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500 jobs lost after Cameco shuts down Rabbit Lake

Aerial view of the Rabbit Lake mine courtesy of Cameco.

In a further indication of the uranium slump, Cameco (NYSE:CCJ, TSX:CCO) is suspending production at its Rabbit Lake operation in northern Saskatchewan and curtailing production at its US operations.

The uranium mining giant said Thursday the shutdown will result in the elimination of about 500 positions at Rabbit Lake and about 85 jobs south of the border. The cost of the Rabbit Lake shutdown is pegged at $35 million.

“We regret the impact these decisions will have on many of the talented and dedicated people working at these operations and on their home communities,” Cameco president and CEO Tim Gitzel said in a statement. “Unfortunately, continued depressed market conditions do not support the operating and capital costs needed to sustain production at Rabbit Lake and the US operations. These measures will allow us to continue delivering value to Cameco’s many stakeholders and support the long-term health of our company. We will provide assistance to those affected by these decisions.”

Production at Rabbit Lake this year will be cut in more than half, to 1 million pounds versus a previous 3.6 million pounds. The impact in the United States is expected to be smaller in terms of output, a reduction of .3 million pounds to 1.1 million pounds.

Unfortunately, continued depressed market conditions do not support the operating and capital costs needed to sustain production at Rabbit Lake and the US operations.

Citing an oversupplied uranium market, Cameco will also downgrade production targets at its McArthur River/ Key Lake operation to 18 million pounds from a previous 20 million pounds. The layoffs and shutdowns are not expected to affect Cigar Lake, where Areva’s McLean Lake mill is expected to increase production from 13 million pounds annually to 24 million pounds.

Overall, the changes are expected to lower Cameco’s annual production from 30 million pounds to 25.7 million pounds.

Saskatchewan Premier Brad Wall called the news “a terrible day for northern Saskatchwan”. While the newly-reelected premier said there is some hope that the closure may not be permanent, he also said he didn’t believe “that prices will be coming back to the extent that they would need to for Rabbit Lake to reopen any time soon.”

The nuclear fuel is having the worst start to a year in a decade. U3O8 is down more than 25% in 2016 with the UxC broker average price sliding to $25.69 a pound on April 15. That’s the cheapest uranium has been since May 2, 2005.

Uranium was actually the best performing commodity in 2015 by virtue of having declined in value only slightly over the course of the year. So what’s happening?

Vancouver-based Haywood Securities attributes the decline to “a dearth of non-discretionary buying from utilities combined with an over-supplied market which continues to inflate global inventories, partially attributable to the continued shutdown of Japanese reactors and the ramp-up of production at selected uranium mines including Cigar Lake.” 

Five years after the Japanese disaster only two of the country’s 50 nuclear reactors are back on line.  In other developed markets nuclear power is also in retreat.