Earnings Call Transcript - CCJ Q1 2024

Operator, Operator

Thank you for standing by. This is the conference operator. Welcome to the Cameco Corporation First Quarter 2024 Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. Following the introductory remarks, there will be an opportunity to ask questions. I would now like to turn the conference over to Rachelle Girard, Vice President, Investor Relations. Please go ahead.

Rachelle Girard, Vice President, Investor Relations

Thank you, operator. Good morning, everyone. Welcome to Cameco's first quarter conference call. I would like to acknowledge that we are speaking from our corporate office, which is on Treaty 6 territory, the traditional territory of Cree people and the homeland of the Métis. With us today are Tim Gitzel, President and CEO, Grant Isaac, Executive VP and CFO, Heidi Shockey, Senior VP and Deputy CFO, Brian Reilly, Senior VP and Chief Operating Officer, Sean Quinn, Senior VP, Chief Legal Officer and Corporate Secretary, and Dominic Kieran, Global Managing Director of Cameco UK Limited. I'm going to hand it over to Tim in just a moment to briefly discuss the momentum that continues to build behind nuclear energy and how the continued execution of our strategy and transition back to our Tier 1 cost structure has positioned us to benefit from the tailwinds. After, we will open it up for your questions. Today's call will be approximately 1 hour, concluding at 9:00 a.m. Eastern Time. As always, our goal is to be open and transparent with our communications. However, we do want to respect everyone's time and conclude the call on time. Therefore, should we not have time to get to your questions during this call or if you have detailed questions about our quarterly financial results, we will be happy to follow up with you after the call. There are a few ways you can contact us with additional questions. 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. If you join 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 two questions and then return to the queue. Please note that this conference call will include forward-looking information, which is based on a number of assumptions and that actual results could differ materially. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today, except as required by law. Please refer to our most recent 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 good morning, everyone. We appreciate you taking the time to join today's call. As Rachelle mentioned, I'm joining the call remotely from Washington, D.C., where this afternoon, I'll be attending the Energy Transition Metals Summit hosted by the Northern Miner. In the days to come, we will also be meeting with some of the key policymakers here in D.C. to discuss current and future industry fundamentals. Importantly, we'll talk about how we're going to translate significant government and public support for the expansion of nuclear power generation into meaningful actions that generate tangible results to the benefit of the entire planet. As Cameco and as an industry, we are ready to respond to the global need for carbon-free, reliable, and secure nuclear energy for decades to come. We've said it several times over the years and it's worth repeating. Our invitation to symposiums and high-level discussions now taking place around the world is a testament to Cameco's deep understanding of how the nuclear fuel market works and acknowledgment of the strong relationships we've established over several decades of experience. Let me tie together a few key themes today before we get to your questions. First, nuclear is being recognized by governments, power suppliers, and industrial power consumers as a carbon-free energy source that is key to Net Zero and energy security. On that basis, Cameco, along with our investments in Westinghouse and Global Laser Enrichment, is key to the nuclear industry and therefore key to the path to Net Zero. Within that broad positive demand context and in the face of uncertain supply, our strategy and experience provide us with unmatched leverage to add significant long-term value while ensuring strong downside protection. Our results so far in 2024 remain on track for delivering that value and establishing that protection. Thinking back to this time last year, we were highlighting 18 months of growing momentum and interest in the nuclear space and in Cameco. I can absolutely say that now 12 months later, the interest and positive outlook have only improved. First, it's improved based on the impact of the global emphasis on clean energy. We believe nuclear power is essential for the ongoing clean energy transition. If the world is going to meet its Net Zero targets, we need carbon-free baseload and dispatchable power that can be located where it's needed and is always available and consistently reliable. I don't need to tell you that nuclear is one of, if not the only energy source that meets all of those requirements. We don't just need a bit of it; we need a lot of it. From a sustainability and scientific perspective, both the international community and large power-consuming industries are calling for a tripling of nuclear energy from where it is today. Following that path means a very significant increase in the number of new builds on the horizon, translating into substantial value across the fuel cycle and reactor life cycle. The outlook has improved based on today's focus on secure energy. Nations must ensure that their critical energy infrastructure and fuel supplies are not excessively reliant on risky jurisdictions, unreliable partners, and unstable actors. Nuclear checks those boxes. Fuel supplies and services for nuclear energy are sourced from multiple safe jurisdictions and suppliers in the Western world, and the nature of the fuel itself allows for long-term inventories and storage. Not only can you keep years of reloads behind a reactor, but that reactor can provide carbon-free and reliable energy for months without refueling, giving governments and utilities a runway to adapt should circumstances change. Finally, keeping both clean energy and energy security in mind, the outlook is more positive in the current debate around AI, data centers, and the considerable energy needs arising from the rapid evolution of technology. I recently read that using generative AI to provide search results in the same way we use Google requires a ten-fold increase in power requirements. Gone are the days of rolling out new technology without worrying about future potential environmental impacts. Companies driving technology forward are doing so while keeping carbon footprints and 24/7 reliability top of mind. Again, nuclear is the clear winner. We're seeing both industrial power users and tech sector experts voicing support for nuclear energy with some now taking action and signing agreements to ensure their facilities can access zero-carbon and reliable nuclear energy now and into the future. Clean and secure electrons are critical for generative AI development, placing nuclear on the critical path to the digital revolution and strategic reindustrialization. Grouping all that together, it's clear that we need to deploy zero-carbon, global, and secure energy production to move the world forward, and the world is now acknowledging the benefits of nuclear. I attended the inaugural Nuclear Energy Summit a couple of months ago, which took place in Brussels with Presidents and Prime Ministers from 32 countries. The goal was to join forces to back supportive measures in areas, including financing, regulatory cooperation, technological innovation, and workforce training, enabling the expansion of nuclear power to enhance energy security, address climate change, and meet our collective Net Zero targets. Because, as I said, without nuclear, there is no Net Zero. Without nuclear, there is no global and secure energy. And without nuclear, the next generation of energy-intensive technologies could result in increasingly detrimental environmental impacts. Nuclear is key to addressing those challenges, and that's where Cameco comes in, playing a vital role in current and future power generation. At Cameco, we believe we have the right strategy, the right people, and the right assets to deliver long-term value. Along with our investments in Westinghouse and Global Laser Enrichment, we expect to benefit significantly from the tailwinds. From the front end of the fuel cycle and through the reactor life cycle, from fuel supply to plant services to new build and advanced reactors. We've never been in a better position with licensed and permitted brownfield assets in safe, sovereign jurisdictions and the capacity to grow to meet our commitments. The future looks bright. Turning briefly to the quarter, our first-quarter performance was as expected, highlighting the benefits of aligning our operational, marketing, and financially focused strategy in a market where we see persistent positive momentum for nuclear energy like never before. The run rate at our operations is on pace to meet our annual production guidance. Operationally, our production results in the first quarter were strong and on track with our 2024 plans with production rates and total production costs in our uranium segment continuing to reflect the transition back to our Tier 1 cost structure. We didn't change our 2024 operational or financial guidance metrics in any of our business segments after the first quarter. However, we can't overlook the geopolitical events that have been amplifying global supply chain and transportation risks. Those risks have significantly impacted nuclear fuel procurement strategies and the fuel cycle, particularly in transportation, which is not getting any easier. It's an elevated risk that we focus on every day. As it evolves, our stakeholders can be confident that, as always, Cameco will be transparent with our related disclosures. In the market, we remain selective in committing our unencumbered Tier 1 in-ground uranium inventory and UF6 conversion capacity. We don't focus on the small, irrelevant spot market, but on high-quality term demand where the majority of uranium fuel and services are secured. In Q1, we successfully layered in additional long-term contracts, increasing our annual commitments to an average of about 28 million pounds per year from 2024 through 2028. Every contract we have reflects the sentiment and dynamics in the market at the time it is negotiated. In today's market, that allows us to take those price peaks and carry them into the future, creating value for years to come while maintaining significant downside protection for when the cycle turns. From a risk-managed financial perspective, our strong balance sheet and the expectation of strong cash flow generation tied to our contracting strategy guides our conservative capital allocation priorities. In 2024, this includes focused debt reduction and prudent refinancing plans. As for our Westinghouse segment, results for the first quarter were as we expected, guided in Q4. We continue to expect our share of adjusted EBITDA from Westinghouse this year to be between $445 million and $510 million. It was and is a great investment where the prospects continue to improve, and where we still anticipate EBITDA growth at a compound annual growth rate of 6% to 10% over the next five years. I'll stop there. Thank you for your interest today, and we are happy to take your questions.

Operator, Operator

We will now begin the question-and-answer session. Our first question comes from Neil Mehta of Goldman Sachs. Please go ahead.

Neil Mehta, Analyst

Yeah. Good morning, team, and thanks for the time and the big picture thoughts. I had a couple of specific questions. One on Westinghouse. You reiterated the annual guide, but the adjusted EBITDA did look a little softer in the quarter, a lot of that was on March. Can you just walk us through the seasonality of that business, what gives you conviction on the full year and any color you can provide on that segment?

Tim Gitzel, President and CEO

Yeah. Thanks, Neil, and thanks for your participation on Cameco. We appreciate it. Listen, I'm going to turn this over to Heidi Shockey to talk about the EBITDA in the quarter and for the year, and it was a special quarter in that regard with the purchase price allocation work that had to go on. So I’d just say, in general, I can tell you we're delighted with the whole Westinghouse piece. It's even better than we thought when we bought it; the potential there in all elements of their business is really good. So, yeah, there are some accounting pieces that came up in the quarter. Heidi, can I just push it over to you just to give us a little bit of an overview of Westinghouse on the quarter and the EBITDA and our guidance for the year there?

Heidi Shockey, Senior VP and Deputy CFO

Sure, Tim. Thanks. There were a few accounting factors that affected our results this quarter for Westinghouse, primarily related to purchase accounting. We had to determine the fair value of our assets and inventory at the time of acquisition. Generally, this means we will see increased amortization on the asset balances and intangible assets. As for the inventory, all items held at the time of acquisition were fair valued, and as they are sold off, we will not see any accounting margin from that. We do still receive the cash flow, but the margin in terms of results is quite low. Much of that inventory will be sold off in the first and second quarters, so you will see that decrease over time. Additionally, we incurred some acquisition-related transition costs that impacted the quarter. These will also diminish throughout the year. Regarding their operations, there is some seasonality involved. The outage season usually occurs near the end of the year, during which they achieve higher results due to increased work for the utilities.

Neil Mehta, Analyst

Thanks, Heidi. And Tim, the follow-up big picture question is just on long-term price. We've been tracking on your website, the term price kind of improving here from $68 at the end of last year up to $77.50. Just your perspective on conversations you're having with nuclear buyers and do you still see upward pressure on term price in your conversations?

Tim Gitzel, President and CEO

Sure. Neil, I'm going to hand it over to Grant, who manages the marketing and sales. I can say we are experiencing consistent improvement. Looking back a year or two, we were nowhere close to the average term price of $75 or $80, which is currently around $77.50. As Grant has mentioned frequently, I believe we are just at the beginning of this journey. You can see at these conferences discussing plans to triple nuclear power over the next 25 years. Some might argue that's unrealistic, but it has doubled, and we will need all the uranium we have now, plus more. The demand will put upward pressure on prices. We haven't reached an incentive price for new production yet, and while we are seeing some output, it’s limited. Therefore, I think the pressure on pricing will continue for quite some time. Now, Grant, I'll let you take over as you're more knowledgeable about the market.

Grant Isaac, Executive VP and CFO

Yeah. Thanks, Tim. Neil, great question, and thank you for focusing on the term market because that really is what to watch in order to figure out where this market is going. The term price remains in a constructive build, and that's simply because we are seeing this continual pivot to more security of supply contracting. Contracting where utilities become increasingly concerned about the availability of future supply, that concern is reflected in some important contracting characteristics. You've heard me talk about them before. Number one is tenors go out. Utilities come to the market, and they're looking for more material over a longer period of time. You start to see volumes going up, not just because more years are being added, but utilities are taking bigger bites out of each year. We're seeing time frames be extended, with utilities looking for material well into the mid-2030s now. That is all reflective of this underlying security of supply pivot, which is occurring because of the multifurcation of the market going on. It's occurring because of some of the production challenges you're seeing with certain uranium production. We continue to believe we're in the early innings of it because if you add up the amount of contracting that’s in the market, it’s not even at replacement rate yet. We just find it to be very constructive because to have an average term price of $77.50 when we’re not even at replacement rate yet, that’s a pretty good place for us and a great place for an incumbent producer with Tier 1 assets and brownfield leverage; a great opportunity for us to take advantage of that value capture.

Neil Mehta, Analyst

Thanks, Grant.

Tim Gitzel, President and CEO

Thanks, Neil.

Operator, Operator

Our next question comes from Ralph Profiti of Eight Capital. Please go ahead.

Ralph Profiti, Analyst

Thanks, operator, and good morning, everyone. Thanks for taking my questions. Tim or Grant, Inkai guidance of 8.3 million pounds is currently a tentative target, right, and under discussions. Can you talk a little bit about progress on securing sulfuric acid supply? And maybe one step further, is there any range of production volumes that you could potentially see that are at risk in that guidance number? Just thinking about sulfuric acid shortages only, perhaps leaving out even more unpredictable logistical challenges. Any context around volume at risk would be helpful.

Tim Gitzel, President and CEO

Yeah. Ralph, it's Tim. I'll start because Sean Quinn and I just came back from there. We were over there last week, had meetings with the Kazakhs and joint venture partners. Obviously, sulfuric acid is an issue. It's short, it's tight. Other industries are keeping the supplies they have and using them. They're having trouble accessing their regular channels, sulfuric acid from the Russians and others because the Russians are sanctioned and not producing like they were. Their plan is to bring in Italians and to build a new plant. I'm not sure that's even started. So I think we're into this pickle for a couple of years until that new plant gets built. Sean had direct conversations with the CEO of JV Inkai Kazatomprom. Sean, do you have anything to add on... 8.3 million was the best information we had when we put out our information.

Sean Quinn, Senior VP, Chief Legal Officer and Corporate Secretary

In our discussions with Kazatomprom, they're becoming more confident that achieving 8.3 million this year is possible. They are actively addressing the supply and logistics challenges related to sulfuric acid, but there's not much additional information beyond that, just a growing assurance that it can be achieved.

Ralph Profiti, Analyst

Okay. Got it. Thank you. As a follow-up, I'd like to come back to something that Grant talked about, which is the supply pivot and how characteristics of these contracts are changing in terms of tenor, volume, and time frames. It sounds like that's becoming perhaps more important than the actual volumes secured in the term market, which so far at 26 million pounds or so year-to-date is underwhelming when we look at what is replacement rate and what we did last year. Would that be a fair comment?

Tim Gitzel, President and CEO

Grant?

Grant Isaac, Executive VP and CFO

Yeah. Sorry, Tim. Ralph, I might characterize it by just saying more to come. When we evaluate the types of conversations that we're involved in, in our pipeline, it's indicating a lot of security of supply interest. We presume it to be a leading indicator for what you might see in the term market. We're expecting strong contracting volumes through 2024. If there are any delays, it might reflect a bit of uncertainty around where some of these legislative efforts are going with respect to things like Russian supply. We're very close to seeing legislation in the U.S. that has been well planned from a utility supply perspective unless, of course, the Russians retaliate by restricting supply in the immediate term. The market is not pricing in that risk, and it might be causing a bit of pause or a slowdown in final negotiations for term material past that 2028 phaseout window. Don't forget, we have new customers as a result of this bifurcation and multifurcation in the market, and those customers are learning how to buy uranium, conversion, and enrichment services. It’s a learning curve and the underlying security of supply sentiment is growing stronger.

Ralph Profiti, Analyst

Quite helpful. Thanks, everyone.

Tim Gitzel, President and CEO

Thanks, Ralph.

Operator, Operator

Our next question comes from Gordon Johnson of GLJ Research. Please go ahead.

Gordon Johnson, Analyst

Hey. Thanks for taking my question, guys. Appreciate it. Just two questions. First, you guys talked about the potential Biden ban of product coming in from Russia. But can you talk a little bit more about the actual impact here? Because it seems like it's an executive order; it doesn't take effect until 2028. The real impact seems to be muted unless, like you guys said, the Russians react, but I just want to make sure I have that correct. If you could provide your insights and then a follow-up. Thank you.

Tim Gitzel, President and CEO

Well, Gordon, I'll start, and then Grant could chip in. Part of the reason I'm down here is to have those meetings first to see where that legislation is at. We'll be going through different secretaries to talk to the people in charge and see where that's at. This has already had a chilling effect. It's going to have even more chill when it gets passed. We talk about 2028, and you can still buy until then. If you're looking at the market now, there’s not a lot of material available until then, and most utilities are looking in that window. Grant, I'll pass it over to you to give your view on that.

Grant Isaac, Executive VP and CFO

Yeah. Very close to seeing a legislative ban. I believe if it wasn't for one senator, we would have seen a ban in place by now, absent a legislative opportunity. Our strong sense is that there might be an administrative action either at the secretary level or even at the executive order level to codify the intent to shut out Russian supply by 2028. Let's first talk about the potential impacts. As we've mentioned a number of times, utilities have been largely self-sanctioning due to the underlying Russian suspension agreement, which was already sunsetting in 2028. A lot of that forward contracting was already looking to avoid Russian supply. Contracts that have been signed in the past were being delivered into. So there are two elements to a ban from a U.S. perspective. The first is, when is the ban effective? Is it going to be faster than 2028? The second, what is the strength of the waivers that might be provided to utilities to import Russian material until 2028? A strong ban but weak waivers might not have much effect. But if you have a strong ban and strong waivers, meaning that utilities really have to demonstrate that there are no alternatives, that will be a strong signal to focus on sovereign safe jurisdictions for supply. The flip side presumes the Russians decide to implement a voluntary export restraint, which hasn't been priced into the market and may result in significant impacts on supply.

Gordon Johnson, Analyst

That's very helpful. The biggest concern I saw was Russian retaliation would really be what caused prices to move. I agree that's not priced in. One quick follow-up if I can. There seem to be a constituency of people out there who are saying, Cameco forward sold a lot of their pounds at $70 and thus, they're not going to benefit from this increase in prices. Yet, it looks like you’ve only committed 20% of your reserves. So that leaves about 800 million pounds for future contracts. Can you comment on that?

Tim Gitzel, President and CEO

Yeah, Gordon. Thanks for that question. You're seeing our side there because you're accurate with what you said. I think we have sold about 20% of our total reserve resource base and more to come. We've got lots to go. So Grant, do you want to answer that again?

Grant Isaac, Executive VP and CFO

Yeah. Gordon, thanks for that question. It's something we hear occasionally. Let's go through that in detail. There's a notion that a producer in the uranium space should produce uranium and sell it into the spot market. If that debate isn't over for folks, it's just because they're not paying attention. We saw significant downward price action in the spot market in March on the back of a few hundred thousand pounds dangled in the spot market, having a $6 to $7 effect over a couple of days. Why? Because there's not a reactor anywhere loading a fuel bundle in 2024 that needs uranium in 2024. The uranium in that fuel bundle was bought years ago. Utilities instead look for material out into the future. That’s the high-quality market. Cameco never sells below the market. If the market is term-related, what's being negotiated today, Cameco captures leading prices. We're helping lead the discovery of prices in that market due to our supplier reputation. So where the market is today is where Cameco is. We never miss that market, and our exposure is second to none with about 800 million pounds uncommitted.

Gordon Johnson, Analyst

Thanks for the questions.

Tim Gitzel, President and CEO

Thanks, Gordon.

Operator, Operator

Our next question comes from Andrew Wong of RBC Capital Markets. Please go ahead.

Andrew Wong, Analyst

Hey, good morning. Thanks for taking my questions. I wanted to go back to contract terms. Can you just talk about the escalators that are being built in the contracts today in a more inflationary environment? How have those escalators changed? And how might those affect pricing in the future since we don't hear much about the escalators?

Tim Gitzel, President and CEO

Thanks, Andrew. Grant?

Grant Isaac, Executive VP and CFO

The situation for escalators on contracts has really improved dramatically for suppliers of uranium. When we're talking about a term contract, there are two bookends. You can have a term contract that's base-escalated and the negotiation adjusts how it escalates. The other type of escalators are on market-related contracts because the floors and the ceilings have escalators built into them. The environment for escalators has changed since the past oversupply period, when producers were willing to offer discount indicators. Now, we see escalators based on industrial costs being negotiated. This is just a function of the security of supply pivot; it gives incumbent producers incredible advantages.

Andrew Wong, Analyst

That's great. And about the Don Lake project, looked like drilling and exploration hit some significant mineralization last year. What's the exploration plan for that project going forward, and when might we hear some of those results?

Tim Gitzel, President and CEO

Yeah, thanks, Andrew. We don't often talk about our exploration program, which is one of the best in the world. We've had success at Don Lake, close to our existing infrastructure. Sean, do you want to say a few words about our Q ‘22 or Don Lake project and just where that's at?

Sean Quinn, Senior VP, Chief Legal Officer and Corporate Secretary

Sure. The Don Lake project is across the fence line with ISO Energy in the hurricane deposit. We had a very active winter program and are analyzing the results, sharing them with our joint venture partner in Orano. We will move into a summer drill program, assessing results, with more to share with the market after the summer program concludes.

Tim Gitzel, President and CEO

Thanks, Andrew.

Andrew Wong, Analyst

Okay. Great. Thanks.

Operator, Operator

Our next question comes from Alexander Pearce of Bank of Montreal. Please go ahead.

Brian MacArthur, Analyst

Great. Thanks. Good morning, all. Turning back to contracting again, it looks like you may have added a few million pounds to your near- to midterm contracting book. I think you flagged this 28 million pounds per year now for the next five years. In the previous quarter, you provided a total number of contracts under contract. Could you provide an updated number?

Tim Gitzel, President and CEO

Thanks, Alex. We...

Grant Isaac, Executive VP and CFO

Sorry, Tim. We moved away from giving those quarterly updates on where we were at with contracting. We did it for a period of time because we saw the market recovery before others and thought it could play an important role in convincing folks to contract. Now the data are clear, so we want to go back to our maximum negotiating position. What I want to emphasize is that we often talk about staying off the spot market. Adding near-term commitments is due to fundamental end-user demand; not material meant to churn through the spot market. Sometimes we will add those commitments, but it's never commitments to a trader for material that gets churned through the market because that’s not value-creating.

Brian MacArthur, Analyst

Okay. Fair enough. Thanks, Grant. Maybe I can ask the second question then. Just in terms of where you stand on the McArthur River expansion. The last update you mentioned investigating costs?

Tim Gitzel, President and CEO

Same as last quarter. We are investigating whether we can expand and what it will take to expand. We know we can get there. We're just kind of evaluating what it will take to get there. More news on that as the year goes on, but we're progressing.

Brian MacArthur, Analyst

Great. Thanks, Tim. Thanks, Grant.

Tim Gitzel, President and CEO

Yeah. Thanks, Alex.

Operator, Operator

Please note that we are nearing the 10-minute mark for questions, and any we don't get to, you can reach out to the IR team. Our next question comes from Orest Wowkodaw of Scotiabank. Please go ahead.

Orest Wowkodaw, Analyst

Hi. Good morning. I'm curious about the contracting strategy relative to your production base. We saw your five-year average book creep up to 28 million pounds from 27 million. Should we expect that to continue to move higher, almost at the point where it could be above production range? I would assume McArthur River expansion is approved.

Tim Gitzel, President and CEO

Grant, do you want to take that?

Grant Isaac, Executive VP and CFO

Yeah. Orest, great question because it gives us an opportunity to remind we're still transitioning to our full Tier 1 run rate. Our plan this year, McArthur, at 18 million pounds, Cigar at 18 million pounds on a 100% basis. Inkai, Sean's already talked about it—return of Tier 1 cost structure. We haven't decided on McArthur River expansion, but we are doing the background work to assess circuits in the mill and mine. We'll have more news on that as the year progresses, but it's about capturing appropriate demand at the right price for us and not getting in front of it since we’ve seen how others have destroyed shareholder value by doing that in the past.

Orest Wowkodaw, Analyst

Thanks for the color.

Tim Gitzel, President and CEO

Thanks, Orest.

Operator, Operator

Our next question comes from Lawson Winder of Bank of America Securities. Please go ahead.

Lawson Winder, Analyst

Thank you, operator, and good morning, Tim and Grant. I just wanted to ask about sales; you had provided guidance in your annual report indicating that Q1 sales would be around 8.5 million pounds for uranium. They came in at 7.3, which looks like a pretty substantial difference. Can you just speak to some of the reasons that might have driven that and just generally in the business, some of the factors that drive that seasonality in sales?

Tim Gitzel, President and CEO

Grant?

Grant Isaac, Executive VP and CFO

Yeah. Thanks for noticing that. We put out that table as part of our Q4 every February that gives you directionally what the quarters will look like in uranium volumes. That table is derived from non-binding delivery notices from utilities, usually six months prior to that table's construction. There can be slippage between one quarter or another, and whenever you see that, it’s important to look at our broader outlook table to see if we've changed our committed sales for the year. Obviously, you see we haven't. So that's evidence this is about volumes shifting from Q1 into Q2 and Q3, not lost commitments.

Lawson Winder, Analyst

Any guidance on Q2?

Grant Isaac, Executive VP and CFO

I don’t have updated disclosure for that, Lawson. Sorry, that’s not satisfactory. Just continue to look at that annual number; it hasn’t changed.

Lawson Winder, Analyst

And in terms of contracting conversations and discussions about caps and floors, is the range still about $90 floors and $120 caps?

Tim Gitzel, President and CEO

Yeah. Thanks a lot, Lawson. Grant?

Grant Isaac, Executive VP and CFO

Ultimately, on market-related contracts, you’re seeing floors constructing to just under long-term price, and ceilings expanding into the hundreds—$120, $130. Now some folks might say $90 floors, referencing escalation. It may be technically accurate, but can be misleading. Ultimately, we're talking about contracts that start with a seven, escalating in U.S. dollar terms; this is a constructive market for an incumbent producer.

Lawson Winder, Analyst

Many thanks.

Tim Gitzel, President and CEO

Thanks, Lawson.

Operator, Operator

Our next question comes from Greg Barnes of TD Securities. Please go ahead.

Greg Barnes, Analyst

Yes. Thank you. Just a couple of questions around Westinghouse. One, any commentary around the order backlog on AP1000s and how discussions are going with additional utilities outside of what's already signed? Any commentary around the potential restart of Springfield? Thanks.

Tim Gitzel, President and CEO

On AP1000, there's lots of interest. Nothing to announce and walk through. Just over the last couple of weeks in Ukraine, they're looking at AP1000s there and have poured the first concrete. Bulgaria has also chosen AP1000. There's a lot more conversations going on. Westinghouse is actively pursuing these opportunities. Grant or Dominic, anything to add?

Dominic Kieran, Global Managing Director of Cameco UK Limited

Good morning. Springfield is quite a strategic asset, not just for the U.K. but for the global fuel market. We're supporting Westinghouse as they look at options for Springfield to support that market. Additionally, we have an active project looking at restarting or building a conversion facility. The fuel market is strong, so there is customer demand for that.

Greg Barnes, Analyst

Great. Thanks very much.

Tim Gitzel, President and CEO

Thanks, Greg.

Operator, Operator

Our next question comes from Brian MacArthur of Raymond James. Please go ahead.

Brian MacArthur, Analyst

Good morning and thank you for taking my question. This kind of follows on to Greg. You made a comment a number of times that Westinghouse looks even better than when you first bought it. Is that because of the AP1000 outlook, fabrication outlook, and how does it help your uranium business? Maybe it's all of the above.

Tim Gitzel, President and CEO

It's probably all of the above. We did due diligence on Westinghouse and put value on certain elements, but AP1000 new builds weren't heavily valued, and now we're seeing that move ahead. The AP300, the SMR didn't exist when we went out for Westinghouse, but that's there now, gaining interest. Clearly, the Russian move into Ukraine has sped things along for us and for Westinghouse. Grant, do you have anything to add?

Grant Isaac, Executive VP and CFO

You have to think about Westinghouse as core, with strong performance focused on new customers, life extensions of existing reactors, and supporting Springfield to balance conversion. So, it’s all key growth areas. New builds are a significant potential; the quality of the conversations is far exceeding our highest-case assumption even 12 months ago. The critical path is electricity for onshoring technology; nuclear is recognized as the reliable path to achieving that. We get to participate in the uplift on nuclear fuel and service current and new builds. It’s an exciting time for Cameco and Westinghouse.

Brian MacArthur, Analyst

On Springfield, a year ago, it seemed there was excess capacity in UF6 in the market. Is that market outlook more positive?

Grant Isaac, Executive VP and CFO

It's indeed a little different. We need to see more investment in new uranium production. The conversion space requires four conversion plants to run at full capacity, plus potentially Springfield, to balance Western demand against supply. Demand is tight, reflected in historic pricing. For us, it’s about building a committed sales portfolio to call for additional production.

Brian MacArthur, Analyst

Thank you very much. Appreciate it.

Tim Gitzel, President and CEO

Thanks, Brian.

Operator, Operator

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

Tim Gitzel, President and CEO

Thanks very much, and thanks to everybody who joined us today. You can probably sense our excitement not only in the market and where it's at, but also how our company is positioned. It's an exciting time for us at Cameco. We didn't get through the queue today. As Rachelle noted, if you have any detailed follow-up or questions that we didn't get to, please contact us or we'll contact you directly to address them. We're a responsible supplier with a strong balance sheet, long-lived Tier 1 assets, and a proven operating track record. We're invested across the nuclear fuel and reactor life cycles. We believe we have the right strategy to achieve our vision of energizing a Clean Air world, and we will do so in a manner that reflects our values. Embedded in all our decisions is a commitment to address the risks and opportunities that will make our business sustainable over the long term. Thanks again for joining us today. Stay safe and healthy, and have a great day.

Operator, Operator

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