SASKATOON – Cameco Corp. says it will be able to reduce operating costs at its Cigar Lake uranium mine by about a fifth by processing all of the ore produced there at one mill instead of two.
The Saskatoon-based company (TSX:CCO) had previously envisioned milling Cigar Lake uranium at both McLean Lake and Rabbit Lake facilities. Under a memorandum of understanding with its partners announced late Wednesday, ore will now be sent only to McLean Lake.
The move means a drop in cash operating costs from $23.14 per pound to $18.60 per pound.
“We’re always looking at ways to improve the economics of our operations, and this was clearly a big opportunity, reducing the operating cost at Cigar Lake by 20 per cent over the life of the mine,” said Cameco spokesman Gord Struthers in an interview Thursday.
Capital costs to build the mine, however, have risen since Cameco released a technical report in March 2010. Cameco said its 50 per cent share of the costs have swelled $189 million to $1.1 billion. The total cost of the mine now sits at $2.2 billion, Struthers said.
He said the milling plan announced Wednesday did not cause the capital cost increase. Rather, other developments – such as Cameco’s plan to freeze the ground at Cigar Lake to make it easier to drill, upgrades and expansions at McLean Lake and improvements to the mine plan – were the main drivers.
Areva Resources Canada Inc., a subsidiary of the French nuclear reactor manufacturer, is the second-largest partner at Cigar Lake with a 37 per cent stake. Idemitsu Resources Canada Inc. and Tepco Resources Inc. hold eight and five per cent interests, respectively.
Areva operates the McLean Lake mill with a 70 per cent interest. Uranium miner Denison mines holds 22.5 per cent and the Canadian division of Japan’s Overseas Uranium Resources Development Co. owns 7.5 per cent.
The Cigar Lake mine has been plagued by flooding that has delayed its startup by several years.
Cameco says the current projected production startup date remains mid-2013.
The company and its partners discussed reworking the Cigar Lake milling agreement well before Cameco launched a hostile bid for Hathor Exploration Ltd., a junior Vancouver miner that owns the prized Roughrider uranium deposit in Saskatchewan.
“To improve the economics of the Cigar Lake project is our primary objective,” Struthers said.
“We’ve been talking with Areva and the other partners about this long before this unsolicited offer to Hathor’s shareholders was conceived.”
Hathor (TSX:HAT) has rejected the $520-million offer, calling it “predatory” and “opportunistic,” and said the it doesn’t adequately reflect the value of Roughrider.
The Cameco bid would see the company develop the Roughrider uranium using its Rabbit Lake mill and other infrastructure it already has in northern Saskatchewan – thereby reducing project costs.
With Cigar Lake uranium no longer heading to Rabbit Lake, there is more spare capacity at that facility to process ore from Roughrider, should that project go ahead, said Struthers.
“Clearly Rabbit Lake is the logical operation for milling ore in the vicinity, including Roughrider.”
In Thursday afternoon trading on the Toronto Stock Exchange, Cameco shares rose 61 cents, or three per cent, to $20.40.
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