Cameco Corporation
Q1 2019 Earnings Call Transcript

Published: 1 May 2019

[Operator:]

Thank you for standing by. This is the conference operator. Welcome to the Cameco Corporation First Quarter 2019 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. [Operator Instructions] I would now like to turn the conference over to Rachelle Girard, Vice President, Investor Relations. Please go ahead, Ms. Girard.

[Rachelle Girard:]

Thank you, operator, and good day, everyone. Thanks for joining us. Welcome to Cameco's first quarter conference call. Today's call we will focus on the trends we are seeing in the market and on our strategy, not on the details of our quarterly financial results. If you have detailed questions about our quarterly financial results, please reach out to the contact provided in our news release and we will be happy to help you with those details. 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; and Sean Quinn, Senior Vice President, Chief Legal Officer and Corporate Secretary. Tim will begin with comments on our strategy and the markets, after we will open it up for your questions. If you joined the conference call through our Web site events page, there are slides available which will be displayed during the call. The slides are also available for download in a PDF file through the conference call link at cameco.com. 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 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:]

Well, thank you, Rachelle, and welcome to everyone on the call today. We appreciate you taking the time to join us. As Rachelle point out, it is our intent to use this call to talk about what we are seeing in the market and about our strategy. Our results reflect the outlook we provided for 2019 and the normal quarterly variation in contract deliveries which are awaited to the second-half of the year. Progress in our business is not measured in weeks and months, but in years. And that's how we manage our business for the long term, not based on quarterly financial results. I want to start today's call by acknowledging the good news we announced yesterday. I am pleased to tell you that we have been awarded $10.25 million for legal fees incurred in our dispute with the CRA for the 2003, 2005, and 2006 tax years. And in addition to these legal fees, the award allows for recovery of an amount for disbursements which will be determined by an officer of the tax court. We are optimistic that we will recover all or substantially all of the $17.9 million in the disbursements we applied for and expect the award will be made before the end of this year. Just to refresh your memory, our total application for cost was for about $38 million including legal fees and disbursements. So depending on the disbursements awarded, we could recover up to almost 75% of the cost we applied for. While the timing of any payments are uncertain, this is certainly good news for Cameco. As I said on our last call, 2018 was a year with a lot of moving parts. And with the exception of receiving the cost award I just mentioned, that really hasn't changed through the first quarter of 2019. In fact, it seems a number of additional pieces have been added have been added which I will come back to a little bit later. The one consistency through all of this is that we at Cameco have been doing exactly what we said we would do, executing on our strategy to add long-term value. We've taken a three-prong approach in our execution

[Operator:]

Certainly. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Andrew Wong with RBC Capital Markets. Please go ahead.

[Andrew Wong:]

Hey, good morning, well, good afternoon actually. Thank you for taking my question. So Tim, I think I heard you on the prepared remarks say that the 19 million pounds guidance for purchases is more of a floor for this year. If that's the case, can you just talk about the volumes that you may have to purchase in addition to that this year and maybe just go over some of the different scenarios that might play out and how that might affect the purchases?

[Tim Gitzel:]

Yes, Andrew, thanks for the question. It's still morning here in Saskatoon, so -- listen, we said 19 to 21 million pounds, 19 being a floor. I think we've taken delivery. I'm looking at grant of about 7 million pounds so far. That's a bit commercially sensitive as to what our program is going forward, but I could tell you that a significant amount still the purchase of the 19 to 21 I think we said 60% will come off the spot market and that's without anything kind of out of the ordinary, us deciding to build their inventory a little more, us going into our 2020 purchasing program and buying some of those pounds, which I am pretty sure we'll do toward the end of the year. So yes that 19 to 21 is -- the 19 would be, I would say, the minimum that we'll be looking at taking this year.

[Andrew Wong:]

Okay. And well, so maybe a longer term question here, on China, definitely they've started some of their reactor approvals and you mentioned some of the comments that they made, six to eight reactors, could you maybe talk about what kind of pace is realistic in terms of a target for let's say 2030 and then maybe more specifically Cameco, some of the trade disputes right now that are going on between Canada and China, does that worry you in terms of some of the longer term business potential there? Thanks.

[Tim Gitzel:]

Yes, thanks, Andrew. We're still very bullish on China. We always have been. I think they have 45 units running now, they got another 11 that are under construction. That was a good piece of news that we've waited for for a long time when we heard they've got those two new complexes that they're starting to build on now. So it's game on again. I think they were affected like everyone else by a bit of the Fukushima bug. There was a bit of a slowdown and then it was -- that new technology that's first of a kinds that they were building over there, they wanted to wait and see if they could get those up and running. These are their own [indiscernible] like technology that they're building. So we know they're going to move forward with those. So, bullish on China, I think they've been shooting for 58 gigs by 2020. Okay, they might miss it by a year or so, but clearly, they're carrying on -- Grant and I were over there not too, too long ago and they're very optimistic about their build out to 2025 and to 2030 being within -- that's not long from ten years. They'll be the largest nuclear electricity producer in the world by some margin at that point. And you know, we're hearing a 120 gigawatt type thing. So we watched the news every day that comes out. We spent time over there. Are we watching this situation, the trade situation, yes, we are, between Canada and China. So far we've seen no business to business issues we continue to deliver in and we meet with them and talk to them regularly on a lot of different issues, and so we don't like it. We hope it gets resolved soon. We've been in touch with the acting ambassador over there who we know very well and you know the recommendation is carry on business as usual. And we're watching it closely. We hope the Canada China piece gets resolved real soon.

[Andrew Wong:]

Great, thank you very much.

[Tim Gitzel:]

Thank you.

[Operator:]

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

[Greg Barnes:]

Yes, thank you. Tim or Grant, can you characterize the discussions you're having with [indiscernible] about these long-term potential contracts? I know this is very early-stage discussions, we're talking about base escalated contracts, the 25 million pounds you've added to beyond 2023, is that part of these discussions? How are these discussions coming together and where are they leading?

[Tim Gitzel:]

Greg, I'll just open and then turn it over to Grant and Grant, you can talk about it, you're directly involved. And I would just say we've talked about this in the past and we've had some parameters that we've set out that any contract we enter into would have to meet and we went down to site protection on them and we want some exposure to the upside and you've seen us -- and we've mentioned a few of those in the past. And so, these would fit in that wheelhouse and we're encouraged that we're seeing some of our biggest and best customers come forward now looking -- and I say this in the context of -- and I've said this before and you know, a bit of a broken record or a CD on this one is that I concerned in the next decade about where the uranium is going to come from with the Chinese are on and the Indians continue to build -- South Koreans are building units. We're going to need some more uranium. So that's the context for the next decade. Grant, do you want to talk about some of the terms around which we're prepared to contract?

[Grant Isaac:]

Yes, I am happy to do that. The best example of this type of activity, Greg was actually our 2017 announcement about Bruce Power. I mean, that was an example of a big customer, large fleet, wanted a reliable supplier coming off market and having a conversation and coming to terms that were acceptable to us, acceptable to them as they need to be. And we say going forward that we really feel that this is going to be an incumbent's recovery. When you're in a market where demand has now recovered from pre-Fukushima levels you have a wedge of uncommitted requirements that's quite significant and idle Tier 1 capacity. No surprise that customers are talking to those that have Tier 1 capacity about their needs going forward. So interestingly, from our perspective the term market is starting to feel more constructive. And in the past having customers come to us off-market at the early stages of term contracting cycle is a leading indicator that maybe views about future supply are starting to change. So they come to us to talk about our role in their portfolio. Obviously, it's a buyers' market. These are folks that are smart enough to understand there's a first mover advantage to show up early and like Bruce Power we've had some other opportunities to make those commitments going forward. Now, they're outside the range of that price sensitivity table by and large, but certainly speak to the interest in that term contracting window out into the future and really the uncovered requirements. And certainly, I think we can confidently say more to come. We have been successful in locking in new sales commitments that are acceptable to us. And remember we think about this on a overall portfolio basis. So the customers themselves very rarely want either a 100% base escalated or a 100% market related long-term contracts are often some blend of the two depending on the needs of the particular utility. And so to the extent that the expected value of any one contract can meet our needs, that's an important criteria for us. And then of course, we then look at each of these contracts in our overall portfolio to make sure we're meeting our portfolio needs of having downside protection and having market leverage. And so you can be assured that if we found -- if we're adding volumes to our committed sales then that means we're finding those acceptable ranges. There are a number of criteria we look at and obviously price is very, very important to us and the pricing mechanism whether it's market related, base escalated and what those are said at, it's very important to us, but there are a number of other things that matter to us and you always have to keep that in mind as we think about committing our future production. Number one is beyond price is customer quality. I mean, we've seen since Fukushima that not all customers are created the same. Some are happy to honor the contracts they've signed and others, quite frankly look to wiggle out of the commitments that they've made and the most notable there is TEPCO and so obviously not every customer is created the same. So customer quality matters to us, because you need that quality base in your portfolio. Regional diversification matters to us. There are times in our market where some regions drive the contracting agenda more than others, but we always look to be relatively balanced. Imagine if we had been overexposed to Japan. That would've been very difficult for us, but we had regional diversification criteria back then, we have regional diversification criteria going forward. The tenure of the contract, the product form that the customer is looking for, all of that is taken together and really comes into this basket of what is acceptable to us. So from our eyes, things are starting to feel a bit more constructive in the term space. We're seeing that demand window opening up and if history repeats itself that demand begets demand, others see that commitments are being layered in and Tier 1 productions being spoken for and then that creates a desire for others to say, hey, we want to get in on some of that. So Greg, probably a much longer answer than you wanted, but that's the framework that we approach these types of opportunities with.

[Greg Barnes:]

You were well-prepared for the question, Grant, no question. Just a follow-on, with the recent technical report from [indiscernible] the cash costs came down pretty significantly by about CAD 4 a pound, obviously Cigar is low cost. You've said in the past that you were looking for a price in these long-term contracts of $40 plus, has that hurdle rate come down for you? Are you looking -- could you be acceptable of a lower price from that $40 mark?

[Tim Gitzel:]

Well, I don't think we've changed our view on that Greg. We are certainly delighted that the life of mine operating costs, I think, MacArthur were $19.23 Brian and they're under $15, I think they're $14.97 and I can tell you we're not finished with those Canadian, yes. And we're not finished with that either. Now, we think we've got a wonderful opportunity while we're down to see where else we can shave some pennies off the costs. So that continues. I don't think our target has changed as far as long-term contracting goes, and so…

[Grant Isaac:]

Yes, one of the dimensions, to add to that, Greg is that when we look at the pricing dynamic, let's not forget that we're looking at a uranium price today. That's based upon surplus disposal in the spot market. It's not based on the fundamentals, the fundamentals should be based upon what is the price required to get an acceptable return on at least Tier 1 production and the fact that you have Tier 1 producers, putting assets in care and maintenance and turning down production tells you very clearly that we're not there yet. And because we're not there yet, it just it gives us, it gives us a little bit of, I would say, optimism that we don't have to settle for these prices. These prices don't make sense from a fundamental point of view, as evidenced by the supply decisions that are being made by us and Kazatomprom and others. So it hasn't changed our view that there's a target out there that makes sense for -- our assets makes sense for our owners and now it's not the time to settle.

[Greg Barnes:]

Thank you.

[Grant Isaac:]

Thanks, Greg.

[Operator:]

Our next question is from Oscar Cabrera with CIBC. Please go ahead.

[Tim Gitzel:]

Oscar, are you there? Operator, we can't seem to hear Oscar.

[Operator:]

All right, our next question comes from Lawson Winder. Please go ahead.

[Lawson Winder:]

Well, hi, thanks for taking the question. If I could just follow up again on the 25 million pounds of contracting you guys did during the quarter. Well, first was it actually in the quarter, is that something had happened post the quarter and then second, just more strategically. If those -- are those type of contracts, I mean if they were to be available in large, or much larger volumes than the 25 million pounds that you've already contracted? I mean, are these the type of contracts that could lead you to restart McArthur?

[Tim Gitzel:]

Well, Lawson, those contracts as you know, they take a long time we've been probably working on for months if not longer. And they were just a mature enough for us in the quarter to report them and put them in our in our stack. And so, I can tell you there are other ones that we're working on now as well. We're watching to see how much comes. And what would we do, as Grant just described, those are our parameters for looking after, for looking at new business and if it comes our way, we'll look hard at it. Our goal for McArthur key, we said it from the start is not to put material into an oversupplied spot market, it's to, we want to refill our contract portfolio like we're doing now to a point where we're comfortable that when we do restart McArthur key, that we're putting those funds into contracts over the next and I can tell you, we're not going to start up and shut down again, that is not fun. And, so we want to make sure that our portfolio is in good shape. And as you saw with attitude, now we've got some more work to do on that, but we're optimistic about where we're going. And we see as grant uses the word constructive, we see the term market is being constructed.

[Lawson Winder:]

Okay, so if I'm hearing you correctly, then I mean, the terms of those contracts are very satisfactory. It's just you need them in size before justify or even considering a restart?

[Tim Gitzel:]

Yes, that will be correct.

[Lawson Winder:]

Okay. Now it's great. Thanks for taking the question guys.

[Tim Gitzel:]

Yes. Thanks, Lawson, nice to talk to you.

[Operator:]

Our next question is from Oscar Cabrera with CIBC. Please go ahead.

[Oscar Cabrera:]

Thank you, Brian, and good morning. Good afternoon, everyone. Let's give it another try and technologically challenge here.

[Brian Reilly:]

Sure…

[Oscar Cabrera:]

Just wondering if you would be able to disclose the region with this additional 25 million pounds came from?

[Tim Gitzel:]

Yes, Oscar. Unfortunately, our contracts don't allow us to disclose that, we disclose what we can and you mentioned -- Grant mentioned their Bruce power contractor, but on these ones the customers and because probably they're off market deals and they're there for a reason. They don't really want to know what's -- they don't want others to know what they're up to. So we can't disclose that.

[Oscar Cabrera:]

Okay. Now, that sounds stable. Thank you. I may follow-up with a question on section 232. The way, I understand that the smaller producers in the U.S. are looking for quarters for 25% of consumption in the U.S., which is above 45 million pounds. So 11 million pounds, can you remind me what your capacity in the U.S. is? Or could go to and the price levels that you would need there to satisfy the returns that you talked about?

[Tim Gitzel:]

Well, I would, yes, that's a great question. We thought that 232 would come up because it's certainly top of mind for everyone. And it's put a bit of paralysis I think on the market. I think I look around the table. Like my team here. I think we've never spent more time in Washington than we have in the last six months. So, just to as to where it's at. Yes, the Department of Commerce recommendation was handed through the door to the White House on the 14th of April. They -- that was 16 days ago. They have 90 days to respond so we set 73 or 74 days away in the I think in the other cases, it took about 45 days or 50 days, and so. So that's moving. And we will have an answer on that, say the next couple months, so that everyone's waiting to see that. As for our facilities down in the U.S., we believe we could ramp up to about 5 million pounds of production per year, it's going to take us sometime, once we get, we would have to get the green light and that green light would have to be a lot of assurances on CapEx and prices that we could make a good margin over a period of time because it's going to be interesting because it's going to take some months, even years to get up to production. And if the policy changes, you don't want to be left holding the bag on that one. So it's really going to be an interesting dynamic as to how it plays out. But Brian and I were just talking before and he says we think 5 million pounds where we can get up to over several years. And if, you know if it goes that direction and the President of the United States decides that certain amount to whatever it is comes out of the U.S., that's where we'd be prepared to go. And we're, happy and we've got good assets down there. We had them running, but we just couldn't sustain them in a $20 market. I think if you talk to $50 or $60 market, he might have a different story from us.

[Oscar Cabrera:]

Okay, that's great, Tim. Thanks very much.

[Tim Gitzel:]

Yes. Thank you, Oscar.

[Operator:]

Our next question is from Orest Wowkodaw with Scotiabank. Please go ahead.

[Orest Wowkodaw:]

Hi, I'm just following up again on the -- excuse me on the 25 million of new contracts long-term. Can we assume these returns in terms of that are above kind of the current reported market terms and in the market of which I think is still around a $32 term price? And I'm curious why we haven't seen any movement on the market term. If we're starting to see contract signed at higher levels, any help would be appreciated.

[Tim Gitzel:]

Yes, thanks, Orest, I will ask Grant to take that one.

[Grant Isaac:]

You can assume that they are acceptable contracts within the framework that we've outlined. And that's unfortunately about as far as I can go on that one as it pertains to the overall term market. And the term price reporting I mean, that's obviously a question for the reporters and you're obviously welcome to ask them that one. But perhaps one of the reasons is there -- there have been -- there's been beta escalated business in the market, 100% base escalated. That's not business we're particularly interested in nor are we chasing. And I would say that others must be -- we must be seeing some producers or intermediaries chasing some of that 100% base escalated business and perhaps chasing it at rates that are below the posted price. And maybe as everything washes out, the term price stays where it is. I'm speculating but there's some business we haven't pursued because it hasn't been acceptable to us, but it appears others have.

[Orest Wowkodaw:]

Okay. And then you made a comment earlier about putting a request to buy a million pounds on the market, but you couldn't find enough material that met your specifications. Can you maybe elaborate on that? Is that because you're only looking for your own produced material in the market? Or is it a quality issue? Or what's the issue?

[Grant Isaac:]

Oh, Okay. It's a great question. And sorry for leaving it vague, when we put an RFP into the market, we do put some parameters around it. Remember, our goal is to buy uranium as cheaply as possible but to buy it from the spot market, to buy from the pool of stuff that's already above the surface of the Earth is. They have apparently infinite pool of material that people say is out there. We don't seem to see. But we target the spot market, we -- which means we have very tight time parameters on our fees because we don't want to encourage a primary producer to produce to meet our demand, that wouldn't make very much sense. So, one of the specifications is time. Another specification is product form. As we look at our needs for material, we might have a preference for you three away, or we might have a preference for you and fix at various times. So product form is a second specification and location. Where is the material sitting at, is that our facility is it at somebody else's facility, those would be the three main specifications in an RFP, and quite frankly, when we went into a market that it's left to have pretty good through March, which would have suggested that material was everywhere. And we couldn't meet those specifications, just in terms of an order of magnitude we were under subscribed and the stuff that actually met our specification was less than half of what we were asking for. So it was a bit of a counterintuitive result, given what it just happened in the market will continue to buy sometimes on market through RFP, sometimes through the brokers, sometimes off market that'll just be the package in the approach we can continue to use but or those would be our specifications.

[Orest Wowkodaw:]

Okay, thanks. So it never, it doesn't have to be your own produced material, it could be any form anywhere?

[Grant Isaac:]

Yes, absolutely not because our own produce materials getting scarcer and scarcer.

[Orest Wowkodaw:]

Okay. Thank you.

[Grant Isaac:]

Thank you.

[Operator:]

Our next question is from John Tumazos, Very Independent Research. Please go ahead.

[John Tumazos:]

Tim, I was studying some German electricity data that showed that 59% of their installed capacity is renewable using the green definition, it doesn't account nuclear and Germany has a pretty robust manufacturing economy, it would appear as a renewable fuels have gotten awful cheap, their number one and twos are wind and solar. How high can uranium prices rebound before solar and wind are systematically cheaper?

[Tim Gitzel:]

John, that's an interesting question. And we could probably open on that for a couple hours. But you know that you need to mix. The wind and solar as I said in my comments are necessary, we like them with but we also know that they run that about 20% or 30% capacity and so you are not going to be running the German economy on only on only wind and solar. You need a complimentary if you like technology that helps those along and we think there's a great story here. Wind and Solar as the costs come down as a subsidies go away, as it become more efficient and maybe you can store the energy, you're going to need something that goes with them that's green. I mean, I was saying to this crowd, you see if you can go one day -- see if you can go one day without hearing the word climate change here the phrase anymore, it's on the table. So we think its nuclear and wind and solar can go together. I'm not sure what Germany strategy is, quite frankly, I think they're one of the biggest coal producer or coal burners in Europe, I think their emissions have not gone down. They've gone way up. We know they import good nuclear electricity from their neighbors in France. And so, their strategy is a bit perplexing. It's a very political strategy. And so, we know they have -- I think there's still nine units running there. I was over in Russia a week or so ago. And they were talking about the future. And for the first time, I heard that they may have to rethink what they're going to do with those plans going forward, but it's too early to say. So that's a long answer to a real complicated question, John.

[John Tumazos:]

I'm surprised, Tim, because the German profile supports the AOC, Greenfield position, and some of us make fun of America.

[Tim Gitzel:]

Yes, yes. No, that's true. And I don't know. We could see -- yes, yes. Hope you figure it out. Let us know. We appreciate that.

[John Tumazos:]

Thank you.

[Tim Gitzel:]

Thanks.

[Operator:]

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

[Greg Barnes:]

Yes, thanks again. Just on the Section 232 again, assuming we get some kind of decision within the relatively near-term, would it be tariffs quotes or nothing is our case to made that it really has very little bearing on how the market reacts. I know the narrative has been that should unlock a lot of long-term contract and demand but I am not sure I am feeling that same pressure on the market frankly.

[Tim Gitzel:]

Yes, that's a good question Greg and we have that debate here as well what effect and it really, we are trying to get any intelligence or information we can as to which way they are leaning on that tariffs or quotas or nothing and so it will really depend what they come out with I think, it's just so hard to say right now what the reaction will be - what do we worry about a little bit is that we are in a unique position because we got assets in many different locations U.S. Canada and around the world. But if they do put a quota of U.S. production we would be happy to go after that but while the other producers stop producing around the world and will that lead to a bit of a two-tier pricing system in the U.S. and everything else because there will be more material available outside of the U.S. so really hard to say what it's going to look like until we see it.

[Greg Barnes:]

Yes, getting some of the narrative from the UX, there survey seems just the utilities have not actually been that impacted by worrying about the section 232 outcome and it hasn't impacted their buying decisions or contracting decisions. Do you agree with that?

[Tim Gitzel:]

Grant, do you want to…

[Grant Isaac:]

Well, Greg, we know that it's the number one topic with our customers south of the border, I mean we spend a lot of time talking to them about it and talking about what it might mean for their procurement programs, I mean the scenarios that you outlined and no policy action will of course that's probably then we are in the market we are in right now they are still is the surplus disposal happening in the spot market and that has to be cleaned up before there is a transition. A tariff world that actually doesn't have a quota for U.S. origin well that's just a tax on U.S. power production, so you will still have the supplies coming in, the vast majority of supplies coming in from the rest of the world into the U.S. just at a higher price, that's just a simple tax, the quota one though is interesting because if it is a quota and it is required that the U.S. utilities are buying U.S. origin material, by and large doesn't exist today. So that by definition will have to start a cycle of contracting to at least that stuff out of the ground to get those project going forward and in our business contracting begets contracting if we start to see that kind of activity, we do expect that it is going to create a bit of a procurement cycle. So I think the quota scenario is different than the other two, but we just have to wait and see, we don't know what the U.S. is going to decide.

[Greg Barnes:]

But if the quotas is relatively de minimis let's say 10% of that demand that wouldn't really have that much of an impact on the market I would think, would you?

[Grant Isaac:]

Probably not, Greg, probably not, it's just a minor month, will that satisfy any - certainly won't probably satisfy the petitioners I wouldn't think. So it's a good question.

[Greg Barnes:]

Okay, thank you.

[Grant Isaac:]

Thank you.

[Operator:]

Our next question is from Fai Lee with Odlum Brown. Please go ahead.

[Fai Lee:]

Thank you. I just wanted to clarify something Tim you mentioned that about 60% of your purchases are 19 million to 21 million pounds that you plan to purchases this year will be coming from the spot market but Grant also mentioned that the RFP that you put out for 1 million only about half was filled I think. I guess I am wondering how firm is that 60%, I know you said, you have locked-in some of it but how do you -- you still have some to do just trying to understand that.

[Tim Gitzel:]

Yes, that would be about 60% I mean we have lots of options as to where we source the material and how we get it, so that was just kind of what our thinking is and where we expect it will be.

[Fai Lee:]

So you are confident on the 60% even though the RFP you just did wasn't completely filled?

[Tim Gitzel:]

Just to clarify are you asking if we are worried that we can't find 60% of the material this year in the spot market?

[Fai Lee:]

Well, I am -- it's more is that 60%, can we find out at the end of the year that it's going to be lower given what the results of your RFP.

[Tim Gitzel:]

Well, it's and not going to be lower because our sales commitment aren't going down they may in fact go up and if our sales commitments go up. So if we find opportunities to place the material either in the year 2019 or earlier into the first half of 2020, the material that we would need to buy to deliver into well that's going to have more purchasing in the market. If we start to get nervous about our inventory position, you can imagine when we put out an RFP for a million pounds and it's under subscribed we then wonder do we have the right inventory position, do we need to hold a little bit more in order to meet our committed sales but of course that has the counterintuitive result that it will require us to buy more material. So there would be even more purchases on top of that and then obviously one of the risks that we flag for this year is perhaps an unplanned production disruption if there is a labor event at Cigar Lake we are not planning on it, we don't expect one, but if the Jud mill is shut down because of a labor disruption and Cigar Lake isn't sending material there then that's going to even create more purchases. So there is a lot of variables that could affect it, but it won't be less it really by definition can only be more.

[Fai Lee:]

Okay, great, thanks.

[Tim Gitzel:]

Thanks, Fai.

[Operator:]

Our next question is from Jim Ostroff with Platts Nuclear Publication. Please go ahead.

[Jim Ostroff:]

Yes hi Tim, two brief questions, you had talked about the situation perhaps within 10 years where there is a substantial increase in the core uranium I wonder if you could give us -- sort of the back of the napkin estimate here as to potentially Cameco's ability to increase production assuming pricing moves there but you might think 10 years hence what you think the company may be able to produce annual basis.

[Tim Gitzel:]

Yes, Jim, thanks for that it's really interesting position we think about it all the -- because things in our world don't move particularly quickly. If you want to bring on a new mine 10 years from now you should probably be starting now and if you look around the world that's not happening anywhere the capital is completely dried up, the world right now doesn't need it, we need to get our existing production, tier 1 production back on line. So that's the first up that's going to come back on line and we know we have McArthur sitting we could take to 25, we know that Kazak have some room to increase partners around and who are with us of course and so then there is money sorry pounds tied up in some of these funds that at the right pricing conditions we will come back onto the market. So that's the first stuff that's going to come back obviously we want to hold our market share going forward and increase it so we will be watching that, that's why we are trying to line up these long-term contracts with our great customers into the next decade, well into the next decade and so I would just say we got lots of options, we got a nice project that we just got approval for in Australia that Brian Reilly sitting here that we are very happy to get that approval that gives us optionality going forward and so I would just say we will want to in a growing market hold our market share and obviously look to increase it.

[Jim Ostroff:]

Right and let me one other here if I could ask for some help on this final question, help on the math, you had mentioned here that Cameco is looking at least right now this point in time in buying 19 million to 21 million pounds material this year, you said taken delivery of 7 million pounds and said about 60% of what -- this purchase will be on the spot market. Let me just say, I did the math and given the 7 million purchase so far with that 60% raise that would indicate I think that the Cameco would need as of now but with no change going forward that Cameco would need to buy 4.4 million to 5.6 million pounds for the balance of this year is that within the ballpark?

[Tim Gitzel:]

Yes I would just - that would be a bit commercially sensitive, I would just say that we have spot market that we will be looking for off market request or public RFPs we got our production coming out of Inkai. So it will be a combination of those pieces, we don't want to get too specific on that we can't Jim, so I think those numbers that we gave 19 million to 21 million pounds, 19 million being the minimum as Grant just explained and two to the end of the Q we picked up about -- we had delivered about 7 million pounds of that.

[Jim Ostroff:]

I am sorry if I could - purchased 7 million so far that's sort of a critical point, I guess.

[Tim Gitzel:]

No we have delivered, we received deliveries, we purchased just more.

[Jim Ostroff:]

Okay so you received deliveries of 7 million pounds so far.

[Tim Gitzel:]

That's right.

[Jim Ostroff:]

Okay that is fine thank you all appreciate it.

[Tim Gitzel:]

Yes, thanks, Jim.

[Operator:]

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

[Andrew Wong:]

Hi, thanks for the follow-up. I just want to ask about some of the other uranium prices like SWU and conversion prices we have seen a pick-up. I mean SWU prices and conversion prices seem to continue to actually quite looking quite healthy what we should be reading into with those trends, I mean just in general have you seen any changes in the secondary supply.

[Tim Gitzel:]

Grant, you want to talk about conversion…

[Grant Isaac:]

Yes Conversion has been a very interest case and we hope quite frankly it's an analog for uranium in that conversion is up because capacity is down you had a situation where if you go back to 2014 the Springfield's facility came offline and then you have got a facility in the U.S. shutdown, the Metropolis facility that [indiscernible] marks the material for you have Orano transitioning to a new plant and so basically low and behold you have one fully operating conversion producer and that's us Cameco and the market has reacted accordingly now obviously some capacity can come back on line just like it can in the uranium space with idle capacity but the market is reflecting the need to incent that conversion. So that's been an interesting space and probably will continue to be an interesting space. The pricing dynamic on SWU might actually be a completely different dynamic there seems to be some transactions and some contracting underway but whether that's because of a recovery of demand or whether it's because those are life-long contracts to keep SWU producer in business we are just not sure at the moment, the SWU market remains tough. So conversion is a bright light in the front-end uranium is still tough, the price isn't there yet and the SWU price is still a bit tough now the second part of your question about secondary supplies, secondary supplies are still in the market, I mean we have a primary short right now. Primary production is about 30 million less than demand right now, so we have a primary production short in the market and the gap is being filled by drawing on savings account by and large. So this isn't all the secondary run rate material coming into facilities, customers are drawing on one-time finite volumes and when you consume them they are not backed up by productive capacity and they don't get replaced and they are just -- there is enough of it right now that it's continuing to put pressure on the market, it's continuing to discover a spot price that's about surplus disposal as opposed to incentive price for primary production and the market just has to work through that, in terms of the underfeed, we are not seeing the underfeed as a big competitive pressure in the spot market, we know that underfeed was sold into mid-terms and some longer-term contracts as part of SWU contract. So that was the uranium that went into SWU and that seems to be where it's going, we are not confronted with this big volume that seems to be coming from the enricher. So I think that the spot market dynamic is less a secondary supplier and underfeed story and more a -- the world is just drawing on the savings account of uranium and non-incenting that to be replenished, of course you can do that for a while but you can't escape the laws of supply and demand forever.

[Andrew Wong:]

Okay, great, thanks for that color.

[Operator:]

Our next question is from Orest Wowkodaw with Scotiabank. Please go ahead.

[Orest Wowkodaw:]

Hi, thanks for the follow-up. I am just curious if you could give us an update on the Tepco arbitration and when you might anticipate a ruling there?

[Tim Gitzel:]

So, yes, thanks Orest, we have Sean Quinn just waiting to answer that question.

[Sean Quinn:]

Sure, thanks Orest. Yes, the hearing was back in January and wrapped up as you know. Final arguments have been submitted during the course of April and there are a couple of additional filings that each of the parties have to exchange with the arbitrators on cost and then it's just over to the arbitrators to make their decision and we would be hopeful -- we are hopeful of getting that decision before the end of this year.

[Orest Wowkodaw:]

Okay, thank you. And then, just shifting gears [indiscernible], I am just curious if we have any visibility yet when you might recover the $300 million of cash that's sitting with the CRA and whether -- unfortunately whether you think the appeals process has to run full course, or whether there is opportunity to get back cash earlier?

[Tim Gitzel:]

I think I will turn this over to Grant to see if he has a view, but right now I think we are on course to let the appeals process run its course before we can count on seeing any of that cash returned.

[Grant Isaac:]

Yes, I don't have a different view.

[Tim Gitzel:]

Yes, that's our view at that moment.

[Grant Isaac:]

I have a preference, but not a different view.

[Orest Wowkodaw:]

Okay, thanks guys.

[Tim Gitzel:]

Yes, thank you.

[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:]

Well, thank you, Operator. With that, I just want to say thanks to everybody who's been with us on the call today. We certainly always appreciate your interest and support. As a commercial supplier with a strong balance sheet, long live Tier 1 assets, and a proven operating track record, we at Cameco believe we are well positioned to respond to changing market dynamics and benefit from the long-term growth driven by the need for clean base load electricity. So with that, I say thanks again for joining us, and have a great day.

[Operator:]

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