Saturday, April 08, 2006

Cameco Corporation Cigar Lake

The announcement that Cameco Corporation's (NYSE:CCJ TSE:CCO) Cigar Lake mine would be delayed by six months is of greater significance than what people might believe. First of all, there is immediate relevance to Cameco. The cost of building Cigar Lake, already at $500 million or so, will go up by another $50-100 million. There will be losses also from the six months of non-production of uranium oxide.

Beyond the immediate impact to Cameco Corporation and their investors is that to the rest of the uranium juniors. Cameco Corporation basically dwarfs its uranium cousins with its size and Cigar Lake represents the next step in securing its hold on uranium supremacy. After all, their intention is to flood the uranium market with 18 million pounds of uranium oxide from Cigar Lake eventually.

However, because of the erstwhile mine flooding, Cigar Lake has indeed been set back. While investors of the Cameco Corporation may not and should not rejoice, investors of other uranium companies probably would see this news in a different light. Imagine when SXR Uranium One rolls through with uranium production from its Dominion mine during the first quarter and finds out that there is no new production from Cameco Corporation. Ditto for Paladin Resources, who will enjoy the media coverage on "new uranium oxide production" during the 3rd quarter of this year without having Cigar Lake looming over their heads.

As for Cameco Corporation investors, all is not lost of course. The advantage of being at the top of the uranium oxide food chain is that recoverable mistakes can be made. Cameco still has uranium production from multiple other sources, and profits will increase as they gradually unhedge themselves from prior contracts. Of course, as I have stated in earlier articles about the Cameco Corporation, they do not have the unhedged flexibility of Paladin or Urasia, but they will be fine in the long run.
 

1 Comments:

Blogger Ethan45 said...

I think this is wildly significant for uranium prices over the next couple of years.

It is my understanding that Cigar was being counted on for about 10 million pounds of uranium next year (2007). This represents about 5% of the world's consumption.

Cameco and Cogema most certainly have contracts to fill which means they will have to buy uranium on the open market. This is what happend when the McArthur mine flooded a couple of years ago, however, the pain was not as great when U3O8 was at $20.

I still believe the juniors are over valued but if events like this continue to support if not push up the cost of uranium, these hopefulls will be able to levitate for some time to come.

1:14 PM  

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