Contamination forces Cameco plant shutdown (July 30, 2007)

It will be at least two months before Cameco (CCO-T, CCJ-N) reopens its Port Hope, Ont., uranium hexafluoride (UF6) conversion plant due to the surprise discovery that soil beneath the plant is contaminated with uranium and other chemicals used in processing.

Cameco spokesperson Lyle Krahn says that on July 13, an employee noticed a yellow liquid in the bottom of a trench being dug inside the plant. The company was doing excavation work to install a new water tank.

Krahn says the company hasn’t yet identified all the chemicals.

“We’ve started to drill holes to figure out the extent of the chemicals that are underground,” he says.

Operations were halted immediately in the area where the hazardous chemicals were found, but by July 19, Cameco decided it would have to shut down the entire plant to identify the chemicals and their location. The company made the announcement on July 20.

Henry Rabski, director of the processing research facilities division at the Canadian Nuclear Safety Commission (CNSC), says spills are a part of routine operations, but they are usually very localized and cleaned up immediately. The CNSC is the licensor of the plant and is monitoring the investigation.

“This one’s a little more complicated because it’s located in a difficult area which is within the plant structure itself,” Rabski says. “They’ve got a challenge in front of them in terms of defining it.”

Cameco shares took a 6.5% hit in Toronto on July 23, falling $3.19 to $46.13 on a trading volume of 4.4 million shares.

BMO Nesbitt Burns analyst Victor Lazarovici says that the closure of the Port Hope facility is not serious for the company as a whole.

“You have to keep in mind, Port Hope is a small part of Cameco,” says Lazarovici.

Cameco is the world’s largest uranium company, producing 20% of the world’s uranium supply.

Lazarovici says the drop in share price shows a loss in confidence in the company, but that it’s not entirely attributable to the Port Hope leak.

On July 19, Centerra Gold (CG-T, CAGDF-O), which is 53%-owned by Cameco, released a revised production schedule for the year, with forecast output down about 33%.

On July 11, Cameco tacked on a few extra months to its startup goal for its Cigar Lake project, in Saskatchewan, which flooded in October last year, delaying production for two years.

“When you look at the Cigar Lake situation, the gold situation and Port Hope, it’s hard to quantify the impact as being large and adverse, but it certainly raises the perceived riskiness in investing in the company,” Lazarovici says.

Lazarovici also pointed out that uranium stocks peaked in mid-June and have been coming down ever since.

“It may be worse for Cameco because of these issues, but it’s really hard to tell,” he says.

Although radioactive materials including uranium and radium have been processed at the 9.6-hectare site since 1932, at this point it appears the chemicals were released from current operations.

Visible from Port Hope’s downtown municipal building, the plant is about 200 metres from Lake Ontario; the nearest residential neighbourhood is 500 metres away.

UF6 is used in light water nuclear reactors outside of Canada.

Cameco also owns Ziratec Precision Industries in Port Hope, which supplies finished fuel for Candu reactors.

Uranium discovered so far is located within the walls of the plant. Surrounding the plant is a well system that Cameco uses to test the chemicals in the ground on a quarterly basis.

The last sampling in April returned normal results.

Krahn says the company is now resampling the wells in addition to drilling and testing the pH of the soil.

Rabski says that although the CNSC views the spill as serious, there is no cause for concern for public safety at this time.

Cameco says it will be able to fulfill its contracts for the year with existing inventory. The company is revising its production forecast, which will be relased with its second-quarter report.

Cameco says none of the 420 employees at the plant will be laid off.