Saskatchewan is experiencing a significant negative trend in the pandemic, which is leading to increased uncertainty for continuous operation of Cigar Lake
Cameco announced that it will be temporarily suspending production at its Cigar Lake uranium mine in northern Saskatchewan over the coming weeks due to the increasing risks posed by the Coronavirus (COVID-19) pandemic.
Saskatchewan is experiencing a significant negative trend in the pandemic, which is leading to increased uncertainty for the continuous operation of Cigar Lake, due in part to access to qualified operational personnel. We will continue to carefully monitor the provincial COVID-19 situation, especially in northern Saskatchewan, as well as the impacts on our communities and the availability of employees and contractors to travel to Cigar Lake.
“The safety of our workers, their families and communities is our top priority,” said Cameco President and CEO Tim Gitzel. “We have had six positive tests at our northern operations in recent weeks, including three at Cigar Lake. While the protocols we have put in place have to date allowed us to effectively manage these cases, there are broader risks we don’t control. Therefore, we believe it is prudent to do our part to continue to protect our people and our operations from the increasing threats that are outside our influence.
“One of the most challenging trends we’ve had to navigate is the shrinking availability of workers in critical roles at Cigar Lake due to self-isolations, absenteeism and communities being on temporary pause for transporting workers due to the pandemic.”
At the peak of production this fall, there were about 300 workers on-site at Cigar Lake. As a result of this decision, we will be placing the mine in a safe state of care and maintenance and there will be a significant reduction in personnel. We expect the enhanced health and safety protocols already in place and the decreased activities at site will ensure we can continue to work safely.
Cameco will continue to have regular dialogue with public health authorities and northern leaders in Saskatchewan.
“Having Cigar Lake operating was always part of our strategy,” Gitzel said. “The costs of care and maintenance are not insignificant, and you saw that impact in our third quarter results. Therefore, the restart conditions for Cigar Lake are not the same as we have laid out for McArthur River. The timing of the restart and the production rate will depend on how the COVID-19 pandemic is impacting the availability of the required workforce at Cigar Lake, how cases are trending in Saskatchewan, in particular in northern communities, and the views of public health authorities.
“Due to the suspension, we plan to increase our purchases in the market to secure uranium we need to meet our sales commitments,” Gitzel said. “COVID-19 has taught us many lessons, including that the pandemic is a greater risk to uranium supply than to uranium demand.”
We expect our business to be resilient. Our deliveries to date have not been materially impacted by COVID-19, nor do we expect there will be a material impact on our remaining 2020 deliveries. At September 30, 2020, Cigar Lake had produced 2.3 million pounds (Cameco’s share) of uranium concentrates. However, due to the temporary production suspension, we do not expect to achieve 5.3 million pounds (our share) of production for 2020.
There will be costs associated with this temporary production suspension. While Cigar Lake is on care and maintenance, we expect to incur costs of between $8 million and $10 million per month, which will be expensed directly to cost of sales. We may also incur additional costs related to the purchase of uranium, which comes at a higher cost than our production. Given the timing of the suspension, we do not expect these costs would begin to impact our results until the first quarter of 2021.
Our balance sheet remains strong and we expect to have the financial capacity to manage the disruptions to our operations caused by the COVID-19 pandemic. As of September 30, 2020, we had $793 million in cash and short-term investments and $1 billion in long-term debt. In addition, we have a $1 billion undrawn credit facility. We expect our cash balances and operating cash flows to meet our capital requirements for the remainder of 2020, and therefore do not anticipate drawing on our credit facility in 2020.
The Cigar Lake operation is owned by Cameco (50.025%), Orano Canada Inc. (37.1%), Idemitsu Canada Resources Ltd. (7.875%) and TEPCO Resources Inc. (5.0%) and is operated by Cameco.
Source: Company Press Release