Unpredictability Of The Future
In the past 3 days we have witnessed what I think is a wonderful (or not so wonderful) example of the unpredictability of the future; that is, nobody can successfully predict the future on a consistant basis.
In case you have not read the news yet, here it is:
Cameco Corporation reported today that all underground areas of the Cigar Lake project are expected to be filled with water following a rock fall yesterday. Efforts to protect the main shaft and key underground infrastructure by closing bulkhead doors were not successful. Everyone was safely evacuated by 11:30 a.m. today. There were no injuries and no impact on the environment.
Cameco will now investigate options to restore access to the mine. Production startup was previously planned for early 2008 and we will assess a new production timetable after remediation plans are developed. Cameco is operator and majority owner of the Cigar Lake uranium project located in northern Saskatchewan.
The incident began at 1:10 p.m. on Sunday, October 22, 2006, in the future production area that previously had been dry. At 8:45 p.m., in accordance with existing contingency plans, the company decided to close two bulkhead doors to contain the water inflow within the future mining area. The doors were closed at 5:00 a.m. on Monday, October 23. While monitoring the area, we found that one of the doors did not seal properly which allowed significant water to flow into the processing area. Efforts to fully seal the door were not successful and the inflow exceeded capacity to pump out the water.
Cameco is committed to develop plans to remediate the project and preserve this valuable asset. We will develop new timelines for construction, cost estimates and production forecasts. Cameco has supply interruption protection in its contracts providing the right to reduce, defer or cancel volumes on a pro-rata basis if we experience a meaningful shortfall in planned production. This language protects about three-quarters of current contracted volumes. This percentage will rise as old contracts expire. All contracts also contain standard force majeure protection. The baseload contracts put in place to support the development of Cigar Lake also contain supply interruption language, which allows Cameco to reduce, defer or terminate Cigar Lake product deliveries in the event of any delay or shortfall in Cigar Lake production.
Given the foregoing contractual protections, Cameco is adequately positioned to meet its contractual obligations.
Since the release of this bad piece of news for Cameco shareholders, the share price has dropped about 15%. For a company of the size of Cameco, that is a huge dip.
If you hold Cameco shares, this is obviously bad in the short term and if you don't, trying to catch a falling knife is never a good idea.
But you can always find a positive in any unfortunate situation and that positive was the large pop to the upside for many other Uranium companies, especially ones close to production. Paladin, SXR etc. have mostly appreciated in price.
I myself am not reacting to this news. I remain heavily in cash just playing one or two junior Uranium speculations with flat charts and low volume.