Earnings Call Transcript - CCJ Q3 2021

Operator, Operator

Thank you for standing by. This is the conference Operator. Welcome to the Cameco Corporation Third Quarter 2021 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. I would now like to turn the conference over to Rachelle Girard, VP Investor Relations, Treasury, and Tax. Please go ahead.

Rachelle Girard, VP Investor Relations

Thank you, Operator. And good morning everyone. Welcome to Cameco's Third Quarter Conference Call. I would like to acknowledge that we are on Treaty Six territory in the homeland of the First Nations. Today's call will focus on the trends we're seeing in the market and on our strategy. As always, our goal is to be open and transparent with our communications. Therefore, if you have detailed questions about our quarterly financial results, or should your questions not be addressed on this call, we will be happy to follow up with you after the call. There are a few ways to contact us. You can reach out to the contacts provided in our news release. You can submit a question through the contact tab on our website, or you can use the Ask a Question form at the bottom of the webcast screen 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 Riley, Senior VP and Chief Operating Officer. Alice Wong, Senior VP and Chief Corporate Officer, and Sean Quinn, Senior VP, Chief Legal Officer, and Corporate Secretary. I'm going to hand it over to Tim to talk about the long-term fundamentals for our industry, the current market dynamics, and about Cameco's strategy to add long-term value. After, we will open it up for your questions. If you've joined the conference call through our website event page, there are slides available which will be displayed during the call. In addition, for your reference, our quarterly investor handout is available for download in a PDF file on our website at cameco.com. Today's conference call is open to all members of the investment community, including the media. During the Q&A session, please limit yourself to 2 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.

Timothy Gitzel, President and CEO

Thank you, Rachelle, and welcome to everyone on the call today. We appreciate you taking the time to join us. We hope you and your families are doing well. I want to start today's call with the observation that we're living in interesting and exciting times in the nuclear business. That's pretty obvious, right? Also, observe that Cameco is uniquely positioned thanks to our strategy to capitalize on the increasingly undeniable conclusion that nuclear power must be an essential part of the clean energy transition. Always motivated by the fundamentals, our strategy of operational flexibility, market alignment, and financial discipline has had a significant impact on the positive market dynamics that have attracted so much investor interest of late. I can tell you our commitment is unwavering, and our resolve remains strong. We will continue to execute on our strategy and capture the value of the clean energy transition. So first let's look at those fundamentals which motivate our strategy. I would say that the fundamentals of our business are as positive as we've seen them in over a decade, and maybe ever. I say ever because there appears to be a durability that I don't think we've seen before. One of the big drivers for growth in demand for nuclear power today is its link to electrification and decarbonization and the commitments being made by countries and companies to net-zero carbon targets. In the past, we have always been reliant on governments and public policy to take the lead. While that aspect remains important, there are now more than 1,800 companies that have made net-zero commitments and will therefore play a critical role in helping to shape what energy policy will look like. These clean air and climate change commitments, particularly by companies, are creating accountability. Companies will need an energy source that can provide safe, clean, reliable, and affordable electricity 24 hours a day, 7 days a week, 365 days a year. This accountability is what we expect will create that durability of demand for nuclear power. In addition, the important role for nuclear in the clean energy transition is being amplified by concerns about energy security as a result of the current energy crisis in many parts of the world and spiking energy costs. In the past, these types of energy crises have triggered the build-out of some of the largest nuclear fleets in the world in places like the United States, France, and Japan. In a world where 85% of our electricity still comes from fossil fuel sources and with COP26 just around the corner, it is time for climate realists to step forward and acknowledge that there is no clear pathway to sustainably achieve both electrification and decarbonization while maintaining a secure, affordable, and stable electricity grid without having nuclear in the toolbox. Just recently, French President Emmanuel Macron pledged he would invest EUR 1 billion in small modular reactors, crediting nuclear power for insulating France from the current impact of skyrocketing energy costs and shortages of natural gas. In fact, France's grid operator says that the most cost-effective way for the country to meet its carbon-neutral goals by 2050 is to build 14 new large-scale nuclear reactors, in addition to building SMRs, and extending the lives of the existing fleet. Across the channel in the U.K., we saw the government include about $2 billion in its autumn budget to help advance a large-scale nuclear project and another $400 million for small modular reactor development. The 2021 Nuclear Fuel Report from the World Nuclear Association showed a 2.6% growth rate in nuclear fuel demand, up from 2% in its previous report. And that just represents traditional demand from large-scale commercial nuclear applications and doesn't take into account any new builds in the form of small, modular, and advanced reactors. It's not just long-term growth in the form of new builds either. It's also medium-term growth in the form of life extensions, for example, in France and in Canada. And it's near-term growth as early reactor retirements are being prevented as was the case with Exelon's Byron and Dresden Plants in Illinois. We're also seeing momentum building for the non-traditional commercial uses of nuclear power here in Canada and around the world, so it's easy to conclude that the demand outlook is durable and very bright. Let's look at the other side of the fundamentals, supply. When you look at current productive capacity over the next decade, it only satisfies about 70% of utilities' run-rate requirements. That means to meet the remaining 30% of requirements, new production will be needed. However, while demand for nuclear and uranium is becoming more certain, uranium supply is becoming less certain as years of persistently low prices have led to supply curtailments of existing productive capacity, lack of investment in new productive capacity, and the end of some reserve life for some mines. In the past, secondary supplies have filled that gap. But after years of drawing on these one-time sources, the secondary supply capacity is now declining significantly into the future. These fundamental facts are being amplified by unplanned supply disruptions caused by the COVID-19 pandemic, the further thinning of spot uranium due to interest in physical uranium by investors that are purchasing significant volumes of uranium and sequestering it, and the risk that global supply chain challenges interrupt the flow of goods and services in the uranium market, some of which we are already seeing both here in Canada and over in Kazakhstan. To ensure the availability of reliable and sufficient productive capacity to fuel carbon-free baseload electricity, uranium prices need to increase to reflect the economics of bringing on new supply. However, without the right market signals and without line of sight to homes for those pounds under acceptable long-term contracts, investing in a development project is not what a responsible producer does, particularly when there is idle Tier-1 capacity. Looking at where the market is today and what we're seeing, it's easy to conclude that the current uranium market is more constructive than we have seen in a very long time. Over the last few months, there has been significant volatility in the uranium spot price, but if you follow the trend line, it's definitely up and to the right. If you think back to when we began taking strategic actions, the extreme curtailment of our supply, the SPUT uranium price was under $18 per pound. Today, the SPUT price sits at about $47 per pound, after hitting over $50 per pound not long ago, a significant move up into the right. And what's driving the SPUT price increase? Well, it's the thinning of the uncommitted primary supply in the SPUT market, the material that does not have a committed home, something we as a responsible producer have taken significant measures to deal with as part of our strategy. Indeed, I would argue the magnitude of our production cuts to well below our sales commitments. And the resulting purchase activity to replace those pounds are unrivaled with respect to their impact on the availability of uranium in the SPUT market today. In addition to our demand, there are several financial vehicles that seem to be trying to address the same problem we see; undisciplined producers jamming their uncommitted material through the SPUT market. We believe with the right structure and management; the funds can be a good substitute for utility demand in the SPUT market. For example, the new financial entrant to our industry, the Sprott Physical Uranium Trust has introduced an at-the-market equity program, which allows us to quickly access funds to purchase uranium if its investors collectively believe the current uranium price is low. Its purchases appear to be targeting SPUT material, material that has already been produced, thereby not incenting suppliers to produce into the fund's demand. Additionally, it is non-redeemable, which means the material is sequestered. So far the Trust has raised over $730 million and purchased over 16 million pounds of uranium. This activity is driving more liquidity and better price discovery, which is an important and welcome development. The interest of these types of funds in holding physical uranium is further evidence that investors see the opportunity for significant value capture in our industry. But it's important to remember that the spot market is not the fundamental market in our business. It's a very thinly traded market where small volumes can have an outsized impact on price. It is not where utilities turn to satisfy their long-term run-rate requirements. It is typically where they go for one-time discretionary volumes. To why we are critical, those who promote a strategy to build productive capacity fully exposed to the spot market. Having been in this business for now over three decades, I can tell you that strategy simply doesn't work for those who are trying to create long-term sustainable value, as it demonstrates a basic lack of understanding of the structure of our market. Yes, if timed absolutely perfectly, the productive capacity may enjoy a brief period of high prices on small volumes, but as the spot exposure sets in motion the price off-cycle and becomes value destructive. In our business, there's no substitute for a full-blown utility-driven long-term contracting cycle motivated by security of supply concerns to truly drive value capture in the uranium market, just as it did in the conversion market two years ago. It did for us during the worst down-cycle in the uranium business when our average realized price outperformed the market and protected our balance sheet when others failed financially and had to be recapitalized and restructured, destroying value for their owners. Finally, after more than 10 years in a stagnant market and through the deliberate and disciplined execution of our strategy, we are now seeing the cycle form. As the SPUT market continues to thin, utility interest in on-market long-term contracting is emerging. Utilities are beginning to shift their attention to securing material for their uncovered requirements and not just in off-market negotiations. Requests for proposals have come to the market, as well. Based on the improving fundamentals driving term demand, the long-term price for uranium jumped by 28% to an industry average of $43 per pound since last quarter, which is becoming more reflective of production economics. Clearly, there's a lot happening, and as I said earlier, it is an interesting and exciting time to be in the nuclear industry. What does all this mean for Cameco? Well, it means we are optimistic. We're optimistic about the growth in demand for nuclear power, both traditional and non-traditional. We're optimistic about growth in demand for uranium fuel services. And we're optimistic about the incumbency opportunity for Cameco in capturing long-term value across the fuel chain and supporting the transition to a net-zero carbon economy. Therefore, we will stay the course on our strategy. We will continue to do what we said we would do. So what is it that we're doing? Well, we're aligning our production decisions with the market fundamentals. We're strategically patient in our marketing activities, and we're conservatively managing our balance sheet to ensure we can self-manage risk. This strategy has positioned us well to take advantage of the fundamentals I spoke of earlier. We have operating and idle Tier-1 assets that are licensed, permitted, long-lived, and have proven operations that have expansion capacity. We have fully permitted and proven Tier-2 assets that don't make sense at today's prices, but when you think about them in the context of a looming supply gap, there's a potential pathway for them to add value for us in the future, but we will continue to be very disciplined in our evaluation on that front. The curtailment of our Tier-1 and Tier-2 assets of inventory, more than 80 million pounds of uranium in the ground since 2016 and that just represents our share. More than 80 million pounds of uranium are worth much more in today's market. In addition with our spot and turn purchasing, we have taken 56 million pounds of uranium out of the market since we began curtailing production. You think about that in terms of the uranium fund, it would be the biggest, and we believe the best uranium fund there is. Why is it better? Well, the pounds are well and truly sequestered until they have a home inside a reactor core. All of our Tier-1 to Tier-2 assets are backed up by what we think is the best exploration portfolio that leverages brownfield infrastructure. But we're more than just mining. We're vertically integrated across the nuclear fuel cycle: refining, conversion, and fuel fabrication. As well, we are positioning Cameco to respond to the growing need for uranium fuel to generate safe, clean, reliable, and affordable electricity by exploring opportunities to further our reach into the nuclear fuel cycle and in innovative non-traditional commercial uses of nuclear power. In addition to our investment in Global Laser Enrichment and our participation in the Centre for Next Generation Nuclear Technologies with Bruce Power, we have entered into several non-binding memoranda of understanding to explore areas of cooperation to advance the commercialization and deployment of SMRs in Canada and around the world. These opportunities are aligned with our commitment to manage our business responsibly and sustainably and to increase our contribution to global climate change solutions. As an independent commercial supplier, we can provide our customers with supply diversity from state-owned enterprises. With substantial Canadian productive capacity, we can help de-risk their future supply from trade policy exposure. Thanks to our disciplined contracting strategy, we have had a contract portfolio that has protected us well during the worst down-cycle in our business. We also locked in significant value for our fuel services business in the recent price transition in conversion. And as the uranium market improves, our focus is shifting to securing homes for our in-ground inventory. Always guided by the fundamentals, we won't chase the market down to win business, and we won't produce to dump uncommitted supply into a thinly traded SPUT market, as we've seen some of our competitors do. The primary driver for our contracting activity is always value. We have been through every market transition in our industry. And while having great assets is a necessary condition for creating long-term value, we know that it is not sufficient. Our experience has taught us that a responsible producer creates real value by building a long-term contract portfolio. A portfolio that supports the operation of productive assets and generates significant cash flow through the entire commodity cycle by having leverage to greater returns as prices increase and that provides downside protection for periods of lower prices. Therefore, where appropriate, we layer in volumes over time in accordance with market conditions. As the market improves, we expect to continue to layer in volumes, capturing greater upside using market-related pricing mechanisms. However, we recognize there is a cyclicality to our business that is inevitable. That is why as a responsible producer, we will also look to lock in value at higher prices to carry those higher prices through the next cycle always with a view to our preference for a 60-40 split of market-related and fixed prices in our contract portfolio. On the financial side, we've been very deliberate in shoring up our balance sheet. At the end of the second quarter, we were again in a negative net debt position with $1.4 billion in cash, $1 billion in long-term debt, and a $1 billion undrawn credit facility. As such, we have the financial capacity to self-manage risk and maintain our strategic resolve. Let me talk about risk mitigation for a minute. When we embarked on our strategy and began the extreme curtailment of our supply, we acknowledged that there would be costs associated with our strategic decisions. To be certain, these are the costs you see reflected in our financial results. The cost of not operating mines is significant. And yes, in a rising price environment, there is a significant cost that comes with purchasing increasingly expensive pounds. The good news is they do not represent the run rate of our business. Just step back for a minute and consider where the market might be today had we not taken these actions. That Cameco not act strategically and decisively, almost $170 million would still be above the ground and trying to find a home in the market. The SPUT market would still be significantly oversupplied. Financial and other investors would not have taken notice of uranium. So when we are asked, are we worried if the price runs away and we have to buy really expensive material to satisfy our commitments? Our response is, that is exactly the outcome we wanted to see from our strategic actions. Let me explain that. Make no mistake, we will purchase expensive material because we need it, and it allows for price discovery. But they are a consequence of our very deliberate strategy, and we put four layers of risk mitigation in place to deal with them. First, we carry an inventory, that's our first line of defense. Second, when uranium prices started with the 2s or 3s, we secured more than 12 million pounds of material under long-term fixed price purchase arrangements. The deliveries under these arrangements are heavily weighted to the years 2025 through 2028. However, in the event we are unable to find enough material to meet our committed sales while the McArthur River is shutdown, or if it becomes very expensive, we can consider advancing the timing of delivery under these arrangements. Today's purchase price for these pounds is considerably less than our current market prices, and remember, they have a home in our contract portfolio. Third, we also have the ability to borrow material that is stored in our licensed facilities. Fourth, and finally, if the price is moving that quickly, we're likely in a full-blown security-of-supply contracting cycle and a rising price leading to better price realization under our existing contract portfolio. It's also creating the opportunities to layer in new long-term commitments with appropriate pricing mechanisms. These will underpin the long-term operation of our productive capacity satisfying the conditions for a restart at the McArthur River/Key Lake operation. Yes, it will take us some time to get it going as we outlined in our technical report, but those will be among the first assets that we'll be able to respond. Also, remember deliveries under new contracts typically don't start for another couple of years when signed. We're not there yet, but when the day comes to restart McArthur River/Key Lake, it would be undeniably positive news for Cameco and we believe the market. It will be the signal that with all of our market experience, we know it is time to prepare our Tier 1 assets because the market transition has taken hold. It will mean we see a market that is calling for more supply and we have a line of sight to return to our Tier 1 cost structure, delivering our uranium under long-term contracts that will create value and will not overhang the market. Our decisions are deliberate. We're 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. We're committed to operating sustainably by protecting, engaging, and supporting the development of our people and their communities and to protecting the environment, something we've been doing for over 30 years. We've determined that our strategy of operational flexibility, market alignment, and financial discipline will allow us to achieve our vision of energizing a clean-air world thereby delivering long-term value in a market where demand for safe, secure, reliable, and affordable clean nuclear energy is growing. Before we start the Q&A, I just want to make a few comments on our decision to file a notice of appeal with the Tax Court of Canada. We are extremely frustrated that we have to take this step after 13 years of litigation and multiple court decisions in our favor. However, we've seen little progress in our engagement with the CRA to apply the unequivocal rulings to the reassessments for the 2007 through 2013 tax years and to return to us the $777 million in cash and letters of credit, it is holding as security. That is very disturbing to us that an agency of our government refuses to respect the clear and decisive findings of the courts. We can't predict how long the process might take, but we owe it to our employees, shareholders, and the many other stakeholders who count on our company to hold the CRA to account. We will pursue all feasible avenues available to us to get our money back and to bring this matter to a conclusion. It has gone on way too long. Thanks for joining our call today, and Operator, with that, we would be happy to answer any questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. In the interest of time we ask you to limit your questions to 1 with 1 supplemental. If you have additional questions, you are welcome to rejoin the queue. Webcast participants are welcome to submit questions through the box at the bottom of the webcast frame. The Cameco Investor Relations team will follow up with you by email after the call. The first question is from Ralph Profiti from Eight Capital. Please go ahead.

Ralph Profiti, Analyst

Hi there and good morning, everyone. Thanks for taking my questions. Two of them if I may, Tim and Grant. One on the spot market and then one on utility behavior. The first question is, Tim, you talked about spot sourcing for Sprott, I'm just wondering to what degree do you consider the source of material finite? Are we close to a pinch point where liquidity becomes more of an issue and this purchasing desire runs into more immobile supply?

Timothy Gitzel, President and CEO

Yeah, thanks Ralph. Thanks for the question. You know, Sprott has been quite an interesting phenomenon over the last couple of months picking up -- I think they picked up holding about 16 million pounds, but $700 million worth of purchases. And that comes at a point after we've been about 5 years in the supply discipline. We want to supply demand fundamentals really closely. We thought it was getting tight before they showed up and you asked, is it finite? I think it is at least tightening up for sure. And yes, we are reaching a pinch point, Ralph, I think.

Ralph Profiti, Analyst

Okay, thanks. And when it comes to utility behavior and Cameco's contract book, Tim, specifically on up flexing of deliveries and existing contracts, how much of this has been a part of Cameco's discussion? How much more before you get maxed out and maybe some industry commentary on what degree do you think up flexing of deliveries is maybe prolonging new contracting from starting in earnest? And I'm wondering, is it your experience that utilities will exhaust these opportunities before entering into more of a contracting cycle?

Timothy Gitzel, President and CEO

I think they will look at their contracts. Obviously, they will take the best position they can; if there's flexing contracts and it makes sense for them in this economic environment for them to do it, they'll do it. No question about it. But let me pass things over to Grant. I know a lot of you have questions on the market and I don't know, I just to put in a plug for the interview, Grant, and you might have seen it this week, it's the treaties on the market and where things are at. So Grant, why don't you just go ahead for a minute and answer Ralph's question.

Grant Isaac, Senior VP and CFO

Thanks, Tim. Ralph, you're absolutely right that within a contract portfolio, it's pretty normal course for utilities to look at the options that they have within a contract structure to take advantage of market moves. And so, no surprise if you have a utility that has the ability to flex up and maybe they're asking to flex up a contract, for example, that is base-escalated or a contract that was market-related but may have had a ceiling that's below today's SPUT price. At no surprise, they'd want to flex that up, but I wouldn't say there's a one-size-fits-all. I think it can also happen where utility might choose to defer market-related volumes because they see backwardation and they think, well, why would I take material today if the spot price is out in front of the term price? Maybe that means that the market is going to come down a little bit. So there is no one-size-fits-all. It's just normal course optimization within that contract portfolio. And we just say time and time again, that's really what you have to focus on when you think about capturing value in the uranium market. But I would then make a distinction between those kind of moves, and really what's been going on in the term market. You asked the question, does a utility taking advantage of, say, flex in a contract delay the contracting cycle? And I would say it doesn't. What is delaying the contracting cycle is what Tim referred to a number of times in his comments and you've heard us say this over and over again. It was uncommitted primary production coming from undisciplined suppliers, that didn't have a home, getting put into the spot market in a low-interest rate environment created the carry trade. It created the opportunity for utilities to come into the market to not just turn to producers for term material, but to turn to financial entities, as well, who are willing to buy it in the spot market and carry it for a couple of years into the early part of term business. That's what kept utilities from looking at the broader run rate requirements. So what we've seen is the work that Cameco has done to pave the way with the 56 million pounds of purchasing we've done since our supply discipline strategy started, plus the material we've kept in the ground, that paves the way for what we've now seen -- that the spot purchasing that's had a very dramatic impact especially from the Sprott Fund in a world where interest rates are going up. So that recipe for carry trade has reversed on itself and it's that drying up of that SPUT material not being able to be carried into the term market; that's what makes the difference for the term contracting mentality in sentiment, as opposed to just optimizing within a contract. I hope that makes sense, Ralph.

Ralph Profiti, Analyst

Yeah, it does. Thanks very much. Appreciate that.

Operator, Operator

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

Andrew Wong, Analyst

Hey, good morning. Thanks for taking my question. Just going back on the contracting cycle, I guess that's what we're talking about. Where would you say we are in the contracting cycle given that we have seen some volumes being signed and it does vary across different regions, maybe across different regions. And just how does that contracting cycle look like in terms of how it will evolve over the next few years relative to what we've seen in the past?

Timothy Gitzel, President and CEO

Grant, you want to take that?

Grant Isaac, Senior VP and CFO

Yeah. I would say here's the good news, Andrew. This is early innings. What we've seen in the uranium space is, first of all, interest from clean energy, interest from the decarbonization. And then we've seen the spot interest as the spot market's gone up, but we haven't yet seen the next leg, which is when that term contracting cycle starts. So what we mean by term contracting cycle at Cameco is when contracting is at or above replacement rate level. So utilities are consuming roughly 180 million pounds a year of uranium and are, on an annual basis, layered out over time. They are buying around 180 million pounds. That would be replacement rate contracting. What we've lived through, of course, is way, way below replacement rate contracting. One of the data points we often refer to is that since Fukushima, utilities have consumed over 1.6 billion pounds off of term contracts signed in the past but they've only come into the market to replace about 800 million of that. That's what's given rise to this big wedge of uncovered requirements. The early RFPs we've seen, even the off-market stuff that Cameco has done, this is early innings, to use a baseball metaphor being here in the World Series time. These are early innings. There's a lot of contracting that has to occur in order to meet the uncovered requirements wedge that we see, and remember, that uncovered requirements wedge that you look at is usually quite traditional and conservative. It doesn't layer in the new demand from the things that Tim was talking about, like SMRs. So early innings from a timing point of view. When we look ahead, I would say we don't see a whole lot that makes us think the next term contracting cycle is going to be different. We've seen a lot of demand get piled up. We know that contracting begets contracting in our business. We expect these RFPs to roll out, and utilities to start tying up future supply that hasn't yet been pulled out of the ground or even worse, future supply that might be in a definitive feasibility study. But that's it. A lot of work has to happen before there's any pounds above the ground. When that period of contracting starts to happen, then we see others follow through the door. And we haven't seen anything at the front end of this cycle to make us think it's going to be different this time. And you've heard me say before, what we just went through with conversion, I think is very illustrative after believing conversion was going to be available at low prices forever, that service became constrained, and that constraint brought contracting. That contracting was beyond replacement rate and it was a really strong price formation. And for a producer who remained leveraged to that, we were able to capture a great deal of value, so we think there's some lessons to be learned there. So early innings, pretty exciting.

Andrew Wong, Analyst

Okay, that's helpful. And just -- is there any difference between the different regions that we should be watching for?

Grant Isaac, Senior VP and CFO

Well, we've seen no difference in terms of even the new entrants, the regions that are new to commercial term contracting: China from 2010, India, we've seen no difference in terms of commitment to term contracts. So every now and then you'll hear people out there saying this market is going to break the spot. We don't see that actually. We don't see really any utility with any size and scale saying that they're going to take their chances in the spot market. They tie up their annual run rate requirements through term contracts. What we are seeing, perhaps, is a little bit of difference in whether market-related or base-escalated pricing is the focus. And with, I would say, the new entrants and the sovereign buyers, we tend to see a little bit more willingness for more market-related, and we think that probably just has to do with if you're a fuel buyer buying for a big program and it's not your full-time job, you're buying other things as well. Maybe just taking the market price is the easiest thing to do rather than fixing a price and going through a period where maybe you're paying a price that's above the market, that seems like a pretty risky thing for you to do. There seems to be more of a tolerance for market-related versus base-escalated that we've seen in the past with some other programs, which by the way is great for us. We obviously love that because we think the fundamentals suggest that market-related exposure is a good place for us to be. But no difference on the term contracting and, in fact, if we truly are heading into a term contracting cycle, and we go to above replacement rate term contracting for a period, then the dominance of the term contract is restored vis-a-vis the spot. For us, that's probably the only difference that we're really seeing on the front-end of a cycle here.

Andrew Wong, Analyst

Thanks for all your insight. Thank you.

Timothy Gitzel, President and CEO

Thank you, Andrew.

Operator, Operator

The next question is from Orest Wowkodaw from Scotiabank. Please go ahead.

Orest Wowkodaw, Analyst

Good morning, and all I can say is what a difference a quarter makes in terms of the market sentiment. But my question revolves around your thinking right now on McArthur River, I think most of us probably have been assuming for some time that the potential pipeline for McArthur to come back would be sometime around mid-decade. But with the market recovery accelerating apparently so quickly given the inventory purchasing activities by several players, can you give us your current thoughts on what would be the requirements to consider bringing back McArthur, and whether you were potentially thinking that it could come back maybe in a partial form rather than just the full production, just given the amount pain you're taking with respect to holding costs right now?

Timothy Gitzel, President and CEO

Let me start with your first comment. It isn't very often in the last 10 years you've heard us use the word exciting and nuclear market in the same breath. But I would say it -- and it's not just a difference a quarter makes towards? I think it's -- we've been building on this for years, like for 5 years at least, if not more, with the strategic decisions we've taken with the supply we've taken off the market and so now we're starting to see the results of that in supply-demand fundamentals. We are pretty bullish, pretty optimistic about our business going forward. McArthur/Key have been consistent over the last few years and quarters, and saying we're not bringing them back until we find a good home for those pounds and acceptable term contracts that we have to put those pounds in. We don't have to have every last pound put into a contract, but we want to make sure it's base-loaded with good long-term contracts. And so we're working on that; we're making progress as you see. Every quarter, I think we've announced more long-term sales over the last 3 years. I think in 2019, we had 36 million pounds, we added probably 2.5 last year and 20 so far this year. So we're building on that, we're not moving too quickly because we think the price is still forming long term. We will look at returning those assets when we have a good home for the pounds that are coming out of there.

Grant Isaac, Senior VP and CFO

Orest, I would just add one thing, and you said most people started imagining a mid-decade restart. Well, let's face it. We put out a technical report that said it basically takes 18 to 24 months to restart it. So if we did it today, we are surely talking mid-decade. So that assumption is the right one. Our supply discipline continues.

Orest Wowkodaw, Analyst

Okay. And just Tim on your comment about not having to sell every last pound. How should we think about that? Is that an issue of you'd like to lock up the majority of pounds from future production on a 7–10-year view or any kind of framework you can give us?

Timothy Gitzel, President and CEO

Well, it's going to flex a bit as I say, we'd like to have the majority of the pounds tied up if we can. We also know that we're able to flex production if we need to on that asset and maybe others. And so we'll gear our production to our sales. You'll see -- I think I'm looking at Rachelle at -- in the 5-year period from today forward we have sold an average of 20 million pounds, not too bad. And so we're working on that. We've got lots in the pipeline. I can tell you that we're busy, Grant and his team -- the marketing team, we're busy. We're starting to get out on the road again, which is really productive. So yes, we're getting there and it's pretty, we're making good progress and that's pretty exciting.

Orest Wowkodaw, Analyst

And just quickly, if I may, with the pricing terms in the market having moved up so much, I assume it's fair to say that the bid-ask spread on the long-term contracting discussions has, I would assume, closed from what it was over the last couple of years. Should we anticipate that the level of contracts or the level of re-contracting activity now is likely going to ramp up from here just given where current pricing dynamics are, or if not, what is holding utilities back at this point?

Timothy Gitzel, President and CEO

Grant, what do you see?

Grant Isaac, Senior VP and CFO

Yeah, or I think that's the right way to think about it. The SPUT is because it's thinly traded and rather liquid, it can move quickly and it does move quicker than the term market. Having said that, very good news, the term market took a pretty big jump in September, both Trade Tech and UxC. And, of course, UxC price went up again as well at the end of the month here in October. And so we are seeing that term response. And I think for those who may have been sitting on the sidelines from a contracting point of view and saying, well, if I wait a bit longer, can I get better priced uranium? I think there will be a lot of people sitting around on the fuel buying team saying, 'Well, we probably missed the era of uranium that starts with a 2 and we may have missed the era of uranium that starts with a 3, and now it actually seems to be well into the 4th.' Of course, that's the inflationary psychology that you want to see in the market. In the past, that has always brought more contracting, and you're right; contracting begets contracting because, remember, anyone after who steps in and ties up their run-rate requirements, they're laying claim to future supply that somebody else can't have. And so it does create that momentum of saying, 'Well, I'd better get in line and I'd better tie up some of that supply.' So we can go through periods where there isn't a lot of contracting and it doesn't drive urgency, and we go through periods where there's a lot of contracting and it drives a lot of urgency. Watching that term price move up the way it has, and expecting it to continue to push up and recognize that really the carry trade has gone from a substitute point of view, and your future lies by turning to producers who have seem to demonstrate a bit of willingness to step back with their pricing aggression, it just seems to be the cycle is taking hold.

Orest Wowkodaw, Analyst

Thank you for the color.

Timothy Gitzel, President and CEO

Thanks, Orest.

Operator, Operator

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

Greg Barnes, Analyst

Thank you, Grant and Tim, in prior MD&A, you've talked about – okay. some color around how active the term contracting discussions you are having have been. I didn't see any in this MD&A given the timing. But I didn't see any in this MD&A. Just some color around that would be helpful. I think you've touched on it a little bit, but some more color I think would give us some clarity.

Timothy Gitzel, President and CEO

Yeah, thanks. Thanks, Greg.

Grant Isaac, Senior VP and CFO

Yeah. So one of the distinctions we've been making for some time is that our term market really has for a lot of our customers two dimensions to it. One is the on-market where they come out with a very public RFP and we spend a lot of time talking about those and there have been a few in the market and that's great. But we've also, as Cameco, gone through a period and we have in past cycles with what we call off-market, and that's where we are in typically exclusive, bilateral discussions with utilities. And you're right, Greg, we had been talking about that quite a bit. We've been talking about it because it's a way to signal where demand is starting to form, if you can't see it in on-market RFPs. The vast majority of the material that we've booked since our supply discipline has started is actually in those off-market conversations. And if I were to reflect on where that pipeline is, no surprise with the moves in the uranium price, the pipeline strengthens. And what we can confirm is that on an off-market basis, we're talking about term volumes that are quite near beginning in the next couple of years to turn volumes that are actually up to 20 years out, Greg. So it's quite a range and no surprise that those conversations strengthened in a market where the price moves. So for us, obviously, the prospect of being in a position to announce some of those is going to really send the signal that future supply is being tied up. In some cases, in windows beyond, say, the current life of Cigar Lake, which ought to be a shock to the market to think that materials already being tied up in that window, and the obvious substitutes aren't in place yet on the supply side. I think that it goes back to my earlier comment, early innings on a term cycle.