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re: cameco accident could have major ramifications Cameco Says Uranium-Mine Flood Worsens; Shares Plunge (Update4)

By Christopher Donville

Oct. 23 (Bloomberg) -- Cameco Corp. was unable to control underground flooding at an unfinished uranium mine in Canada, jeopardizing one of the richest deposits of the metal used to make fuel for nuclear reactors. The shares fell 9.3 percent, the most in five years.

Saskatoon, Saskatchewan-based Cameco, the world's largest uranium supplier, said attempts to contain the flow of water at the Cigar Lake mine had failed. The worsening flood probably will boost uranium prices that already are up 54 percent this year and may prolong the delay in completing the mine, which Cameco said earlier today will be at least a year.

``The news has gone from bad to worse,'' Chief Executive Officer Jerry Grandey said today on a conference call with analysts and investors. ``The mine will be allowed to flood over the next several days.''

Production of uranium at Cigar Lake in Saskatchewan had been forecast to begin in early 2008 and utilities had been counting on the new supply to meet growing demand for fuel to run reactors. Prices had jumped to $56 a pound in the U.S. as of Oct. 16, compared with $36.25 at the end of last year, Roswell, Georgia-based Ux Consulting Co. estimated on its Web site.

Shares of Cameco fell C$4 to C$38.95 on the Toronto Stock Exchange, after a trading halt for the most recent status report on the mine. The decline was the biggest since June 21, 2001. The shares have gained 39 percent in the past year.

Lost Supply

``Losing Cigar Lake in the uranium world is like the oil market having to deal with the loss of Saudi Arabia,'' Kevin Bambrough, market strategist at Sprott Asset Management Inc. in Toronto, said in an e-mail. Projected full production of 18 million pounds annually at the mine ``equates to just over 10 percent of current annual consumption,'' he said.

``The big question is, where are the people that contracted to buy Cigar Lake's future production going to get their uranium and how much will they have to pay?'' Bambrough said. ``I expect that we will be testing the inflation-adjusted highs of the last uranium bull market, and that works out to around $110-120 per pound.''

The effect of Cigar Lake on uranium prices ``will be almost immediate,'' said Eric Webb, a vice president at Ux Consulting. Prices will probably be higher when Ux compiles its index next week, he said.

`Blow to Industry'

``If Cigar Lake were lost, that would be a severe blow to the industry,'' Webb said. ``There's enough inventory in the market right now that power plants would continue to operate. The big question is, at what price.''

Buyers of uranium are ``not going to know how serious it's going to be for a couple of months,'' he said

Cameco's delays led to a jump in shares of uranium companies, including Vancouver-based International Uranium Co., which jumped 5.4 percent. Toronto-based Denison Mines Inc. rose 4.5 percent to a 17-month high.

Cigar Lake's proven and probable uranium reserves of 232 million pounds have a gross value of about $13 billion, based on the current spot price. Rock at Cigar Lake on average is 19 percent uranium, a concentration only exceeded by Cameco's deposit at McArthur River, Saskatchewan, where the average grade is 25 percent.

The mine is 50 percent owned by Cameco, with the remainder held by AREVA Resources Canada Inc., Idemitsu Uranium Exploration Canada Ltd. and TEPCO Resources Inc.

Challenging Mine

Preparations for uranium mining at Cigar Lake are complicated by high levels of radioactivity in the rock and the presence of water that saturates the surrounding sandstone.

``This is a challenging mine,'' Grandey said on the first of two conference calls the company held today. Uranium ore at Cigar Lake stretches over two kilometers at a dept of 450 meters (1,476 feet), Camceo's said on its Web site.

To successfully mine the uranium, Cameco plans to use a jet-bore system that relies on a cooling plant at the surface producing enough chilled brine to freeze the ore body to prevent an inrush of water.

Cameco earlier today said the underground flooding occurred yesterday after a rock fall deep within the mine, which is located 660 kilometers (410 miles) north of Saskatoon. No one was injured, and all workers were evacuated from the area, the company said.

``Efforts to protect the main shaft and key underground infrastructure by closing bulkhead doors were not successful,'' the company said in a second statement.