Oct. 23, 2006. 06:10 PM
SASKATOON — A massive emergency door has failed to hold back flooding at the Cigar Lake uranium mine in northern Saskatchewan, and Cameco Corp. (TSX: CCO
) expects all of its
underground operations to be inundated.
Monday afternoon's announcement came less than three hours after executives had expressed confidence that two heavy bulkheads would contain intense flooding that erupted Sunday after a rockfall in a shaft half a kilometre underground.
Cameco shares, which were down about four per cent on the initial news of the flooding, plunged as much as 12.7 per cent after word that the entire mine would be deluged.
"We found that one of the doors did not seal properly which allowed significant water to flow into the processing area," the company stated.
"Efforts to fully seal the door were not successful and the inflow exceeded capacity to pump out the water."
As a result, "all underground areas of the Cigar Lake project are expected to be filled with water."
The company, the world's largest uranium miner, said its workers are safe and there is no environmental impact.
CEO Jerry Grandey said he could could not indicate how much further the miner's plans would be set back by the failure to keep the water out of the main shaft and major equipment installations in the processing area.
He had said Monday morning that the contained flooding would delay the mine by at least a year from its scheduled 2008 completion, and would add "significant" costs to a capital budget last estimated at $660 million.
The problem began with a rockfall Sunday afternoon in a previously dry area near the end of a shaft, followed by a deluge of water running at 1,500 cubic metres per hour, Grandey said.
Workers began on Sunday evening to close the two steel doors intended to prevent water from rising above the production level into the underground infrastructure of the mine. Cameco initially said the bulkheads were sealed by 5 a.m. local time Monday.
These doors — in steel cylinders placed in 10-metre
lengths of concrete — are 480 metres underground and were designed to withstand the pressure of a column of water more than that in height.
The door leakage was blamed on a seal failure which allowed a water flow that overwhelmed pump capacity. The mine was evacuated and is expected to take several days to fill completely.
Cameco stock was halted Monday afternoon, and when trading resumed after word of the deepening trouble at Cigar Lake the shares fell as much as $5.45 to $37.50, before closing with a loss of $4.00 or 9.3 per cent at $38.95 on the Toronto Stock Exchange.
"We've recognized from the outset that this is a difficult mine . . . with water above us in the sandstone," CEO Grandey commented.
The rockfall occurred about 11 metres below the sandstone, and Grandey said the water flow is significantly greater than anything experienced at MacArthur River, another Saskatchewan mine where Cameco suffered serious
flooding in 2003.
Cameco "is committed to develop plans to remediate the project and preserve this valuable asset," the company stressed. Cigar Lake is the largest known undeveloped high-grade uranium deposit, with an ore body estimated to be worth $12 billion.
The latest problem follows flooding in April that put back construction by six months and helped swell estimated costs to $660 million from $520 million.
Grandey stressed that the Cigar Lake problem does not affect Cameco's ability to meet contractual obligations to its customers.
"We do have a number of other supply sources, we do have inventories, and clearly there's not going to be any impact on our deliveries until 2008, when Cigar Lake was scheduled to begin making deliveries on a ramp-up mode."
Additionally, he said, Cameco's supply contracts provide general protection against interruptions, including "the ability to defer, delay or indeed even
cancel Cigar Lake deliveries, depending on the circumstances at the mine."
He declined to speculate on the impact on global uranium prices.
Cigar Lake is half-owned by Cameco, with 37 per cent held by the Areva Group of France, eight per cent by Idemitsu Kosan Co. of Japan and five per cent by a subsidiary of Tokyo Electric Power Co.
Grandey said the additional costs will be shared by the co-owners.
He acknowledged a "risk" to the mine's eventual production target of 18 million pounds a year, and Cameco will have to ``develop new timelines for construction, cost estimates and production forecasts."