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Uranium Giant Cameco Shuts Plants, 2020 Outlook Uncertain

By Neha Chamaria – Apr 8, 2020 at 3:58PM

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Cameco's production cuts may add to the euphoria in uranium prices, but it could hurt the company.

Cameco Corp. (CCJ 5.17%), one of the world's largest uranium producers, has announced plans to shut down a fuel service facility barely a couple of weeks after suspending uranium production at its key mine, Cigar Lake. Here's why it's a big deal for Cameco: Cameco will be producing next to nothing for some weeks at least.

The announcement comes at a time when uranium prices are rallying, ironically for the same reason as above: production curtailments, including by the world's largest uranium miner Kazatomprom. Uranium is a key chemical element used to fuel nuclear power plants primarily run by utilities.

What's Cameco latest COVID-19 move?

Cameco is shutting its uranium hexafluoride plant at its Port Hope conversion facility for four weeks "due to the increasing challenge of maintaining an adequate workforce as a result of screening protocols and other measures put in place to align with the directives and guidance of government and public health authorities for the Coronavirus (COVID-19) health crisis."

Nuclear reactors on a yellow field.

Image source: Getty Images.

Uranium hexafluoride is a key compound used is the processing of uranium. Cameco will also shut down its Blind River refinery that provides uranium trioxide to its Port Hope plant.

Given the complexity of its operation, the conversion facility is required to be run continuously without any interruption, which has become a major challenge for the company in the wake of COVID-19 restrictions.

Meanwhile, Kazatomprom's decision to slash 2020 production by nearly 18% will weigh on Cameco. 

What's left for Cameco in 2020?

Cameco said its latest move, along with the suspension of production at Cigar Lake mine, "may lead to variability in the 2020 outlook we provided" earlier, although it is too early to quantify the impact.

That's an understatement, as Cigar Lake was to be Cameco's "only operating property" in 2020 as the company put other mines under care and maintenance. In February, Cameco outlined plans to produce only around 9 million pounds of uranium and purchase 20 million to 22 million pounds in the spot market.

With production curtailments sending uranium prices higher in recent weeks, Cameco's strategy to purchase the bulk of its uranium could backfire if higher prices sustain for the better part of the year.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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