio, and are the only producer in Canada with licensing, permitting, and operating experience and a proven community development track record. Our decisions are deliberate, driven by the goal of increasing long-term shareholder value. Ultimately, our goal is to remain competitive and position the company to maintain exposure to the rewards that will come from having low-cost supply to deliver into a strengthening market. So thanks again for joining us today and with that we would be pleased to take your questions regarding the market and our strategy.

Certainly. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Andrew Wong with RBC Capital Markets. Please go ahead.

Hey, good morning, well, good afternoon actually. Thank you for taking my question. So Tim, I think I heard you on the prepared remarks say that the 19 million pounds guidance for purchases is more of a floor for this year. If that's the case, can you just talk about the volumes that you may have to purchase in addition to that this year and maybe just go over some of the different scenarios that might play out and how that might affect the purchases?

Yes, Andrew, thanks for the question. It's still morning here in Saskatoon, so -- listen, we said 19 to 21 million pounds, 19 being a floor. I think we've taken delivery. I'm looking at grant of about 7 million pounds so far. That's a bit commercially sensitive as to what our program is going forward, but I could tell you that a significant amount still the purchase of the 19 to 21 I think we said 60% will come off the spot market and that's without anything kind of out of the ordinary, us deciding to build their inventory a little more, us going into our 2020 purchasing program and buying some of those pounds, which I am pretty sure we'll do toward the end of the year. So yes that 19 to 21 is -- the 19 would be, I would say, the minimum that we'll be looking at taking this year.

Okay. And well, so maybe a longer term question here, on China, definitely they've started some of their reactor approvals and you mentioned some of the comments that they made, six to eight reactors, could you maybe talk about what kind of pace is realistic in terms of a target for let's say 2030 and then maybe more specifically Cameco, some of the trade disputes right now that are going on between Canada and China, does that worry you in terms of some of the longer term business potential there? Thanks.

Yes, thanks, Andrew. We're still very bullish on China. We always have been. I think they have 45 units running now, they got another 11 that are under construction. That was a good piece of news that we've waited for for a long time when we heard they've got those two new complexes that they're starting to build on now. So it's game on again. I think they were affected like everyone else by a bit of the Fukushima bug. There was a bit of a slowdown and then it was -- that new technology that's first of a kinds that they were building over there, they wanted to wait and see if they could get those up and running. These are their own [indiscernible] like technology that they're building. So we know they're going to move forward with those. So, bullish on China, I think they've been shooting for 58 gigs by 2020. Okay, they might miss it by a year or so, but clearly, they're carrying on -- Grant and I were over there not too, too long ago and they're very optimistic about their build out to 2025 and to 2030 being within -- that's not long from ten years. They'll be the largest nuclear electricity producer in the world by some margin at that point. And you know, we're hearing a 120 gigawatt type thing. So we watched the news every day that comes out. We spent time over there. Are we watching this situation, the trade situation, yes, we are, between Canada and China. So far we've seen no business to business issues we continue to deliver in and we meet with them and talk to them regularly on a lot of different issues, and so we don't like it. We hope it gets resolved soon. We've been in touch with the acting ambassador over there who we know very well and you know the recommendation is carry on business as usual. And we're watching it closely. We hope the Canada China piece gets resolved real soon.

Great, thank you very much.

Thank you.

Our next question is from Greg Barnes with TD Securities. Please go ahead.

Yes, thank you. Tim or Grant, can you characterize the discussions you're having with [indiscernible] about these long-term potential contracts? I know this is very early-stage discussions, we're talking about base escalated contracts, the 25 million pounds you've added to beyond 2023, is that part of these discussions? How are these discussions coming together and where are they leading?

Greg, I'll just open and then turn it over to Grant and Grant, you can talk about it, you're directly involved. And I would just say we've talked about this in the past and we've had some parameters that we've set out that any contract we enter into would have to meet and we went down to site protection on them and we want some exposure to the upside and you've seen us -- and we've mentioned a few of those in the past. And so, these would fit in that wheelhouse and we're encouraged that we're seeing some of our biggest and best customers come forward now looking -- and I say this in the context of -- and I've said this before and you know, a bit of a broken record or a CD on this one is that I concerned in the next decade about where the uranium is going to come from with the Chinese are on and the Indians continue to build -- South Koreans are building units. We're going to need some more uranium. So that's the context for the next decade. Grant, do you want to talk about some of the terms around which we're prepared to contract?

Yes, I am happy to do that. The best example of this type of activity, Greg was actually our 2017 announcement about Bruce Power. I mean, that was an example of a big customer, large fleet, wanted a reliable supplier coming off market and having a conversation and coming to terms that were acceptable to us, acceptable to them as they need to be. And we say going forward that we really feel that this is going to be an incumbent's recovery. When you're in a market where demand has now recovered from pre-Fukushima levels you have a wedge of uncommitted requirements that's quite significant and idle Tier 1 capacity. No surprise that customers are talking to those that have Tier 1 capacity about their needs going forward. So interestingly, from our perspective the term market is starting to feel more constructive. And in the past having customers come to us off-market at the early stages of term contracting cycle is a leading indicator that maybe views about future supply are starting to change. So they come to us to talk about our role in their portfolio. Obviously, it's a buyers' market. These are folks that are smart enough to understand there's a first mover advantage to show up early and like Bruce Power we've had some other opportunities to make those commitments going forward. Now, they're outside the range of that price sensitivity table by and large, but certainly speak to the interest in that term contracting window out into the future and really the uncovered requirements. And certainly, I think we can confidently say more to come. We have been successful in locking in new sales commitments that are acceptable to us. And remember we think about this on a overall portfolio basis. So the customers themselves very rarely want either a 100% base escalated or a 100% market related long-term contracts are often some blend of the two depending on the needs of the particular utility. And so to the extent that the expected value of any one contract can meet our needs, that's an important criteria for us. And then of course, we then look at each of these contracts in our overall portfolio to make sure we're meeting our portfolio needs of having downside protection and having market leverage. And so you can be assured that if we found -- if we're adding volumes to our committed sales then that means we're finding those acceptable ranges. There are a number of criteria we look at and obviously price is very, very important to us and the pricing mechanism whether it's market related, base escalated and what those are said at, it's very important to us, but there are a number of other things that matter to us and you always have to keep that in mind as we think about committing our future production. Number one is beyond price is customer quality. I mean, we've seen since Fukushima that not all customers are created the same. Some are happy to honor the contracts they've signed and others, quite frankly look to wiggle out of the commitments that they've made and the most notable there is TEPCO and so obviously not every customer is created the same. So customer quality matters to us, because you need that quality base in your portfolio. Regional diversification matters to us. There are times in our market where some regions drive the contracting agenda more than others, but we always look to be relatively balanced. Imagine if we had been overexposed to Japan. That would've been very difficult for us, but we had regional diversification criteria back then, we have regional diversification criteria going forward. The tenure of the contract, the product form that the customer is looking for, all of that is taken together and really comes into this basket of what is acceptable to us. So from our eyes, things are starting to feel a bit more constructive in the term space. We're seeing that demand window opening up and if history repeats itself that demand begets demand, others see that commitments are being layered in and Tier 1 productions being spoken for and then that creates a desire for others to say, hey, we want to get in on some of that. So Greg, probably a much longer answer than you wanted, but that's the framework that we approach these types of opportunities with.

You were well-prepared for the question, Grant, no question. Just a follow-on, with the recent technical report from [indiscernible] the cash costs came down pretty significantly by about CAD 4 a pound, obviously Cigar is low cost. You've said in the past that you were looking for a price in these long-term contracts of $40 plus, has that hurdle rate come down for you? Are you looking -- could you be acceptable of a lower price from that $40 mark?

Well, I don't think we've changed our view on that Greg. We are certainly delighted that the life of mine operating costs, I think, MacArthur were $19.23 Brian and they're under $15, I think they're $14.97 and I can tell you we're not finished with those Canadian, yes. And we're not finished with that either. Now, we think we've got a wonderful opportunity while we're down to see where else we can shave some pennies off the costs. So that continues. I don't think our target has changed as far as long-term contracting goes, and so…

Yes, one of the dimensions, to add to that, Greg is that when we look at the pricing dynamic, let's not forget that we're looking at a uranium price today. That's based upon surplus disposal in the spot market. It's not based on the fundamentals, the fundamentals should be based upon what is the price required to get an acceptable return on at least Tier 1 production and the fact that you have Tier 1 producers, putting assets in care and maintenance and turning down production tells you very clearly that we're not there yet. And because we're not there yet, it just it gives us, it gives us a little bit of, I would say, optimism that we don't have to settle for these prices. These prices don't make sense from a fundamental point of view, as evidenced by the supply decisions that are being made by us and Kazatomprom and others. So it hasn't changed our view that there's a target out there that makes sense for -- our assets makes sense for our owners and now it's not the time to settle.

Thank you.

Thanks, Greg.

Our next question is from Oscar Cabrera with CIBC. Please go ahead.

Oscar, are you there? Operator, we can't seem to hear Oscar.

All right, our next question comes from Lawson Winder. Please go ahead.

Well, hi, thanks for taking the question. If I could just follow up again on the 25 million pounds of contracting you guys did during the quarter. Well, first was it actually in the quarter, is that something had happened post the quarter and then second, just more strategically. If those -- are those type of contracts, I mean if they were to be available in large, or much larger volumes than the 25 million pounds that you've already contracted? I mean, are these the type of contracts that could lead you to restart McArthur?

Well, Lawson, those contracts as you know, they take a long time we've been probably working on for months if not longer. And they were just a mature enough for us in the quarter to report them and put them in our in our stack. And so, I can tell you there are other ones that we're working on now as well. We're watching to see how much comes. And what would we do, as Grant just described, those are our parameters for looking after, for looking at new business and if it comes our way, we'll look hard at it. Our goal for McArthur key, we said it from the start is not to put material into an oversupplied spot market, it's to, we want to refill our contract portfolio like we're doing now to a point where we're comfortable that when we do restart McArthur key, that we're putting those funds into contracts over the next and I can tell you, we're not going to start up and shut down again, that is not fun. And, so we want to make sure that our portfolio is in good shape. And as you saw with attitude, now we've got some more work to do on that, but we're optimistic about where we're going. And we see as grant uses the word constructive, we see the term market is being constructed.

Okay, so if I'm hearing you correctly, then I mean, the terms of those contracts are very satisfactory. It's just you need them in size before justify or even considering a restart?

Yes, that will be correct.

Okay. Now it's great. Thanks for taking the question guys.

Yes. Thanks, Lawson, nice to talk to you.

Our next question is from Oscar Cabrera with CIBC. Please go ahead.

Thank you, Brian, and good morning. Good afternoon, everyone. Let's give it another try and technologically challenge here.

Sure…

Just wondering if you would be able to disclose the region with this additional 25 million pounds came from?

Yes, Oscar. Unfortunately, our contracts don't allow us to disclose that, we disclose what we can and you mentioned -- Grant mentioned their Bruce power contractor, but on these ones the customers and because probably they're off market deals and they're there for a reason. They don't really want to know what's -- they don't want others to know what they're up to. So we can't disclose that.

Okay. Now, that sounds stable. Thank you. I may follow-up with a question on section 232. The way, I understand that the smaller producers in the U.S. are looking for quarters for 25% of consumption in the U.S., which is above 45 million pounds. So 11 million pounds, can you remind me what your capacity in the U.S. is? Or could go to and the price levels that you would need there to satisfy the returns that you talked about?

Well, I would, yes, that's a great question. We thought that 232 would come up because it's certainly top of mind for everyone. And it's put a bit of paralysis I think on the market. I think I look around the table. Like my team here. I think we've never spent more time in Washington than we have in the last six months. So, just to as to where it's at. Yes, the Department of Commerce recommendation was handed through the door to the White House on the 14th of April. They -- that was 16 days ago. They have 90 days to respond so we set 73 or 74 days away in the I think in the other cases, it took about 45 days or 50 days, and so. So that's moving. And we will have an answer on that, say the next couple months, so that everyone's waiting to see that. As for our facilities down in the U.S., we believe we could ramp up to about 5 million pounds of production per year, it's going to take us sometime, once we get, we would have to get the green light and that green light would have to be a lot of assurances on CapEx and prices that we could make a good margin over a period of time because it's going to be interesting because it's going to take some months, even years to get up to production. And if the policy changes, you don't want to be left holding the bag on that one. So it's really going to be an interesting dynamic as to how it plays out. But Brian and I were just talking before and he says we think 5 million pounds where we can get up to over several years. And if, you know if it goes that direction and the President of the United States decides that certain amount to whatever it is comes out of the U.S., that's where we'd be prepared to go. And we're, happy and we've got good assets down there. We had them running, but we just couldn't sustain them in a $20 market. I think if you talk to $50 or $60 market, he might have a different story from us.

Okay, that's great, Tim. Thanks very much.

Yes. Thank you, Oscar.

Our next question is from Orest Wowkodaw with Scotiabank. Please go ahead.

Hi, I'm just following up again on the -- excuse me on the 25 million of new contracts long-term. Can we assume these returns in terms of that are above kind of the current reported market terms and in the market of which I think is still around a $32 term price? And I'm curious why we haven't seen any movement on the market term. If we're starting to see contract signed at higher levels, any help would be appreciated.

Yes, thanks, Orest, I will ask Grant to take that one.

You can assume that they are acceptable contracts within the framework that we've outlined. And that's unfortunately about as far as I can go on that one as it pertains to the overall term market. And the term price reporting I mean, that's obviously a question for the reporters and you're obviously welcome to ask them that one. But perhaps one of the reasons is there -- there have been -- there's been beta escalated business in the market, 100% base escalated. That's not business we're particularly interested in nor are we chasing. And I would say that others must be -- we must be seeing some producers or intermediaries chasing some of that 100% base escalated business and perhaps chasing it at rates that are below the posted price. And maybe as everything washes out, the term price stays where it is. I'm speculating but there's some business we haven't pursued because it hasn't been acceptable to us, but it appears others have.

Okay. And then you made a comment earlier about putting a request to buy a million pounds on the market, but you couldn't find enough material that met your specifications. Can you maybe elaborate on that? Is that because you're only looking for your own produced material in the market? Or is it a quality issue? Or what's the issue?

Oh, Okay. It's a great question. And sorry for leaving it vague, when we put an RFP into the market, we do put some parameters around it. Remember, our goal is to buy uranium as cheaply as possible but to buy it from the spot market, to buy from the pool of stuff that's already above the surface of the Earth is. They have apparently infinite pool of material that people say is out there. We don't seem to see. But we target the spot market, we -- which means we have very tight time parameters on our fees because we don't want to encourage a primary producer to produce to meet our demand, that wouldn't make very much sense. So, one of the specifications is time. Another specification is product form. As we look at our needs for material, we might have a preference for you three away, or we might have a preference for you and fix at various times. So product form is a second specification and location. Where is the material sitting at, is that our facility is it at somebody else's facility, those would be the three main specifications in an RFP, and quite frankly, when we went into a market that it's left to have pretty good through March, which would have suggested that material was everywhere. And we couldn't meet those specifications, just in terms of an order of magnitude we were under subscribed and the stuff that actually met our specification was less than half of what we were asking for. So it was a bit of a counterintuitive result, given what it just happened in the market will continue to buy sometimes on market through RFP, sometimes through the brokers, sometimes off market that'll just be the package in the approach we can continue to use but or those would be our specifications.

Okay, thanks. So it never, it doesn't have to be your own produced material, it could be any form anywhere?

Yes, absolutely not because our own produce materials getting scarcer and scarcer.

Okay. Thank you.

Thank you.

Our next question is from John Tumazos, Very Independent Research. Please go ahead.

Tim, I was studying some German electricity data that showed that 59% of their installed capacity is renewable using the green definition, it doesn't account nuclear and Germany has a pretty robust manufacturing economy, it would appear as a renewable fuels have gotten awful cheap, their number one and twos are wind and solar. How high can uranium prices rebound before solar and wind are systematically cheaper?

John, that's an interesting question. And we could probably open on that for a couple hours. But you know that you need to mix. The wind and solar as I said in my comments are necessary, we like them with but we also know that they run that about 20% or 30% capacity and so you are not going to be running the German economy on only on only wind and solar. You need a complimentary if you like technology that helps those along and we think there's a great story here. Wind and Solar as the costs come down as a subsidies go away, as it become more efficient and maybe you can store the energy, you're going to need something that goes with them that's green. I mean, I was saying to this crowd, you see if you can go one day -- see if you can go one day without hearing the word climate change here the phrase anymore, it's on the table. So we think its nuclear and wind and solar can go together. I'm not sure what Germany strategy is, quite frankly, I think they're one of the biggest coal producer or coal burners in Europe, I think their emissions have not gone down. They've gone way up. We know they import good nuclear electricity from their neighbors in France. And so, their strategy is a bit perplexing. It's a very political strategy. And so, we know they have -- I think there's still nine units running there. I was over in Russia a week or so ago. And they were talking about the future. And for the first time, I heard that they may have to rethink what they're going to do with those plans going forward, but it's too early to say. So that's a long answer to a real complicated question, John.

I'm surprised, Tim, because the German profile supports the AOC, Greenfield position, and some of us make fun of America.

Yes, yes. No, that's true. And I don't know. We could see -- yes, yes. Hope you figure it out. Let us know. We appreciate that.

Thank you.

Thanks.

Our next question is from Greg Barnes with TD Securities. Please go ahead.

Yes, thanks again. Just on the Section 232 again, assuming we get some kind of decision within the relatively near-term, would it be tariffs quotes or nothing is our case to made that it really has very little bearing on how the market reacts. I know the narrative has been that should unlock a lot of long-term contract and demand but I am not sure I am feeling that same pressure on the market frankly.

Yes, that's a good question Greg and we have that debate here as well what effect and it really, we are trying to get any intelligence or information we can as to which way they are leaning on that tariffs or quotas or nothing and so it will really depend what they come out with I think, it's just so hard to say right now what the reaction will be - what do we worry about a little bit is that we are in a unique position because we got assets in many different locations U.S. Canada and around the world. But if they do put a quota of U.S. production we would be happy to go after that but while the other producers stop producing around the world and will that lead to a bit of a two-tier pricing system in the U.S. and everything else because there will be more material available outside of the U.S. so really hard to say what it's going to look like until we see it.

Yes, getting some of the narrative from the UX, there survey seems just the utilities have not actually been that impacted by worrying about the section 232 outcome and it hasn't impacted their buying decisions or contracting decisions. Do you agree with that?

Grant, do you want to…

Well, Greg, we know that it's the number one topic with our customers south of the border, I mean we spend a lot of time talking to them about it and talking about what it might mean for their procurement programs, I mean the scenarios that you outlined and no policy action will of course that's probably then we are in the market we are in right now they are still is the surplus disposal happening in the spot market and that has to be cleaned up before there is a transition. A tariff world that actually doesn't have a quota for U.S. origin well that's just a tax on U.S. power production, so you will still have the supplies coming in, the vast majority of supplies coming in from the rest of the world into the U.S. just at a higher price, that's just a simple tax, the quota one though is interesting because if it is a quota and it is required that the U.S. utilities are buying U.S. origin material, by and large doesn't exist today. So that by definition will have to start a cycle of contracting to at least that stuff out of the ground to get those project going forward and in our business contracting begets contracting if we start to see that kind of activity, we do expect that it is going to create a bit of a procurement cycle. So I think the quota scenario is different than the other two, but we just have to wait and see, we don't know what the U.S. is going to decide.

But if the quotas is relatively de minimis let's say 10% of that demand that wouldn't really have that much of an impact on the market I would think, would you?

Probably not, Greg, probably not, it's just a minor month, will that satisfy any - certainly won't probably satisfy the petitioners I wouldn't think. So it's a good question.

Okay, thank you.

Thank you.

Our next question is from Fai Lee with Odlum Brown. Please go ahead.

Thank you. I just wanted to clarify something Tim you mentioned that about 60% of your purchases are 19 million to 21 million pounds that you plan to purchases this year will be coming from the spot market but Grant also mentioned that the RFP that you put out for 1 million only about half was filled I think. I guess I am wondering how firm is that 60%, I know you said, you have locked-in some of it but how do you -- you still have some to do just trying to understand that.

Yes, that would be about 60% I mean we have lots of options as to where we source the material and how we get it, so that was just kind of what our thinking is and where we expect it will be.

So you are confident on the 60% even though the RFP you just did wasn't completely filled?

Just to clarify are you asking if we are worried that we can't find 60% of the material this year in the spot market?

Well, I am -- it's more is that 60%, can we find out at the end of the year that it's going to be lower given what the results of your RFP.

Well, it's and not going to be lower because our sales commitment aren't going down they may in fact go up and if our sales commitments go up. So if we find opportunities to place the material either in the year 2019 or earlier into the first half of 2020, the material that we would need to buy to deliver into well that's going to have more purchasing in the market. If we start to get nervous about our inventory position, you can imagine when we put out an RFP for a million pounds and it's under subscribed we then wonder do we have the right inventory position, do we need to hold a little bit more in order to meet our committed sales but of course that has the counterintuitive result that it will require us to buy more material. So there would be even more purchases on top of that and then obviously one of the risks that we flag for this year is perhaps an unplanned production disruption if there is a labor event at Cigar Lake we are not planning on it, we don't expect one, but if the Jud mill is shut down because of a labor disruption and Cigar Lake isn't sending material there then that's going to even create more purchases. So there is a lot of variables that could affect it, but it won't be less it really by definition can only be more.

Okay, great, thanks.

Thanks, Fai.

Our next question is from Jim Ostroff with Platts Nuclear Publication. Please go ahead.

Yes hi Tim, two brief questions, you had talked about the situation perhaps within 10 years where there is a substantial increase in the core uranium I wonder if you could give us -- sort of the back of the napkin estimate here as to potentially Cameco's ability to increase production assuming pricing moves there but you might think 10 years hence what you think the company may be able to produce annual basis.

Yes, Jim, thanks for that it's really interesting position we think about it all the -- because things in our world don't move particularly quickly. If you want to bring on a new mine 10 years from now you should probably be starting now and if you look around the world that's not happening anywhere the capital is completely dried up, the world right now doesn't need it, we need to get our existing production, tier 1 production back on line. So that's the first up that's going to come back on line and we know we have McArthur sitting we could take to 25, we know that Kazak have some room to increase partners around and who are with us of course and so then there is money sorry pounds tied up in some of these funds that at the right pricing conditions we will come back onto the market. So that's the first stuff that's going to come back obviously we want to hold our market share going forward and increase it so we will be watching that, that's why we are trying to line up these long-term contracts with our great customers into the next decade, well into the next decade and so I would just say we got lots of options, we got a nice project that we just got approval for in Australia that Brian Reilly sitting here that we are very happy to get that approval that gives us optionality going forward and so I would just say we will want to in a growing market hold our market share and obviously look to increase it.

Right and let me one other here if I could ask for some help on this final question, help on the math, you had mentioned here that Cameco is looking at least right now this point in time in buying 19 million to 21 million pounds material this year, you said taken delivery of 7 million pounds and said about 60% of what -- this purchase will be on the spot market. Let me just say, I did the math and given the 7 million purchase so far with that 60% raise that would indicate I think that the Cameco would need as of now but with no change going forward that Cameco would need to buy 4.4 million to 5.6 million pounds for the balance of this year is that within the ballpark?

Yes I would just - that would be a bit commercially sensitive, I would just say that we have spot market that we will be looking for off market request or public RFPs we got our production coming out of Inkai. So it will be a combination of those pieces, we don't want to get too specific on that we can't Jim, so I think those numbers that we gave 19 million to 21 million pounds, 19 million being the minimum as Grant just explained and two to the end of the Q we picked up about -- we had delivered about 7 million pounds of that.

I am sorry if I could - purchased 7 million so far that's sort of a critical point, I guess.

No we have delivered, we received deliveries, we purchased just more.

Okay so you received deliveries of 7 million pounds so far.

That's right.

Okay that is fine thank you all appreciate it.

Yes, thanks, Jim.

Our next question is from Andrew Wong with RBC Capital Markets. Please go ahead.

Hi, thanks for the follow-up. I just want to ask about some of the other uranium prices like SWU and conversion prices we have seen a pick-up. I mean SWU prices and conversion prices seem to continue to actually quite looking quite healthy what we should be reading into with those trends, I mean just in general have you seen any changes in the secondary supply.

Grant, you want to talk about conversion…

Yes Conversion has been a very interest case and we hope quite frankly it's an analog for uranium in that conversion is up because capacity is down you had a situation where if you go back to 2014 the Springfield's facility came offline and then you have got a facility in the U.S. shutdown, the Metropolis facility that [indiscernible] marks the material for you have Orano transitioning to a new plant and so basically low and behold you have one fully operating conversion producer and that's us Cameco and the market has reacted accordingly now obviously some capacity can come back on line just like it can in the uranium space with idle capacity but the market is reflecting the need to incent that conversion. So that's been an interesting space and probably will continue to be an interesting space. The pricing dynamic on SWU might actually be a completely different dynamic there seems to be some transactions and some contracting underway but whether that's because of a recovery of demand or whether it's because those are life-long contracts to keep SWU producer in business we are just not sure at the moment, the SWU market remains tough. So conversion is a bright light in the front-end uranium is still tough, the price isn't there yet and the SWU price is still a bit tough now the second part of your question about secondary supplies, secondary supplies are still in the market, I mean we have a primary short right now. Primary production is about 30 million less than demand right now, so we have a primary production short in the market and the gap is being filled by drawing on savings account by and large. So this isn't all the secondary run rate material coming into facilities, customers are drawing on one-time finite volumes and when you consume them they are not backed up by productive capacity and they don't get replaced and they are just -- there is enough of it right now that it's continuing to put pressure on the market, it's continuing to discover a spot price that's about surplus disposal as opposed to incentive price for primary production and the market just has to work through that, in terms of the underfeed, we are not seeing the underfeed as a big competitive pressure in the spot market, we know that underfeed was sold into mid-terms and some longer-term contracts as part of SWU contract. So that was the uranium that went into SWU and that seems to be where it's going, we are not confronted with this big volume that seems to be coming from the enricher. So I think that the spot market dynamic is less a secondary supplier and underfeed story and more a -- the world is just drawing on the savings account of uranium and non-incenting that to be replenished, of course you can do that for a while but you can't escape the laws of supply and demand forever.

Okay, great, thanks for that color.

Our next question is from Orest Wowkodaw with Scotiabank. Please go ahead.

Hi, thanks for the follow-up. I am just curious if you could give us an update on the Tepco arbitration and when you might anticipate a ruling there?

So, yes, thanks Orest, we have Sean Quinn just waiting to answer that question.

Sure, thanks Orest. Yes, the hearing was back in January and wrapped up as you know. Final arguments have been submitted during the course of April and there are a couple of additional filings that each of the parties have to exchange with the arbitrators on cost and then it's just over to the arbitrators to make their decision and we would be hopeful -- we are hopeful of getting that decision before the end of this year.

Okay, thank you. And then, just shifting gears [indiscernible], I am just curious if we have any visibility yet when you might recover the $300 million of cash that's sitting with the CRA and whether -- unfortunately whether you think the appeals process has to run full course, or whether there is opportunity to get back cash earlier?

I think I will turn this over to Grant to see if he has a view, but right now I think we are on course to let the appeals process run its course before we can count on seeing any of that cash returned.

Yes, I don't have a different view.

Yes, that's our view at that moment.

I have a preference, but not a different view.

Okay, thanks guys.

Yes, thank you.

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

Well, thank you, Operator. With that, I just want to say thanks to everybody who's been with us on the call today. We certainly always appreciate your interest and support. As a commercial supplier with a strong balance sheet, long live Tier 1 assets, and a proven operating track record, we at Cameco believe we are well positioned to respond to changing market dynamics and benefit from the long-term growth driven by the need for clean base load electricity. So with that, I say thanks again for joining us, and have a great day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.