Slowly but surely, uranium market soothsayers are waking up to the fact that nuclear power and the uranium industry face a bleak future. Writing in Motley Fool last December, Maxx Chatsko wrote:1
"I've done a complete 180 on nuclear energy in the last year. ... The enormous headwinds facing the global nuclear power industry represent a significant long-term obstacle for Cameco shareholders. The threat of reactor shutdowns, even spread out over the next two decades, creates a cloud of uncertainty that will continue to hang over uranium prices. Although they could rebound from their current historic lows, there doesn't seem to be any catalyst on the horizon for sustained demand growth. Simply put, nuclear power is on its way out, with new construction likely to be significantly offset by retirements. That's bad news for uranium miners everywhere."
Cameco is responsible for about 17% of global uranium production, or at least that was the figure before the late-2017 announcement to reduce production. The company has been downsizing in recent years:
- In December 2012, Cameco booked a C$168 million (US$133m) write-down on the value of its Kintyre uranium deposit in Western Australia.2
- In 2014, Cameco cut its growth plans and uranium exploration expenses, warning that the "stagnant, over supplied short-term market" was not going to improve any time soon.3
- In 2014, Cameco put its Millennium uranium project in northern Saskatchewan on hold ‒ where it remains today ‒ and asked the Canadian Nuclear Safety Commission to cease the mine approval process.4
- In April 2016, Cameco announced that it was suspending uranium production at Rabbit Lake in Canada, reducing production at McArthur River / Key Lake in Canada, and slowing production at its two US uranium mines, both in-situ leach mines ‒ Crow Butte in Nebraska and Smith Ranch-Highland in Wyoming. About 500 jobs were lost at Rabbit Lake, 85 at the US mines, and corporate headquarters was downsized.5
- In early 2017, Cameco announced that another 120 workers would be sacked by May 2017 at three Canadian uranium mines and mills ‒ McArthur River, Key Lake and Cigar Lake ‒ and production at McArthur River, already reduced, would be suspended for six weeks in mid-2017.6,7
And in late-2017, Cameco announced that production at McArthur River, the world's largest producing uranium mine, would be suspended from January 2018 for around 10 months. The Key Lake mill will also be put into care-and-maintenance.8,9 Cameco is 70% owner of McArthur River and 83% owner of Key Lake; Areva (now called Orano) owns the remainder.
The workforce at McArthur River and Key Lake will be reduced by about 845 workers (including contractors), with about 210 workers retained to maintain the two sites in care-and-maintenance.9
A Cameco statement said:9
"Cameco plans to meet its commitments to customers from inventory and other supply sources during the suspension, which will be reviewed on an ongoing basis until inventory is sufficiently drawn down or market conditions improve. The duration of the suspension and temporary layoff is expected to last 10 months.
"Uranium prices have fallen by more than 70% since the Fukushima accident in March 2011 and remain at unsustainably low levels. Cameco has been partially sheltered from the full impact of weak prices by its portfolio of long-term contracts, but those contracts are running out and it is necessary to position the company today to generate cash flow if prices do not improve. ...
"We have reduced supply, avoided selling into a weak spot market, resisted locking-in long-term sales commitments at low prices, and significantly reduced costs. To decrease costs, we suspended production at the Rabbit Lake operation, stopped development and curtailed production at our US operations, reduced workforce across all our sites including head office, changed air commuter services for operations in Saskatchewan, changed shift schedules at two Saskatchewan sites, and downsized corporate office functions including a consolidation of our global marketing activities."
The "other supply sources" mentioned above including buying uranium on the spot market ‒ Cameco's uranium is more valuable left in the ground at current prices.
Cameco CEO Tim Gitzel said in November that further cutting production is an option despite the repeated cut-backs in recent years and the suspension of production at McArthur River and Key Lake.10
Gitzel said last year that "obviously we're very far from requiring any new greenfield uranium projects."11
From being the top uranium stock in 2016, Cameco made a complete turn-around to become the worst-performing uranium stock in 2017, shedding 12% during the year.12
The Northern Miner reported in November 2017 on Cameco's latest cut-backs ‒ and the uranium industry's broader malaise:13
"The bottom line is that Cameco is suspending 40–45% of its mine output and laying off 20% of its workforce. Cameco is also slashing its annual dividend by 80% next year from 40¢ to 8¢ per common share ...
"In the post-Fukushima years, Cameco had always reassured stakeholders it was sheltered from the impact of weak uranium prices by its portfolio of long-term contracts, but the company now admits 'those contracts are running out, and it is necessary to position the company today to generate cash flow if prices do not improve.
"Cameco emphasizes that company-wide, it has already lowered supply, cut planned capital expenses, avoided selling into a weak spot market, resisted locking in long-term sale commitments at low prices and significantly reduced costs.
"Across mining, no one has had a harder past seven years than uranium miners, developers and explorers, and the year ahead shows little sign of improvement. If the subsector's leader Cameco is having these kinds of grave troubles, we can only imagine what the rest of the uranium pack is going through in closed-door meetings."
Kazatomprom
In January 2017, Kazatomprom announced that it planned to cut production by 10% in 2017 in response to ongoing oversupply in the uranium market.14
In December 2017, Kazatomprom announced a 20% reduction of uranium production from 2018‒2020. That reduction equates to about 7.5% of estimated global production for 2018 (Kazakhstan has accounted for about 39% of world production in recent years).8,14-16
"Given the challenging market conditions, and in light of continued oversupply in the uranium market, we have taken the strategic decision to reduce production in order to better align our production levels with market demand," Kazatomprom chairperson Galymzhan Pirmatov said.16
China has been a major buyer of uranium from Kazakhstan. That supply may be slowing as the Chinese nuclear power program slows, and China may have stockpiled as much uranium as it plans to.17 Former World Nuclear Association executive Steve Kidd estimates that China has accumulated at least 100,000 tonnes of uranium17 ‒ about 12 times its estimated 2017 requirements.18 China's stockpile may be higher ‒ Ux Consulting estimated it at about 300 million pounds U3O8 (115 tonnes of uranium) in mid-2016.19
References:
1. Maxx Chatsko, 12 Dec 2017, 'The Simple Reason I Won't Buy Cameco Corporation Stock', www.fool.com/investing/2017/12/12/the-simple-reason-i-wont-buy-cameco-co...
2. Nick Sas, 13 Feb 2013, 'Cameco puts Kintyre on ice', https://thewest.com.au/news/wa/cameco-puts-kintyre-on-ice-ng-ya-344802
3. Cameco, 7 Feb 2014, 'Cameco Reports Fourth Quarter and 2013 Financial Results', www.cameco.com/media/news/cameco-reports-fourth-quarter-and-2013-financi...
4. Cameco, 'Millenium', www.cameco.com/businesses/uranium-projects/millennium
5. World Nuclear News, 22 April 2016, 'Cameco scales back uranium production', www.world-nuclear-news.org/UF-Cameco-scales-back-uranium-production-2204...
6. Cameco, 17 Jan 2017, 'Cameco Announces Preliminary 2016 Earnings Expectations and Operational Changes Planned for 2017', www.cameco.com/media/news/cameco-announces-preliminary-2016-earnings-exp...
7. Greg Peel, 14 March 2017, 'Uranium Week: See You In Court', www.fnarena.com/index.php/2017/03/14/uranium-week-see-you-in-court/
8. MINING.com, 23 Dec 2017, 'Are Higher Uranium Prices Around The Corner?', https://oilprice.com/Alternative-Energy/Nuclear-Power/Are-Higher-Uranium...
9. Cameco, 8 Nov 2017, 'Cameco to suspend production from McArthur River and Key Lake operations and reduce its dividend', www.cameco.com/media/news/cameco-to-suspend-production-from-mcarthur-riv...
10. Rod Nickel / CNBC, 9 Nov 2017, 'UPDATE 2-Uranium miner Cameco not planning more output cuts 'right now'-CEO', www.cnbc.com/2017/11/09/reuters-america-update-2-uranium-miner-cameco-no...
11. Cameco, 9 Feb 2017, 'Cameco's (CCJ) CEO Tim Gitzel on Q4 2016 Results ‒ Earnings Call Transcript', https://seekingalpha.com/article/4044994-camecos-ccj-ceo-tim-gitzel-q4-2...
12. Neha Chamaria, 31 Dec 2017, 'Here's Where Things Went Wrong for Cameco Corporation in 2017', www.fool.com/investing/2017/12/31/heres-where-things-went-wrong-for-came...
13. Northern Miner, 22 Nov 2017, 'Editorial: Cameco suspends 40% of production in face of oversupply' www.northernminer.com/news/editorial-cameco-suspends-40-production-face-...
14. World Nuclear Association, 10 Jan 2017, 'Oversupply prompts Kazakh uranium production cut', www.world-nuclear-news.org/UF-Oversupply-prompts-Kazakh-uranium-producti...
15. Kazatomprom, 4 December 2017, 'Kazatomprom announces further production cuts', www.kazatomprom.kz/en/news/kazatomprom-announces-further-production-cuts
16. World Nuclear Association, 4 Dec 2017, 'Kazakhstan to cut uranium production', www.world-nuclear-news.org/UF-Kazakhstan-to-cut-uranium-production-04121...
17. Steve Kidd, 13 Sept 2017, 'Uranium – what are the dynamics between China and Kazakhstan?', www.neimagazine.com/opinion/opinionuranium-what-are-the-dynamics-between...
18. World Nuclear Association, February 2018, 'World Nuclear Power Reactors & Uranium Requirements', www.world-nuclear.org/information-library/facts-and-figures/world-nuclea...
19. Rhiannon Hoyle and Mayumi Negishi, 31 July 2016, 'Japan Nuclear-Power Jitters Weigh on Global Uranium Market', www.wsj.com/articles/japan-nuclear-power-jitters-weigh-on-global-uranium...