Earnings Call Transcript - CCJ Q4 2020

Operator, Operator

Welcome to the Cameco Corporation Fourth Quarter 2020 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, Vice President, Investor Relations, Treasury and Tax. Please go ahead.

Rachelle Girard, Vice President, Investor Relations, Treasury and Tax

Thank you, operator, and good morning, everyone. Welcome to Cameco's annual and fourth quarter conference call. Today's call will focus on the trends we are seeing in the market and on our strategy, not on the details of our quarterly financial results. There’s been a lot going on, both for the Company and the industry, and we recognize there is significant interest in limited sources of information for investors. 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 make ourselves available to speak to 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 Submit 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 Vice President and CFO; Brian Reilly, Senior Vice President and Chief Operating Officer; Sean Quinn, Senior Vice President, Chief Legal Officer, and Corporate Secretary; and Alice Wong, Senior Vice President and Chief Corporate Officer. I’m going to hand it over to Tim to talk about the growing demand for nuclear power, uranium market fundamentals, and about Cameco’s strategy to add long-term value. After, we will open it up for your questions. If you have joined the conference call through our website Events 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 portion, please limit yourself to two questions and then return to the queue. Please note that this conference call will include forward-looking information, which is based on a number of assumptions, and actual results could differ materially. Please refer to our annual information form and MD&A for more information about the factors that could cause these different results and the assumptions we have made. With that, I will turn it over to Tim.

Tim Gitzel, President and CEO

Well, thank you, Rachelle, and welcome to everyone on the call today. We appreciate you taking the time to join us. I hope it’s not too late to wish all of you a Happy New Year. As we head into 2021, I have to tell you, we’re excited about the future for our industry and about our ability to support the transition to a net-zero carbon economy through both traditional and nontraditional uses of nuclear power. And we are excited for our Company as we execute on our Tier 1 strategy that includes production discipline, marketing discipline, and conservative balance sheet management. So, what’s driving our optimism? Well, if you remember anything from this call, remember this: there are really three main drivers for our optimism. First, demand for nuclear power is becoming more certain as the fundamentals improve. Second, uranium supply is becoming lesser as years of persistently low prices have led to planned production curtailments, lack of investment, the end of reserve life for some mines, shrinking secondary supplies, and trade policy issues. Finally, remember that our long-term strategy positions us very well to sustainably deliver long-term value. Let’s dig into each of these factors a bit deeper. Around the globe, we’re seeing a clear mega trend emerge. That mega trend is focused on increasing electrification while phasing out carbon-intensive sources of energy. The increasing focus on electrification is for various reasons. There are those that are installing baseload power, those who are looking for a clean, reliable replacement for current sources, and finally, there’s new demand for things like the electrification of transportation. The drive for increased electrification is occurring precisely while countries and companies around the world are fixated on reducing their carbon footprint. Many have announced net-zero carbon targets, and many more are expected to follow. Countries recognize that in a world where 80% of our electricity still comes from fossil fuel sources, nuclear will be needed in the toolbox to sustainably achieve both electrification and decarbonization. The country of China, for example, which has a goal to have 25 million electric vehicles on the road by 2030, recently stated that its objective is to become carbon-neutral before 2060. A follow-on study from a climate scientist in that country predicted that to achieve this goal will require an estimated 380% increase in nuclear power capacity from 2025. That would be about 200 reactors for China alone, double that of the U.S. fleet, which is currently the largest in the world. In addition, we expect nuclear will do well under COVID recovery plans where increased government infrastructure spending will support broader policy goals to achieve net-zero carbon targets. And then there’s the U.S., where the new Biden Administration has expressed its support for maintaining its domestic nuclear power fleet and the construction of advanced reactors. On its first day in office, the President also recommitted to the global Paris Agreement and committed the United States to reestablish its position as a global leader in the development of commercial nuclear technologies. Furthermore, we’re seeing momentum building for non-traditional commercial uses of nuclear power such as the development of small modular reactors and advanced reactors. Nuclear is also the only low-carbon source that can produce low-carbon heat that, along with its traditional uses, can be used to produce clean hydrogen and freshwater. In addition to countries, we’re seeing company after company announce net-zero carbon targets. They recognize there is increasing scrutiny on their environmental performance. Investors are beginning to price climate-related risk into their capital allocation decisions. As a result, there’s a significant reallocation of capital occurring that will create opportunities for those companies who can assist with the transition to a low-carbon economy. So, this is another very positive development. Investors will not only look to invest in those companies that can demonstrate improved environmental performance; they will look for those companies that are positioned to do it profitably and sustainably. According to a joint report published by the International Energy Agency and the OECD Nuclear Energy Agency in 2020, nuclear energy is the most cost-effective way to provide low-carbon dispatchable 24x7 electricity. The outlook for nuclear is very bright. Increasing demand for nuclear means increasing demand for uranium, which brings us to the second factor that is driving our growing optimism. Demand for uranium is rising at precisely the same time that supply is becoming less certain. We know that utilities have not been replacing what they consume annually under long-term contracts. Based on UxC data, over the last five years, approximately 815 million pounds of U3O8 equivalent have been consumed in reactors, and only about 390 million pounds have been locked up under long-term contracts. This has led to a growing wedge of uncovered uranium requirements. UxC estimates show that global cumulative uncovered uranium requirements are about 1.4 billion pounds to the end of 2035, with the largest uncovered requirements in the U.S. and Asia. In contrast, these growing uncovered requirements are occurring at a time when there are some significant questions about where the uranium will come from to fuel the world’s expanding nuclear fleet. Cameco’s supply curtailments alone, both planned and unplanned, have left a lot of pounds in the ground and kept them off the market, about 95 million pounds in total. So, we believe, and we’ve said this many times before that in the current market, the risks to uranium supply are far greater than the risks to uranium demand. These are the fundamentals that get us up in the morning and why we remain a pure-play supplier of uranium fuel needed to produce clean, carbon-free, baseload electricity, which brings me then to the final factor driving our optimism, our strategy, and why we remain committed to doing what we said we would do. Let me remind you what it is that we said we would do. First and foremost, and this is where it all starts for us, we are focused on protecting the health and safety of our workers, their families and their communities. We’re doing that every day we make decisions about how to best manage our operations and protect and support our workforce through the pandemic. Pandemic or no pandemic, the health and safety of our employees will always be our priority. So, we’re confident in our ability to transition through this period and capture demand that will provide leverage to higher prices. Our vision recognizes that we have an important role to play in enabling the vast reductions in greenhouse gas emissions required to achieve a resilient, net-zero carbon economy. So, thanks for joining the call today. And operator, with that, we would be happy to answer your questions.

Operator, Operator

Thank you. Our first question comes from Andrew Wong of RBC Capital Markets. Please go ahead.

Andrew Wong, Analyst

Hey. Good morning. Happy New Year to you guys, too. So, there’s been a lot of focus recently on clean energy, and you’ve mentioned potential nontraditional uses of nuclear energy. Could you just talk a little bit more about that? And then, also, how does that impact your demand outlook for, say, the next 10 years versus maybe what you had expected previously? And, on the regulatory side, have there been any changes that might be more supportive for nuclear growth? Thank you.

Tim Gitzel, President and CEO

Thank you, Andrew. Good morning, everyone. We appreciate your question and are genuinely excited about the future. In the last decade, especially since 2011, I haven't seen such positive signs for the nuclear industry as we do now. Just last month in the U.S., the new administration under President Biden took swift action by signing an executive order to rejoin the Paris Accord, emphasizing climate change as a priority in U.S. foreign policy and national security. With both the U.S. and China committed, we are now on a path to meet these Paris commitments. President Biden has set a goal for the electricity sector to be fossil fuel-free by 2035, which is a significant challenge considering that two-thirds of our current electricity generation relies on fossil fuels. Achieving that goal will require a strong reliance on nuclear energy. India continues to progress with its domestic nuclear technologies, and we’re also seeing discussions around small modular reactors and accident-tolerant fuels. Prior to President Biden's administration, there was already bipartisan support for nuclear energy, with several bills passed last year to support the sector. This ongoing dialogue is reassuring as it indicates an increasing comfort and recognition of the need for nuclear power to meet Paris Agreement targets. I've observed a shift in language surrounding climate issues, evolving from global warming to climate change, and now to climate crisis—indicating that urgent action is required. We currently see 52 new reactors under construction across various countries, with many more contemplating nuclear energy. Overall, there is a very positive sentiment within the nuclear sector, which we believe will lead to an increase in uranium demand. The uncovered requirements indicate a need for over 700 million pounds by 2030 and 1.4 billion by 2035, and this is just considering the current growth trajectory without accounting for small modular reactors or additional countries entering the field. At Cameco, we are enthusiastic about our future role in this landscape, especially given the current supply constraints. In the short term, our Cigar Lake operation is temporarily down due to COVID-19, and we will keep it down until further notice. We are monitoring this situation closely, as demand is rising while supply is declining. So that’s our current perspective, Andrew, and it energizes us every day.

Andrew Wong, Analyst

That’s great. Thank you, Tim. And maybe just like a more near-term question just on the operations. The guidance for 2021 calls were 8 million to 10 million pounds of purchases. What does that assume for the start-up at Cigar Lake?

Tim Gitzel, President and CEO

Yes. Well, we don’t know. To be honest with you, we don’t know. We took it down in 2020. I think, we’re down from March until kind of end of August, September. We fired it back up again, and then we got into the same issues with our workers not being able to come to the site. We had so many restrictions on the flights up north. Our good GM up there, Lloyd Rowson was struggling to find qualified workers for the shifts. So, we had to go down again in December. We didn’t want to, but safety and health of our employees will always be number one. We don’t want to yo-yo with that place like that. We don’t want to start it up again and then have to shut it down. We’re, like everyone else in the world especially here in Canada, waiting to see the vaccine rollout. We’re waiting for that. All of those things will be in close contact with the public health authorities, as well as the chiefs and leaders of the communities, and with our site management. So, I can’t tell you when it’s coming back up, but we will always protect the health and safety of our workers.

Andrew Wong, Analyst

Okay, thanks.

Tim Gitzel, President and CEO

Thank you very much.

Operator, Operator

Our next question comes from Orest Wowkodaw of Scotiabank. Please go ahead.

Orest Wowkodaw, Analyst

Hi. Good morning. You mentioned earlier that your pipeline in terms of discussions with utilities on recontracting is at the highest levels since I guess, since Fukushima. Can you give us a bit of color on why we’re not seeing more contracts added to the portfolio? Like, is it still a bid-ask spread that’s too wide, or can you give some color on what the issue is in terms of why we’re just not seeing that kind of contracting starting yet?

Tim Gitzel, President and CEO

Thank you for the question, Orest. I’ll begin and then turn it over to Grant. Grant, perhaps you can elaborate on this and provide some insights about the market as well. Looking back at 2020, it was an unusual year for all of us, particularly due to COVID, which we faced starting in March and continued throughout the entire year. Our operations were affected just like our customers, as utility companies focused on managing COVID challenges and ensuring the safety of their staff while keeping their plants operational. Therefore, pursuing long-term contracts and multi-year agreements likely wasn’t a top priority for them. So, I would suggest we all exercise a bit of patience regarding this matter. Grant, could you share additional context?

Grant Isaac, Senior Vice President and CFO

Yes, happy to do that. With respect to the specific question, Orest, and then I’ll step out a little more broadly. But with respect to the question on the uranium side of our marketing efforts, certainly, 2020 did not achieve the replacement rate contracting we saw in 2019. The reason that Tim identified is the primary reason is we worked with our customers and talked about their future demand. We discovered that in a COVID world, many of them were saying, look, I’ve got to focus on having the fuels ready for the reactor. I’ve got to focus on the material I have at the fabricator to make sure there’s another fuel bundle coming. And we just saw the uranium piece get paused, if you will. But, here’s the good news. It’s not demand that’s disappeared. It’s demand that’s just been delayed. It’s just been deferred. It’s now pushed out, and we’re seeing more uranium demand in a tighter future window. And so, that’s how the uncovered requirements curve grows as a result of that.

Orest Wowkodaw, Analyst

Thanks, Grant. I appreciate the color. And just as a follow-up, separately, can you give us some color on the CapEx guidance for ‘21? It looks like it’s up significantly from what we’ve seen in the last couple of years. What’s driving that?

Grant Isaac, Senior Vice President and CFO

Yes. Orest, a couple of investments that we just think are really prudent right now. Tim talked a little bit about the work we’re doing at McArthur and Key. While these are the best mine mill complex on the planet sitting idle right now. And we just made the determination that now is the time while we have the qualified workers there, and they’re not running the facility to embrace as many of the automation, optimization, digitization opportunities that we possibly can. So, when these extraordinary assets come back, they come back even better than they were in 2017 when we brought them down. So, that’s a big investment. It’s counter-cyclical, but now is the right time to do it.

Rachelle Girard, Vice President, Investor Relations, Treasury and Tax

And I would just add, too, Orest, some of that is deferred CapEx from 2020 as well.

Operator, Operator

Our next question comes from Gordon Lawson of Paradigm Capital. Please go ahead.

Gordon Lawson, Analyst

Hello. Uranium inventories in China have been increasing steadily over the past several years. It’s now estimated to be around 0.5 billion pounds. Could you comment on what this means for the spot market availability and utility term contract pressure?

Tim Gitzel, President and CEO

Yes, thank you, Gordon. That’s a great question, and we’ve been monitoring the situation closely. They have been increasing their inventory, starting about a decade ago with us. I believe it was June 2010 when they entered the market, which really stimulated activity; they purchased 150 million pounds in just one month, acquiring 52 million from us, 50 million from Areva at that time, and another 50 million from Kazakhstan to build their inventory as they focus on the long term. In their 13th five-year plan, they aimed to have 58 reactors operational by now, but they currently have 50, with 12 more under construction. Their consumption is now 25 million pounds per year, but it's quickly rising towards 50 million and beyond. While this number may seem high, rest assured they are retaining it for their future plans. We have not seen this inventory re-enter the market.

Grant Isaac, Senior Vice President and CFO

Yes, not necessarily, because of the strategic view of it. And then, if you look at the Chinese fleet going forward, that inventory number actually is quite small relative to where they could be. And Tim referenced earlier, the 2060 net-zero target requiring essentially 200 nuclear reactors. That’s a rule of thumb, 100 million pounds of uranium consumption in one year, if they achieve that number, and now you’re talking about kind of a four to five-year inventory, which wouldn’t be unusual if they had that size of a fleet. So, we see that it’s tied up in a strategic objective there. So, when we look ahead into the middle of the decade, those original contracts that Tim talked about roll off around that 2024-2025 window.

Operator, Operator

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

Greg Barnes, Analyst

Just your commentary in the MD&A about you’re anticipating that contracting in 2021 to remain largely discretionary. Do you mean on the market discussions or off-market discussions? And, is that anticipating that contracting will remain slow in 2021 again just because of the COVID restrictions, or is there something else digging into that commentary?

Grant Isaac, Senior Vice President and CFO

Yes. Thanks for that question, Greg. What we mean is that we are not expecting a big rush of on-market RFPs that we’ve seen triggered by supply shocks in the past. That is not to say we don’t expect our pipeline discussions to continue. We do expect them to continue. We do expect them to be quite robust. But, we’re just saying that on-market piece, where you see an RFP once every couple of weeks and more focused on the near term, that’s the part that, at least for the first half of the year, we’re not going to see a big push on those.

Operator, Operator

Our next question comes from Alex Pearce of BMO. Please go ahead.

Alex Pearce, Analyst

Grant, you’ve touched on the conversion market a moment ago. I just wondered whether you could provide an update on how you think the recently announced restart of Metropolis has impacted your outlook there, and really, does it have any impact on the wider uranium chain?

Grant Isaac, Senior Vice President and CFO

Good questions. I’m not sure that the decision to restart the ConverDyn Metropolis facility was a huge surprise. In fact, there had been talk going around about them successfully landing some contingent contracts with utilities, contingent upon a restart. The restart plan is out to 2023, and quite a bit of capital that is required to go in. So, a bit of a road there still to go down before that’s productive capacity. But, I think they probably committed a bunch of it already. That was likely a condition on having Honeywell agree to a restart. So, for us, anybody looking for spot material, well, the next two years are going to still be tight because that’s not going to be a source of it, for example.

Operator, Operator

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

Ralph Profiti, Analyst

Hi, everyone. Good morning. Two questions from me, please. First one is, Tim you talked about supply and demand. Just wondering if the role of hedge funds seems to have played less of a role in 2020. Would you agree with that statement? And, in this sort of positive and rising nuclear sentiment under Biden, do you think the financial players will likely be more buying-related or more liquidation-related, in terms of their strategy for, say, the next one to two years?

Tim Gitzel, President and CEO

Yes. Those are good questions. I think on the first one, the hedge funds have played less of a role. Under Biden, I’m not sure what will happen. I think it’s a little bit early yet. We’re hearing a lot of good language out of there. We want to see some action and what they’re going to do. And one of the first tests is going to be, there’s four units that are scheduled to go down this year in the U.S., I think Exelon’s got two of them, and there’s another company in Ohio that’s got another two units that could go down. I mean, that would be the biggest mistake the U.S. could make if they’re on any path to get to zero-fossil fuel in the electricity sector. So, we’ll watch those.

Grant Isaac, Senior Vice President and CFO

And I might just make the distinction that the role of funds in the uranium space, some financial players, some special purpose vehicles, you’re right, Ralph, 2020 was a rather quiet year, with a bias towards the negative, not the positive. What I mean is, that two of the funds either sold or loaned material throughout 2020. And that was a negative because you saw the uranium price respond, and suddenly, funds were willing to part with material. So, obviously, we’re going to watch that space carefully. Hopefully, the funds find the resolve that brought them into the nuclear space. From a fund point of view, 2021 could look much different than 2020.

Ralph Profiti, Analyst

Okay. Yes. And, Tim, you talked about your contracting discussions and sort of the patience is needed. In these discussions, is there a congruency and a like-mindedness with respect to how far out these contracts will go, and I’m saying, the pricing terms and flexibility terms, or is there something more structurally at odds with the nature of contract discussions?

Tim Gitzel, President and CEO

Yes. Ralph, these off-market discussions we have, as Grant’s mentioned many times, they’re big, chunky long-term contracts with utilities or countries that have a big fleet. They just don’t want any uncertainty on uranium supply. They like our ESG metrics, they like the fact that we’ve never missed a delivery. They recognize that from a security of supply perspective, today’s prices do not reflect production economics. They recognize the first-mover advantage gained from securing their future access to our Tier 1 pounds today as opposed to in the future. Our Tier 1 assets are among the best in the world. So, we’re confident in our discussions.

Operator, Operator

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

Lawson Winder, Analyst

Just first maybe on the contracts. For what years do both the 17 million pounds in conversion and the 12.5 million pounds in uranium contracts cover? I mean, how far out are we looking, and what sort of range of years? And then, secondly, to what extent has the 12.5 million pounds of uranium contracting been the result of leveraging those conversion contracts?

Tim Gitzel, President and CEO

Yes. Lawson, I’m going to pass that over to Grant. But, I’ll just say, we’ve been reading with great interest your report on the U.S. market. It’s very, very interesting. So, Grant, can you answer the question?

Grant Isaac, Senior Vice President and CFO

Yes. The uncovered requirements indicate where the interest is. We’re sort of looking in that kind of 2023 to the end of the decade window. Not completely inconsistent with what we’re seeing with some of the competitive on-market RFPs. It’s just those are largely on the uranium side on a fixed or base escalated basis, and that’s not attractive to us. So that’s the window we’re looking for, where the uncovered requirements drive the business our way. Yes, certainly that helps; there’s no doubt about it. When there’s essentially no commercial conversion available, you end up with a little bit of bargaining power. But remember that in our industry, it’s not uncommon to see utilities working their way backwards through the chain. We’re seeing a bit of that as well. Our conversion piece is strong right now, so I think there’s some leverage, but there’s not been a lot of replacement rate uranium contracting yet that erodes some of our leverage.

Tim Gitzel, President and CEO

Well, we’re pretty excited about our GLE project. We just picked up, as you will have seen in January, an additional share; we’re partners with Silex now. We really think it’s got potential. That technology has been studied now for decades. It’s at a good spot. Look, we’re going to pace it along with the market obviously. It’s not a big expense for us at the moment. We’ll pick it up as we see the market start to evolve. But, the potential for us is enormous. I mean, the big driver is those DOE tails that we have access to through our agreement with the DOE to reenrich depleted tails in the U.S. That’s a big deal.

Operator, Operator

Our next question comes from Philip Tracy of Energy Intelligence. Please go ahead.

Unidentified Analyst, Analyst

Hi. Thank you for taking my question. I have a quick inquiry regarding yesterday's announcement from Honeywell about restarting the Metropolis UF6 plant in the next two years. What impact do you anticipate this will have on UF6 conversion and other related markets?

Tim Gitzel, President and CEO

Thanks, Phil. I’d say we weren’t surprised by it. There had been rumors of it for many years. I think they’ve been down for about six years. I saw a presentation that one of their people made about two weeks ago that was strongly hinting toward that. I think the slide I saw said that production could be in 2023. So, a couple of years from now. So yes, we would certainly wish them well with that. There’s certainly not much in the near term, but over time, with the conversion price moving the way it did, it didn’t surprise us. I think they’ve wrapped up a few contracts. I think their restart was contingent on having some business and they have that, Phil. So, yes, we look forward to having them back in the conversion business.

Operator, Operator

Our next question comes from Gordon Johnson of GLJ Research.

Gordon Johnson, Analyst

Thanks for letting me ask the question. I guess two questions I have. Number one, have you guys started to hear from the ESG investors of the world? Have they started to poke around about the prospects of nuclear, and I guess, seeing nuclear as more renewable-based energy source?

Tim Gitzel, President and CEO

Gordon, we begin nearly every meeting with our investors or analysts by discussing ESG. I haven't witnessed anything as impactful as the wave we've seen with ESG. It's here for the long term. We're more than willing to discuss it since we consider it a significant competitive advantage for us. As mentioned earlier, sustainability has always been central to our business. Our vision is to promote a clean air world. Regarding the environmental aspect, our product generates no CO2 emissions. Our uranium helps avoid approximately 5 million tons of CO2 annually. We believe that's a genuine advantage, and we're eager to engage on this topic.

Gordon Johnson, Analyst

Okay. That’s very helpful. And then, separately, I mean, you guys are probably aware of this, clearly you’re aware of this, but there’s this kind of dark cloud around nuclear and fears. Have you guys talked to governments, government officials, local, global, et cetera, about the prospects of nuclear? And I say that because there was a report out on Germany today that there’s some issues associated with the snowfall and the solar panels not producing the power they need and them having to export in natural gas and nuclear and that pushing up the cost of energy. But, it seems like this isn’t widely known, this dynamic. Do you guys believe that government officials are increasingly starting to think about this dynamic with respect to nuclear?

Tim Gitzel, President and CEO

Yes, absolutely. We sit on the World Nuclear Association Board of Directors. We sit on the NEI the CNEA, all of those, and very clearly, governments are recognizing the role that nuclear will play. You could put that out. That’s 60-some percent of the energy that comes forth, you’ve got to replace that with something. Hydro? Try damming up a river these days. Wind? It’s 45% efficient. It’s not just the countries with net-zero targets; it’s the companies being held accountable too. We’re getting a lot more notice from governments and we talk to them all the time. They recognize the importance of nuclear to reduce emissions.

Grant Isaac, Senior Vice President and CFO

When we get asked what’s different this time when we look at nuclear going forward. What’s different this time is that there’s a greater sense of the accountability of where the electrons are coming from these days. It’s no longer just the countries that have net-zero targets but companies, having net-zero targets as well. They’re being driven to be accountable for where that power is coming from. So, you’ll see us do more in this area, even though it’s kind of not part of our business, we’re not a power producer, but we have to be an important voice there.

Tim Gitzel, President and CEO

Yes. Thank you. Grant, you want to add anything?

Grant Isaac, Senior Vice President and CFO

Yes, absolutely. To answer your second question about the Chinese contracts, those initial contracts were quite far in front of what their requirements were. They contributed to a strategic inventory build, and when 2025 comes around, renewals will be crucial because the demand is set to increase significantly. We think 2021 could be a constructive year for conversations about renewing those contracts.

Operator, Operator

Our next question is a follow-up from Orest Wowkodaw of Scotiabank. Please go ahead.

Orest Wowkodaw, Analyst

In your Management Discussion and Analysis, you mention the risk to your Cigar Lake production in 2022 due to the current suspension, delays, and deferrals. Can you provide insight on when the temporary suspension of Cigar Lake might start affecting production levels in 2022? For instance, if the operation remains down until midyear, will that influence next year's production, or does it need to remain offline for a longer period?

Tim Gitzel, President and CEO

Yes. That’s a good question, Orest; it will depend on how long we’re down, and whether we can come back kind of in stages up there. A lot of question marks there. Right now, we’re pretty much down. It’s the care and maintenance crew looking after the place, we’ll watch. We’re confident in our strategy moving forward and ultimately getting Cigar Lake operational again.

Orest Wowkodaw, Analyst

Okay. Maybe I could ask another way then. Have we already reached the point where you would anticipate that Cigar Lake will produce below nameplate next year, or is it too early?

Tim Gitzel, President and CEO

I can’t say that yet. We want Cigar Lake to run. We have it on the books. We need those pounds to put into our portfolio, and we want it to run. But it’s too early to say that there would be an effect in 2022.

Orest Wowkodaw, Analyst

Okay. Thank you. And then, just separately, can you give us your latest timing expectation for when we could hear whether the Supreme Court will hear the appeal on the CRA case?

Tim Gitzel, President and CEO

Yes, absolutely. We know there’s a trio of judges looking at it now. We’re hoping to hear sometime here in the first quarter as to whether they’ll give leave to appeal. But, that’s about the best information we have now. And so, we’re watching that closely. The first quarter is still our best estimate.

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

Yes. Thanks very much, operator. I just want to say thanks to everybody that’s stuck with us today on the call. We certainly, as always, appreciate your interest and support. As we head into 2021, we’re excited; we’re excited about the future, we’re excited about nuclear power generation going forward, and we’re excited about the fundamentals of uranium supply and demand and the role our Company is going to play. We will continue to execute on our strategy, and we think 2021 is going to be a good year for us. We will always put the health and safety of our workers at the top of our list. So with that, I’d just say thanks, everybody. Stay safe and healthy, and have a great day. Thank you.

Operator, Operator

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