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Tuesday, March 20, 2007

Cameco Gives Update on Cigar Lake

You'll find a Reuters story HERE: Or you can read about it on the company website here: Some highlights ... Cameco says the Cigar Lake mine would now open in 2010, two years later than originally planned but in line with analysts' recent expectations. Cigar Lake is now expected to reach full production in 2012. You'll remember that before the flood, the mine was expected to start production in early 2008 and contribute 18 million pounds of uranium a year at full capacity. That represents about 17% of world production. The company said its share of building the mine has increased to C$508 million ($431 million) from an earlier projected C$330 million, but that it will still be a low-cost producer.

The salvaging (or "remediation") of the mine is now in Phase One. To date, 13 of the 14 drill holes planned for reinforcing and sealing off the water inflow area are complete. Concrete is required in two locations underground – one near the rockfall to seal off the inflow area and another in a nearby tunnel to provide reinforcement. More than 1,000 cubic metres of concrete have been poured through drill holes into the reinforcement area. The concrete mixture is designed to harden under water and is being poured in successive layers.

Cameco now expects to complete the work necessary to seal off the water inflow in the third quarter of 2007 after spending additional time learning the best way to work with concrete in the water underground. This timeline assumes that the current pace of drilling is maintained, and the concrete solidifies as planned to provide reinforcement and prevent or reduce water inflow sufficiently to enable mine dewatering. The integrity of the plug will not be known until dewatering is under way.

Cameco has applied to the regulators for approval to drill an additional four, larger-diameter, holes that would be used to dewater the mine.
After Phase 1, the next phases are:
Phase 2 Dewatering the underground development, verifying the water inflow has been sufficiently sealed, and initiating the installation of surface freezing infrastructure - expected to be completed by the end of the third quarter 2007.
Phase 3 Completing any additional remedial work identified in phase two such as determining if additional reinforcement is required in higher risk areas - expected by the end of 2007.
Phase 4 Completing underground rehabilitation that includes securing areas to prevent ground fall or water inflow, re-establishing mine ventilation, installing pumping capacity and re-establishing the ore freezing program - expected to be completed by the summer of 2008.
Phase 5 Resuming construction activities that will lead to scheduled completion of the mine -targeted for 2010.

Now for Risk Factors (with my highlights)
Cigar Lake is a challenging deposit to develop and mine. These challenges include control of groundwater, weak ground formations, and radiation protection. The sandstone overlying the basement rocks contains significant water at hydrostatic pressure. Freezing the ground is expected to result in several enhancements to the ground conditions, including: (1) minimizing the risk of water inflows from saturated rock above the unconformity; (2) reducing radiation exposure from radon dissolved in the ground water; and (3) increasing rock stability. However, freezing will only reduce, not eliminate, these challenges. There is also the possibility of a water inflow during the drilling of holes to freeze the ground. Therefore, the risk of water inflows at Cigar Lake remains. The consequences of another water inflow will depend upon the magnitude, location and timing of any such event, but could include a significant delay in Cigar Lake's remediation, development or production, a material increase in costs, a loss of mineral reserves or require Cameco to give notice to many of its customers that it is declaring an interruption in planned uranium supply. Such consequences could have a material adverse impact on Cameco. Water inflows are generally not insurable.

We're seeing some uranium stocks give back gains today, and I'm pretty sure it's because analysts see the news from Cameco as so "positive." But there are plenty of "ifs" in Cameco's projections. "If the ground holds ... if it doesn't flood again ... if ..."

Even if everything works out as planned -- and remember, one-third of uranium projects suffer serious delays, and flooding is one of the worst delays I'd want to deal with -- I expect uranium prices to go much higher. If Cigar Lake floods again, the sky's the limit.


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