Nuclear Fuel Market: Cigar Lake Restart to Limit Cameco Purchases

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Market participants had mixed reactions to Cameco's Apr. 9 decision to restart its uranium operations in northern Saskatchewan sometime this month. The spot price slipped lower as sellers found themselves on the offer side with no bids. The return of Cameco's Cigar Lake uranium mine and Orano's McLean Lake mill promises to limit Cameco's spot market purchases that have helped support its customer deliveries, but risks of further supply disruptions in Canada and elsewhere remain. On the back of a price rally led by mining juniors through March, prices this month have steadily declined as sellers emerged with material that few buyers were willing to take (NIW Apr.9'21). Energy Intelligence's Uranium Price Panel delivered an average price of $29.36 per pound U3O8 on Apr. 15, down from $30.50/lb. on Apr. 8. Cigar Lake, with annual capacity of 18 million lbs., has been in care and maintenance since a second Covid-19 outbreak began in December, likely removing about 6 million lbs. from the market so far this year. Cigar Lake produced only 10.1 million lbs. last year due to the two pandemic-related suspensions, with the first one running from April through September. Cameco's 50.03% ownership in Cigar Lake entitled it to only 5 million lbs. at an all-in cost of $15-$16/lb. in 2020. Even if Cameco pulls a similar amount from the mine this year, it will have more flexibility to control costs given its smaller 2021 order book at 23 million and 25 million lbs., so far about 7 million lbs. less than in 2020. Because Cameco's decision to reopen the mine this month came without a hard date, market participants wondered if there was a sense of urgency underlying the decision, particularly since Saskatchewan seems to be entering a third wave of Covid-19 cases and Cameco's stated commitment to the health and safety of its workforce (NIW Mar.5'21). Uranium bulls suggested the decision reflected limited availability of spot market material, a point Cameco has itself made (NIW Mar.26'21). But a handful of sellers looking for buyers this month would beg to differ with that assessment. Cameco, for its part, is not making a point about the timing but rather focusing on "enhanced protocols" to cope with the pandemic and a provincial vaccination rollout as reasons for the restart (related). "I’m not surprised by the timing," one market source said. "I expected they would want to bring it back on line as soon as it was safe from a virus perspective. It was never a market-driven shutdown like MacArthur River, and I think they prefer operating it so they are not completely reliant on Inkai and market purchases to feed their large contract book" even if that contract book is smaller than it used to be. Cameco reported in February it had 8 million-9 million lbs. booked in purchase commitments for this year with an inventory of 15.3 million lbs. U3O8 equivalent. Cameco can also purchase 4.9 million lbs. U3O8, or 59.4% of its Kazatomprom joint-venture (JV) Inkai’s planned 2021 production of 8.3 million lbs. Kazakhstan is also facing a resurgence in Covid-19 cases that could impact Kazakh uranium output. The country reported 2,727 new cases as of Apr. 15, up from 961 a month ago. Kazatomprom has so far declined to take the extreme measures it took last spring to stop the virus' spread and instead maintained 2021 production guidance at 22,500-22,800 tU, on a 100% basis, even after more than 200 employees tested positive in the first weeks of the year (NIW Feb.5'21). If the country reimposes restrictions, the Kazakh producer and its JV partners could end up taking fewer pounds than anticipated. That could affect Inkai as much as it could affect Orano's Kazakh JV Katco in the Turkestan region and the site of a Covid-19 outbreak in January that saw 128 positive cases. Orano has a 37.1% stake in Cigar Lake, and with the closing of its Cominak mine in Niger last month, it's likely Orano would require at least some of its share of production from the Canadian operation this year to meet its own commitments, particularly if there is a risk of reduced output from its Katco JV (NIW Feb.26'21). Jessica Sondgeroth, Washington Uranium Price Panel Chg. 4/15 4/8 4/1 3/25 3/18 3/11 3/4 2/25 2/18 2/11 2/4 1/28 1/21 Price ($/lb U3O8) -1.14 29.36 30.50 31.13 29.90 29.75 27.36 27.50 28.14 28.64 29.33 29.38 29.73 29.88 Total Assessments 1.00 10.00 9.00 8.00 10.00 11.00 9.00 11.00 11.00 11.00 12.00 11.00 10.00 10.00 % within 1 StDev 3.33 70.00 66.67 62.50 80.00 63.64 66.67 54.55 72.73 81.82 83.33 72.73 80.00 80.00 Low ($/lb U3O8) -1.00 29.00 30.00 31.00 29.80 29.45 27.25 27.15 27.80 28.45 29.20 29.00 29.25 29.75 High ($/lb U3O8) -1.50 29.50 31.00 31.35 30.25 30.20 27.75 27.85 28.50 28.75 29.45 29.70 30.00 30.00 Variability* -0.10 0.05 0.15 0.17 0.11 0.07 0.11 0.13 0.07 0.06 0.04 0.06 0.00 0.04 *This represents the value of the potential range of conceivable final averages that might result when

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