Cameco (TSX: CCO; NYSE: CCJ) has closed down McArthur River, the world’s largest uranium mine, and its Key Lake mill, in Saskatchewan’s Athabasca basin, over a labour dispute.
On Aug. 27, the Saskatoon-based producer said it received a strike notice from the United Steelworkers (USW) Local 8914 after failing to reach a new contract agreement for the 535 unionized employees at the two operations.
The USW said the workers would go on strike starting at 12:01 a.m. on Aug. 30. In response, Cameco issued a lockout notice for the same time to halt production from McArthur River and Key Lake.
Cameco met with the USW during the 72-hour notice period. It gave its final offer to the union bargaining committee on Aug. 28, which the committee rejected.
Both sides have been negotiating since last November to reach a contract agreement, after the previous four-year agreement expired on Dec. 31, 2013.
The company and the USW jointly applied for conciliation under the Canada Labour Code in July. On Aug. 11, the USW voted in favour of a strike if a new deal was not reached by the month’s end.
A day before the strike, Cameco began flying unionized workers from northern sites to their home communities. To maintain its facilities, Cameco has kept salaried employees and some unionized workers under an “essential services” agreement with the union.
Cameco says the strike should not affect its 2014 uranium delivery commitments to customers, as it could tap into other mine production sites, existing purchase commitments and inventories.
Rob Chang, an analyst at Cantor Fitzgerald, notes that while a sustained shutdown at the operations will lower Cameco’s future earnings, it could positively affect the global uranium market, which is suffering from weak prices and an oversupply.
Raymond James analyst David Sadowski agrees. He says a closure at McArthur River — estimated on a 100% basis to produce 18 million lb. uranium a year, or 12% of global mine supply — could support uranium prices, particularly if Cameco buys uranium in the spot market to fulfill its deliveries.
Chang adds that if McArthur River stays closed for the rest of the year, it could remove 7 million lb. of supply from the uranium market, which is estimated to have an excess of 13.2 million lb.
BMO analyst Edward Sterck notes that “should uranium prices improve on the back of a prolonged strike at McArthur River, the positive effect this might have on Cameco’s share price could offset the potential negative impact to Cameco’s earnings.”
Leading up to the strike, the spot price for uranium hovered around US$31 per lb., up from a recent low of US$28.50 per lb. The uptick is largely due to the sanctions on Russian nuclear fuel supply and trading activity, Sadowski writes. He says that while Cameco had warned about the strike action, he does not believe the spot price before the strike fully reflected the work stoppage.
Nevertheless, the uranium spot price is still quite depressed given the slow approval to restart nuclear reactors in Japan, after the Fukushima Daiichi nuclear disaster in 2011.
Analysts say the uranium market should remain in oversupply through 2017, with a supply shortage expected in 2020.
Cameco owns 70% of the McArthur River mine and 83% of the Key Lake mill, with its partner, Areva, holding the remaining stake of each asset.
On the strike notice, Cameco fell 3.5%, or 77¢, to close Aug. 27 at $21.14.
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