Cameco (TSX: CCO; NYSE: CCJ) is suspending uranium production at its Rabbit Lake mine in northern Saskatchewan and its two in-situ recovery (ISR) operations in the U.S. in response to the weakening uranium market, where spot prices have collapsed to 11-year lows.
The uranium major will cut 500 jobs at Rabbit Lake and another 85 positions at Crow Butte in Nebraska and Smith Ranch-Highland in Wyoming. The reductions will affect both employees and long-term contractors.
The company’s president and CEO Tim Gitzel said he regrets the layoffs, explaining the “depressed market conditions” do not support these operations.
Raymond James analyst David Sadowski says that “the move is a sign of the times — spot prices recently set 11-year lows, and show no signs of significant strengthening, due to a glut of supply.”
In April the uranium spot price fell below US$26 per lb. uranium oxide (U3O8), the lowest it has been since May 2005. Uranium traded at above US$130 per lb. in 2007.
Cameco will put Rabbit Lake on care and maintenance. The transition should be complete in late August. The job reductions will occur over the next four months, with Cameco offering some employees relocation opportunities.
Meanwhile, the company intends to keep 150 people on its payroll to maintain Rabbit Lake’s facilities and sustain environmental monitoring and reclamation activities until market conditions improve.
The U.S. operations will keep 170 people on board to operate existing facilities and restore depleted wellfields, but it will stop all new wellfield development. Cameco will keep licensing so that it can resume development, after uranium prices recover. It anticipates a reduced staff by the end of May.
An equipment operator in 2014 at Cameco’s recently shuttered Rabbit Lake uranium mine Saskatchewan. Credit: Cameco
Cameco expects to incur $35 million in care and maintenance costs for 2016 at Rabbit Lake, and $19 million in one-time severance costs. It anticipates $48 million in savings this year, after lower spending at these operations.
“Rabbit Lake and U.S. ISR are — by far — the costliest of Cameco’s five production centres to operate, particularly with Cigar Lake now nearly ramped,” Sadowski writes.
BMO analyst Edward Sterck agrees, noting the ramp up at the high-grade Cigar Lake mine in northern Saskatchewan gives Cameco the flexibility to put its “marginal operations on care and maintenance.”
The company is ramping up Cigar Lake to 16 million lb. on a 100% basis this year, subject to Areva’s McClean Lake mill receiving the required regulatory approval to increase production capacity to 24 million from 13 million lb.
Sadowski had estimated fully loaded operating costs at Rabbit Lake of more than $40 per lb. U3O8 in 2016, noting costs for the U.S. operations would be similar, after adding the sustaining capital for the new wellfields.
Cameco had previously guided 2016 capital expenses of $35 million at Rabbit Lake and US$25 million for its U.S. mines.
The company expects this year’s production at Rabbit Lake and U.S. operations will drop to 1 million lb. and 1.1 million lb. — down from 3.6 million lb. and 1.4 million lb.
It will also scale back output at the 70%-held McArthur River-Key Lake operation in northern Saskatchewan to 18 million lb. — from 20 million lb. on a 100% basis — due to the persisting weakness in the uranium market.
Cameco has lowered its consolidated 2016 production expectations from 30 million lb. to 25.7 million lb U3O8. The new guidance includes 12.6 million lb. at McArthur River, 8 million lb. at Cigar Lake, 3 million lb. at Inkai (Kazakhstan), 1.1 million lb. at the U.S. operations and 1 million at Rabbit Lake.
BMO’s Sterck suggests that the production curtailments could bode well for the uranium price. Rabbit Lake and the U.S. operations were set to produce 5 million lb. a year in 2016 and 2017, or 2% of global supply. In 2016, including the cut at McArthur River, Cameco is removing 4.9 million lb. (on a 100% basis), “which is likely to provide some support to the [US$27 per lb.] spot uranium price in the current oversupplied market,” Sterck writes.
He says the firm could bring the operations back online quickly if prices pick up.
Cameco estimates Rabbit Lake has a $108-million carrying value, with $62 million (US$48 million) at U.S. operations. It could likely incur impairments on the operations.
The analysts don’t expect the company’s sale forecast will change, because it has enough production to fulfill its contracts.
Be the first to comment on "Cameco cuts 585 jobs at Rabbit Lake, US mines"