Over the last number of years, the annual cash cost of production reflected the operating cost of mining and
milling our share of Cigar Lake as this was our only operating site. With the restart of the McArthur River/Key Lake operations the annual cost of production will reflect a combined cost of all our operating uranium assets. See 2023 financial
results by segment Uranium starting on page 61 for more information. In 2024, our cash production costs may continue to be affected by inflation, the availability of personnel with the necessary skills and experience, supply chain
challenges impacting the availability of materials and reagents, and our continued efforts to ramp up to planned production at McArthur River/Key Lake.
Operating costs in our fuel services segment are mainly fixed. In 2023, labour accounted for about 56% of the total. The largest variable operating cost is
for anhydrous hydrogen fluoride, followed by zirconium, and energy (natural gas and electricity).
We continue to look to adopt innovative and advanced
digital and automation technologies to improve efficiency and operational flexibility and to further reduce cost.
Care and maintenance costs
In 2024, we expect to incur between $50 million and $60 million in care and maintenance costs related to the suspension of production at our Rabbit
Lake mine and mill, and our US operations. Production at these operations are higher-cost and a restart is less certain. We continue to evaluate our options in order to minimize these costs.
Purchases and inventory costs
Our costs are also
affected by the purchases of uranium and conversion services we make under long-term contracts and on the spot market.
To meet our delivery commitments,
we make use of our mined production, inventories, purchases of our share of material from Inkai, purchases under long-term contracts, purchases we make on the spot market and product loans. In 2024, we expect the price for the majority of our
purchases will be quoted at the time of delivery.
The cost of purchased material may be higher or lower than our other sources of supply, depending on
market conditions. The cost of purchased material affects our cost of sales, which is determined by calculating the average of all of our sources of supply, including opening inventory, production, and purchases, and adding royalties, selling costs,
and care and maintenance costs. Our cost of sales could be impacted if we do not achieve our annual production plan, or if we are unable to source uranium as planned, and we are required to purchase uranium at prices that differ from our cost of
inventory.
Financial impact
The growing demand for
nuclear power due to its safety, clean energy, reliability, security and affordability attributes has contributed to increased demand for nuclear fuel products and services. As a result, we have seen significant price increases across the nuclear
fuel value chain, which reflect the need for capacity increases to satisfy the projected growth.
The deliberate and disciplined actions we took to
curtail production and streamline operations over the past decade came with near-term costs like care and maintenance costs, operational readiness costs, and purchase costs higher than our production costs. However, we considered these costs as
investments in our future.
Today, thanks to our investments, and with our continued ability to secure new long-term sales commitments, we believe we are
well-positioned for growth. Our core growth is expected to come from our existing tier-one mining and fuel services assets. We do not have to build new capacity to pursue new opportunities. We have sufficient
productive capacity to expand, a position we have not enjoyed in previous price cycles.
And, with the acquisition of a 49% interest in Westinghouse, we
expect to be able to expand our growth profile by extending our reach in the nuclear fuel cycle at a time when there are tremendous tailwinds for the nuclear power industry. We are extending our reach with an investment in assets, that like ours,
are strategic, proven, licensed and permitted, that are located in geopolitically favourable jurisdictions, and that we expect will be able to grow from their existing footprint. These assets are also expected to provide new opportunities for our
existing suite of uranium and fuel services assets.
We believe our actions and investments have helped position the company to self-manage risk and as we
make the transition back to a tier-one run rate, we expect to generate strong financial performance, allowing us to execute on our strategy while rewarding our stakeholders for their continued patience and
support of our strategy to build long-term value.
MANAGEMENTS
DISCUSSION AND ANALYSIS 29