Cameco to reopen Cigar Lake uranium mine amid mixed market reaction

BMO Capital Markets predicts “near-term pressure” on uranium prices that are expected to climb over the next few years

Cameco president and CEO Tim Gitzel. Photo courtesy of Cameco

Saskatoon based uranium producer Cameco Corp. announced plans to restart production at its Cigar Lake uranium mine in northern Saskatchewan this month. The decision to reopen came one week after a presumptive positive case of COVID-19 at the Cigar Lake mine site on April 2.

Production at Cigar Lake was suspended last December 2020 due to increasing risks posed by the pandemic. The availability of workers in critical areas was suffering, with more individuals residing in communities with pandemic-related travel restrictions.

“The safety of our workers, their families and communities is always our top priority,” Cameco president and CEO Tim Gitzel said. 

“In recent months we have implemented several enhanced safety protocols for Cigar Lake, including increased distancing between passengers on flights, mandatory medical-grade masks for all workers and increased sanitization and physical barriers in our eating areas. We also worked with the Saskatchewan Health Authority and have established a licensed COVID-19 testing facility at the mine site.

“These further safety measures, along with the provincial vaccine rollout program and increased confidence around our ability to manage our critical workforce, have given us greater certainty that Cigar Lake will be able to operate safely and sustainably.”

The company said it will “closely monitor the COVID-19 case counts and the ongoing success of the vaccine rollout,” and will “continue to have regular dialogue with public health authorities and northern Saskatchewan leaders.”

Cameco said the timing of production restart and the production rate at Cigar Lake will depend on how quickly the company can mobilize its workforce. The company will wait until production has resumed Cameco before speculating on its outlook for 2021. 

Production capacity at Cigar Lake is about 18 million pounds per year, and accounts for around 13 per cent of global uranium output. The spot price for uranium rose above $30 per pound for the first time this year at the end of March and last week was pegged at $30.85 per pound.

Shares in Cameco were down 2.7% on the New York Stock Exchange in afternoon trade on Monday but optimistic reports by BMO Capital Markets and Morgan Stanley say the current price is a floor and expect a rally in prices over the next few years to around $50 by 2024.

“The restart of Cigar Lake could result in some near-term pressure on spot uranium prices, which could weigh on the stock,” BMO Capital Markets noted on Monday. 

Cameco said it continues to deliver into its contract portfolio and that its “strong balance sheet has provided the company with the financial capacity to successfully manage the production disruption at Cigar Lake.” As of Dec. 31, 2020, Cameco said that it had $943 million in cash and short-term investments and $1 billion in undrawn credit.

“Having Cigar Lake running is part of our strategy and it was always our intention to resume production,” Gitzel said.

 “There are significant costs associated with having the mine in temporary care and maintenance, and we have a home in our contract portfolio for these low-cost pounds. We will also continue to purchase material, as needed, to meet our committed deliveries.

“Having said that, worker health and safety is our top priority, and we will not hesitate to take further action if we feel our ability to operate safely is compromised due to the pandemic.”