VANCOUVER (miningweekly.com) – Cameco fingered sustained uranium price weakness as being behind its decision to shutter the McArthur River mining and Key Lake milling operations, in Northern Saskatchewan’s Athabasca basin, Canada’s largest producer of the nuclear fuel announced on Wednesday.
Saskatoon, Saskatchewan-based Cameco said about 560 employees and 285 contractors will be temporarily laid off for ten months, starting in late January 2018. About 160 employees and 50 contractors will be retained to maintain the facilities in safe shutdown state, the company advised.
The company also laid into its dividend, reducing it to a single yearly payment of C$0.08 a share, from a quarterly payment of C$0.10 a share previously.
Uranium prices have fallen by more than 70% since the Fukushima accident in March 2011 and remain at unsustainably low levels. Long-term contract pricing has fallen to the lowest price since June 1, 2005, at $30/lb of yellow cake, with spot prices hovering at the $20/lb level.
Cameco has been partially sheltered from the full impact of weak prices by its portfolio of long-term contracts, but those contracts are running out and it is necessary to position the company today to generate cash flow if prices do not improve.
Cameco has committed sales volumes of 28-million to 30-million pounds in 2018. Using inventory to help meet contract commitments now allows Cameco to draw down its inventory without suffering a loss by selling at low market prices.
“With the continued state of oversupply in the uranium market and no expectation of change on the immediate horizon, it does not make economic sense for us to continue producing at McArthur River and Key Lake when we are holding a large inventory, or paying dividends out of proportion with our earnings,” stated president and CEO Tim Gitzel.
We expect our share of the costs to maintain both operations during the suspension to range between C$6.5-million and $7.5-million a month. However, some of the items affecting these costs will not be known until the operations are actually shut down, the company advised.
Cameco is the operator of both McArthur River mine and the Key Lake mill that processes all of the ore from McArthur River to uranium concentrate. Cameco owns 70% of McArthur River and 83% of Key Lake. Areva Resources Canada owns the remainder. Together, the operations produced 11.1-million pounds of uranium in the first nine months of 2017, with Cameco’s share being 7.8-million pounds.
After closing up 1.12% on Wednesday on the NYSE, aftermarket trading saw the share price erode 3.55% to $8.70 apiece.