Saskatchewan mine closure will put hundreds out of work
Cameco Corp. will shutter its longrunning Rabbit Lake operation in Saskatchewan as the company tries to adjust to an extremely weak uranium market.
The shutdown will lead to roughly 500 job losses, Saskatoon-based Cameco said. The miner is also curtailing production at its U.S. operations, which will result in an additional 85 job cuts.
Cameco chief executive Tim Gitzel said these moves were unavoidable as the company needs to be prepared for a “lower-for-longer” scenario in the uranium business.
“It was just a tough day for all of us here at Cameco and we’re thinking of our employees,” he said in an interview.
The company is ramping up production at its very low-cost Cigar Lake mine. That means it can meet its customers’ needs without the higher-cost output from Rabbit Lake, which is not sustainable at current uranium prices.
The job cuts are another blow to the Saskatchewan economy, which is already reeling from weak oil and potash prices.
Uranium has been in a vicious bear market since the Fukushima nuclear disaster in March 2011. Last week, the spot price dropped to an 11-year low below US$26 a pound. It was above US$130 at the peak of the market in 2007.
Market sentiment for uranium remains extremely weak as the Japanese reactor restarts after Fukushima have been much slower than expected. As a result, the market has been heavily oversupplied and utilities have no trouble sourcing supply.
“Spot market activity remains subdued as weak (uranium) demand globally has allowed motivated sellers to drive down the price,” TD Securities analyst Greg Barnes said in a note.
Analysts expect the uranium market to rebalance over the next few years as more Japanese reactors re-start and additional reactors come online around the world, particularly in China. However, that process will be gradual. Barnes said he expects the spot price to remain below US$40 a pound though 2018.
Gitzel acknowledged that the post-Fukushima recovery in uranium is taking far longer than he expected. He thought some of Japan’s 54 reactors would restart operations as soon as 2012. In fact, the first restart did not happen until last year and there have only been two thus far.
Rather than shut Rabbit Lake permanently, Cameco is putting the operation on so-called “care and maintenance,” which means the mine will be preserved for a potential restart in the future after market conditions improve.
However, Gitzel said current prices are “not even close” to what would be needed to consider a restart.
Cameco initially planned to produce 3.6 million pounds of uranium at Rabbit Lake in 2016. Now the company is guiding for just one million pounds. Cameco also said it will slash production at its flagship McArthur River operation this year by 10 per cent to 18 million pounds because of the weak market conditions.
As a result, the company now expects to produce 25.7 million pounds of uranium in 2016, down from its prior guidance of 30 million.