Cameco in the dog days of summer

Cameco’s(CCO-T)remediation program has been thwarted again at Cigar Lake, one ofthe world’s largest undeveloped uranium deposits, situated in Saskatchewan’s Athabasca basin.

The bad news comes at a time when the company finds itself coping with reduced production, soil-contamination problems and lower uranium prices.

But the problems at Cigar Lake have been the headline grabber for the past two years, and on Aug. 12 the company reported more water problems.

It said work on shaft one had been stopped owing to water inflow overwhelming pumping capacity.

The news chopped Cameco’s share price by 4%, or $1.21, to $32.84 as 2.7 million shares traded hands.

Cameco had managed to pump down to 430 metre level of before the water inflows accelerated.

With mine excavations now extending to 500 metres depth, Cameco is letting the water rise to the 100-metre level so that it can monitor groundwater conditions.

With the inflow’s source still unknown, the company has no clear idea as to what the impact on Cigar Lake’s targeted start-up date will be. Originally slated to go into production in 2007, flooding in 2006 pushed out that date to 2011. Even that date now appears to be in doubt.

Cameco has a half stake in the mine, with the remainder split between Areva (ARVCF-O), with 37%, Idemitsu Uranium Exploration Canada, with 8%, and the Tokyo Electric Power Co., with 5%.

But Cigar Lake hasn’t been the only headache for Cameco.

It has suspended operations at its Port Hope nuclear fuel conversion plant in southern Ontario because of soil contamination underneath the site. While it is expected to reopen in September, it will likely do so with higher operating costs thanks to an uptick in the price of hydrofluoric acid which is used in large quantities at the project.

Also under a cloud is the ramp-up at its Inkai mine in Kazakhstan. The project has suffered a shortage of sulphuric acid, which has caused pargeted production to be halved to 1 million lbs.

All these obstacles have had an impact on the company’s financials.

Cameco reported second quarter results on Aug. 14showing a net profit of $150 million, or 42 per shares, down from $205 million, or 55 per share, for the same period last year.

The decline was due in large part to a 44% fall-off in uranium shipments.

The company also gave production guidance that was down from previous estimates. It says it will produce 19.6 million lbs U3O8 compared to 20.6 million lbs. as last stated.