Cameco to restart Cigar Lake in September

Cameco’s Cigar Lake mine in northern Saskatchewan is the world’s highest-grade uranium mine. Image by Cameco.

Cameco (TSX: CCO; NYSE: CCJ) is planning to restart its Cigar Lake mine in northern Saskatchewan in early September, the Canadian uranium major announced on Wednesday.

Restart of the mine, which has been on care and maintenance since March 23, will be dependent on several factors, the company said, including its ability to establish safe and stable operating protocols, availability of the necessary workforce, and impact of the covid-19 pandemic.

CEO Tim Gitzel said that the decision to resume Cigar Lake was “prudent,” noting that the covid-19 pandemic posed a greater risk to supply than to demand, as the industry had become highly concentrated geographically and geologically.

Cameco expects to recover $303 million in cash paid and $482 million in letters of credit secured with the CRA

The world’s largest uranium producer, Kazatomprom of Kazakhstan, also suspended operations on April 7, tightening global supply.

Cameco said it would not be able to make up the lost production, and therefore has set a target 2020 production of up to 5.3 million pounds.

“With the uncertainty remaining about our ability to restart and continue operating the Cigar Lake mine, the delays and deferrals of project work and therefore the resulting production rate in 2020 and 2021, we believe the current plan represents an appropriate balance of the commercial considerations affecting our decision,” said Gitzel.

Meanwhile, Cameco reported a net loss of $53 million and an adjusted net loss of $65 million for the second quarter of 2020, impacted by additional care and maintenance costs of $37 million resulting from the suspension of production at the Cigar Lake mine, Blind River refinery and Port Hope UF6 conversion plant.

Given the production interruptions at the Cigar Lake mine and at the Inkai operations, Cameco said it would increase its required spot market purchasing in 2020 to meet its delivery commitments and to maintain desired inventory levels. Combined with the additional care and maintenance costs, the average unit cost of sales in the uranium segment would be higher than the company’s previous estimate.

“We have the tools we need to deal with the current uncertain environment. We are well positioned to self-manage risk. We have $878 million in cash and short-term investments on our balance sheet and a $1 billion undrawn credit facility, which we do not anticipate we will need to draw on this year.”

Cameco also believes its risks have been “significantly reduced” with the Federal Court of Appeal’s decision last month to rule in favour of the company in its tax dispute with the Canada Revenue Agency (CRA) for the 2003, 2005 and 2006 tax years.

Based on its calculations, the company expects to recover $303 million in cash paid and $482 million in letters of credit secured with the CRA in relation to this dispute.