Cameco puts Cigar Lake on ice

VANCOUVER — Cameco (TSX: CCO; NYSE: CCJ) has suspended mining at its Cigar Lake uranium mine in Saskatchewan so that the high-grade orebody can freeze — a necessary step in mining the waterlogged deposit.

The uranium at Cigar Lake sits 410 to 450 metres below surface, where the water-saturated Athabasca sandstone meets the underlying basement rocks. If mined as is, the sandstone would crumble and water egress would flood the mine, so Cameco and partners Areva, Idemitsu and TEPCO developed a way of freezing the orebody and surrounding rocks before mining.

A series of holes drilled both from surface and from a tunnel beneath the orebody circulate a brine solution through the target area. The super-cooled brine freezes the ore and the surrounding rock, stabilizing the entire area and stymieing water inflows. A high-pressure water jet drilled up from below melts the ore into a slurry that collects in the tunnel.

“Cameco has been assessing the current state of ground freezing at Cigar Lake,” the company said in a statement. “It has determined that freezing has not advanced as quickly as expected in some localized areas of the mine. Given that the McClean Lake mill has not yet started processing Cigar Lake ore, it has decided to temporarily stop jet-boring at Cigar Lake to allow the orebody to freeze more thoroughly in these areas.”

McClean Lake is a uranium processing facility 70 km from Cigar Lake that has been on care and maintenance since 2010. The Cigar Lake consortium is paying to expand and adapt the facility, which will process all of the ore from Cigar Lake. The mill should be ready for commissioning in September.

Cameco says that more freezing in the interim will allow for more continuous production once the mine resumes operation. Cameco did not change its long-term production guidance for Cigar Lake, which stands at 18 million lb. per year starting in 2018. In the short term Cameco says ore milled this year will shift into early 2015, reducing 2014 output. The company will give a more detailed guidance on the short-term impact when it releases second-quarter results.

This is far from the first setback at Cigar Lake. In 2004 Cameco pegged capital costs at $450 million and expected the mine would operate in 2007. Since then two floods and a series of engineering challenges delayed construction and pushed costs to $2.6 billion. The mine finally produced ore in March.

But delayed production has saved Cigar Lake’s uranium for what Cameco and its partners hope is a stronger uranium market down the road. Uranium prices have been weak since the March 2011 earthquake and tsunami in Japan crippled the Fukushima Daiichi nuclear power plant, forcing mass evacuations and prompting Japan to shut down the country’s 50 reactors.

Japan has been divided on whether to restart the reactors, which remain idle. On July 16 two nuclear plants in southern Japan cleared a new safety hurdle, which means they could restart in the coming months. 

A Japanese nuclear restart is expected to breathe new life into the sagging uranium market. After peaking above US$70 per lb. in early 2011, the uranium oxide spot price has slid for three years to just US$28.35 per lb. at press time.

News of the potential Japanese reactor restarts beat out the ground-freezing problems at Cigar Lake, and Cameco’s share price gained $1 to close at $21.67. The company has a 52-week share price range of $17.95 to $28.57, and 396 million shares outstanding.