Earnings Call Transcript
CAMECO CORP (CCJ)
Earnings Call Transcript - CCJ Q2 2020
Operator, Operator
Thank you for standing by. This is the conference operator. Welcome to the Cameco Corporation Second Quarter 2020 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, Vice President, Investor Relations, Treasury and Tax. Please go ahead, Ms. Girard.
Rachelle Girard, VP, Investor Relations
Thank you, operator, and good morning everyone. Welcome to Cameco’s second quarter conference call. Like last quarter, we are doing things a little differently again. Recently, we have been experiencing some challenges with our phone lines and have had a large volume of dropped calls. As a result, we are again planning to conduct the Q&A portion of the call in a listen-only mode. There has been a lot going on both for the company and the industry, and we recognize there is significant interest and limited sources of information for our investors. Therefore, we want to ensure that we are able to clearly and reliably communicate with the investment community. We have been proactive with our communications during this period, conducting numerous conference calls, both with individual investors and via virtual road shows, conferences, and sell-side hosted investor calls. We have collected questions from our sell-side analysts and have augmented that list to include the common questions we have been hearing during our outreach with the investment community. To help with the understanding of the information, we have organized the questions to focus first on the market, then the impact of the market on Cameco’s performance, and then finally, some more specific Cameco factors. As always, we will make ourselves available to speak to you after the call, should your questions not be addressed on this call. There are a few ways to contact us. You can reach out to the contacts provided in our news release, submit a question through the contact tab on our website, or use the 'Submit a Question' tab on the webcast and we will be happy to follow up after this call. With us today on the call are Tim Gitzel, President and CEO; Grant Isaac, Senior VP and CFO; Brian Reilly, Senior VP and Chief Operating Officer; Sean Quinn, Senior VP, Chief Legal Officer and Corporate Secretary; and Alice Wong, Senior VP and Chief Corporate Officer. Tim will begin with comments on our strategy in the market. After that, we will move to the Q&A portion of the call. If you have joined the conference call through our website event 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. 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.
Tim Gitzel, President and CEO
Well, thank you, Rachelle, and welcome to everyone who has joined us today. I hope you and your families have been able to remain safe and healthy during these unprecedented and challenging times. The COVID-19 pandemic has had a significant impact on people and economies around the world. We, at Cameco, have also felt the impact with the proactive shutdown of our operations, which have come at a significant cost to our bottom line in the second quarter. That said, we, at Cameco, are well-positioned financially with a very solid balance sheet. Further, our strategy remains intact, and we continue to meet all of our committed deliveries to our customers. Our ability to do so was strengthened by the successful restart of the Blind River refinery and the Port Hope UF6 conversion plant in May. And we are happy to announce that, provided it is safe to do so, we expect our position will be further strengthened by the planned restart of Cigar Lake in September. Let me say a few words about our perspective on the uranium market. First, we believe that world uranium supply continues to be at risk as a result of the threats posed by the pandemic both this year and next. Second, demand is beginning to emerge in the market, something we have all been watching and waiting for. So, the market is showing resilience, and prices seem to have reset. Spot prices are up close to 35% since the start of the unplanned supply disruptions this year, and TradeTech’s production cost indicator sits at $44.50 per pound, while UxC’s 5-year price is at $38.75 per pound. From a company perspective, I must highlight that we had another victory in our CRA dispute. The Federal Court of Appeal decided unanimously in our favor at the end of June. So there has been a lot going on. Let’s dig into some of the details. I want to start with our plan to restart Cigar Lake in September. It’s our biggest news, like the successful restarts of Blind River and Port Hope. It’s an example of our success in proactively managing the risks of the COVID-19 pandemic. We are very pleased to be able to make this announcement. It’s good for Cameco from a financial perspective, from a risk management perspective, and it’s good for Northern Saskatchewan. Having Cigar Lake running was always a part of our 2020 plan. On the financial front, our strategy relies on having low-cost pounds from Cigar Lake in our cost structure. These low-cost pounds help offset the cost of our strategy on the operational and marketing fronts. However, the COVID-related shutdown of Cigar Lake has increased our costs. Our care and maintenance costs are up $37 million as a result of the proactive shutdown of our various operations, including Cigar Lake, and we are required to purchase more uranium than we had anticipated at the beginning of the year. Given the 35% increase in the spot price of uranium, these additional purchases come at a higher cost than our produced pounds. As a result, we expect our average unit cost of sales will be higher than we expected at the start of the year. From a risk management perspective, the Cigar Lake restart will allow us to continue to meet our deliveries in a market where prices have risen due to the increased demand and the thinning of available supply. It’s also good for the communities in Northern Saskatchewan who depend on the operation for employment, business development, and community investment. We will continue to actively monitor the public health situation and take a measured approach with all of our restart activities. The health and safety of our employees, their families, and their communities continue to be the priority focus of all of our plans. We expect it will take approximately 2 weeks to get back into production. While it’s good for Cameco to restart Cigar Lake, the restart does not change the fact that there remains tremendous uncertainty about uranium supply as the pandemic continues to cause unplanned supply disruptions, added to the planned supply discipline that has already been undertaken. So, the restart of Cigar Lake will not be the savior for the market. We will not make up lost production this year. While we are targeting our share of production to be up to 5.3 million pounds in total for 2020, there are risks to that target. The restart and continued operation will depend on our ability to establish and maintain safe and stable operating protocols, along with a number of other factors, including the availability of the necessary workforce and how the COVID-19 pandemic is impacting Northern Saskatchewan. The COVID-related shutdown creates potential risk to Cigar Lake’s production rate in 2021 as well, caused by delays and deferrals in project work, including lower capital expenditures. Since Cigar Lake production is for term contracts, not for the spot market, no additional spot supply will result from the restart. Also, considering that COVID has impacted JV Inkai’s production and all other Kazakh production in 2020, we expect that the COVID-19-related disruptions will impact the volume of material we will purchase from Inkai this year. There has been a resurgence in the number of cases of COVID-19 in Kazakhstan, prompting the reintroduction of lockdown measures. Kazatomprom, prioritizing the health and safety of employees, announced a 1-month extension to the already 3-month reduction in wellfield development activities at all its uranium mines in Kazakhstan. You would expect to gradually increase mine site staff levels in August if it is safe to do so. Until Kazatomprom can restart these activities, it is unclear to us what the impact on our purchases from Inkai will be this year. Also, due to the importance of wellfield development and maintaining ISR production levels, it is indicated that the longer the disruption continues, the greater the likelihood the production impact could extend beyond 2020 to 2021 in Kazakhstan. Furthermore, the McArthur River/Key Lake operation remains in an indeterminate period of shutdown, requiring market purchases to make up the curtailed production. As a result of the planned reductions in our production from McArthur River/Key Lake, combined with the unplanned reductions at Cigar Lake and Inkai, we will have to rely more heavily on the spot market in 2020. We were active on this front in the second quarter, purchasing a total of 14.7 million pounds at an average price of $31.30 per pound. The majority of these purchases were spot market transactions. It also means we have some purchasing yet to do, and depending on the ultimate production impact of the COVID-19 pandemic-related disruptions on our 2020 supply, potential 2021 supply, and how market dynamics develop, we may also begin purchasing for 2021 this year. Despite the disruptions to our business related to the COVID-19 pandemic, we expect our business to be resilient. We remain committed to our strategy, which is why on the operational front, McArthur River/Key Lake remains shutdown indefinitely. Our deliveries to date have not been materially impacted, nor do we expect they will be. It is true that as a result of our strategy, we have become reliant on market purchases of uranium to meet our delivery commitments, but that is a deliberate choice we have made. It potentially costs us more in the near-term, and we have been upfront about the impact our purchasing activity is expected to have on our margins. Now, the COVID-19 pandemic is magnifying that impact. So, why did we choose to rely on the market for supply? Because we believe that over the long-term, it will add significant value for our shareholders and other stakeholders and will allow us to operate sustainably for years to come. It’s true that as uranium prices increase, purchases become relatively more expensive than production. However, if the near-term cost of purchasing falls below the added value we expect to capture under our strategy, we are better off purchasing. Where does that added value come from? Firstly, it comes from preserving our Tier 1 assets. As prices rise, it comes from delivering into the market-related contracts in our existing contract portfolio at higher prices. We believe higher prices set up the conditions necessary to layer in new long-term contracts at prices that recognize the value of our Tier 1 assets. This is how we build long-term value. We preserve Tier 1 assets to deliver into a long-term contract portfolio. To strengthen our strategic resolve, we have been disciplined. We have made prudent and deliberate decisions to shore up our balance sheet. As a result, we have the tools we need to deal with the current uncertain environment. We are well-positioned to self-manage risk. We have almost $880 million in cash and a $1 billion undrawn credit facility, which we don’t anticipate needing to draw on this year. We believe our risk has been substantially reduced with the unanimous Federal Court of Appeal decision in our favor, which is great news for Cameco, for our investors, our employees, and our other stakeholders. I once again want to thank our legal counsel, our expert witnesses, consultants, and the many people at Cameco who worked hard on our case. Your efforts are appreciated. I also want to thank our shareholders and other stakeholders for your ongoing support and trust throughout this dispute. The Court of Appeal ruling confirms that we comply with the letter and intent of Canadian laws and upholds the cost award received from the Tax Court of Canada. This case applies only to the 2003, 2005, and 2006 tax years, where the total tax reassessed was $11 million, half of which we have already paid and expect to be refunded. Under this decision, these 3 years will now need to be reassessed in accordance with the ruling. Remember, we were awarded $10.25 million for legal costs incurred and up to $17.9 million in disbursements. However, the timing of the refund and payment of the cost award is still uncertain. The Crown has the right to seek an appeal to the Supreme Court of Canada, but the Supreme Court must agree to hear the appeal. If an appeal is sought and granted, we estimate it will take about 2 years from the date of the Federal Court of Appeal decision for the Supreme Court to rule on the matter. While the ruling applies only to the 3 years noted, we believe the principles in the decisions apply to all subsequent years. Those principles do not give the CRA the right to shift all of Cameco Europe’s income back to Canada and apply Canadian statutory tax rates, interest, and penalties. We will request the CRA to accept the ruling and apply it to all subsequent tax years and to return our financial capacity. Our position has prevailed at every stage of the legal process. If the CRA feels the laws are not written the way they want, they need to approach the government to change those laws moving forward, not continue to pursue the same flawed arguments. As noted in our MD&A, the CRA is currently holding $303 million in cash and $482 million in letters of credit that belonged to us. Let me be clear, we will be asking to have that liquidity returned so we can sustainably manage and invest in our business for the long-term benefit of our stakeholders. We want to continue to do our part to help rebuild the economy. Some jurisdictions are slowly starting to open, but given the human and economic effects of COVID-19 globally, it will take a concerted effort to do so safely and to begin the recovery process and each of us will have to do our part. Governments and central banks around the world have implemented fiscal and monetary policies to help stimulate and rebuild the economy. They recognize that financial flexibility and liquidity are vital to investment, growth, and recovery. The impacts of COVID-19 are unprecedented. But as I said before, we expect our business to be resilient. I can state confidently because for many years now, in the face of an uncertain uranium market, we began implementing our strategy on three fronts: operational, marketing, and financial. On the operational front, we have cut costs, and in 2016, we began curtailing uranium production. We reached a point in 2018, where our annual production was well below our annual delivery commitments, thus spending time thinking about different production scenarios in our strategic planning activities. We have modeled the potential impact of these scenarios on our business. We are prepared to deal with this unplanned event. There are a couple of other things I want to highlight that we believe strengthen the resiliency of our business. On the demand side, nuclear is very clearly back in the policy toolbox due to its carbon-free attributes. Since 100% of our products go into producing clean, carbon-free electricity, we are a growing part of the solution to the clean air and climate change crisis. In the face of a public health crisis, we believe nuclear is proving its worth due to some of its key safety and reliability attributes. First and foremost, it is base load. It runs reliably 24 hours a day, allowing hospitals, care facilities, and other essential services to operate uninterrupted. In addition, nuclear reactors are designed to operate for long cycles without the need to refuel. They carry strategic inventories to guard against supply disruptions and have backup systems for safety and reliability, with fewer people required on site to run operations. In the current environment, these characteristics make nuclear power a logical choice, which is why the International Atomic Energy Agency recently reported that, although electricity demand has declined recently, the proportion of nuclear power has increased relative to fossil fuels. So, as I said earlier, our customers will need uranium. On the supply side, things are less certain. The COVID-19 pandemic has disrupted global uranium production and amplified the supply curtailments that have already occurred in the industry due to the lack of production economics. The industry is reliant on supply that has become highly concentrated both geographically and geologically. This concentration has given rise to trade issues over the past few years, including the Section 232 investigation in the U.S., the Nuclear Fuel Working Group, the review of the Russian Suspension Agreement, and Iran’s sanctions. Right now, the Russian Suspension Agreement is the trade issue capturing the most attention—particularly among our customers. This agreement imposes an import quota on Russian uranium products equivalent to 20% of the annual U.S. reactor demand and is set to expire at the end of 2020. The U.S. Department of Commerce initiated negotiations to extend and amend the agreement until at least 2040 as well as reduce U.S. utilities' dependence on Russian-sourced uranium products. An agreement not being extended by the October 5, 2020 deadline could lead to final anti-dumping duties being placed on Russian uranium product imports. In addition, there are efforts led by the U.S. domestic uranium industry to impose limitations on the import of Russian uranium products into the U.S. These trade issues have raised concerns over the role of state-owned enterprises and emphasized the importance of supporting the regional supply of critical minerals, including uranium from independent commercial suppliers like Cameco. Therefore, on balance, we think the risks to supply are greater than the risks to demand, which is why today the uranium spot price is up almost 35% since the onset of COVID-19 supply disruptions. Inventories, which have been blamed for low prices in our industry, are coming into greater focus as a result of unplanned supply disruptions. Due to the disruptions to production, we are observing an acceleration of the destocking already underway in our industry. For years, we have been hearing about large inventories of uranium. However, we will now get a sense of the mobility of these inventories. As history has taught us and as we have seen in the conversion market, although inventory in our industry may appear high, its mobility tends to be inversely related to price, which can exacerbate supply disruptions. Even if there is large destocking of inventory due to production disruptions, these are one-time volumes that will be cleared from the market. In the meantime, we expect this will create a renewed focus on ensuring the availability of long-term productive capacity to fuel nuclear reactors. This focus on security of supply will provide the market signals producers need to help offset the near-term costs incurred due to the temporary disruptions to our business. As I said earlier, in this uncertain time, we expect our business to be resilient. Our decisions are deliberate, driven by the goal of increasing long-term value. We will continue to execute our strategy consistently with our values. We are a responsible, commercially motivated supplier with a diversified portfolio of assets, including a Tier 1 production portfolio that is among the best in the world. I am proud to say that at Cameco, we are helping to power nuclear reactors that are part of the critical infrastructure ensuring hospitals, care facilities, and other essential services are available to us during this pandemic. Perhaps more importantly is our commitment of more than 30 years to protect the health and safety of our employees, their families, and their communities while supporting local business development. In these uncertain times, we must continue to work together to build on the strong foundation we have already established. Thank you for joining our call today. With that, we will move into the question-and-answer portion of the call, as Rachelle mentioned earlier, is in a listen-only mode.
Rachelle Girard, VP, Investor Relations
The first question comes from Andrew Wong at RBC. Industrial demand is down globally. And some countries like France and Sweden are reducing nuclear generation due to COVID-19. How do you expect this will impact demand inventories and expected purchases over the next couple of years with a reduction in demand offset to supply disruptions? And are there any concerns with delays in the construction of new nuclear due to COVID-19?
Tim Gitzel, President and CEO
Well, thanks, Andrew. It’s Tim. I will take a shot at this one. I think there are a couple of questions embedded in there. First, on the electricity demand side, yes, clearly, COVID has had an effect on electricity demand. We see it in the different reports we get on a monthly basis, I’d say especially right off the bat when the confinement measures were put into place; I’d say more on the industrial side than anything. In fact, on the residential side, I think demand went up. So, did they offset each other? I don’t think so, but it’s been down. What we are seeing now—and I just saw an IEA report today that showed it’s coming back. It’s still down from pre-COVID levels, but in many countries, it has recovered significantly. In fact, I saw in China, I think they are within 1% of where they were a year previous to the COVID level. So, I think that’s good news. A piece of good news on this one is that as I said in my introductory comments, the nuclear share of the electricity being produced has gone up, especially in relation to fossil fuel. So, hopefully, that’s signaling recognition that we are providing safe, reliable baseload power to keep all those institutions running, especially healthcare facilities these days, so nuclear is still strong. The effect on demand, we haven’t seen it. While we still had guidance out, I think I said we would be selling 28 million to 30 million pounds this year; that hasn’t changed. We still have significant commitments. Our customers are still taking deliveries and need to load their reactors with our uranium. So, I don’t think there is a big effect on demand. I think the story to watch is supply, obviously. Through the COVID disruption, I think we have seen numbers in the 20 million pounds and counting left in the ground. I think I saw the UxC presentation the other day that corresponds pretty much with our numbers because we are the ones that have taken all our production off. At the moment, Kazakhs, we have been in touch with Mr. Pirmatov to see what’s going on in Kazakhstan, and they are having to disrupt their production and drilling there. They are down a bit in Namibia as well, I think early on. So, I would say it’s 20 million and counting, which goes along with the production we already took off starting back in 2016, and we are having it in the U.S. and we pulled back on McArthur while the Kazakhs pulled back. There is already about 40 million pounds a year disrupted left in the ground. So, I would suggest watching supply closely. You have our friends at Ranger. We have about 5 months left, I think, in the life of their mine and mill there; Cameco Indonesia used to be responsible for that mine. I think by the end of March next year, that one will be gone. That’s production against which we've competed for many years. That’s not a supply disruption; that’s gone from the market. So, I would say watch supply. Construction, I think your last part of the question was on construction delays. I looked at our numbers today and saw 54 units under construction around the world, adding to the approximately 440 that are already in operation. That’s a good number, and I don’t think that’s changed. I just say a word then I will stop here: if people can remember, I know it’s hard, but 5 months ago, we weren’t talking about COVID-19, we were talking about climate change, CO2 reduction, and efforts to keep the temperature of the earth down. It was huge. That hasn’t disappeared, but it’s been somewhat dormant as we work through the pandemic. I believe it’s going to come back, and I think we have a great opportunity here with nuclear power as we move forward and rebuild economies and bring the world back to where it should be, to really push nuclear power ahead. I think we are getting recognition on that.
Rachelle Girard, VP, Investor Relations
Thanks, Tim. The next question comes from Brian MacArthur at Raymond James. The uranium spot price increased substantially following the unplanned supply disruption announcements. However, it seems to have plateaued recently. What are you seeing in the spot market? How much material is available? Have you seen many utilities competing for the spot market material? And if the price has plateaued, is your activity holding it up?
Tim Gitzel, President and CEO
I will start and then pass it over to Grant, who knows more about this than I do. I would just say we have not been sitting idle during this period. Our marketing teams have been extremely busy in the market, as you have seen by our purchasing activity. We have been in the market full-time, every day since the pandemic started. Grant is the best person to answer this market question, so I will pass it over to him.
Grant Isaac, CFO
Yes, it’s a great question that Brian raises. Plateau is a word that we’ve heard a few times, because the price did respond quite quickly to the unplanned supply disruptions, up 35%—nearly $10—which may in fact have reset expectations of what a low uranium price is. Before COVID, I think people believed that the low uranium price was in the low 20s. And now there seems to be a sense that a low uranium price is in the low 30s. So, that’s certainly good news. Maybe I will comment on our activity first before I characterize the spot market a little bit. So far this year, spot volumes are now at 62.4 million pounds. That’s a lot of spot volume halfway through the year, no doubt about it. We now have said that our year-to-date purchases are 19.3 million pounds. So, clearly, we are not the only active party in the market, and we are not holding the market up when we are only a small portion of it. In fact, even if you believe that 50% of the total volumes in the spot market are just meaningless trader churn, it still suggests that there is other demand in the market, not just us. So, where is that demand coming from? Well, some of it has been utilities engaging in discretionary purchasing in the spot market. A lot of it seems to be producer purchasing to cover sales commitments due to the unplanned supply disruptions. It’s important to remember that when a producer buys to meet a sales commitment, that is like fundamental demand—that’s utility buying—material that will go to a utility and not return to the market to be churned around. A little bit on how the spot market looks: I think for 2020, we are characterizing it as a year where there is just been a mismatch in the timing of inflows of material coming in, which is mostly uncommitted produced material. We saw a lot of it destined for the market in the first half of the year. The outflows are really going to kick in the second half of the year, as the material that needs to meet deliveries plus any spot demand flows into the market in the second half of the year as it typically does. We have been pleasantly surprised to see that folks have continued to offer materials despite the market uncertainty and despite the fact that everyone knows we need to buy more to meet our uncommitted sales. The willingness of those who have been selling has been a pleasant surprise for us, as it has allowed us to uptake prices somewhat less than the recent highs. Of course, our goal is to always buy as cheaply as possible. However, the other way to look at it is a plateau is also this notional floor, so we have also seen some resistance. Sellers in our market who may have previously been quite desperate have been more resistant and stubborn with their offers. That is good to see, as it perhaps convinces us that there has been a reset in the spot price.
Rachelle Girard, VP, Investor Relations
Thanks, Grant. The next question is also from Brian MacArthur at Raymond James. Can you comment on where the supply in the spot market is coming from?
Tim Gitzel, President and CEO
Grant?
Grant Isaac, CFO
Yes, I have mentioned a bit earlier that we sort of see the spot market with this mismatch between inflows and outflows. The inflows are uncommitted production. You will recall that last year, we began saying this is really not an inventory story, it’s a story of uncommitted production. Suppliers appear to be from Kazakhstan and Namibia, as well as Australia. These are from producers that either have an off-take arrangement to sell to traders or they have a deliberate strategy to sell directly into the spot market. These suppliers, many of them are state-owned, or suppliers who view uranium supply as a byproduct. This is not a surprise for us because typically inventories are less mobile when facing tightening supply and rising prices. So that’s how I would characterize the supplies.
Rachelle Girard, VP, Investor Relations
Thanks, Grant. The next question comes from Andrew Wong at RBC. With stronger copper prices, is there any concern that it could incentivize more uranium byproduct production from Olympic Dam now or in the future? And how might that impact the market outlook?
Tim Gitzel, President and CEO
Well, thanks, Andrew. It is Tim again. Olympic Dam has been a competing uranium supplier for decades now, so we just assume they are always going to be in the market and produce uranium, and that it will show up there. We see reports out of Australia that they are looking at increasing their copper production. They are currently producing about 200,000 tons annually and are looking at moving up into the 300,000 to 350,000 level, which comes with a corresponding increase in uranium production. But, I remember we saw this back about a decade ago, and there was a lot of concern then. I would say we would have been more concerned then. However, even if they decide to go ahead, they still have to do all their environmental impact studies, and we might need the uranium by the time they get going. So, one thing it does do is eliminate the need for any greenfield development. When you have the big producers like Cameco with all of its production shut down—Cigar, McArthur, Inkai—and Mr. Pirmatov with a bunch of his production down in Kazakhstan, Olympic Dam perhaps bringing on more production in whatever time frame may contribute to a recovery of existing operations. So, at this moment, we are not particularly looking at any greenfield development, because the world just does not need it right now.
Rachelle Girard, VP, Investor Relations
Thanks, Tim. The next question comes from Oscar Cabrera at CIBC. The trade reporters show elevated spot market volumes, yet the term volume seems relatively modest. Are you surprised? What will it take to get utilities to find long-term contracts?
Tim Gitzel, President and CEO
Grant, do you want to talk about long-term contracting?
Grant Isaac, CFO
Yes, sure. I would probably start by reminding folks that Cameco had some success in the long-term market actually in 2019. We have also talked about in 2020 our off-market activity. Just as a reminder, this is when utilities come to us directly, and we negotiate for either an extension of an existing contract or a new contract, but it isn’t done through that competitive RFP process. We have been characterizing it that yes, the industry hasn’t achieved a replacement rate term contracting, but Cameco has been enjoying it for various reasons. Having said that, I think Oscar, you are probably focused on the competitive on-market type contracting. It may help to break it into two perspectives: the perspective of our customers as we understand it and our perspective as a potential supplier looking to sell material. When we consider it from the customer’s point of view, we have to acknowledge that they have been impacted by the pandemic, and we have seen them really focused on making sure their plants are operating safely and reliably and that they meet all the industrial protocols to keep their people safe. A lot of the effort of our utility colleagues has been spent, particularly the U.S. ones, on the Russian Suspension Agreement, ensuring their position is well understood with the U.S. Department of Commerce. This has taken up time that would otherwise likely be devoted to procurement, so legitimate factors are distracting them from longer-term procurement. That said, from our perspective, it’s simply a matter of time. We are starting to see some recent interest in the mid-term market and the longer-term market, which we define as 5 years plus. We have observed a number of utilities issuing RFPs in the last week or two, and while it’s too early to tell if this is the start of a trend, in any event, it’s positive and would make sense given all the supply uncertainties. From our perspective, the spot price is up, with planned and unplanned disruptions. This increase, which we talked about earlier (a 35% increase), has pushed up forward prices in the term market. We can see the UxC price—the 5-year price at $38.50, and TradeTech’s long-term prices at $39. TradeTech has introduced a new production cost indicator, which arrived at a cost of $44.50. All this signals a more favorable environment for us to negotiate the value of longer-term contracts. This takes some urgency away from us, and we want to be patient to capture as much of that value in negotiations, too. Our perspective and theirs suggest that we aren't ready to worry about term contracting conditions. It does take time, but we will see it; it’s a matter of time and the conditions for us to extract value seem to be improving.
Rachelle Girard, VP, Investor Relations
Thanks, Grant. The next question comes from Lawson Winder at Bank of America/Merrill Lynch. The spot price from UxC has closed the gap with a long-term price indicator. Do you view this as bullish or bearish?
Tim Gitzel, President and CEO
Grant?
Grant Isaac, CFO
That’s a very good question. I don’t think there will be any surprise in how I look at this. I view it as bullish. When you can buy uranium today at the same price as purchasing it in the future, it’s easier to turn your procurement focus to your run-rate requirements. There is no benefit now to buying in the spot market versus the term market. This closure of the gap makes it more likely that now is the time to start thinking about those run-rate requirements. This may be behind why we are seeing some competitive RFPs come into the market. There is also an operational issue that we can’t overlook: demand in the spot market can react quickly to market developments than demand in the term market. We expect term demand to hold up due to a couple of important factors. So, between the two, I would say it’s a bullish signal rather than a bearish signal.
Rachelle Girard, VP, Investor Relations
Thanks, Grant. The next question comes from Greg Barnes at TD. How is activity in the mid-term market holding up? Are you seeing fewer materials coming from carry trade activity? I understand that Kazatomprom has stopped supplying material to the spot market, and that this could lead to reduced material available in the mid-term market. Is that happening?
Grant Isaac, CFO
That’s a good question, Greg. With respect to Kazatomprom, I think they have been very clear on their spot sales discipline. From what we can see, that discipline is real. Of course, there is Kazakh-origin material available, but I think it’s being made available through joint venture partners who take possession of the material, not from Kazatomprom directly. I believe they can be trusted when they say that this discipline is there. Regarding the carry trade, we are seeing less. We have heard of a rapid decrease in care trade activity due to tighter credit markets when the pandemic and economic closures began. Some entities have not been able to secure the financing that backed up those carry trades, so we have seen some carry trade offers evaporate, which contributed to spot demand in the early days of the pandemic and the unplanned supply disruptions. More recently, intermediaries have been attempting to reposition themselves within this market segment; whether they will have success remains to be seen. The closure of the gap between spot and term prices may eliminate the need for carry trade activity, so we will watch this closely but so far it's playing a lesser role than it has in the past.
Rachelle Girard, VP, Investor Relations
Thanks, Grant. The next question is also from Greg Barnes at TD. Utilities have had more pressing issues to deal with this year than long-term fuel procurement, but as the COVID crisis stabilizes, do you expect utilities to turn their attention to the term market? I assume the WNA symposium will be virtual this year. Will this have a negative impact on the usual uranium contracting cycle that happens around this time?
Tim Gitzel, President and CEO
Greg, it’s Tim. I think I'm lamenting a bit, but it’s true this will be the first time in 27 or 28 years that we haven’t gone to London for the first week of September for the WNA conference. It’s almost like the kick-off for the nuclear uranium calendar year in September. You are right; it’s going to be different. The symposium will be virtual this year, and not seeing 800 of our best friends will be a challenge. That said, life goes on. As I said earlier, our marketing team, alongside Grant and his team, have been in constant contact with our customers throughout this whole pandemic, just staying in touch with them and letting them know we stand by their side. The discussions we started prior to the pandemic have continued through. It is a challenging time to discuss a 5- to 10-year contract when you are trying to take care of your employees and keep your plant open, but that work will resume. I was looking at uncovered requirements for this decade, and we are almost a year into it. About 742 million pounds according to our numbers, while others may be close. If you extend that out another 5 years, it’s almost double that, and those unresolved contracts have yet to be secured—all while supply is declining. Yes, it’s going to be different this year without WNA, but we will find ways, like everyone else, to keep in touch with our customers and ensure business continues.
Rachelle Girard, VP, Investor Relations
Thanks, Tim. The next question comes from Brian MacArthur at Raymond James. How much material do you think has been removed from the market as a result of the COVID-19 pandemic-related disruptions to production? What is happening with the Husab and Rössing mines in Namibia?
Tim Gitzel, President and CEO
Yes, thanks, Brian. We are not sure yet. I would throw out a number of 20 million pounds and counting. We will see how things go in the future, how Cigar Lake restarts, whether Gallium is able to manage operations in Kazakhstan, or if we experience a second wave. Those pounds have not come on the market yet, while consumption is ongoing. There are 20 million pounds of inventory somewhere; we won’t make up that production. That’s added to supply already taken off the market at Cameco. As I mentioned earlier, Ranger and Cameco will come off the market in the next 6 to 8 months, further reducing supply. In Namibia, we don’t receive much information from the Chinese company overseeing operations, but their production is reportedly returning.
Rachelle Girard, VP, Investor Relations
Thanks, Tim. This next question comes up often. What explains the pricing difference for materials at Cameco, Indiscernible, and ConverDyn? Why wouldn't you purchase from the less expensive location and transport it to the more costly site to take advantage of that arbitrage opportunity?
Grant Isaac, CFO
Yes, it’s right, Rachelle. This is a question we hear frequently. The simple answer is the market is currently active at Cameco. Folks may say there’s a nuance to it, but we should point out that the material required to service committed sales contracts is being largely procured from there. When you look at the reasons why? Well, you have a facility shutdown in the U.S., a facility in France that is still ramping up, and some questions about storage capacity regarding acceptance of new material. So no surprise; there is a desire to move material from those locations and ensure it’s at Cameco. Why at Cameco? Because the fundamental demand is at that location. We prefer to buy at Cameco because we are trying to meet our commitments. A clear product origin, product form, and delivery timing requirements contribute to this preference. Many intermediaries in our business just operate on the fact that this has been a largely book transfer market, so they lack expertise in physical transport of materials. While it sounds easy, it’s not. It is Class 7 nuclear material. We seize the opportunities to leverage location differentials when available, but first and foremost, it’s about meeting the needs of our sales portfolio, which are primarily met at Cameco. It appears for others acquiring material for their committed sales portfolios.
Rachelle Girard, VP, Investor Relations
Great. Thanks, Grant. This is another question we frequently receive. How significant is the announced extension to the reduced mining activities in Kazakhstan? If things turn around there, how quickly can production come back on?
Tim Gitzel, President and CEO
I think it’s very significant. Kazakhstan currently accounts for at least 40% of global production. Any disruption in production there has a major impact on the global uranium market. I speak for the team at Cameco, as we are very impressed with the leadership that Riaz Rizvi and his team have shown in prioritizing worker health and safety and making sound decisions. Both have taken a cautious and prudent approach to restarting operations. They plan to restart slowly and carefully, but the longer they remain down, the more difficult it becomes. We understand that the summer months are crucial in Kazakhstan, just as they are here in Canada for ISR production; drilling needs to be done, and the wellfields require acidification. If they are unable to carry out these activities in the summer and early fall, it could significantly affect production this year and in 2021. We have been informed of this, and we will monitor the situation closely. We maintain constant communication with them regarding our JV Inkai operations, and we wish them the best in facing their challenges amid the pandemic. In August, we will observe their progress.
Rachelle Girard, VP, Investor Relations
Thanks, Tim. To follow up on that question: Kazatomprom recently indicated it may have to buy uranium in the spot market due to production interruptions caused by COVID-19. If they enter the market at the same time as you, are you concerned that this would drive up uranium prices?
Tim Gitzel, President and CEO
I would say that is a bit of a Hollywood problem. If Kazatomprom promised to buy while Uranium also buys, I assure you that we’re not worried about uranium prices escalating. Any increase will flow through our long-term portfolio, and we hope this situation incites our customers to engage in locking contracts, so they benefit from certainty in the future. We will see how that rolls forward through the rest of the year.
Rachelle Girard, VP, Investor Relations
Great. Thanks, Tim. This is yet another question we’ve encountered recently. Why do you think Yellowcake and UPC are selling uranium while buying back stock? What is the significance?
Grant Isaac, CFO
Well, I probably should start by saying, you will have to ask them, because we cannot speak for them. But maybe make a couple of observations. A couple of years ago, when we discussed what a market recovery would look like, we stated that Tier 1 assets would come back, and Tier 1 assets could probably expand. Keeping an eye on the funds was part of that, and I faced a lot of criticism for claiming these are permanent capital funds that would not sell material. Now, it’s precisely this behavior that I anticipated. They might sell or loan material to support their net asset values. They are not uranium suppliers. It’s unfortunate to see them in a position where they have to raise capital, but we understand that there’s a broader environment of economic and market upset. Their objectives from a valuation perspective are paramount. What I see in that is if traders must reach out to funds to borrow material, it could suggest that there is a limited supply for traders. There could be a positive takeaway that the broader market will improve, which means the funds might reaccumulate uranium when conditions allow, as the market improves. It’s frustrating to see this trend unfold; their reasons are theirs alone, and the impact on the market is likely minimal.
Rachelle Girard, VP, Investor Relations
Great, thanks Grant. The next question comes from Oscar Cabrera at CIBC. What significance does the review of the Russian Suspension Agreement have for the market, and is Cameco a potential beneficiary?
Tim Gitzel, President and CEO
Yes, Oscar. Thanks, this is a significant deal. The outcomes are uncertain, as we have been operating under the current Russian suspension agreement for well over 20 years. It seems to have worked thus far, so we allocate a lot of time and energy to this. There are many parties involved, and both sides have varied interests. We have invested time, working closely with Sean Quinn and his team, who have been laser-focused on this for months, leading to numerous meetings and calls with the Department of Commerce and other relevant parties. The current Russian Suspension Agreement is set to expire at the end of this year, and under this agreement, Russian uranium products are subject to a quota equivalent to 20% of U.S. reactor demand. We have seen a push to extend this agreement significantly to minimize U.S. utility reliance on Russian uranium products. As we participate in this process, we hope to achieve these goals together, potentially setting lower limits for the importation of Russian-origin uranium and common conversion services as part of this overarching framework. The current deadline for completing negotiations is October 5, 2020. If an agreement is not reached by that date, importing Russian uranium products may eventually incur anti-dumping duties. I think, on balance, reaching an agreement on the Russian Suspension Agreement extension would be beneficial for us and for the U.S. nuclear industry as a whole; thus, we continue to focus our efforts on this.
Rachelle Girard, VP, Investor Relations
Thanks, Sean. The next question comes from Lawson Winder at Bank of America/Merrill Lynch. The conversion price has moderated somewhat in 2020 after surging in 2018 and 2019; why is that? Is there increased competition?
Grant Isaac, CFO
Yes, I appreciate the question because we have drawn an analogy between what the conversion market is going through and what we suspect uranium may encounter. In general, the conversion spot price has moderated as some of the panic buying has decreased. Those who were caught short on conversion seemed to have secured what they needed. We don’t have that immediate spot pressure in the market now. The conversion term price has remained high after being depressed below production economics for many years, which caused us to reduce our volumes and led to the shutdown of the ConverDyn facility. We have now seen a necessary term price correction to ensure long-term supply meets run-rate requirements. Is there increased competition? Not immediately; we still have the situation where Port Hope is the only Western converter running reliably at target capacity now, while a facility in France is ramping up. Ronald has announced plans to go from a target of 6,000 tons of conversion this year to 15,000 in 2022, so more capacity is coming online. But really, it’s been the correction in the term market that’s been notable and pressure coming off the spot market due to the panic purchases subsiding.
Rachelle Girard, VP, Investor Relations
Great. Thanks, Grant. Tim, this next question is one that we hear quite frequently. What are your thoughts on small modular reactor technology?
Tim Gitzel, President and CEO
We are big fans, obviously. It seems to be really catching on, and there is a lot of hope that SMRs will be the next big thing in nuclear that propels us forward. However, we are still going to need large nuclear plants to provide electricity to large countries with developing populations where large baseload power is required. There is significant interest in SMRs, including here in Saskatchewan, where Premier Scott Moe has been advocating for these technologies. We have a joint venture, I believe, involving Saskatchewan, Ontario, New Brunswick, as well as Bruce Power and OPG working collaboratively on SMRs. We know the nuclear regulator CNSC is evaluating 11 or 12 different models, though we might need to narrow it down to one or two. However exciting SMRs may be for the future, it’s worth noting that the Russians and Chinese might be ahead of us; we can catch up. At Cameco, our interest lies in supplying fuel for these units, so we are watching to see who takes the lead while leveraging our fuel manufacturing facilities in Ontario to produce uranium.
Rachelle Girard, VP, Investor Relations
Great. And thanks, Tim. The next question pivots more towards Cameco specifically. The first question comes from Orest Wowkodaw at Scotia. Why have you decided to restart Cigar Lake now when the uranium market seems to be responding to the disruption? Do you expect the uranium spot price to go down as a result of the restart?
Tim Gitzel, President and CEO
First, we knew there would be questions on this topic. Thanks for asking, as it is a big decision for us. First, I would say we never intended to take it down when we planned to run Cigar Lake this year. We wanted a combination of produced pounds from us, which are very economic, along with purchased uranium to fulfill our contracts; however, COVID disrupted those plans. Our decision was primarily driven by health and safety considerations. We have had it down for four weeks now, and by the sixth week when we restart, we need the low-cost production to fill our contract portfolio. All the while, we incur $8 million to $10 million in care and maintenance costs every month that it remains down. We want to ensure that our production matches existing contracts; these pounds have assignments. We had to weigh all of these factors and have concluded that September was an appropriate time. Let me clarify that this depends on workforce availability, health and safety, and all precautions we need to take, and none of these factors have disappeared.
Rachelle Girard, VP, Investor Relations
Thanks, Tim. The next question comes from Orest Wowkodaw at Scotia Capital. What does the restart process look like? And what costs do you expect to incur should you face difficulties in workforce availability? Did you consider a phased approach for the restart?
Brian Reilly, Chief Operating Officer
Thanks, Tim. I’ll take the question on workforce availability first. We have retained our entire workforce at Cigar Lake—over 330 employees have remained on payroll during the care and maintenance period. Some employees have been required to work on-site to handle care and maintenance duties while many have been placed on paid leave, with a few working from home to support our activities. We expect our workforce will be available notwithstanding any COVID-19 impacts on various communities where our employees live. In terms of our restart plan, we have a maintenance period scheduled for the first two weeks of September—this means we will recall most of the workers and contractors as necessary; it involves routine maintenance. After five months of shutdown, we expect our first production around mid-September; slurry haul trucks will transport ore from the Cigar Lake mine to the McLean Lake mill. The Cigar Lake asset is at a pivotal point, as uranium grades decrease and we will need to increase ore tonnage to meet production targets. Upon restart, the mine is transitioning from three development headings to three new production tunnels in 2021. This involves some operational risk. Our ambitious production target for 2020 is 10.6 million pounds, and we don’t anticipate any significant costs associated with the restart.
Tim Gitzel, President and CEO
Good. Thanks a lot, Brian.
Rachelle Girard, VP, Investor Relations
The next question comes from Greg Barnes with TD. What protocols will need to be in place for a restart of Cigar Lake? Are the community supportive of the restart?
Alice Wong, Chief Corporate Officer
Sure. Thanks, Tim. I am happy to provide that update. Since the pandemic began, we have implemented numerous safety measures across Cameco at all locations, which we are updating according to the situation and aligning our practices with guidance from government and public health authorities. At Cameco locations generally, we have staff working from home when possible, we conduct meetings remotely, limit non-essential travel, restrict deliveries and contractors, and personnel undergo screening before entering sites. Physical distancing has been mandated, including PPE and barriers where physical distancing isn’t practical, along with increased disinfecting and cleaning protocols. For Cigar Lake and all our Northern Saskatchewan sites, we have implemented additional precautions, which include screening for all inbound flights—which involve temperature checks, spaced seating in common areas of the site and airports, enhanced sanitization on flights, signage to provide direction and reminders, staggered meal and break times, tight controls on food service, and limits on all vehicle capacities traveling up and down the mineshaft. These measures have been in place for some time now and will be reviewed and adjusted to accommodate a larger workforce necessary for production. Steady communication with employees is prioritized to ensure clarity around the restart plan and their roles in it. Employees will also receive an easy to follow handbook, as well as training videos upon their return. We can leverage our experience from the successful restart of our Ontario plants, the UF6 and UF3 plants in May. As for community support for restarting Cigar Lake, we have held discussions with Northern community leaders throughout the pandemic to obtain their input. They have expressed interest in returning to work; however, community leaders wish for the opportunity to provide feedback on our planning process, which we will work on closely over the coming weeks. We want to ensure they understand our approach and feel comfortable with our plan, and we will work to address their potential concerns as best as we can. We also recognize the situation with COVID-19 continues to evolve, and we will quickly adjust our plans as necessary. Thank you, Tim.
Tim Gitzel, President and CEO
Thanks, Alice.
Rachelle Girard, VP, Investor Relations
This next question follows up on the Cigar Lake restart questions. What factors could cause you to delay the restart of Cigar Lake or not meet your production targets? Is there a risk that you would have to suspend production again after it has restarted?
Tim Gitzel, President and CEO
The health and safety of our workers will always be our top priority, so we will monitor that closely. We will keep an eye on the evolving situation in Northern Saskatchewan and consult health professionals accordingly. We don’t want to rush or force a restart; rather, we want to do it responsibly and safely while ramping up production correctly.
Rachelle Girard, VP, Investor Relations
Thanks, Tim. This next question is one we have heard many times already, and we just thought we’d address it. We have been hearing that the reason you shut down McArthur River/Key Lake was that you didn’t have ore available to keep mining. Is this accurate? Do you anticipate any problems sourcing ore when you restart McArthur River?
Tim Gitzel, President and CEO
That’s absolute nonsense. We must comply with securities laws in this country—laws that we follow meticulously in our reporting. We must disclose everything we do, and we have done that. So that narrative is inaccurate. But, Brian, why don’t you provide a more technical perspective?
Brian Reilly, Chief Operating Officer
Thanks, Tim. I will keep it straightforward: we have over 27 million pounds of uranium available for mining when we resume operations, and that includes 10 production areas available for restart. We have sufficient ore supply for the first few years of operation. Any additional ore must be prepared or developed for future mining; that’s just typical for the business. For those keen to understand our production schedule when we return to mining, I suggest referencing our most recent technical report, which was published in March 2019. It outlines in detail mine development and production for the life of the mine. In summary, our first year plan focuses on recruitment, training, and commissioning of equipment with a target of 2.5 million pounds in the mine and 4 million pounds from the mill, particularly around zone 4. Zone 4’s complex and comprises about 120 million pounds. We’ve mined out the lower portion and are now spending more time working in the upper. This area covers approximately 80 million pounds, and we will approach this with a mass phrasing design, which is a technology that we utilized at both Cigar and McArthur. We are confident that this technology will prepare Zone 4 for future mining. I suggest referring to our technical report, as we are optimistic regarding the proper application of mine planning and development as we work towards meeting our production targets and schedules.
Rachelle Girard, VP, Investor Relations
Thanks, Brian. The next question comes from Alex Pearce at BMO. Can you provide an update on the situation at JV Inkai? Given lower production than planned, does this impact your share purchases from Inkai for the year?
Tim Gitzel, President and CEO
Yes, it’s Tim. We aren’t sure yet how it will be affected. We know production will be lower than expected; we just don’t have the numbers yet. We will see what Mr. and the team are able to do regarding the refiring of the wellfields, but we know for certain that we won’t get the expected production this year.
Rachelle Girard, VP, Investor Relations
Great, thanks, Tim. The next question comes from Oscar Cabrera at CIBC. Have you signed any prospective contracts in your pipeline since you announced the Cigar Lake shutdown and Kazatomprom announced its curtailments due to COVID-19? What will it take to get utilities to sign long-term contracts? And do you think the market is changing to have more spot exposure?
Tim Gitzel, President and CEO
Grant, would you like to take that?
Grant Isaac, CFO
Yes, certainly. It’s a great question. I will reiterate some observations made earlier. Cameco’s experience has been somewhat different than the broader market experience. We have enjoyed replacement rate level contracting in both 2019 and early 2020 prior to COVID. We are still engaged in our discussions, which have not been derailed. COVID, however, does have impacts. Fuel buyers' focus on the near term ensures material availability as priorities; this has detracted from long-term discussions that were previously underway. We remain optimistic, as conditions for long-term contracts are more favorable with the pricing dynamics, and we have not seen any urgency in handing out those agreements yet. If we had any contracts to announce, we would have shared it, but we are in a good position. Regarding the market's shift to spot exposure, that’s a good question. We watch that carefully, as we need to avoid being the company that sells all material forward while missing out on a robust future spot market. There is a clear desire from customers to procure their run-rate material, though there may be a more discretionary approach for spot material and inventory. We continue to see a desire to secure supply with unplanned disruptions bolstering the term contracts’ market, which drives the RFPs we are seeing emerge of late.
Rachelle Girard, VP, Investor Relations
Great. Thanks, Grant. The next question comes from Lawson Winder at Bank of America/Merrill Lynch. What countries are the utilities that are interested in long-term contracting coming from? Have these changed since you began curtailing production?
Tim Gitzel, President and CEO
Lawson, it’s Tim. That’s a tricky question because if I tell you the country, you’ll recognize the utility about 85% of the time. So, I would say it’s Asia, Europe, North America—narrowed down to that. These customers will not surprise you as we have been working with them for many years. Our goal is to maintain regional diversity, so I would say these utilities come from across the board.
Rachelle Girard, VP, Investor Relations
Okay. This next question is frequently asked. You made several purchases during Q2. How much purchasing activity remains for the year? Are you intentionally building an inventory?
Tim Gitzel, President and CEO
Grant?
Grant Isaac, CFO
It’s easy to start with the last point: no, we are not intentionally building an inventory. Part of the initial shut down of McArthur River was to work through an existing inventory build caused by producing material we were not willing to sell at prevailing prices, which only complicated negotiations since then. We discovered that escalating inventories created issues for us that we wanted to address, so we’ve made a decision to work through it. This year, we made a lot of purchases in response to Cigar Lake’s COVID-induced shutdown, along with disruptions from JV Inkai, requiring us to secure material for maximum individual sales portfolios. We took advantage of the opportunity as existing traders were willing to sell to us during this uncertain situation. We wish to avoid any overhang on the inventory again, so in summary: no intentions to build one, instead, we see this as a build-up through purchases.
Rachelle Girard, VP, Investor Relations
Great. Thanks, Grant. The next question comes from Andrew Wong at RBC. Could you remind us when Cameco’s supply contracts with China run until, and with the recent strain in relations between Canada and China? Do you have any concerns about renewing those contracts in the future?
Tim Gitzel, President and CEO
Thanks, Andrew. We are keeping a close eye on the situation between Canada and China, as well as between China and the U.S. with concern. China has become a significant customer for us, and I remember back in 2010 signing contracts in the presence of the Chinese President and our Prime Minister at the time. These contracts were for 52 million pounds in one month, with the price skyrocketing from $43 to approximately $72 in a matter of months after. Those contracts are set to run through 2020 and 2025. Our marketing team, alongside Grant and others, maintains regular contact with the Chinese. They have been reliable partners for us, and we wish to continue doing business in the future. However, we hope that political issues can be resolved, even if they are outside our purview.
Rachelle Girard, VP, Investor Relations
Great. Thanks, Tim. The next question comes from Alex Pearce at BMO. What are the next steps in the CRA case? When do you expect to get your refund, cost award, and financial capacity back? Is that already included in the cash on your balance sheet?
Tim Gitzel, President and CEO
Yes, we’re pretty happy about the unanimous decision from the Court of Appeal. Some of our people are quite excited because it confirms our stance. That marks two courts, four judges, all in Cameco’s favor. Sean Quinn, would you give us some insight on the CRA tax case process moving ahead?
Sean Quinn, Chief Legal Officer
Sure, Tim. I would be happy to do so. The timelines for getting our refund and financial capacity back depend significantly on what happens next in our dispute. Initially, we expect it will hinge on whether the CRA seeks leave to appeal the decision to the Supreme Court of Canada. They have until mid-November this year to make that decision, and we estimate it will take until early 2021 to find out if they will obtain leave. If they do receive leave, it could take about two years for the Supreme Court to rule on this matter. If they decide not to seek leave, then the dispute over the years ‘03, ‘05, and ‘06 is effectively concluded, and the reassessments would need to be issued as per the ruling. We anticipate a timely refund for the $5.5 million we paid for these years, in addition to interest. We would also expect a cost award of $10.25 million along with disbursements, which could be settled quickly. In relation to where this will be reflected on our balance sheet at this time, it’s worth noting that it’s not classified as cash yet; instead, it’s recorded as a receivable.
Tim Gitzel, President and CEO
Thanks, Sean.
Rachelle Girard, VP, Investor Relations
Thanks, Sean. The final question comes from Alex Pearce at BMO. Given your strong cash position, what are your plans for the cash when you get it back? Under what circumstances would you consider a share buyback, special dividend, increased dividends, or M&A?
Tim Gitzel, President and CEO
We aren’t interested in M&A as we believe it is unnecessary to pursue. Our focus remains on getting Cigar Lake, McArthur River, and Galyn’s production in Kazakhstan up and running. We have around $870 million in cash currently. The $303 million in cash held by CRA and additional letters of credit, represent funds we are eager to reclaim when the timing is right. If we find ourselves in a strong position, I would ask Grant and the finance team to explore opportunities to invest, but barring good projects, we would return funds to our stakeholders and shareholders instead. Grant and the finance team would provide options, and the board will ultimately decide the best route for them.
Rachelle Girard, VP, Investor Relations
Great. Thanks, Tim. That concludes the Q&A portion of the call. So, I will turn it back to Tim for some closing remarks.
Tim Gitzel, President and CEO
Thanks, Rachelle. I want to extend my gratitude to everyone on this call today. Your interest, support, and participation are greatly appreciated. We recognize that these are interesting times for all of us, but I can assert confidently that Cameco is in a solid position. We are excited about what lies ahead and believe the future looks promising. As we navigate this period of uncertainty, we will continue to execute our strategy, and we are dedicated to ensuring our business remains sustainable over the long term. Thank you for joining us. Stay safe, healthy, and enjoy the rest of the summer.
Operator, Operator
This concludes today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.