Low uranium prices at fault Cameco closes Rabbit Lake

The layoffs, mine closure and organizational changes stem from depressed uranium prices which tumbled throughout 1988 to a low of less than $12 (US) per lb. Spot prices this week were quoted at $10.75 per lb. Although most observers of the uranium sector feel that prices have bottomed and will likely take a turn for the better sometime in the 1990s, the forecasts provide little comfort to producers today.

The rationalization at Cameco includes laying off 30 employees at the company’s uranium refining plant at Blind River, Ont., and the termination of 40 positions at a uranium conversion plant at Port Hope, Ont. Production levels at both sites will also be reduced.

At Rabbit Lake, the mine and mill will be closed on July 1 for six months. The time will allow Cameco to complete mill modifications and improvements required in order to handle higher grading ore from a new open pit mine. Also, the modifications will allow the mill to produce 12 million lb of uranium per year. The shutdown will also allow Cameco to begin development work at the nearby Eagle Point underground mine. About 100 jobs at Rabbit Lake will also be eliminated.

At the Key Lake mine — the world’s largest — Cameco and partner Uranerz Exploration and Mining have agreed to let Cameco become the mine operator. Key Lake is presently operated by the Key Lake Mining Corp., which is a joint venture between both companies. “It is more efficient to consolidate the mine’s operation under its major shareholder,” William Gatenby, Cameco’s chairman said.

The low spot prices for uranium are also expected to tarnish Cameco’s financial performance in 1989. Last year the company earned $52.8 million on revenue of $236.5 million. Cameco was formed last year from the merger of Eldorado Nuclear and the Saskatchewan Mining Development Corp.; both crown corporations. Gatenby says that he hopes to complete Cameco’s first public share offering sometime this year.

However, the weakness in uranium prices and their effect on Cameco’s operations and bottomline combined with the downturn in the equity markets, are not expected to make the company’s first share issue an easy task.

Uranium prices, which exceeded $40 per lb in the late 1970s, have come under pressure during the past decade from lower-than- expected demand and large inventories. 1988 was one of the worst years on record as spot prices slid from $16.80 per lb at the beginning of the year to a low of $12.08 in December.

Cameco, and other uranium miners, are looking to the 1990s for a return to higher prices. By that time, forecasts suggest the large global stockpiles of uranium will have been sufficiently reduced that prices will have to respond to the supply squeeze.

Poor prices and Cameco’s reorganization plans are not going to affect the Cigar Lake test mining project. Also in Saskatchewan, Cigar Lake is being readied for production sometime in the 1990s. The deposit hosts the richest uranium reserves in the world, totalling 385 million lbs in ore grading 14.1% uranium oxide per ton. Cameco holds a 48.75% interest in the deposit.

Cameco also plans to maintain its inventory levels inorder to ensure security of supply to its electrical utility customers around the world.

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