An inflection point for uranium and the nuclear industry?

In our next issue we shine the spotlight on uranium and the outlook for the nuclear fuel industry. As it happens our timing is spot on because Cameco president and CEO Tim Gitzel recently presented his views on the sector at the CIBC Western Institutional Investor Conference, which was held virtually on January 19-20. His overview of the sector and Cameco’s role in it were so good that I decided to give him the floor this week.

Tim Gitzel: “Let me start with an overview of the last year, 2021. I know it’s a year people would like to forget because it’s all about vaccines and variants and boosters and lockdowns. But I can tell you from our point of view in the nuclear space and in the uranium space that it’s probably the most exciting year we’ve had easily in the last ten or eleven years.

So I’ll tell you a little bit about that. We think it’s a transition year, we don’t think it’s a flash in the pan, and we think it’s a sustainable transition year for us. There are a lot of good things coming down the pike for us in the future. We haven’t been very excited about things over the last ten or eleven years here at Cameco. It’s been a tough slog for us. But I can tell you from the people that are in the halls, there’s excitement in the halls at Cameco and in the nuclear industry generally.

So let me just give you a bit of an overview of what we saw in 2021: Obviously it started the year with a new president in the United States. President Biden came in; the first act was to sign the Paris Accord and you say ‘big deal’ but that WAS a big deal. That showed the U.S.’s commitment to de-carbonization, to other commitments to reduce fossil fuel use, to combat climate change. That was a huge move. The same day, signed an order cancelling the Keystone pipeline, which didn’t go over very well here in western Canada, but it kind of showed where they were at on fossil fuels. He [Biden] held an earth summit in April, again ratcheting down the fossil fuel net-zero commitments even lower, and sooner, which really started putting pressure on. We then saw at the world level the United Nations level, with Secretary Gutierrez, what did he call it? A code red for humanity. That climate change is experiencing Code Red for humanity, ringing alarms bell, which rang alarm bells around the world. The  IAEA [International Atomic Energy Agency], the IEA [International Energy Agency] and NEA [Nuclear Energy Agency] — everywhere we started hearing more and more about it and that it’s very, very serious. It’s not like we haven’t been talking about it for the last five years or more but it really seemed to gather some momentum in 2021, and so, then there was the net zero, and net zero commitments. And there’s not a country, a company, a state, a province, in the world who hasn’t thought about it, or probably made a commitment to net zero. Those commitments, and I speak for Cameco, are easy to make, not so easy to realize. And there’s been introduced an element of culpability on it. You can say it, but you better be able to show it and show how you are going to do it, and by when. And that put a whole other layer of complexity where governments can come and go and make commitments and not commitments, policy or not policy, but when a company like ours makes a commitment, we take it seriously and we have to achieve. We are going to be audited on it, we’re going to get judged on it, there is going to be a report on it.

So all of that is backdrop. So there is accountability. And you see guys like Jeff Bezos and Bill Gates taking electronic accountability in their operations, saying where is our electricity coming from? The world needs it — dependable electricity. We have to decarbonize all the electricity we have, which is probably 80% fossil-fuel fired, and we’re going to have to double it, just to meet demand for electricity in the world; electric cars and all the electrification that’s going on. And people don’t want just any electricity. They want clean, reliable, affordable electricity. So you go to look at your options and say what are our options? Coal, well no one loves that very much. Maybe carbon capture storage will work but it’s got a long way to go. Maybe oil? Not so much for electricity usually, gas well if you can get it’s pretty expensive now, and if you can find LNG and get the boat to come to your country and drop it off, you might use gas. You might rely on the Russians for gas. Hydro? Not easy. Everybody loves it. It’s clean. But try damming up a river. We’ve had two projects here in Canada, Musk Rat Falls and Site C in B.C., just disasters so far, not producing much electricity, way over budget, and lots of controversy around flooding traditional lands. And then you land at nuclear, and people say, ‘Ooh, don’t really love that either.’ But they really don’t like brownouts and black-outs and the lights not coming on when you turn the switch on.

And so, the bottom line is we’re going to need all of the above. And while all this conversation has been going on over the past months and even years, nuclear has come back onto the agenda again. All of a sudden people looked and said, ‘we really can’t exclude any one source of energy, we’re going to have to look at all of them.’ And so you’re seeing the nuclear business, and I speak about the higher levels — the World Nuclear Association, NEI [Nuclear Energy Institute] — we’re getting invited back to the parties we haven’t been to for probably ten or twelve years. Getting invited to speak and talk about nuclear. Many countries now looking at nuclear, recognizing the value of that.

In the U.S. we saw reactor lives get extended in Illinois. Big huge move! Like keeping those on for the next number of years is huge. New builds around the world, I can name you a whole list of countries looking at new builds around the world. SMR — small modular reactors — now in vogue and the fuel that goes with them, advanced reactors.

So there was excitement in 2021, that I haven’t seen, a buzz if you like, for ten years. So that all bodes well for us today. I think there are about 433 reactors operating in the world. There’s 51 under construction. You look at a country like China. They’re at 50 reactors today. They have another 20 in the hopper. They’re going to have 70 reactors by 2025, with another, they say, 30, or 40, under construction. I mean we’re talking growth now, and growth that’s pretty exciting.

So we translate that down then from the reactor side to the Cameco business, which is fuel. And so what’s that doing to the supply demand in the fuel market. Well obviously demand side is growing, we saw that from the WNA report. I think they probably conservatively show a 2.6% growth over the next number of years. That doesn’t include any of the advanced reactors, SMRs. So that’s good. Demand growing. We wanted to see that. If we don’t have that then the industry is in a tough spot, but we’re finally seeing that again.

So then you look at supply, and what happened in 2021 to supply? Well, we opened the year in January with the Ranger mine in Australia; the thing ran for thirty years, shut down. Run out of ore.  Done. They’re decommissioning it now. It’s gone. Cominak in March. Niger, I used to look after that mine. Gone. Done. Ran out of ore. Finished. So supply is going down.

Our supply curtailments [at Cameco] continue. We had some Covid issues at Cigar Lake at the start of the year. Seeing some end of reserve lives. Even the Cigar Lake mine. I mean you’ve got 18 million lb. a year, when we’re running, coming out of there, and you know that runs out of reserves phase 1 at the end of the decade. And so at a time when we’re just starting the reactor growth and building these reactors. So there’s a day of reckoning coming that’s going to be pretty exciting in the business.

And then you add in all the extraneous factors in there. We have inflation. We have supply chain issues. You’ve got geopolitical issues coming up. So you add those to the mix. And then maybe most interesting is, in August, you have a group show up, called SPUT [Sprott Physical Uranium Trust], I think they showed up with $300 million dollars and said:  ‘we’re going to buy physical uranium.’ People yawned a bit at that, and said, well that’s not that much uranium. I think the price was in the twenties. So they started buying. That was interesting. And then there was some piling on. Yellowcake, Kazakh, Denison, UEC, others, buying physical uranium. And then SPUT ups its $300 million to I think it was, $1.2 billion, and  said, ‘we’re going to keep on buying it, and we’re putting it away, we’re sequestering it, and it’s going to be gone.’

So you say, okay, that’s starting to get interesting. You see the price moving a bit more. And of course we’re doing some buying at the same time. And now they’ve [SPUT] come out and I think they’re at over $3 billion with their fund. And they’re at the market futures and they’re buying physical uranium. And that kind of gets us to where we are today. And it’s a bit of a perfect storm and gets us to where we are today. I think spot this morning is around US$45 and it’s been up to US$50 but it seems to have a floor in the forties somewhere. I think the days of the twos and threes on uranium prices are gone. I think we’ve got a lot more upside. So we think the transition is sustainable. We think there’s more to come in the years ahead.

I’d just like to say a few words about Cameco. What have we been doing? Well we’ve been doing a lot of heavy lifting and I give our people credit, the ones that are still with us. We’ve had to reduce the workforce over the last five years. We’ve been on a strict supply discipline program. In April of 2016, we shut down Rabbit Lake, we shut down our Wyoming operations, we shut down Nebraska, we pulled back on McArthur, and then in December 2017 we shut the largest high-grade mine in the world now, McArthur River, 18 million lb. a year, because we said somebody had to do something different. Somebody had to show some courage. We liquidated our inventory, and we went out and started purchasing pounds to put in our contracts. So that’s been our strategy. It hasn’t been easy from a company perspective. We’ve made a difference of about 190 million lb. between our leaving pounds in the ground, purchasing, and running down our inventory.

The company remains very strong. We have great projects; Cigar Lake up and running; JV Inkai has gone through a tricky period but seems to have come out and is running well for us. Our fuel services are running very well for us. We’re taking advantage of the time now at Key Lake and McArthur, when our operations are down, to add some new technology, add some digitization to it, we want to make it more efficient, more effective, more flexible, and so we’re spending some money up there. The mill was built back in the 80s, and we’ve kept it upgraded since then, but we felt we had a real opportunity to get it ready for the day when we are ready to bring it back into operation. We haven’t made any decision on that, but we want to be ready.

Our balance sheet is strong. We’ve got over a billion dollars cash on the balance sheet and we’re waiting for our friends at the CRA [Canada Revenue Agency] to send us back the $777 million they owe us after a drubbing at the Supreme Court level and so that battle continues. So that’s a bit of a snapshot of where we’re at. I’ll just say it’s exciting times for us and I think a lot more to come in the days to come.”