To most people, this would not be a notable news item. If you have been studying the uranium market, though, it is one that merits close attention. Cigar Lake is in the area of the Athabasca Basin where the richest uranium mines in the world are located. Given that the market is already very tight (if price is a valid indicator), then this delay will have significant ramifications. Perhaps it is already priced in, to some extent, but it will be worth keeping tabs on the uranium price over the next few weeks, at least...
Cameco Announces Construction Setback at Cigar Lake Project
Monday October 23, 4:11 am ET
SASKATOON, SASKATCHEWAN--(MARKET WIRE)--Oct 23, 2006 -- Cameco Corporation (TSX:CCO.TO - News)(NYSE:CCJ - News) reported today that Cigar Lake mine construction is expected to be delayed by at least a year after the mine experienced a significant water inflow following a rock fall and a portion of the underground development was allowed to fill with water. Production startup was previously planned for early 2008. The remainder of the underground area remains dry. Cameco is operator and majority owner of the Cigar Lake uranium project located in northern Saskatchewan.
The incident began at 1:10 p.m. on Sunday, October 22, 2006, in the future production area that previously had been dry. As a precautionary measure, non-essential personnel were temporarily evacuated. There were no injuries and there was no impact on the environment.
At 8:45 p.m., in accordance with existing contingency plans, the company decided to close two bulkhead doors to contain the water inflow within the future mining area. The mine shaft (shaft #1), future processing area, pumps, refuge station and heat exchanger for freezing the ore are being protected from the inflow and will be monitored as the pressure builds up behind the bulkhead doors.
Cameco will be developing plans to restore access to this area which will provide a better estimate of construction scheduling and likely startup date of production. At this point, the construction delay is estimated to be at least a year. This incident is not expected to impact reserves at Cigar Lake.
Given the expected delay in construction, the capital cost is expected to be significantly higher. We will provide an estimate of these costs once the remediation plans have been developed. We will also update our production forecast for Cigar Lake at that time.
Cameco has supply interruption protection in its contracts providing the right to reduce, defer or cancel volumes on a pro-rata basis if we experience a meaningful shortfall in planned production. This language protects about three-quarters of current contracted volumes. This percentage will rise as old contracts expire. All contracts also contain standard force majeure protection.
The baseload contracts put in place to support the development of Cigar Lake also contain supply interruption language, which allows Cameco to reduce, defer or terminate Cigar Lake product deliveries in the event of any delay or shortfall in Cigar Lake production.
Given the foregoing contractual protections, Cameco is adequately positioned to meet its contractual obligations.
The Cigar Lake project is located 660 kilometres north of Saskatoon with a workforce of about 650 during the construction phase. The Cigar Lake mine is owned by Cameco Corporation (50%), AREVA Resources Canada Inc. (37%), Idemitsu Uranium Exploration Canada Ltd. (8%), TEPCO Resources Inc. (5%).
Cameco, with its head office in Saskatoon, Saskatchewan, is the world's largest uranium producer. The company's uranium products are used to generate electricity in nuclear energy plants around the world, providing one of the cleanest sources of energy available today. Cameco's shares trade on the Toronto and New York stock exchanges.
CONFERENCE CALL INFORMATION
We invite you to join us in a conference call at 11:30 a.m. Eastern time (9:30 a.m. Saskatoon time) today, October 23, 2006 to discuss this news release. The call will be open to all members of the investment community. Members of the media will be invited to ask questions at the end of the call. In order to join the conference call today, please dial (416) 644-3414 or (800) 814-4862 (Canada and US). An operator will put your call through. Please pass this invitation to colleagues in your organization who have an interest in Cameco.
A recorded version of the proceedings will be available: on our web site, cameco.com, shortly after the call, and on post view until midnight, Eastern time, Monday, November 13 by calling (416) 640-1917 or (877) 289-8525; (Passcode: 21207525).
CAUTION REGARDING FORWARD-LOOKING INFORMATION
Statements contained in this news release which are not historical facts are forward-looking statements that involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause such differences, without limiting the generality of the following, include: volatility and sensitivity to market prices for uranium, electricity in Ontario and gold; the impact of the sales volume of uranium, conversion services, electricity generated and gold; competition; the impact of change in foreign currency exchange rates and interest rates; imprecision in reserve estimates; environmental and safety risks including increased regulatory burdens; unexpected geological or hydrological conditions; political risks arising from operating in certain developing countries; a possible deterioration in political support for nuclear energy; changes in government regulations and policies, including trade laws and policies; demand for nuclear power; replacement of production and failure to obtain necessary permits and approvals from government authorities; legislative and regulatory initiatives regarding deregulation, regulation or restructuring of the electric utility industry in Ontario; Ontario electricity rate regulations; weather and other natural phenomena; ability to maintain and further improve positive labour relations; operating performance of the facilities; success of planned development projects; and other development and operating risks.
Although Cameco believes that the assumptions inherit in the forward-looking statements are reasonable, undue reliance should not be placed on these statements, which only apply as of the date of this report. Cameco disclaims any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
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