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TABLE OF CONTENTS Jun 9 - 15, 2014 Volume 100 Number 17 - 0 comments

Cameco puts Millennium on ice

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Poor economic conditions in world uranium markets are forcing many uranium companies to postpone projects or scale back operations.

Cameco (TSX: CCO; NYSE: CCJ) has recently put its Millennium uranium project on ice.

The Canadian Nuclear Safety Commission (CNSC) said Cameco doesn’t want to proceed with the licensing application for its Millennium underground mine project, 600 km north of Saskatoon.

At Cameco’s request, CNSC adjourned a public hearing that had been scheduled for June 18, which would have concluded the environmental assessment. Cameco has also withdrawn its application for a 10-year licence to build and operate Millennium.

Currently spot uranium prices — at US$28 per lb. — are the lowest in eight years, and companies are adjusting their plans accordingly.

On May 21 Paladin Energy (TSX: PDN; US-OTC: PALAF) announced that uranium production and circuit inventory clean-up had stopped at its Kayelekera mine in Malawi, and that the operation would stop supplying the global uranium market. The decision would result in reduced global supply of 3.3 million lb. uranium oxide (U3O8), the company estimated.

Paladin explained that placing the mine on care and maintenance was “an unfortunate but direct consequence of the continuing deterioration in the uranium price,” adding that “certain estimates now place up to 60% of current annual global production with costs above the current spot price, which is unsustainable.” The company also said that the incentive price range to restart the operation is US$70 to US$75 per lb. U3O8.

Ur-Energy (TSX: URE; NYSE-MKT: URG) has also announced a new strategy and plans to only sell into long-term contracts for 2014 and 2015, at average prices of  US$50 per lb. U3O8.

“Uranium spot-market pricing has recently been reported as slipping to eight-year lows,” the company said in a statement on May 22. “In consideration of the strong pricing inherent in the company’s contracted sales and the current weakness in the uranium spot market, any 2014 product sales beyond the contracted levels will be made solely on a discretionary basis.”

The company said that it plans to hold any excess production from Lost Creek in inventory, which may be used to meet future delivery obligations or complete discretionary spot transactions.

David Talbot and Aaron Salz of Dundee Capital Markets point out that “most unhedged primary uranium production can simply not produce profitably at today’s prices, reinforcing our belief that further mine delays and shutdowns are pending.”

Ur-Energy “is yet another production centre decreasing output due to low uranium prices, adding to a growing list of mines in 2014, including Kayelekera (3 million lb.), Palangana (0.2 million lb.), SW U.S. conventional mines (0.7 million lb.) and even development projects like Millennium are being held back for economic reasons,” the Dundee analysts wrote in a research note on May 22.

The Millennium project is a joint venture between Cameco (69.9%) and JCU (Canada) Exploration Co. Ltd. (30.10%).

The project was expected to produce 150,000 to 200,000 tonnes U3O8 annually over five years.

Measured and indicated resources at the project stand at 1.4 million tonnes grading 2.39% U3O8 for 75.9 million lb. U3O8. (Cameco’s share is 53 million lb.) Inferred resources tally 412,000 tonnes grading 3.19% U3O8 for 29 million lb. (Cameco’s share is 20.2 million lb.)

Millennium was to be a mine-only operation, trucking its ore to Cameco’s Key Lake mill, 36 km south.

The decision to delay the project “underscores Cameco’s concerns about the current state of the uranium market and highlights willingness to engage in supply management, which should eventually help the spot uranium market turn around,” Nik Rasskazovskiy, of Salman Partners, wrote in a research note to clients.

The analyst has a “hold” recommendation on Cameco’s stock with a 12-month target price of $23.20. At press time Cameco was trading at $21.05 per share within a 52-week range of $17.95 to $28.58. The company has 396 million shares outstanding.

Cameco expects to produce 23.8 million to 24.3 million lb. U3O8 in 2014, with estimated sales of 31 million to 33 million lb.

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