Nuclear renaissance a boon for Saskatchewan

Surging uranium prices have resulted in renewed interest in northern Saskatchewan’s prolific Athabasca basin, a region known for hosting some of the world’s largest high-grade uranium mines and deposits.

Much of the basin has been re-staked over the past two years, with more than 25,000 sq. km locked up. There are at least 35 companies active in the Athabasca basin, with exploration programs ranging from reconnaissance prospecting to more sophisticated geophysical methods targeting deeply buried deposits, diamond drilling of regional targets and deposit delineation.

The recent discovery of the Millennium deposit, by the Cree Extension joint venture, led by Cameco (CCO-T, CCJ-N), shows the basin’s potential has not been fully exhausted in the almost 40 years that have passed since Rabbit Lake, the first major uranium discovery, was made in 1968.

Saskatchewan’s Industry and Resources ministry estimates that about $66 million was spent on uranium exploration in 2005, more than double the previous year. Some of the larger exploration programs in the province are being carried out by Cameco, Areva (ARVCF-O) subsidiary Cogema Resources, and UEX (UEX-T, UEXCF-O).

Saskatchewan produces 100% of Canada’s uranium output from three operations in the Athabasca basin — McArthur River, Eagle Point and McClean Lake, which accounted for 29% of world uranium output in 2004.

These three mines produced a total of 30.2 million lbs. U3O8 in 2005, which is just slightly ahead of the previous year’s 30.1 million lbs.

Notwithstanding the richness of Saskatchewan’s uranium deposits and the size of its mines, Saskatchewan does not have the world’s largest reserves. It faces vigorous competition from Australia, Kazakhstan and Africa.

The spot price for uranium has continued to rise unabated from near-historic lows of US$7.10 per lb. at the end of 2000, to the current price around US$37.50 (as of Feb. 13, 2006). The steady rise reflects mounting concerns about looming supply shortages on the back of worldwide growth.

“With the United States and British governments embracing the nuclear option as the only way to secure their energy needs and meet obligations to reduce greenhouse gas emissions, the market fundamentals for uranium remain unchanged and are expected to stay strong,” said Haywood Securities’ Jim Mustard in a recent report.

“Today, countries representing half the world’s population are constructing new nuclear power plants,” said Cameco’s President Jerry Grandey at a Saskatchewan nuclear conference held recently in Regina. “In Asia, for example, 92 reactors are on order, planned or under construction to help meet the rapidly expanding needs, primarily of China and India.”

And many countries without nuclear power have begun to plan for it, seeking reliability, clean air and energy independence. Grandey expects Vietnam and Indonesia to follow suit.

“In Western Europe, some countries are quietly backing away from nuclear phase-outs, while others are planning to build,” he noted. “Central and Eastern Europe are also constructing several units. In the U.S., a total of 35 reactors have been granted 20-year licence extensions, and operators of an additional 40 have applied for or have stated their intent to apply for licence extensions.”

There are currently 441 commercial nuclear reactors operating in the world. Grandey conservatively expects that over the next 10 years, the number of reactors in operation will grow to at least 506.

“It would appear that nuclear power is no longer in the proverbial woodshed and that Saskatchewan is well-positioned to benefit from the nuclear renaissance,” he said.

Supply shortfall

Uranium demand has far outstripped supply for the past 20 years. The global market uses about 175 million lbs. U3O8 per year, while production in 2005 was around 110 million lbs. The shortfall has been made up mainly from a depleting inventory sourced from dismantled nuclear weapons. In 1993, the U.S. and Russia signed an agreement under which a large portion of the former Soviet nuclear arsenal would be recycled to produce fuel for electricity generation in the West. Since then, more than 10,000 nuclear warheads have been dismantled.

“Existing production and identified secondary supplies like dismantled weapons will not be enough to meet future needs,” Grandey warned. “More primary production is needed and the price for uranium has been on a steady rise in response to these market fundamentals.”

To meet growing demand, several new mines are coming on-stream, including Cigar Lake in Saskatchewan. Elsewhere in the world, both Cameco and Areva have plans to open new mines in Kazakhstan. The industry is now engaged in a third wave of uranium exploration. The last one began 25 years ago and resulted in the discovery of the Key Lake and Cigar Lake deposits in Saskatchewan and Jabiluka in Australia.

McArthur River

McArthur River is the largest high-grade uranium deposit in the world. Proven and probable reserves at the end of 2004 stood at 774,000 tonnes grading 24.6% U3O8, equal to 419 million lbs. U3O8. Additional measured and indicated resources are estimated at 83,300 tonnes of 9.42% U3O8, or 17.3 million lbs., while inferred resources contain a further 503,000 tonnes averaging 9.51% U3O8, for 105 million lbs.

The McArthur River underground mine is in the southeastern portion of the Athabasca basin, near Toby Lake, 620 km north of Saskatoon, Sask. Cameco is the operator, with a direct and indirect participating interest of 69.8%. Cogema owns the 30.2% remainder through a direct and indirect participating interest.

The deposit was discovered in 1989 by Cameco and put into production 10 years later. The mine site is compact, occupying a 1 by 0.5-km area. The site consists of an underground mine, one full service shaft and two ventilation shafts along with numerous surface facilities, including the orebody freezing plant, mine water treatment plant, maintenance and warehousing complex, plus the ore slurry handling and shipping facilities.

Economic grades of uranium occur in four mineralized zones over a strike length of 1,700 metres at depths ranging from 530 to 640 metres below surface. The mineralization is hosted alongside a northeast-trending graphitic fault, close to the unconformity at the contact between Paleoproterozoic basement metamorphic rocks of the Wollaston Group, and overlying sandstones and conglomerates of the Athabasca Group. These sediments are over 500 metres thick in the deposit area.

Grades within the structurally controlled orebody can be as high as 70% U3O8. Ore is hosted in the Athabasca Group sandstone, the fault zone and Wollaston basement pelitic gneiss. Continued drilling near the McArthur River mine area has yielded positive results, reports Cameco, with follow-up drilling planned in 2006.

The sandstones that overlay the basement rocks contain significant water, which is at hydrostatic pressure. Water flow into the underground workings is prevented primarily by ground freezing.

Non-entry raise-bore mining is used at McArthur River, with concrete backfilling. Workers’ exposure to radiation is minimized by line-of-sight, remote-controlled equipment.

In 2005, it was determined that the no. 4 Upper zone would be better suited to box-hole boring. The original mine plan anticipated using raise boring, which requires development in poor-quality ground above the ore zone. The proposed alternative mining method will allow development to proceed from a much safer location. Cameco plans to test the box-hole boring method over the next four years as production from this zone is not expected to begin until 2012.

Revisions to the proposed mining method and a reinterpretation of a small portion of the no. 2 zone have resulted in a decrease in proven reserves of 12.9 million lbs.

The ore at McArthur River is initially processed in an underground grinding circuit, then pumped to surface in the for
m of slurry and temporarily stored in holding tanks. The ore slurry is pumped into containers and trucked to the Key Lake mill for processing, some 80 km southwest along a gravel highway.

The McArthur River ore is processed at Key Lake under a toll-milling agreement. The Key Lake mill is operated by Cameco, with a 66.7% ownership. The remainder is held by UEM, a company owned equally by Cameco and Cogema.

At Key Lake, the McArthur River ore is blended with low-grade mineralized waste rock to achieve a grade of about 4% U3O8 before entering the milling circuit. This effectively lowers radiation levels in the mill, while reducing the stockpiled mineralized waste. The ore is then dissolved in a leaching circuit. Uranium solution is separated from the remaining solids in a counter-current decantation circuit, and further concentrated in a solvent-extraction circuit. The uranium is precipitated out of solution by the addition of ammonia. The ammonium diuranate is thickened and centrifuged before being transferred to a calciner, which dries and calcines the uranium oxide concentrate. The final product of about 99% U3O8 is packed into 200-litre drums.

The McArthur River mine approached its licensed annual production limit of 18.7 million lbs. U3O8 by the end of November 2005. Cameco, which has applied to increase production to 22 million lbs. U3O8, is waiting on the Canadian Nuclear Safety Commission to determine the appropriate review process. It’s expected that it will take a couple of years to ramp up to a planned production rate of 21 million lbs. once approval is received.

Rabbit Lake

Cameco’s 100%-owned Rabbit Lake produced 6 million lbs. U3O8 last year, 5% ahead of budget. The Rabbit Lake mining and milling complex has been in operation since 1975. It produced 41 million lbs. U3O8 at an average grade of 0.32% by the time the open pit was exhausted in 1984 and mining shifted to the Collins Bay B and D zone deposits. Open-pit operations were suspended in 1994, but restarted on the D and A zones within a few years.

The Eagle Point underground mine, situated on the Rabbit Lake lease, reopened in mid-2002 after being on care and maintenance for three years. At the end of 2004, proven and probable ore reserves were estimated at 478,000 tonnes grading 1.62% U3O8, or 14.2 million lbs. An additional 4 million lbs. is contained in 310,000 tonnes of indicated resources grading 0.59% U3O8.

Underground mining at Eagle Point continued from 1991 until 1999, when all mining activity at Rabbit Lake was suspended. The processing of stockpiled ore kept the mill operating into 2001.

“Exploration in and around the Eagle Point mine is still showing encouraging results for mine-life extensions,” said Terry Rogers, Cameco’s chief operating officer, during a year-end conference call.

Exploration and definition drilling resulted in a net increase of 2.8 million lbs. U3O8 in reserves and 7.2 million lbs. in resources after accounting for the 2005 mine production. More than 4 km of underground lateral development were completed in 2005, with the majority of the development focused on preparing two newly discovered zones for the start of production mining.

Cigar Lake

Second only to McArthur River, Cigar Lake is one of the world’s largest high-grade uranium deposits. In December 2004, based on proven and probable reserves of 551,000 tonnes grading 19.06% U3O8, for 231 million lbs., the Cigar Lake joint venture approved the project’s construction after receiving the go-ahead from the Canadian Nuclear Safety Commission.

“After many years of waiting, we are now confident the long-term market fundamentals support our decision to invest in a large uranium development,” said Grandey at the time.

The proven and probable reserves of McArthur River and Cigar Lake total about 650 million lbs. U3O8, “the energy equivalent of four billion tonnes of coal or nineteen billion barrels of oil,” Grandey said recently at a nuclear conference in Regina. “In fact, there is more energy contained in Saskatchewan’s known uranium reserves than in all the known conventional Canadian oil reserves, excluding Alberta’s oil sands.”

Cigar Lake is 40 km inside the eastern edge of the Athabasca basin, 660 km north of Saskatoon. With an ownership of just slightly over 50%, Cameco is the operator of the joint venture. The other partners include Cogema, with a 37.1% stake, Idemitsu Uranium Exploration Canada at 7.8% and Tepco Resources, holding 5%.

Cameco is building surface and underground facilities to support an operation that is expected to produce 18 million lbs. U3O8 for at least 15 years during the first phase of production. Based on additional inferred resources of 317,000 tonnes averaging 16.9% U3O8, or 118 million lbs., a second phase of production will extract the remaining portion of the deposit for another 15-25 years at a reduced operating rate.

Official construction began at the start of 2005 and is expected to take 27 months to complete. According to Rogers, construction is about halfway complete in terms of the physical works, while contracts and committed works for more than 80% of the project have been awarded. The sinking of a second shaft is about 85% complete.

“The underground development work at Cigar Lake is still a bit hampered by available shaft time, however, priority has been placed on the critical path items to allow development and underground construction to work on schedule,” said Rogers. “Overall, the project is on track for the startup in 2007.”

Initially, the Cigar Lake uranium ore will be processed at Cogema’s McClean Lake operation, 70 km northeast. As Cigar Lake ramps up to full production, just over half of final uranium processing will take place at Cameco’s Rabbit Lake mill. It’s anticipated that the ramp-up period could take up to three years before Cigar Lake reaches full production.

Cigar Lake’s original capital cost of $450 million has been reforecast at $520 million. The 15% jump is attributed to a number of factors, including higher than anticipated contractor rates driven by increased construction in Western Canada, higher energy costs and several unforeseen project enhancements.

In a third-quarter conference call, Rogers pointed to the competition over tradespeople between oil sands and other mine development projects in western Canada and the U.S. as key factors in the cost increases. He also mentioned price increases in fuel, propane, cement and fabricated steel.

The McClean Lake mine, operated and 70%-owned by Cogema, produced 5.5 million lbs. U3O8 in 2005, about 8.5% less than forecast. The other partners include Denison Mines (DEN-T, DNMIF-O), with a 22.5% stake, and Japan-based Overseas Uranium Resources Development at 7.5%.

The JEB mill at McClean Lake, which had a nominal design capacity of 6 million lbs. per year, was put into operation in 1999 to process uranium ore from the now-mined-out JEB and Sue C deposits. In 2001, the mine received a 4-year licence to increase production to 8 million lbs. In May 2005, a renewal of the operating licence was approved, as well as a production expansion to 12 million lbs. per year. Construction has started on a $60-million expansion in order to process Cigar Lake ore in 2007.

The McClean Lake operation has continued to mill stockpiled ore from Sue C. Open-pit mining restarted in mid-2005, targeting the small Sue A deposit next to Sue C. Hosting just 32,000 tonnes of 2.06% U3O8, or 1.5 million lbs., the Sue A zone was expected to have been depleted by the end of 2005. Stripping of the Sue E orebody, just south of Sue C, began in September. Sue E contains an indicated resource of 312,000 tonnes averaging 1.46% U3O8, representing 10 million lbs., with an additional 210,000 tonnes of inferred resources grading 1.96% U3O8, equal to 9 million lbs.