Cameco’s Cigar Lake restart to put pressure on uranium price

Cigar Lake uranium mine. Image from Cameco.

Top listed uranium producer Cameco (TSX: CCO; NYSE: CCJ) plans to restart production this month at its Cigar Lake uranium mine in northern Saskatchewan.

Production at Cigar Lake was suspended for six months last year and in December, the company again halted work at the mine due to increasing risks posed by covid-19.

Cameco president and CEO Tim Gitzel said the timing of the restart and the production rate will be dependent on how quickly the company is able to remobilize the workforce:

“Cameco will not be in a position to provide updates to our outlook for 2021 until production has resumed and we understand the rate at which we will be able to sustainably operate the mine.

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

“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.”

Cigar Lake production capacity is around 18 million pounds per year, constituting some 13% of global uranium output.

Having Cigar Lake running is part of our strategy and it was always our intention to resume production

“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 said in note on Monday:

“Nevertheless, we forecast a uranium deficit of >33Mlb (18% of demand) in 2021, which should continue to drive an overall improving uranium price through the remainder of the year and beyond, which is likely to offset any near-term weakness, in our view.”

In afternoon trade Monday, shares in Cameco, which owns just over 50% of Cigar Lake, were down 2.7% on the NYSE, paring some of its earlier losses. The company has a $6.7 billion market capitalization.

The spot price for U3O8 moved 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 (UxC) as uranium producers and mine developers hoover up above-ground inventories and reactor construction continues apace.

Reports by BMO Capital Markets and Morgan Stanley argue the current price marks a floor and predict a rally in prices over the next few years to the ~$50 level by 2024.