Cameco Corp

NYSE:CCJ

Earnings Call Transcript 2022-Q4

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Cameco Corporation Fourth Quarter 2022 Conference Call. [Operator Instructions] and the conference is being recorded. [Operator Instructions]I would now like to turn the conference over to Rachelle Girard, VP of Investor Relations, Treasury and Tax. Please go ahead.

[Rachelle Girard, executive]

Thank you, operator, and good morning, everyone. Welcome to Cameco's fourth 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 Peoples and the homeland of the Metis.With us today on the call are Tim Gitzel, President and CEO; Grant Isaac, Executive Vice President and CFO; Brian Reilly, Senior Vice President and Chief Operating Officer; Alice Wong, Senior Vice President and Chief Corporate Officer; and Sean Quinn, Senior Vice President, Chief Legal Officer and Corporate Secretary. I'm going to hand it over to Tim in just a moment to discuss how the improving growth outlook for nuclear power is translating into an improving growth outlook for Cameco. After, we will open it up for your questions.As always, our goal is to be open and transparent with our communications. Therefore, if you have detailed questions about our quarterly financial results or should your questions not be addressed on this call, we will be happy to follow up with you after the call. There are a few ways to contact us. You can reach out to the contacts provided in our news release. You can submit a question through the contact tab on our website or you can use the Ask a Question form at the bottom of the webcast screen, and we will be happy to follow up after this call. 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 2 questions and then return to the queue. Please note that this conference call will include forward-looking information, which is based on a number of assumptions, and actual results could differ materially. 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 may 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.

[Timothy Gitzel, executive]

Well, thank you, Rachelle, and welcome to everyone on the call today. We appreciate you taking the time to join us. I may be a bit late, but I want to wish all of you a happy new year, and I hope that you and your families are doing well. Over the holiday break, I spent some time reflecting on the past year at Cameco and of course, looking forward to the possibilities that lie ahead for 2023 and beyond. In terms of 2022, the one word that kept coming to mind was transformative. And as I think about 2023 and beyond the word that comes to mind is opportunity, in all my time leading Cameco and all my time in the industry, I'm not sure there has ever been a time when there has been more to be excited about. Starting at the company level. From returning to stable operations at Cigar Lake and in Port Hope after 2 long years of stops and starts due to the COVID-19 pandemic. Continuing with the acquisition of a greater share of Cigar Lake to the restart of production at McArthur River/Key Lake and the pending acquisition of a 49% interest in Westinghouse, 2022 was a busy and transformative year for Cameco.Also, let's not forget the 80 million pounds of long-term uranium contracts and the 17,000 tons of conversion services contracts added to the portfolio, making it one of the biggest contracting years we've ever had with a record number of contracts. This contracting success is expected to allow us to sustainably operate our assets to generate full cycle value for Cameco and therefore, provide our customers with access to the fuel they need to operate their reactors safely, cleanly, reliably and securely. And in 2023 and beyond, we expect these transformative changes will create new opportunities for Cameco and build an even stronger foundation for growth as we continue our transition back to a Tier 1 run rate. The announcement we just made about a major supply agreement with Energoatom is a great example of one of those growth opportunities. We reached an agreement on key commercial contract terms that once finalized, could see Cameco provide sufficient volumes of uranium and conversion to meet all of Ukraine's nuclear fuel needs through 2035. We are incredibly proud of the pivotal role that we at Cameco will be able to play in helping Ukraine gain its energy independence. With the potential to supply about 67 million pounds over 12 years, this contract could be the single largest supply contract in Cameco's history. I want to thank my friend, Energoatom, President, Petro Kotin and his team for their friendship and courage and for the trust they placed in Cameco. We are proud to be your partner. This supply agreement with Ukraine is a good reminder of why we believe that Cameco remains the best way to invest in the recovery in the uranium market. I'll come back to 2023 and our plans for the year and beyond in more detail later, but first, I want to take a look back from an industry perspective. At the industry level, 2022 started with a couple of stark reminders of the deepening geopolitical and origin risk in our industry. In January, Kazakhstan experienced the most significant instability since it became independent, raising concerns about the security of more than 40% of global uranium supply. But sadly and undeniably, the most transformative event for both our industry and the world in 2022 from a supply and demand perspective was the Russian invasion of Ukraine at the end of February. It is set in motion what I believe is a geopolitical realignment, a realignment that is already transforming the way countries are planning for their future energy needs and that highlights the crucial role for nuclear power. More than ever, the world is looking for an energy solution that can solve 3 very significant challenges, the need to provide clean energy, the need to provide secure energy and the need to provide affordable energy. And if you still need convincing that there is no solution for tackling the global climate crisis and the energy crisis without nuclear energy, you might have dialed in to the wrong call. As you all know, nuclear energy provides safe, reliable, affordable carbon-free baseload electricity while also offering energy security and independence. As a result, in 2022, we saw what I believe are transformative tailwinds for our industry developing, thanks to the strategic and deliberate decisions Cameco has made over the past decade and our conservative financial management, we believe the company is extraordinarily well positioned, well positioned for these tailwinds driven by the focus on clean energy, by an energy crisis and by the geopolitical realignment that is occurring. We also believe we are well protected from the current macroeconomic headwinds. We have a strong balance sheet, a growing durable contract portfolio and our customers' nuclear power plants are part of the critical infrastructure needed to guarantee the availability of 24-hour electricity to maintain essential services. But as always, we will take a balanced and disciplined approach. So as we begin 2023, we're excited about the opportunities for growth ahead of us with demand for safe, reliable, secure, affordable and carbon-free baseload electricity coming from across the globe. Today, there are 57 reactors under construction with 9 units that could reach the start of commercial operation this year. I'm not going to tour you through country by country as I suspect you've already taken that tour, and that's why you're on the call today. Almost every day, there's an announcement supporting the prevention of early reactor retirements, life extensions of the current reactor fleet, the expansion of existing reactor programs or new reactor programs. We have highlighted many of these developments in our MD&A. Also around the world, we're seeing momentum building for small modular reactors and advanced reactors and for nontraditional commercial uses of nuclear power, uses such as hydrogen and ammonia production, district heating and nuclear powered shipping. There are numerous companies and countries pursuing projects in these areas. As a result, there is demand growth occurring for nuclear fuel supplies and services in the near, medium and long term. So it's easy to conclude that the demand outlook is durable and very bright. To meet this growing demand, we know that more supply will be needed, and therein lies the challenge. Low prices have led to growing supply concentration by origin and a growing primary supply gap. Along the way, these secondary supplies that have played such a crucial role in our industry have been drawn out of the market. And taking the challenge of filling that gap to a whole new level is a desire by utilities to reduce their reliance on Russian nuclear fuel supplies in the future. Currently, the global nuclear industry relies on Russia for the supply of approximately 14% of uranium concentrates, 27% of conversion and 39% of enrichment. Utilities are now considering and planning for a variety of potential scenarios ranging from an abrupt and to Russian supply to a gradual phase out. It's still early days and while supply uncertainty is not yet driving contracting at a replacement rate, we are getting closer. We're seeing utilities beginning to pivot toward procurement strategies that more carefully weigh the risk to supply, including the origin risk. As a result, the industry saw about 113 million pounds in long-term contracting in 2022. And we believe there is significant opportunity for Cameco to grow as we help our customers derisk their fuel supply needs. But what is really exciting for us is that we do not have to build new capacity to capture that growth. Our growth is expected to come from brownfield leverage, our existing suite of Tier 1 operating assets. We just need to turn up the assets we already have, a position we have not enjoyed in previous price cycles. We're also excited about our strategic partnership with Brookfield Renewable to jointly acquire Westinghouse Electric Company. Our excitement stems from being able to extend the base of our reach in the nuclear fuel cycle at a time when there's tremendous growth on the horizon for our industry. We are extending our reach with an investment in assets like ours that are strategic, that are proven, that are licensed and permitted and that are located in geopolitically attractive jurisdictions. Assets that we expect will be able to participate in the growing demand profile for nuclear energy from their existing footprint. And assets that we expect will augment the core of our business, expand our ability to compete for more business and offer more solutions to our customers across the nuclear fuel cycle. So with the continued improvements in the market and our growing long-term contract portfolio, it's time to revisit the production plans we laid out at the start of 2022. With approximately 180 million pounds of uranium and over 55,000 tons of conversion in long-term commitments, our customers are sending us clear signals that they recognize the significant challenges the supply side of our industry faces. And that they see the value in securing access to Cameco's strategic proven Tier 1 assets that are in geopolitically attractive jurisdictions. The volume is almost 250 million pounds and over 80,000 tons of conversion if you include all potential Energoatom requirements. Therefore, we have decided that it no longer makes sense to target 15 million pounds of production on a 100% basis at McArthur River/Key Lake in 2024, but to plan for 18 million pounds of production. Also, we've decided not to pull back production to 13.5 million pounds on a 100% basis at Cigar Lake in 2024. We plan to continue to operate Cigar Lake at 18 million pounds per year. As a result, in 2023, we're planning for our share of production from McArthur River/Key Lake and Cigar Lake to be 20.3 million pounds with a target to increase that to 22.4 million pounds in 2024. But that's not the extent of our Tier 1 supply growth. We also maintain the ability to expand and extend production from our existing Tier 1 assets. With planned production of 18 million pounds per year and annual license capacity of 25 million pounds at McArthur River/Key Lake, there's an opportunity for further Tier 1 production growth. And we know there is additional uranium at Cigar Lake, but there is some work to do to determine the economics required to extend the mine life beyond its current reserve base. As well until the end of 2023, Inkai is expected to operate at 20% below its annual licensed production rate. However, its license allows for production at 20% above that rate or 12.5 million pounds a year, which would bring our share of its production to about 5 million pounds per year. So if we took advantage of all these opportunities, our annual share of Tier 1 uranium supply could be about 32 million pounds. And we have our Tier 2 assets, which we plan to keep on care and maintenance, unless we can secure long-term contracts that provide returns similar to what we can currently achieve on our Tier 1 assets. In addition to our plans to expand uranium production, we're also working on expanding production at our Port Hope UF6 conversion facility. To satisfy our growing book of long-term business at a time when conversion prices are at historic highs, we're targeting annual production of 12,000 tons by 2024. The improving market fundamentals are growing contract portfolio for both uranium and fuel services and our plans for increased production set us on a path that provides line of sight to a significant improvement in our financial performance. Key to our ability to continue to align our production decisions with our portfolio of contract commitments and opportunities are the investments we have and will continue to make in digital and automation technologies. We expect these investments will allow us to operate our assets more safely, more efficiently and with more flexibility. We also expect they will help support the 30% reduction in greenhouse gas emissions we are targeting for 2030 compared to a 2015 baseline. With our experience operating in this industry, we understand that to create long-term value and provide supplier reliability for our customers. We must build a home for our production under a long-term contract before we pull it out of the ground. So we will continue to make strategic supply decisions in all segments of our business and in accordance with our customers' requirements. As an independent commercial supplier, we can provide our customers with access to proven and reliable productive capacity. With substantial Canadian productive capacity, our supply meets increasingly stringent ESG requirements. It can provide diversity from state-owned enterprises and help to alleviate utilities' future supply from origin and trade policy risk. As you know, the financial aspect of our strategy is to ensure we have a solid balance sheet and the ability to self-manage risk. At the end of the year, including the proceeds from an equity issue to support our planned acquisition of a 49% share of Westinghouse, we had $2.3 billion in cash, $1 billion in long-term debt and $1 billion in an undrawn credit facility. And we expect to begin to see a significant improvement in our cash flow, thanks to the planned ramp-up in production at McArthur River/Key Lake and at the Port Hope UF6 conversion facility. As well, the higher prices that are being discovered in our currently improving market are expected to flow through our existing contract portfolio and further contribute to an improving financial performance. And with an inventory of unencumbered Tier 1 and Tier 2 pounds in the ground, rising prices will also create the opportunity to negotiate new long-term commitments with appropriate pricing mechanisms. Commitments that will underpin the long-term operation of our productive capacity. So we're optimistic about the growth in demand for nuclear power, both traditional and nontraditional. We're optimistic about the growth in demand for nuclear fuel products and services. And we're optimistic about the opportunity for Cameco and capturing long-term value across the nuclear fuel value chain and supporting the transition to a net 0 carbon economy. We will continue to do what we said we would do. Let me just remind you what we said we would do. We're aligning our production decisions with our contract portfolio and the market fundamentals. We're being strategically patient in our marketing activities, and we are conservatively managing our balance sheet to ensure that we can execute on our strategy and self-manage risk. This strategy has positioned us well to take advantage of the fundamentals I spoke of earlier. We have operating Tier 1 assets that are licensed, permitted, long-lived and our proven operations that have expansion capacity. We have fully permanent and proven Tier 2 assets that don't make sense at today's prices, but when you think about them in the context of a looming supply gap, there's a potential pathway for them to add value for us in the future, but we'll continue to be very disciplined in our evaluation on that front. Thanks to our disciplined contracting strategy, we have had a contract portfolio that has protected us well during the worst down cycle in our business. And as the uranium market improves further, we will continue to secure homes for our in-ground inventory that has not yet been committed. And we're more than just mining. Something we don't talk about much or even, in fact, to get much credit for is our advanced uranium projects and our exploration portfolio. We believe our portfolio of resources rivals any particularly when you consider the proximity of those resources to existing infrastructure. We expect these resources will add value well beyond the current price cycle. Then we have our investments across the nuclear fuel cycle in refining, in conversion and in can do fuel fabrication for heavy water reactors, where we are focused on continuing to lock in significant value for this segment of our business. Additionally, we are positioning Cameco to respond to the growing need for uranium fuel to generate safe, clean, reliable and affordable electricity by exploring new opportunities that we expect will further our participation in the nuclear fuel value chain. New opportunities like the pending acquisition of a share of Westinghouse. We expect the acquisition will augment our current suite of assets and allow us to better meet our customers' nuclear fuel cycle needs for light water reactors in areas where we have not previously participated. Through our fuel manufacturing capabilities and investment in global laser enrichment, we're exploring fuel fabrication of new fuels, including high assay, low-enriched uranium or [ Halio ]. We're also planning to participate in the responsible cleanup of leftover byproducts from a previous generation of enrichment facilities no longer in operation. GLE has an agreement with the U.S. Department of Energy that would allow it to repurpose legacy waste by re-enriching depleted uranium tails into commercial source of uranium and conversion products to fuel nuclear reactors. And we are involved in developing the capability to produce commercial low-enriched uranium fuel using lasers for the world's existing and future fleet of light water reactors with what we believe will be greater efficiency and flexibility than current enrichment technologies. These opportunities align with our commitment to manage our business responsibly and sustainably and to increase our contribution to global climate change solutions. Our decisions are deliberate. We are a responsible, commercially motivated supplier with a diversified portfolio of assets, including a Tier 1 production portfolio that is among the best in the world. We're committed to operating sustainably by protecting, engaging and supporting the development of our people and their communities and to protecting the environment, something we've been doing for over 30 years. We have determined that our strategy of operational flexibility, supply discipline and financial discipline will allow us to achieve our vision of energizing a Clean Air world. And it is a strategy that we expect will deliver long-term value in a market where demand for safe, secure, reliable and affordable clean nuclear energy is growing. Before I conclude, I just want to recognize some changes to the executive team here at Cameco. Grant Isaac has been appointed Executive Vice President and remains our Chief Financial Officer. Joining the executive team from finance is Heidi Shockey, who will be our Senior Vice President and Deputy Chief Financial Officer. So I just want to congratulate both of them. And with that, we're happy to answer any questions you might have.

[Operator]

[Operator Instructions] Our first question comes from Orest Wowkodaw of Scotiabank.

[Orest Wowkodaw, analyst]

Congratulations on the continuing momentum in the business. Curious on your portfolio approach now to the asset base. You're obviously bringing back [ Cards River ] quicker to full nameplate and not taking down Cigar. I'm just wondering, what would it take to push McArthur to the 25 million license capacity with respect to time line and capital?

[Timothy Gitzel, executive]

So yes, we -- as we announced, we are not going to continue with our strict supply discipline. We indeed said that we had the contracts in place to increase production would. So we're going to run it to 18 and 18, if you like, 18 at McArthur, 18 at Cigar. You'll remember, a few years ago, and it was a few years ago now, we were already at 20 million pounds in the car. They're over 20 million pounds in McArthur. So that's not a big stretch for us. We have licensed capacity, let license approval is approval to go up to 25 million pounds. That would require a small bit of capital and a bit of time to get the mill ready to go to that level, but it's certainly not anything that we couldn't manage. I don't have exact cost and time line for you. But Brian, do you want to comment on that?

[Brian Reilly, executive]

Yes. Look, in terms of the mine, we would have to revisit the workforce and mobile equipment. So there would be additional resources required at the mine to increase capacity. The little more work, particularly on the back end of the circuits. So we've got a number of studies underway now to look at engineering design. And out of that, we'll be able to determine capital cost. But still early days, but we'll be able to report back on that sometime into the future.

[Timothy Gitzel, executive]

Grant, do you have a comment?

[Grant Isaac, executive]

Yes. And maybe, Orest, let me just wrap it in a bit of a strategic comment. Remember, we do not plan production until we have the homes for it. So the most important narrative here is that we need to see continued market support in the form of long-term contracts. We remain in supply discipline even with this announced production increase. If you think about our Tier 1 asset base, even with what we're talking about today, we'll still be in about 75% supply discipline relative to the Tier 1 and 62% supply discipline relative to the Tier 2. So we are still in supply discipline mode because strategically, we need to see continued market improvement in the form of long-term contracts, we do not produce from these assets to dump into the spot market or to build an excess inventory, that does not create long-term value.

[Orest Wowkodaw, analyst]

And just following up on that, Grant. If -- assuming continued contract momentum here, where is the next source of production likely to come from, if you want to crank that up, is it likely going higher on McArthur? Or is it somewhere else in the asset base?

[Timothy Gitzel, executive]

Of course, we push our Tier 1 asset. So McArthur would be our first stop, obviously, you saw in our disclosure that we've got Inkai to move that forward as well. So those would be our first 2 stops. And we've got, as we say, a nice suite of Tier 2 projects that if someone is willing to look at those, Rabbit Lake, ready to go and others. So -- but we would definitely go with our Tier 1 assets.

[Grant Isaac, executive]

And from a value point of view, Orest, it really is critical to emphasize to everybody that we're talking about a base of assets already licensed, already permitted, already constructed. They will attract some sustaining capital, some replacement capital, a little bit of growth capital, but we are not talking about greenfield. So this truly is an extraordinary amount of brownfield leverage at a turn in the market.

[Operator]

Our next question comes from Ralph Profiti of Eight Capital.

[Ralph Profiti, analyst]

Two of them, if I may. First one is just on the Ukrainian contract with Energoatom. Can you discuss a little bit because you said in your commentary that this has the potential to be the single largest supply contract. What percentage of the contract book does that represent now? And how fast can we think about the amount of excess contracting that is available to Cameco over, say, the next 10 to 12 years. Are you sort of 50% occupied in terms of your production capability of that 32 million pounds?

[Timothy Gitzel, executive]

So I'll pass it over to Grant to talk about that. I'll tell you the cover is getting a little bit skinny for sure on our sales going forward. But I just want to say on that Energoatom Ukraine contract, that's a big deal for us. Big deal, obviously, in the delivery sense, financial sense, all of that stuff, but it's bigger than that. We've been working with them for, I think we went over there in 2018 and then 2020. And we met with them in -- I remember in December 2021 and talk to them. We're getting close. And then, of course, the events of 2022 February happened. And so it's more for us. It's almost more than just a financial or a supply transaction. We're standing shoulder to shoulder with them as they try to diversify their energy supply and their fuel sources and move away from the Russian so -- this is a big ticket for us. You saw it's kind of 2 parts. The 9 reactors that they're operating now. We'll supply those over a 12-year period to 2035. And [indiscernible] units, we'll see what happens with those. I know the IAE is in there and working on that. So I just wanted to make that commentary. It's -- this is a big piece for us. Grant, do you want to talk about what percentage it might work out to, I think you could do the math.

[Grant Isaac, executive]

Yes, a couple of comments from a market point of view on the Energoatom contract as well. It's indicative of several things. It's indicative of what we've been saying. There's a security of supply trend going through the market. This is a security of supply contract at its very core. It's indicative of our pipeline. When we tell folks that our pipeline is robust, you really have to believe us, and this is evidence of it. It's indicative of our competitive advantages as a proven, reliable, independent and integrated commercial supplier of nuclear fuel. This is possible because we're also a converter. Being just a uranium company wouldn't have afforded us the full fleet opportunity that we're enjoying here. It's indicative of the improving tenors, volumes and time frames that we've been talking about through 2022. So it's indicative of that. And it's indicative of the type of price exposure that we look for at this point in the cycle. When we see a security of supply cycle underway, we want price exposure from both our portfolio, committed sales that are market related. And then what you're referring to, which is the pipeline, the pounds we haven't sold yet. So what I can say is we are far from sold out. If you look at our price sensitivity table, we have, on average, 21 million pounds per year over the next 5 years, more heavily weighted to the near term, of course, our guidance, 29 million to 31 million pounds of sales in 2023, so sales going back up. And just a reminder to folks, those are committed sales. Those are not sales we have to yet make in 2023. These are non discretionary requirement sales that we will deliver into in 2023. And as the years go out, obviously, less exposure. So really, for us, it will be less than 10% of the overall portfolio as the sales number grows as more customers come into long-term contracting. And yet as we look out, we have a lot of price exposure to come from pounds that are still in the ground that we have not yet committed.

[Ralph Profiti, analyst]

Okay. Yes, that's helpful. I appreciate the context. As a follow-up, as the market has gradually gotten stronger and chemical continues to maintain this disciplined approach, what's the risk that other players that are not as disciplined in holding back supply actually starts to impact the market. Are we insulated from those types of trends? Or is there still risks in the market that whether in existing entrants or new entrants can sort of suppress or elongate the time at which we actually have a price recovery in the term market.

[Grant Isaac, executive]

Yes, that's a terrific question, Ralph. The way we look at it is, of course, we build a portfolio that we think offers the best of all worlds to investors. We take quick moves that can happen in so-called commodity spaces. But we turn those into a long-tail cash flows and revenues through long-term contracts. We don't just ride up a tight spot dynamic and then ride it back down like we've seen other uranium producers do. And probably the best way to illustrate this is a lot of people these days are looking at that uncovered requirements which. And I think it's Slide 9 to accompany Tim's comments. And what we see is it gets misinterpreted often in 2 ways. First of all, some people look at the uncovered requirements wedge. And if you look at it for '23, 2024 and 2025, utilities have very little discretionary demand. And some people incorrectly conclude that that means there's not going to be a lot of demand coming to the market. Well, that's not right. Utilities will, by definition, be very well covered in year and next year. But that doesn't mean demand 2025, 2026 and beyond can't create price pressure today. So that curve will always look that way. So to your point, when you -- when we're in 2030, for example, there are some folks out there that are advocating that they're going to bring production into uranium, and they say, "We don't have to worry about a contract portfolio today" because look, demand is going to be 200 million pounds in 2030. Well, demand will be 200 million pounds, could even be more by 2030. But that wedge will look exactly the same. The uncovered portion will be very, very small in 2030, 2031. And let me just put it into perspective because I know a lot of people like to look at the spot market. In 2022, utilities bought 8 million pounds in the spot market. So term contracting is going up. Spot market purchasing actually went down. They were 13% of the spot market. In weekly terms, utilities were putting 150 million pounds of demand – 150,000 pounds of uranium demand in the market per week. So if somebody comes along and says, well, I'm going to build a 5 million pound mine and sell it into the spot market, they got to sell 100,000 pounds per week in the spot market. That's foolish.If someone comes along and says, well, I'm going to build a 25 million pound mine -- and I'm going to be spot exposed because I want to take advantage of all this price yet to come. They're going to be pushing 500,000 pounds through the spot market in a year where there's no requirements. So for us, it is about giving investors exposure under long-term contracts to rising price environment and protecting them from that kind of behavior in the market. And if you want to see the performance of our contract portfolio, just look at it post Fukushima. We outperformed the market in those years with our contract portfolio because we gave you upside participation and protected you from downside if we saw that kind of behavior. So could we see it again? Hopefully not. Hopefully, investors understand the market structure, and they're not prepared to finance a project that has a silly spot market strategy to it. But if they do, Cameco's investors are protected from that.

[Ralph Profiti, analyst]

Appreciate the color, Tim and Grant, and congratulations on the appointment. Thank you.

[Operator]

Our next question comes from Greg Barnes of TD Securities.

[Greg Barnes, analyst]

Grant and Tim, you've said in the past that contracting begets contracting. So I know the forecast from some of the forecasters were 100 million pounds again of contracting in 2023. But with this Ukraine contracts, I think that's off to a huge start. Do you think this is going to encourage more utilities coming to the market perhaps faster than they previously anticipated?

[Timothy Gitzel, executive]

Greg, thanks for the question and Grant's on a roll here, so I'll let him keep going on the market.

[Grant Isaac, executive]

Well, yes, Greg, we -- it kind of goes back to that that pipeline conversation we keep having, we were amused here at Cameco just a couple of weeks ago when one of the trade reporters kind of characterized the market activity as being slow. And we've got a marketing team who just kind of sat around and looked at each other and said, which market is slow, like we are not seeing it at all. So perhaps we just have more of a view and a better view into the market than some of the trade reporters do. I think people could forgive me for saying it might start feeling like the summer of 2010 again, a big new entrant stepping into the market, tying up Western capacity, while others have not moved to fill those requirements. It could feel like that kind of catalyst when the Chinese stepped into the market for the first time in the term market for the first time in a big way in the summer of 2010. So it's off to a great start. And I would say that that the type of contracting volumes will be noticed by others who have needs out in the exact same window for both uranium and for conversion.

[Greg Barnes, analyst]

Yes. And just a follow-up. On Cigar Lake, part of the rationale for curtailing production there was to give you more time to assess Phase 2 at Cigar Lake. So the fact that you're going to continue to run at 18 million pounds, I assume it means you're accelerating Phase 2 forward to some extent, given the limited life you have left of Phase 1.

[Timothy Gitzel, executive]

Yes, Greg. So you're right. We are working hard on that now. We're pretty excited. We've seen some of the potential there for the extension to Phase 1, as we now call it. So yes, we're working on that, and we think Cigar is going to continue to produce, hopefully, seamlessly into the 2030s.

[Operator]

[Operator Instructions] Our next question comes from Lawson Winder of Bank of America Securities.

[Lawson Winder, analyst]

Thank you, operator. Tim and Grant, Nice to hear from you both. I wanted to ask about -- well, first of all, the fuel contract pricing. So the revenue guidance for '23 implies fuel contract pricing around USD 26. So with spot conversion pricing approaching $40 per kilogram in both the EU and North America. Would it be reasonable to expect that some of these higher prices would start flowing through in future years?

[Grant Isaac, executive]

Yes, absolutely. You know that we have a trailing value capture approach to our on tracking. So as prices improve, -- in the spot market, we see that strengthening price, and we want to convert that into long-tail term contracts. So there is a bit of a lag effect. We don't match the spot market going up and then we don't go down with the spot market as we lock in that value over a longer period of time. So if you think about the uranium segment where more capacity is required, prices will have to go up to incent more supply. It is about price exposure.In the conversion side, where you have idle capacity that's going to come back, it is about price capture at this point. And then that gets baked into our contract portfolio and creates a longer tail of financial performance.

[Unknown Executive]

And last, maybe just remember to that price that we put in there, that's a combined price for all the products in our fuel services, not just U.S. VI.

[Lawson Winder, analyst]

Absolutely. And then for my follow-up, I just wanted to ask about the latest expectations on the timing around the closing of the Westinghouse acquisition. And in particular, just your thoughts on the SAMR review. So the state administration for market regulation in China and whether or not you have any concerns about that particular review...

[Timothy Gitzel, executive]

Yes. Thanks for that, Lawson. I'm going to pass it over to Sean Quinn, who is all over that question.

[Sean Quinn, executive]

Sure. Thanks, Lawson. I'll start with just a general overview of the regulatory approval process. To date, we haven't seen any showstoppers. We're working on our merger control competition law approvals and various nuclear regulatory type control approvals. And just for an investment approvals, they all take time, of course, but we haven't seen any showstoppers, and we still think we're on track for the second half of this year. In terms of China itself, we have submitted what's called a simplified application. Don't have any feedback yet, but we are quite confident at this point that we'll be fine in China, but we don't have any feedback from the actual regulatory authorities there.

[Grant Isaac, executive]

Probably fair to say, Sean, that with respect to China, nothing will really have changed from a competitive supply point of view. Recall Lawson, that what the Chinese have always wanted from Cameco is yellow cake. They're interested in doing all the fuel processing themselves, and that's what they would continue to get from Cameco. From Westinghouse, obviously, there were some initial reactor builds, but now China has its own version of the AP1000, which they build. And so Westinghouse's Wave 2 business is really around reactor services and some fabrication. So really, there's no change from a supply point of view. Cameco will be doing what it did before. Westinghouse will be doing what it did before. And there isn't any overlap. So we feel pretty confident about our position there.

[Operator]

Our next question comes from Alex MacPherson of allSaskatchewan.

[Timothy Gitzel, executive]

Hi Alex, we saw your article already in allSaskatchewan this morning, well done. Thank you.

[Alex MacPherson, analyst]

Thank you. I wanted to ask about the plans to increase the ramp-up at McArthur and sort of what that means on the ground in Saskatchewan in terms of workforce and capital, both to get to 18 million pounds and then potentially to the full '25.

[Timothy Gitzel, executive]

Well, we're in good shape now. We started to ramp up over a year ago now. And so we're still working on a few of the kinks at the mill. But at the mine, they're in good shape. I think they've got something like 120 million or 122 million pounds behind freeze curtain, which is important for us for our mining. We've ramped up the team there. We've hired hundreds of people, as you know, over the last year. So it's really a question of first getting to 15 at McArthur and Key and then into 18 and 2024. And as Grant said earlier, if we see the business, if we see the contracts come, then we'll think about dialing it up a little further. And as I said earlier, there's a bit of capital that has to go in not a whole lot. And maybe a few more people here and there. But we're -- it's incremental, if you like, Alex. It's not a big push for us.

[Operator]

Our next question comes from Grace Symes of Energy Intelligence.

[Grace Symes, analyst]

Nice to talk to you guys. So my question is just about Alashankou in China. And if Cameco would consider opening account there as they're trying to make into a trading hub or if they would move uranium can go move uranium to China via Alashankou?

[Timothy Gitzel, executive]

Yes. Thanks, Grace. We appreciate your question. Obviously, we're watching what's going on at Alashankou and whether that gets set up, and we are hearing it's moving. We have no intention at the moment of setting up an account there. We have our own facilities and accounts to look after. So we're watching it with great interest. But for now, we have our intention of opening an account to Alashankou.

[Grace Symes, analyst]

Okay. And then a follow-up question, sorry, is just does chemical plan to continue exporting material from Kazakhstan to a [ transcabian ] trade route? And to what extent would that impact cost, if that's the case?

[Timothy Gitzel, executive]

Yes. We sure do. We were happy to get that first shipment through as we reported, and we're working on another one. And Sean, I know you've been -- you were talking about it yesterday. So why don't you just give the latest update on the spin route.

[Sean Quinn, executive]

Our second shipment relating to our 2022 purchases is through to the Port of Hope already and might even be loaded on the boat to make the trip across. And we are working towards making applications for our 23 shipments at this time through the [ transcabian ] route.

[Operator]

Our next question comes John Tumazos from John Tumazos Very Independent Research.

[John Tumazos, analyst]

Congratulations on all the progress. Concerning the Kazakh contract, which is so significant since it's the seventh largest nuclear power generator in the world. Would the ZapaRci tranche, claw back, your spot sales first, if that falls back into sovereign control? And then second have you planned for the contingency if the Ukrainian government can't pay you, they seem to have some funding deficits. Do you have any assurances from Ottawa that if the Ukraine don't pay the Ottawa would pick up the tab or the EU would pick up the tab given that the country appears very bankrupt.

[Timothy Gitzel, executive]

Thanks for the question, John. You're referring to the Ukraine contract. We -- as you saw in our disclosure, we separated the 2 sets of units, the 9 units that Ukraine is Energoatom is operating now and operating quite well. Listen, this isn't our first contract with Ukraine. We've been dealing with them for some years now, and they're one of our best customers and have paid every time there's not an issue there. On the ZapaRcia units, yes, we're concerned about those. So as the IAEA, and they're over there with inspectors and others trying to get those under control and back under Ukraine control. And so that's why we separated the 2 tranches. We're very confident that the Ukraine will indeed return to ZapaRcia and take control of those units, but we'll wait to see. So in the meantime, we've taken all of those contingencies and risks into consideration in this contract, and it's still just an outstanding contract, and we're proud to be partners with Energoatom.

[John Tumazos, analyst]

So if they were to be late paying you for the uranium units, would you consider -- would you continue shipping -- or how long would you continue shipping? Or would you just roll over to the spot market or a different customer?

[Timothy Gitzel, executive]

Well, John, we don't play on the spot market. That's not where our sales go. We've been absolutely crystal clear and consistent on that. We do not sell into an oversupplied spot market anytime. So we're very comfortable with the Ukraine. As I say, we've been dealing with them for years. We've had other contracts. They've always paid not a problem. If they have some issues, we'll deal with them then. But right now, that is not an issue for us. So as I say, we're proud to work with Energoatom.

[Operator]

Our next question comes from Fai Lee of Odlum Brown.

[Fai Lee, analyst]

I think this question is probably for Grant. I'm just wondering if you could comment on where you see the effective tax rate in 2023 and maybe 2024, if these minimum tax rate gets passed?

[Grant Isaac, executive]

We've been guiding towards an effective tax rate that approaches more statutory rates in Canada, more production from Canada, more sales through Canada is going to result in a statutory rate. But that is an income tax expense. It's not the same as cash tax because remember, we do have a very large deferred tax asset. So from a cash tax point of view, we do expect to chew through that asset over a period of time. But in general, yes, we do expect to approach more of a statutory rate with some efficiencies capable from our global structure.

[Unknown Executive]

And Fai, I would just point out, too, just keep in mind that the earnings from the equity account you come in to our earnings on a net tax basis. So that has an impact as well when you think about that.

[Fai Lee, analyst]

Okay. And just to clarify you're getting closer. But for 2023, would it be somewhat still similar to 2022 on an effective basis for the income net cash?

[Unknown Executive]

I'll have to get back to you on that one slide. I don't have a specific number here in front of us.

[Operator]

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

[Timothy Gitzel, executive]

Well, thanks very much, operator, and thanks to everybody who joined us on the call today. We appreciate your support. Obviously, exciting -- pretty exciting times for Cameco and the future of nuclear power. We're excited about the fundamentals in the nuclear fuel market. We're certainly excited about the prospects for our company as we continue to ramp up production to satisfy our long-term supply commitments and invest in opportunities across the fuel cycle. You've heard us say this before, I'll say it again, we're a responsible commercial supplier with a strong balance sheet, long-lived Tier 1 assets and a proven operating track record and line of sight to return to our Tier 1 cost structure. We at Cameco are well positioned to respond to changing market dynamics and benefit from the long-term growth we see coming, driven by the need for safe, reliable, secure, affordable and carbon-free baseload electricity. We will continue to do what we said we would do, executing on our strategy and consistent with our values. We'll do so in a manner that we believe will make our business sustainable over the long term. And we will continue to make the health and safety of our workers, their families and their communities are top prior room. So thanks, everybody. Stay safe and healthy, and we'll talk to you again soon.

[Operator]

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