Marketing Strategy
As with our corporate strategy and our approach to capital allocation, the purpose of our marketing strategy is to deliver value and secure a solid base of earnings and cash flow, by maintaining a balanced contract portfolio that optimizes our realized price.
We sell uranium and fuel services directly to nuclear utilities around the world, as uranium concentrates, UO2, UF6, conversion services or fuel fabrication. Uranium is not traded in meaningful quantities on a commodity exchange. Utilities buy the majority of their uranium and fuel services products under long-term contracts with suppliers, and meet the rest of their needs on the spot market.
We have an extensive portfolio of long-term sales contracts which reflects the long-term, trusting relationships we have with our customers.
In addition, we are active in the spot market, buying and selling uranium where it is beneficial for us. With our purchase of NUKEM, we have enhanced our ability to participate in this regard 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. This activity gives us insight into the underlying market fundamentals and is a source of profit.
Optimizing realized price
We try to maximize our realized price by signing contracts with terms between five and 10 years (on average) that include mechanisms to protect us when market prices decline, and allow us to benefit when market prices go up.
Because we deliver large volumes of uranium every year, our net earnings and operating cash flows are affected by changes in the uranium price. Market prices are influenced by the fundamentals of supply and demand, geopolitical events, disruptions in planned supply and other market factors.
40% fixed-price contracts, 60% market-related contracts
We target a ratio of 40% fixed-price contracts and 60% market-related contracts. This is a balanced and flexible approach that allows us to adapt to market conditions, reduce the volatility of our future earnings and cash flow, and deliver the best value to shareholders over the long term. It is also consistent with the contracting strategy of our customers.
Over time, this strategy has allowed us to add increasingly favourable contracts to our portfolio that will enable us to participate in increases in 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 also often include floor prices and some include ceiling prices, both of which are also 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.
Contract portfolio status
Currently, we are heavily committed under long-term uranium contracts through 2017, so we are being selective when considering new commitments. We have commitments to sell approximately 230 million pounds of U3O8 with 45 customers worldwide, and commitments to sell approximately 80 million kilograms as UF6 conversion with 41 customers worldwide.
Customers – U3O8:
- 36% of volume to Americas (US, Canada, Latin America)
- 41% of volume to Asia
- 23% of volume to Europe
- five largest customers account for 50% of commitments
Customers – UF6 conversion:
- 40% of volume to Americas (US, Canada, Latin America)
- 25% of volume to Asia
- 35% of volume to Europe
- five largest customers account for 54% of commitments