Canadian uranium producer Cameco Corp. said it expects the ongoing coronavirus-induced uranium bull market to continue and become positive for its business as the market for the nuclear fuel material transitions into utilities being driven away from spot market purchases and toward term contracts.

Cameco CFO Grant Isaac told attendees on a May 1 call that between utilities "dealing with the public health crisis themselves and us not being in a rush" to establish new contracts because of an inflating uranium price spurred by the global production curtailment, the market is "transitioning in our favor." While utilities have yet to enter the term market in earnest, the producer is seeing utility demand in the spot market that "reflects the greater speed that they can demonstrate when they're buying at the spot level versus the term level."

"I don't want anybody to interpret that as that's business that's disappearing. Its business that, from our perspective, is actually firming up," Isaac said.

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Citing the coronavirus pandemic, Cameco indefinitely suspended operations at Cigar Lake in Saskatchewan, the largest uranium mine in the world, and pulled its 2020 production guidance. This closure and the potential for other shuttered mines led analysts to predict a spike in the price of uranium. As most commodity prices have fallen, uranium has been the world's best performing commodity amid the global health and economic crisis.

On the call, Cameco CEO Tim Gitzel said the decision to restart operations would be "driven by the health and safety of our employees," noting that 50 cases of the coronavirus were recently identified in communities that supply labor to the mine site. Gitzel said the company took Cigar Lake down on its own terms and should be able to bring it back on its own terms as well.

However, Isaac hinted that market forces may also be connected to future decisions regarding production at Cigar Lake. Asked about the company's options for fulfilling existing supply obligations if purchasing uranium on the spot market gets too expensive, the executive said, "A true uranium price that's moving rapidly up" would be "setting the environment for the terms and conditions that we need for the new contract portfolio to bring back Cigar and McArthur." McArthur River is another uranium mine in Saskatchewan the company idled in 2017 due to low prices. The company previously said it would seek contract uranium prices above US$40 per pound for longer-term supply contracts that would enable restarts at McArthur River and other idled operations.

The company was already purchasing on the spot market to mitigate production cuts amid flat-lined uranium prices. Years of global uranium oversupply allowed utilities to purchase more uranium on the spot market to fill early years of term demand in order to "buy more time" for determining a long-term procurement strategy, Isaac said.

However, as the market moves into a place where primary uranium production falls "well below" annual demand "where we see secondary supplies playing less and less of a role," Isaac said it is unclear where the traders that sold surplus material in the spot will continue to get supply. This could result in "the opening up of a more classic term demand as we know it in our industry, which would be a very helpful development." This could lead to the kind of discipline among competitors "that's necessary to see pricing out along the production cost curve, not the spot carry trade," Isaac said.

"We're certainly seeing a lot of movement, a lot of action and activity in the spot market," Gitzel said.

Isaac said Cameco was heading into the pandemic with the financial ability to weather potential supply disruptions and the crisis has not changed that. "For us, there are no awkward lurches to the equity market or the debt market that we envision here," Isaac said. "We're in it for the long run."

Cameco posted a first-quarter net loss of C$19 million, compared to a net loss of C$18 million in the first quarter of 2019. Uranium production fell 13% year over year to 2.1 million pounds, while sales increased 25% to 6.0 million pounds.