Due to continued uranium price weakness, Cameco has temporarily suspended production from the McArthur River mining and Key Lake milling operations in northern Saskatchewan until the end of January 2018.
“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.
“We regret the impact these actions will have on our workforce and other stakeholders and are doing what we can to cushion it while ensuring the long-term sustainability of the company. We believe these actions will help shield the company from the nearer term risks we face and will benefit all our stakeholders for their continued patience and support of our strategy to build long-term value,” Gitzel continued.
As a result of the suspension, the workforce will be reduced temporarily by about 845 workers (560 employees and 285 contractors). About 210 workers (160 employees and 50 contractors) will be retained to maintain the facilities in safe shutdown state.
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. The duration of the suspension and temporary layoff is expected to last 10 months.Cameco will continue to evaluate the optimal mix of their sources of uranium supply to feed into their contract portfolio, which could see them making further changes to their inventory position, production profile or purchasing activity.
Cameco will also review its corporate support activities for McArthur River and Key Lake operations, which may result in temporary workforce reductions at corporate office.Uranium prices have fallen by more than 70% since the Fukushima accident in March 2011 and remain at unsustainably low levels. Cameco 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, according to Cameco, it is necessary to reposition the company today to generate cash flow if prices do not improve.
Cameco has committed sales volumes of 28 - 30 million lbs 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 also avoids the risk of holding excess inventory valued above market prices on its balance sheet if prices remain low.
“To date, we have made good progress in reducing costs but unfortunately given the continued market weakness, more needs to be done”, said Gitzel. “We can’t control the market so our focus is on positioning the company to weather the continued low uranium prices and have uncommitted, low-cost supply to deliver into a strengthening market.”