Delay at Cigar Lake

Vancouver — The global uranium market is expected to remain in limbo as it waits for the world’s leading producer, Cameco (CCO-T, CCJ-N), to estimate the timeline for a production startup at its flooded Cigar Lake mine in Saskatchewan.

During a recent conference call with analysts, senior Cameco executives said they would be unable to speculate on a possible startup date until the company details its progress in a technical report to be released at the end of March.

Meanwhile, the Saskatoon, Sask.-based company has asked several utilities to defer delivery from mine production by between five and seven years while it works to plug the holes which allowed 100,000 cubic metres of water to flood the mine workings last October.

Cameco spokesman Lyle Krahn described the proposed deferral as a kind of middle ground between cancelling the contracts altogether or trying to deliver sooner than required.

Analysts are keeping a close eye on the situation, because Cigar Lake was scheduled to deliver 18 million lbs. of uranium annually (at full capacity), an amount that would have represented about 17% of global mine production.

Prior to the flood, production was expected to begin early next year.

However, the uncertainty surrounding such a key operation is affecting the market, raising expectations that prices will continue to rise after virtually doubling last year to the current US$75-per-lb. level.

“There is no doubt that there is going to be upward pressure on prices,” said Gene Clark, CEO of TradeTeck, a Denver, Colo.-based publication that tracks the uranium market.

He said uranium buyers who are attempting to secure fixed price contracts are locked in a battle with suppliers who expect prices to rise and want to be paid at the market rate at the time of delivery.

“As a result, a significant gap still exists between willing buyers and willing sellers,” Clark wrote in a report.

Speaking to analysts during the conference call, Cameco CEO Jerry Grandey predicted that remediation work designed to seal off the inflow would be completed by the second quarter of 2007.

However, due to the high level of market interest in the remediation process, he said the company would provide regular updates to let the public know how the drilling work is progressing.

Cameco chief operating officer Tom Gitzel said the company aims to seal the inflow and reinforce the underground tunnels by pouring concrete into the mine workings through 14 holes which are being drilled from surface.

The company will also drill a series of wider dewatering holes down to the lowest point of the mine workings. Due to their size, they are expected to take longer to drill. Once the dewatering holes are complete, submersible pumps, with the capacity to move 250 cubic metres of water per hour, will be lowered into the underground workings.

While required approvals for the dewatering holes are not yet in place, Krahn said the company plans to provide its next update on March 1. That will be followed by a technical report containing the capital cost of the remediation and potential timeline for production startup times.

Cameco reported a profit of $40 million or 11 per share for the three months ended Dec. 31, 2006, down from a profit of $83 million or 23 per share in the same period a year ago.

Revenue in the quarter slipped to $512 million from $522 million.

The company realized an average price of US$65.21 per lb. for its uranium in the fourth quarter, compared with US$34.79 a year earlier.

Cameco took a $15-million writedown related to Cigar Lake, which was flooded last April and again in October, as well as another $5 million in costs related to remediation activities at the project in the fourth quarter.

In addition to charges related to Cigar Lake, the company attributed its lower profits to lower earnings from its electricity and gold businesses.

Meanwhile in its Nuclear Market Review, TradeTeck said long-term uranium demand remains strong, with 15 utilities currently evaluating offers or seeking to purchase 54 million lbs. of uranium oxide equivalent to be delivered between 2007 and 2020.