TD Comments on Cameco and UraniumEvent Media reports are indicating that Cameco is planning a 6-week shutdown at its McArthur River mine during the summer of 2017 starting in early July. Impact: MIXED
According to the media reports, which are based upon an internal memo, the planned shutdown at McArthur River is intended "to help address economic challenges facing" the uranium industry. Earlier this year, in response to weak uranium prices, Cameco announced production curtailments that included the closure of the Rabbit Lake operation and a halt to new well-field development at the company's U.S. in-situ leach mines. At the same time, management also lowered 2016 production guidance for the McArthur River mine to 18 million pounds from 20 million pounds (100% basis). All told, the production curtailments lowered Cameco's 2016 production guidance to 25.7 million pounds from 30 million pounds.
Cameco has not yet provided 2017 production guidance. As a result, the impact of a six-week shutdown at McArthur River is difficult to assess. The combined McArthur River Mine and associated Key Lake mill has a licensed capacity of 25 million pounds of uranium per annum (100% basis). Annual production in recent years has typically been between 18-20 million pounds per year (100% basis). We estimate that a 6-week shutdown could impact annual production by 1.5-2.0 million pounds.
We believe that an extended shutdown at McArthur River is partly due to management's cost reduction focus (coordinating shutdowns across operations and reducing camp/transport costs) and also reflects the ongoing challenges in the uranium market. Ux Consulting (UxC) recently estimated that the uranium market will be in surplus by 20 million pounds in 2016 and could see a 24 million pound surplus in 2017.
Our NPV-10% for McArthur River is $1.99 billion, or $5.03/sh. The operation comprises ~30% of our mining/project net asset value.