Cigar Lake flooded

Vancouver — Mine development at Cameco’s (CCO-T, CCJ-N) 50%-owned Cigar Lake uranium project in the Athabasca basin of northern Saskatchewan was dealt a blow recently, when a rock fall caused major flooding that was expected to completely fill the underground workings in a matter of days.

Flooding was initially expected to fill only a portion (about 40%) of the workings but the failure of a bulkhead door seal allowed water inflow to exceed pumping capacity, forcing the company to abandon all of the underground workings. The company confirmed all workers were safely moved to surface and there were no injuries. The incident is not expected to have any environmental impact.

Construction at the mine is expected to be delayed for at least a year. Production at Cigar Lake was to have begun in early 2008.

This is the second time this year flooding has been an issue at Cigar Lake. In April, there was a leak in a ventilation shaft that was under construction, causing delays and increased costs (T.N.M., April 14-20/06). Water flow can be a common issue in the sandstone-hosted environment of Athabasca basin uranium deposits. Underground mining operations use technologies such as large rock-freezing devices to stop groundwater flow through the porous rock.

Cameco, as project operator, is now looking at how to restore access to the mine. The company will revise the production schedule once the flooding is dealt with. The workings will now have to be remediated from surface and the mine will be pumped out once the company can control the water inflow. Currently, water treatment capacity is 500 cubic metres per day with a daily contingency capacity of about 830 cubic metres and a containment pond in place.

Cigar Lake is the world’s largest undeveloped high-grade uranium deposit, hosting proven and probable reserves of 551,000 tonnes grading 19.06% U3O8 (more than 232 million contained pounds U3O8). At the current U3O8 spot price of US$56 per lb., in situ ore value is about US$13 billion. The mine is expected to have a life of 20 to 30 years with about half the ore being processed at Cameco’s nearby Rabbit Lake facility, in operation since 1975.

Cameco’s partners at Cigar Lake are Areva Resources Canada, a subsidiary of French energy giant Areva (ARVCF-O), which holds a 37% interest; Idemitsu Uranium Exploration Canada (owned by Japan’s largest independent oil company, Idemitsu Kosan) with an 8% stake; and TEPCO Resources (owned by Tokyo Electric Power Co.) with 5% of the project.

The company says it will be able to meet its contractual supply obligations but also disclosed its contracts are covered by a supply disruption clause. Expansion or extension of operations at Rabbit Lake and McArthur River is being considered to counter the delay in production at Cigar Lake, especially given uranium’s significant recent price rise.

The delay in bringing Cigar Lake on-stream will likely trigger a further increase in uranium prices. A number of advanced-stage uranium explorers saw share price gains following the anticipated future supply crunch resulting from the incident.

Fortunately, the partners are still in the construction phase at the project with limited underground equipment in place (primarily a heat exchanger and pumps); it had not yet installed any processing equipment in the workings.

Following a brief trading halt, shares of Cameco shed over 9% on the news to close down $4.00 at $38.95 apiece on strong volume. The company produces about 20% of the world’s uranium from operations in Saskatchewan (McArthur River, Key Lake and Rabbit Lake) and the United States (Smith Ranch-Highland in Wyoming and Crow Butte in Nebraska). It is also bringing its 60%-owned Inkai in situ leach operation in Kazakhstan into production by 2008.