Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong performance at McArthur River and Key Lake operations, with production on track and even ahead of schedule.
- Continued durable demand for nuclear energy, driven by global support from governments, industries, and the public.
- Strategic investments in Tier one fuel cycle assets and reactor lifecycle investments position Cameco Corp (CCJ, Financial) favorably in the market.
- Positive outlook for Westinghouse investment, with expected adjusted EBITDA growth of 6% to 10% over the next five years.
- Strong balance sheet and liquidity, with ongoing debt reduction and refinancing plans ensuring financial stability.
Negative Points
- Operational issues at the Port Hope facility led to a reduction in UF6 production targets for 2024.
- Uncertainty in Kazakhstan due to significant increases in the mineral extraction tax and sulfuric acid availability issues.
- Impact of the Russian uranium import ban on U.S. utilities' procurement strategies, causing delays in contracting activities.
- Temporary operational challenges at the Inkai operation, affecting production targets for 2024.
- Potential financial impact from the unexpected tax increase in Kazakhstan, which could raise production costs significantly.
Q & A Highlights
Q: It was a very strong performance for McArthur River this quarter, producing more than 60% of your annual guidance. Is there a chance you can beat this guidance?
A: (Timothy Gitzel, President, Chief Executive Officer, Director) We are delighted with the performance of both McArthur River and Key Lake mill. We are ahead of schedule on our production targets. While we don't want to get too far ahead, both facilities are performing exceptionally well, and we will continue to update the market as we progress.
Q: Given the ongoing sulfuric acid shortage and the mineral extraction tax increase in Kazakhstan, how should we be thinking about the Inkai business in the near term in terms of both volumes and margins?
A: (Timothy Gitzel, President, Chief Executive Officer, Director) We have had a long-standing positive relationship with Kazakhstan and Kazatomprom. However, the recent mineral extraction tax change is significant and concerning. We are working with our partners to address these issues, but it adds complexity to our operations there.
Q: Can you talk about how the Westinghouse business is being integrated and your outlook for the second half of 2024 and 2025?
A: (Grant Isaac, Chief Financial Officer, Executive Vice President) We are very happy with the Westinghouse acquisition. The business is performing well, and we see more opportunities emerging than initially expected. We anticipate adjusted EBITDA growth at a compound annual growth rate of 6% to 10% over the next five years.
Q: How are you approaching the mineral extraction tax changes in Kazakhstan? Will Cameco act alone or with joint venture partners?
A: (Timothy Gitzel, President, Chief Executive Officer, Director) We will be meeting with our partners and the Kazakh government to discuss the mineral extraction tax changes. We expect other companies to do the same, and there will be discussions at the upcoming World Nuclear Association meeting.
Q: Can you provide more details on the contracted volumes for the late 2020s and into the 2030s?
A: (Grant Isaac, Chief Financial Officer, Executive Vice President) We see a very constructive market with strong term pricing. We are capturing demand through off-market bilateral agreements, and we are being selective about the terms and conditions. The term price continues to rise, reflecting a tight market.
Q: What are your views on the IP dispute between Westinghouse and KHMP, and is there a path for Westinghouse to participate in Korean nuclear projects?
A: (Grant Isaac, Chief Financial Officer, Executive Vice President) The dispute is based on Westinghouse's belief that critical elements of Korean technology are effectively Westinghouse's. We support Westinghouse's position and believe they are taking the right approach. This dispute does not impact our guidance for Westinghouse.
Q: Why do you think uranium prices are not reflecting the positive news in the nuclear sector?
A: (Timothy Gitzel, President, Chief Executive Officer, Director) Despite the positive news, short-term factors like the Russian ban and summer doldrums are affecting prices. However, the long-term fundamentals are strong with significant demand and supply instability. We remain optimistic about the future.
Q: How do you address concerns that financial buyers might sell uranium if prices fall?
A: (Grant Isaac, Chief Financial Officer, Executive Vice President) We haven't seen evidence of financial buyers selling. The fundamentals remain strong with growing term demand and new inventory policies. Even if some material enters the spot market, it won't change the long-term fundamentals.
Q: Was the strong production at McArthur River grade-related or due to improvements at the mill?
A: (Brian Reilly, Chief Operating Officer, Senior Vice President) The strong production is due to the mill running at steady state, thanks to investments in digitization, automation, and robotics. This is not grade-related but rather operational improvements at the mill.
Q: Can you clarify the cost comparison between Kazakhstan and northern Saskatchewan?
A: (Grant Isaac, Chief Financial Officer, Executive Vice President) The cost advantage in Kazakhstan seems to be gone due to the new tax changes. When considering average unit costs, including taxes and royalties, northern Saskatchewan now has a cost advantage.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
