WNN reports that Cameco will temporarily suspend production from the McArthur River mining and Key Lake milling operations in northern Saskatchewan by the end of January "due to continued uranium price weakness", the Canadian uranium producer announced yesterday. The duration of the suspension and temporary layoff of about 845 workers is expected to last 10 months, it said.
Uranium prices have fallen by more than 70% since the Fukushima accident in March 2011 and remain at low levels. Cameco said it has been partially sheltered from the full impact of weak prices by its portfolio of long-term contracts, but those contracts are running out and it is necessary to position the company today to generate cash flow if prices do not improve.
Cameco plans to meet its commitments to customers from inventory and other supply sources during the suspension, which will be reviewed on an ongoing basis "until inventory is sufficiently drawn down or market conditions improve". It will continue to evaluate the "optimal mix" of its sources of uranium supply to feed into its contract portfolio, which could see it make further changes to its inventory position, production profile or purchasing activity, it said. The company's annual dividend in 2018 will be $0.08 per common share, a reduction of $0.32 per common share on an annual basis.
"With the continued state of oversupply in the uranium market and no expectation of change on the immediate horizon, it does not make economic sense for us to continue producing at McArthur River and Key Lake when we are holding a large inventory, or paying dividends out of proportion with our earnings," said Tim Gitzel, Cameco's president and CEO.
Cameco expects its share of the costs to maintain both operations during the suspension to range between CAD 6.5 and CAD 7.5 million per month. However, some of the items affecting these costs won't be known until the operations are actually shut down. More details will be provided in the company’s fourth-quarter results, which will be released in February.
Cameco has committed sales volumes of 28 to 30 million pounds in 2018. Using inventory to help meet contract commitments now allows Cameco to draw down its inventory without suffering a loss by selling at low market prices, it said. It also avoids the risk of holding excess inventory valued above market prices on its balance sheet if prices remain low.
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