Cameco delays Cigar Lake

Cameco (TSX: CCO; NYSE: CCJ) expects a six-month delay at its 50%-held Cigar Lake uranium project in northern Saskatchewan, as more work needs to be done at the mine and mill to ensure uranium can be safely extracted and processed.

Cameco anticipates ore production to begin in early 2014, after which the ore would be stored at AREVA’s McClean Lake mill, some 70 km away, until modifications to the mill are made. Ore processing is slated to start by mid-2014. Both the ore mining and processing were previously estimated to begin later this year.

The underground mine is 97% complete and undergoing commissioning. “But when a mine is being commissioned, issues are going to come up, and Cigar Lake is no exception,” Cameco’s president and CEO Tim Gitzel said in a Sept. 9 conference call.

During the mine commissioning, Gitzel explained, the company discovered a problem with the north and south run of mine areas, also known as the ROMs. These ROMs are two concrete-lined excavations that work as tanks in the rocks. The tanks are designed to hold a combination of ore and water from the jet-boring mining system. But when the company filled the tanks with water it found a small amount of water was seeping into other areas of the mine, Gitzel said. 

“While the volume of the water is small, once we start production, it would be radon-bearing because of the contact with the ore. So to ensure the safety of our workers, we’ve decided to seal both of the ROMs with steel liners in advance of production.”

To add to the delay, AREVA, which owns 37.1% of Cigar Lake and operates the McClean Lake mill, found that it had to modify the mill’s leaching circuit before it could process ore from Cigar Lake. This is because recent metallurgical tests indicate more hydrogen formation in the leaching circuit when acid is applied to the ore slurry compared to previous tests, Jim Corman, AREVA Resources Canada’s vice-president of operations and projects, said on the call. To solve this problem, AREVA will install a ventilation-and-purging system.

Meanwhile, AREVA intends to stockpile ore from the Cigar Lake mine so that it can process it as soon as the modifications are made. “And we’ll catch up in the months following the mill’s restart thanks to our overcapacity,” Corman said. The mill is also undergoing an expansion to double its capacity to 24 million lb. uranium  oxide concentrate per year by 2015. About 75% of that capacity would be allocated to Cigar Lake, Corman added. 

Cameco’s Gitzel said the company does not believe the delay will impact Cigar Lake’s capital expenditures. But the major intends to update the market on the mine’s five-year production forecast and capital expenditures in early 2014. In August, Cameco increased the mine’s capital expenditures to $685 million from $655 million, and capital costs for 2013 to $260 million from $182 million previously.  

Analysts believe the production delay at Cigar Lake will not significantly affect the company, as Cameco is expected to meet its delivery commitments by buying uranium on the spot market, or from other sources. However, they note that any delay to a major project such as Cigar Lake, which is slated to generate 18 million lb. uranium oxide a year at full production, or 10% of the current global demand, could bode well for the sluggish uranium price as it reduces concerns of oversupply. The spot price has recently hovered around US$34 per lb.

“While we are not happy with the delays, we have to keep in mind Cigar Lake is a long-term project,” Gitzel says. “It is an important source of what will be low-cost production for Cameco, and a key component of our strategy to increase annual production to 36 million lb. by 2018.”

For now, the company has made no changes to its 2013 production target of 23.3 million lb. and sales forecast of 31 million to 33 million lb. Cigar Lake was estimated to churn out 300,000 lb. this year.

Idemitsu Canada Resources and TEPCO Resources also hold a 7.8% and 5% interest in the project.