Cameco cuts back production

In response to persistently low uranium prices, Cameco (CCO-T) plans to reduce uranium production from the Key Lake and Rabbit Lake operations in Saskatchewan.

At the same time, uranium conversion services from Ontario operations will be reduced to 10% below this year’s levels. Exploration programs will be cut back as offices are closed in Santiago, Chile, and Lima, Peru. The company expects these measures to improve its cash flow by about $200 million over the next three years.

Cameco Chairman Bernard Michel says the production slowdown will ensure a smooth transition to the new McArthur River and Cigar Lake mines, also in Saskatchewan. However, the production slowdown was largely prompted by the falling spot market price for uranium and conversion services.

In the past year, Michel points out, the spot price for U3O8 has declined by more than 25% to US$9 per lb., its lowest level in four years. At the same time, the spot market price for conversion fell by more than 30% to US$3.50 per kg of uranium, its lowest level in six years.

Total production from Cameco’s Saskatchewan operations will fall to about 16 million lbs. U3O8 next year from 26 million lbs. this year. A summer shutdown is scheduled for the Key Lake mill after the remaining Key Lake stockpile (7.5 million lbs. U3O8) is depleted next June.

Milling at Key Lake will resume in late 1999 with the delivery of the first ore from the McArthur River mine, 80 km away. This mine is on schedule and on budget for startup late next year. Mill modifications will be completed during the summer shutdown to accommodate ore from McArthur River.

The slowdown at Rabbit Lake is designed to ensure continuity of production until ore from the new Cigar Lake mine is received in either 2001 or 2002.

Rabbit Lake was scheduled to close permanently early in the next decade, but this plan was changed when the owners of Cigar Lake decided to process most of their ore at the Rabbit Lake mill. The new plan calls for the Rabbit Lake mill to operate at half capacity (6 million lbs. versus 12 million lbs.) during the transition phase.

Cameco owns 66% of the high-grade Key Lake and Rabbit Lake mines, just under 50% of the underground Cigar Lake project and 55.8% of McArthur River. It also operates and owns 33% of the huge Kumtor gold mine in Kyrgyzstan.