The purpose of our marketing strategy is to deliver value. Our approach is to secure a solid base of earnings and cashflow by maintaining a balanced contract portfolio that optimizes our realized price. Our extensive portfolio of contracts – and the long-term, trusting relationships we have with our customers – are among our core strengths.
Uranium is not traded in meaningful quantities on a commodity exchange. Utilities have historically bought the majority of their uranium and fuel services products under long-term contracts with suppliers, and have met the rest of their needs on the spot market. We sell uranium and fuel services directly to nuclear utilities around the world as uranium concentrates, UO2 and UF6, conversion services, or fuel fabrication. We have a solid portfolio of long-term sales contracts that reflect the long-term, trusting relationships we have with our customers.
In addition, we are active in the spot market, buying and selling uranium when it is beneficial for us. Our NUKEM business segment enhances our ability to participate, as they are one of the world’s leading traders of uranium and uranium-related products. We undertake activity in the spot market prudently, looking at the spot price and other business factors to decide whether it is appropriate to purchase or sell into the spot market. Not only is this activity a source of profit, it gives us insight into underlying market fundamentals.
The objective of our contracting strategy is to:
- maximize realized price while reducing volatility of our future earnings and cash flow
- focus on meeting the nuclear industry’s growing uncovered requirements with our future uncommitted supply while ensuring adequate regional diversity
- establish and grow market share with strategic customers
We target a ratio of 40% fixed-pricing and 60% market-related pricing in our portfolio of long-term contracts, including mechanisms to protect us when the market price is declining and allow us to benefit when market prices go up. This is a balanced and flexible approach that allows us to adapt to market conditions and put a floor on our average realized price, and deliver the best value to shareholders over the long term.
This strategy has allowed us to realize prices higher than the market prices during periods of weak uranium demand, and we expect it will enable us to realize increases linked to higher market prices in the future.
- Fixed-Price Contracts: are typically based on the industry long-term price indicator at the time the contract is accepted, and escalated over the term of the contract.
- Market-Related Contracts: are different from fixed-price contracts in that they may be based on either the spot price or the long-term price, and that price is as quoted at the time of delivery rather than at the time the contract is accepted. These contracts sometimes provide for discounts, and often include floor prices and/or ceiling prices, all of which are escalated over the term of the contract.
- Fuel Services Contracts: The majority of our fuel services contracts are at a fixed price per kgU, escalated over the term of the contract, and reflect the market at the time the contract is accepted.
Optimizing Realized Price
In today’s weak market environment, we have been working with our customers to optimize the value of our existing contract portfolio. In cases where a customer is seeking relief due to a challenging policy, operating, or economic environment, we evaluate their specific circumstances and assess their long-term sustainability. Where we deem the customer’s long-term demand to be at risk, we may consider options that allow us to benefit from converting that uncertain future value into certain present value. In contrast, where the customer is considered to have a more certain and predictable future, we may offer relief, for example by blending in more market-related volumes in the near term, but only where the customer is willing to extend the terms and conditions of that contract out into the future, and only where it is beneficial to us.
Contract Portfolio Status
Currently, we are heavily committed under long-term uranium contracts through 2019, so we are being selective when considering new commitments and working to achieve our contracting objectives. We have commitments to sell approximately 150 million pounds of U308 with 40 customers worldwide in our uranium segment, and over 50 million kilograms as UF6 conversion with 31 customers worldwide in our fuel services segment.
Supply & Demand
With 58 new reactors under construction, the long-term outlook for the uranium industry remains positive, despite current market uncertainty.
Uranium does not trade on an open market like other commodities. Buyers and sellers negotiate contracts privately. Prices are published by independent market consultants Ux Consulting and TradeTech.
Caution about Forward-Looking Information
Please click here for additional information about the assumptions applied in making the forward-looking statements on this page and the factors that could cause results to differ materially.