Cameco lowers uranium production expectations for major Canadian operations

Leading global uranium fuel provider Cameco (NYSE: CCJ) has confirmed it is facing a number of issues at its Cigar Lake mine and Key Lake mill operations in Canada.

The company reported that technical issues have led to lower than expected production forecasts at the Cigar Lake mine.

Cameco says it now estimates it will only produce around 16.3 million pounds of uranium concentrate (U3O8) this year, down from a previous forecast of 18 million pounds U3O8.

Cameco has identified equipment reliability and unexpected productivity issues in a new mining area as the main causes of the lower than expected production levels.

Cigar Lake

The Cigar Lake operations are currently focused on a new zone in the orebody, known as the west pod. The mining activities at the west pod ran into equipment reliability issues which further affected performance.

The mine is scheduled to enter its planned annual maintenance shutdown that will run through most of September.

Cigar Lake, the world’s highest-grade uranium mine, is located in northern Saskatchewan and since commissioning in 2014 has produced a total of 105 million pounds, with its ore processed 70 km northeast, at the McClean Lake mill, operated by Orano.

The Cigar Lake operation is owned 54.547% by Cameco, 40.453% by Orano Canada and 5% by TEPCO Resources Inc.

McArthur River/Key Lake also down

Meanwhile, production from the McArthur River/Key Lake operations for 2023 is tipped to come in at 14 million pounds compared to a previous forecast of 15 million pounds.

Located in northern Saskatchewan, McArthur River/Key Lake returned to gradual production in November 2022 after being placed on care and maintenance since February 2018.

While it continues to ramp up activities at this project, Cameco is now re-assessing its production forecasts.

The company says there is continued uncertainty regarding planned production in 2023 at Key Lake due to the length of time the facility was in care and maintenance, the operational changes that were implemented, the availability of personnel with the necessary skills and experience, and the impact of supply chain challenges on the availability of materials and reagents.

Higher value upside

However, the company told shareholders that there is some upside to this matter as any pounds not produced this year will remain available to sell into a market where it may have exposure to higher prices as demand tightens.

“This expected production shortfall further highlights the growing security of supply risk at a time when we believe the demand outlook is stronger and more durable than ever and where the risk has shifted from producers to utilities,” the company stated.

“Uncertainty about where nuclear fuel supplies will come from to satisfy growing demand continues to drive long-term contracting, with clear evidence that the broader uranium market is moving toward replacement rate contracting for the first time in over a decade.”

“This is the type of contracting necessary to promote the price discovery already seen in the enrichment and conversion markets and that is expected to incentivise investments in the supply needed to satisfy the growing long-term requirements.”

The McArthur River mine is owned 69.805% by Cameco and 30.195% by Orano. The Key Lake mill is owned 83.333% by Cameco and 16.667% by Orano.