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Cameco suspends some Port Hope production

The Canadian Press: November 28, 2008

http://www.theglobeandmail.com/servlet/story/RTGAM.20081128.wcameco1128/EmailBNStory/energy/home

SASKATOON Cameco Corp. is suspending production of uranium hexafluoride at its complex in Port Hope, Ont., as a result of unreliable and expensive deliveries of hydrofluoric acid.

Layoffs are expected to number less than 100 among the 440 workers at the conversion plant, Cameco said Friday. The shutdown is expected to last until at least the middle of next year.

The operation along the Lake Ontario shore had reopened in September after being shut down in July 2007 when Cameco found material from the plant had seeped into soil and groundwater. The environmental cleanup cost more than $50-million.

The suspension announced Friday arises from a contract dispute with Cameco's sole supplier of the acid needed to produce uranium hexafluoride, a highly toxic and corrosive compound used in the enrichment process for nuclear fuel.

The dispute remains unresolved and Cameco has exhausted the inventory of HF it had purchased on a spot basis, the company said, adding that it is in talks with other sources of the acid while seeking to resolve the contract problem.

Given the uncertainty, Cameco has decided to suspend UF6 production until the second half of 2009, it said. It expects to meet UF6 deliveries to customers in the first half of 2009.

Winding down production will take several weeks and the exact number and type of positions that will be affected have not been determined.

The company's other Port Hope production of uranium dioxide is not affected.

The latest cuts from Cameco come as the global uranium industry deals with falling prices by delaying projects, cutting costs and placing mines on care and maintenance to deal with current economic conditions.

Not only have prices been falling as a result of commodity funds and hedge funds dumping uranium to raise cash, but the industry also faces rising costs for labour, capital and raw materials, including the vast amounts of sulphuric acid used in uranium mining.

Earlier this week, Denison Mines Corp., a mid-sized uranium producer and its partner French giant Areva, are postponing development of the Midwest uranium project in Saskatchewan.

The company also plans to temporarily shut down its Tony M mine in Ticaboo, Utah, and cut capital spending.

Earlier this month, Uranium One Inc. said it has taken a $2.8-billion (U.S.) writedown and is cutting costs across all operations after placing its Dominion mine in South Africa on care and maintenance.

Although uranium mining is considered a relatively recession-proof venture nuclear plants require uranium to operate regardless of demand for electricity the spot price for uranium has plummeted in recent months, from a high of $137 per pound in mid-2007 to as low as $44 in October before rebounding to $55.

In Friday trading on the TSX, Cameco shares fell 58 cents to $21.07 (Canadian), a drop of 2.7 per cent.

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