Cameco Hits ‘Start’ at Cigar Lake

It’s all systems go at Cigar Lake, according to Cameco (TSX:CCO,NYSE:CCJ). 

Following years of setbacks, including mine plan re-engineering, Cameco has finally flipped the switch and pressed the green button on its 50-percent-owned Cigar Lake. The Northern Saskatchewan mine is in full operation, with first ore expected to be processed at the McClean Lake mill by the end of Q2 2014.

Cigar Lake is expected to be one of the largest uranium mines in the world, with peak production of 18 million pounds per year by 2018. For 2014, the McClean Lake mill is expected to produce between 2 and 3 million pounds of uranium. Based on its anticipated full production figures, Cigar Lake is expected to account for 9 percent of global mine supply.

In a research note from Raymond James, David Sadowski states that the “[s]tart-up of Cigar and further progress towards initial Japanese restarts are key de-risking events for the company and the sector, respectively. In our opinion, Cameco is well-suited to take advantage of improving sentiment in the space on its ‘go-to’ status as the largest, most liquid uranium vehicle; growing low cost mines in low risk jurisdictions, and a healthy balance sheet and contract book.”

Cantor Fitzgerald sees the start up of Cigar Lake as positive not only for Cameco, but also for Denison Mines (TSX:DML,NYSE:DNN). With 22.5-percent ownership of the McClean mill, Denison will profit from the mill’s revenues.

Indeed, it appears that overall, the start up of Cigar Lake has spread positive sentiment throughout the uranium sector. Add to that China National Nuclear’s news that China is on track to exceed its 2020 nuclear energy target of 15 percent, and it’s clear the uranium market is rife with gains. As a result, shares of several uranium producers and exploration companies got a boost during intraday trading today.

For its part, Cameco hit its highest trading level since May 2011, reaching $28.57 before settling back down at $27.63. Other gainers for the day include the United States’ only conventional uranium mill operator, Energy Fuels (TSX:EFR,NYSE:UUU), which got an 8.6-percent bump, rising to $11.36; it later closed at $10.90. Athabasca Nuclear (TSXV:ASC) also gained, trading 3.57 percent higher and closing at $0.145. Kivalliq Energy (TSXV:KIV) closed up 2.17 percent at $0.235. Meanwhile, Uranium Participation (TSX:U), which is seen as an indicator of the uranium market, closed with no change for the day.

With Cigar Lake started, China needing more uranium and Japan’s reactor restarts on the horizon, confidence in the uranium market seems to be piling up. It is a matter of when, not if, uranium prices will move accordingly. For now, uranium consultant UxC states that prices are still hovering at $35 per pound of U3O8.

 

Securities Disclosure: I, Vivien Diniz, hold not investment interest in any of the companies mentioned.