Two mines closed, 700 jobs lost, $76 million in net losses for Cameco

Two miners walking through the Cigar Lake mines, one of the only operational facilities Cameco still runs. (Courtesy Cameco)

Bianca Bharti, Daily Herald

Canada’s largest publicly-traded uranium production company announced significant net losses for its second quarter in 2018 and 700 layoffs due to depressed market demand on Wednesday.

“It was a tough day yesterday,” Tim Gitzel, president and CEO of Cameco said Thursday. “We regret the impact we had on our workers and their families but we have to sustain this company long-term. We have to look at the viability. The market’s just not there.”

Cameco posted $76 million in net losses with an adjusted net loss of $28 million. For quarter two of 2017, the company posted $2 million in net losses, showing a dramatic increase of 3700 per cent year over year.

Because of an oversupply of uranium and seven years of a declining market, senior management decided to indefinitely suspend operations at their McArthur River and Key Lake mines. The cuts mean layoffs of 550 site employees and 150 corporate employees at the Saskatoon office.

The news comes after Cameco announced in November they would halt operations of the two sites for 10 months.

About 200 employees will stay to maintain the two mines. Those laid off will receive “significant” severance packages, Gitzel said. For its third quarter, the company will incur between $40 and $45 million in severance costs, according to results report.

“We just can’t seem to catch a break,” said Mayor Greg Dionne. “We get moving in one direction and… what’s sad about the announcement is that it’s out of our control.”

Dionne said he always had hope it would reopen but now he’s concerned about the affected residents in Prince Albert.

Since the earthquake that hit Japan in 2011, both Gitzel and University of Saskatchewan professor Brooke Dobni said uranium sales began to decline.

Japan made up about one-fifth of the world’s uranium consumption and possessed 54 nuclear reactors. After the earthquake destroyed several reactors and plants, the Japanese government took slow, incremental efforts to get their energy systems running again.

Gitzel described Japan as an “important” part of Cameco’s sales. “(However,) we always diversify. We never take a country risk or a company risk and sell too much to one.” India and China are also key clients for the company, as well as the United States, said Glitzel.

“So yes it had an effect on us but it also had an effect on all the other companies that sell (uranium) as well.”

Dobni, a professor of strategy at University of Saskatchewan’s Edwards School of Business, said there’s very little Cameco can do.

“When all you do is basically mine and sell uranium, so your one stream of revenue is under pressure, I’m not surprised,” he said. “It’s not unusual in commodity markets to have long periods of loss when there’s a downturn in the price.”

Cameco is one of the largest industrial employers of Indigenous peoples in the country, according to Geoff Smith, vice-president of government relations and Aboriginal affairs for the Mining Association of Canada.

The average salary for a miner is $100,000, Smith said. “These are not minimum wage jobs being lost, it’s a significant step back for employees.”

Most mining operations occur in remote, northern communities, he said. “The mining sector in Canada has had a long (history) working and partnering with Indigenous communities.”

Often mining companies sign impact benefit agreements (IBA) that generate wealth and socio-economic growth in Indigenous communities, according to Natural Resources Canada.

The agreements see mining companies set up activities like training initiatives, scholarships, apprenticeships, workplace literacy programs and stay-in-school programs. The efforts are meant to boost other sectors of the northern community’s economy once the mine closes. The companies also invest in community infrastructure and supply chains.

The agreements are a mix of any of the above initiatives, and vary from company to company, Smith said.

“We’re very proud we’ve been the largest industrial employer of Indigenous people in Canada for many, many years. This will affect them as well, so we regret that very much,” Gitzel said. To “soften the blow,” the CEO will be heading up to northern communities to speak with Indigenous leaders and give explanations.

“It hurts. I grew up in northern Saskatchewan, including Prince Albert and Meadow Lake. These are more than employees, these are friends of mine.” he said. Despite the difficulty of laying off “friends,” it had to be done to maintain the long-term viability of the company.

The job cuts will impact the communities locally, including Prince Albert, Prof. Dobni said. “If there’s no work, it hurts the economy.” People spend less, some may put their houses up for sale or leave their rental, some may even leave the communities altogether.

On a national level, the lost revenues due to decreased sales will impact government tax coffers.

Prior to 2011, uranium cost nearly $100 per pound, according to Dobni. Now, as of July 16, the cost per pound is about $30. It makes no sense to mine assets when production of uranium costs more than its spot market price, he said.

“It’s simple economics. Right now there’s an excess supply so you just have to wait until the demand increases.” This also means downsizing and laying off workers.

Just after the Toronto Stock Exchange opened on Thursday, the Cameco shares saw a 10 per cent increase from the opening price of $14.06 to $15.59 by 9:40 a.m. By end of day, the shares were trading at $14.74.

“The very fact that they’re making these decisions to cut costs, the market looks at it positively,” Dobni said. Ultimately, the people who own the company are shareholders, he said. “They have to make decisions in the best interest of the (shareholders).”

Cameco will continue operations at Cigar Lake and see production coming in from Kazakhstan. In 2016, they closed down mines in Rabbit Lake.

“We’ll continue to produce uranium and we’ll buy and use our inventory to fill our contracts,” Gitzel said. “We’re still very, very active. We have to protect the long-term interests of our shareholders.”

Thierman Financial