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CIGAR LAKE URANIUM MINE PROJECT FACES FURTHER DELAY

The StarPhoenix with Bloomberg News files: Lana Haight - Friday, July 13, 2007

Cameco Corporation's flooded Cigar Lake uranium mine will take longer to clean up than originally expected, delaying production of the world's largest untapped deposit of uranium.

"With the underground areas being flooded, we don't know what's actually down there and so, once we're able to access that area and take a look around, we'll certainly be in a better position to know what precisely needs to be done," said Lyle Krahn, spokesperson for Cameco Corp.

In October, the uranium mine under construction about 600 kilometres north of Saskatoon was flooded when a development tunnel was built too close to porous sandstone. An independent report also identified the company did not do enough to ensure bulkhead doors that might have contained the flood were working properly.

The flood was the second in six months. In April 2006, a ventilation shaft not yet connected to the main mine also flooded.

Construction on Cigar Lake began in 2005 with the expectation that production of uranium yellowcake used to make fuel rods for nuclear energy plants around the world could begin as early as this spring. The first major setback came with the April 2006 flood and the production date was delayed to February 2008. The second and more extensive flood then resulted in company executives setting a startup date for 2010.

On Wednesday, Cameco announced production will not begin until 2011.

"Another delay at Cigar Lake is not good news and is testing our faith in management's ability to provide an accurate assessment of when the mine will achieve production," said Greg Barnes, an analyst at TD Newcrest Inc. in Toronto, in a note to clients.

But Krahn says Cameco executives are confident in setting the 2011 date.

"We provide the best information that we can that's available at the time. Certainly, in terms of good disclosure and good communication, we'll provide updates as they become available," he said in an interview.



Sealing the source of the flooding and pumping the water out of the mine will take more months than anticipated, and the possibility of excavating a second shaft contributes to the new production date being set.

"Completion of the second shaft will provide both an alternative route out of the mine in case of an emergency and additional ventilation," said Krahn.

The cost of the mine's development has increased with the delays. Originally pegged at $450 million in December 2004, construction costs are now expected to be about $1 billion.

The delay in production has, in the past, put pressure on the spot-market price of uranium. Since the October flood, the price has more than doubled to as much as $138 a pound because of concerns that the supply of uranium may be insufficient in the short-term to satisfy a growing demand.

On Thursday, Cameco shares trading on the Toronto Stock Exchange fell 68 cents to close at $52.15, a 1.29 per cent change. The stock has risen 13 per cent in the past year. Krahn isn't concerned about the slight drop in the share price.

"Our objective as a company is to ensure that (in the) long-term that we have a strong and financially healthy company that meets all our measures of success. And when we do that, I think the share price will take care of itself," he said.

Cameco's next update on Cigar Lake will be included in the company's second-quarter report to be issued July 30. The project is a joint venture, with Cameco owning 50 per cent.

lhaight@sp.canwest.com

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