Cameco-produced feature originally submitted to Investor's Voice, a publication of the American Chamber of Commerce in Almaty, Kazakhstan for their December, 2009 issue.

Cameco, one of the world's leading uranium producers and long the top producer of uranium in Canada, is poised to become an ever larger uranium producer in Kazakhstan.

Cameco is in the final stages of construction and commissioning of the main processing plant at Inkai, the Cameco-led in situ recovery (ISR) mine that is owned 60% by Cameco and 40 % owned by Kazatomprom.

As 2009 draws to a close, uranium in solution is being pumped out of Inkai's well fields surrounding the main processing plant at ever increasing rates.

In early November, Cameco told its investors that it expected its share of Inkai production by the end of 2009 to be about 900,000 pounds of U₃O₈. (Uranium companies in North America typically report their production in pounds U₃O₈ although the World Nuclear Association and Asian producers, including Kazatomprom, report such production in metric tonnes uranium.)

Inkai is located on the windswept steppes of a sparsely populated part of the South Kazakhstan oblast (regional administrative unit). It's halfway around the globe from the coniferous forest and lake country of northern Saskatchewan in Canada where Cameco currently derives more than 80% of its production from two high-grade mines.

However, Inkai figures highly in both Cameco's ambitions to double its primary global uranium production to about 15,500 tonnes U annually by 2018 as well as Kazatomprom's own ambitious uranium production goals.

By 2011, Cameco expects to triple this past year's commissioning production at Inkai and reach the phase 1 goal of 2,000 tonnes U annually. At that point, with Cameco's share being about 1,200 tonnes U a year, Inkai will be contributing almost 14% of Cameco's annual uranium production.

Acid Supply

Cameco's senior vice-president and chief operating officer Tim Gitzel says the 2,000 tonne goal is achievable as long as Inkai is able to continue to secure an adequate supply of sulfuric acid.

Sulfuric acid is important because the ISR method at Inkai requires the underground formation to be put through a process of acidification which involves injecting sulfuric acid into the orebody to dissolve the uranium into a solution which can then be pumped to surface. Gitzel says that once the fields at Inkai were adequately acidified, production levels rose rather quickly this past year.

"We keep bringing on new fields because they peak quickly and produce lots of uranium and then start to tail off," Gitzel explains. "It's like a slide as we constantly have to be drilling and bringing on new fields."

Gitzel says Cameco will continue to monitor the acid supply situation in Kazakhstan and see what benefits to users are derived from the 950,000 tonnes annually of new sulfuric acid production now being built within three new plants in Kazakhstan.

"Right now we've diversified our supply base and we have two and sometimes three suppliers of acid, but we will also look at whether we need to build our own acid plant."

Ambitious Doubling Goal

By the middle of the next decade, Cameco is hoping to be well advanced in its desire to see production at Inkai doubled from the 2011 target level. That ambition would take the mine from 2,000 tonnes to 4,000 tonnes U annual production, all from the existing Block 1 and 2 fields at Inkai.

However, to achieve 4,000 tonnes U at Inkai, Cameco and Kazatomprom will likely have to invest in a higher capacity processing facility and additional satellite processing plants.

This ambitious phase 2 at Inkai comes out of a 2007 memorandum of agreement where Cameco also agreed to work with Kazatomprom on studying a joint venture conversion facility. That would tap Cameco's expertise in uranium conversion with an end goal to build a uranium hexafluoride (UF₆) conversion facility, possibly at the Ulba metallurgical plant in the chemical-industrial city of Ust-Kamenogorsk.

The MOA provides some flexibility over where the plant could be located.

Looking at Conversion

Conversion is a chemical process that takes refined uranium and reacts it with hydrofluoric acid to create uranium hexafluoride (UF₆). This is the gaseous chemical form of refined uranium that is the feedstock for uranium enrichment plants.

Cameco is one of the world's major players in conversion and controls about 35% of the Western world's conversion capacity, including its wholly-owned conversion facility in Port Hope in Canada.

However, for Cameco to move that 2007 memorandum of agreement towards an actual deal on conversion with Kazatomprom, Canada first needs to sign a Nuclear Cooperation Agreement (NCA) with Kazakhstan. Such an agreement is getting close, according to Canada's International Trade Minister Stockwell Day, who visited Kazakhstan in September.

France, which already has a bilateral NCA deal with the Kazakh government, is also working with Kazatomprom on a possible venture in fuel fabrication through nuclear giant AREVA. As well, Gitzel says the Russians, through Rosatom, are working with Kazatomprom on enrichment opportunities.

"The Kazakhs have been very strategic in building up their nuclear fuel cycle. They have not overlapped anywhere," Gitzel points out. "Kazatomprom has picked a strategic partner for every segment of the nuclear fuel cycle and signed an agreement with them and we were fortunate to get the conversion piece."

Gitzel says Cameco is obviously looking forward to Canada completing the NCA deal with Kazakhstan so the company can move forward on investing further in Inkai and on the conversion deal.

"If you're a believer, like we are in the nuclear renaissance, then conversion follows uranium production," Gitzel said. "Right now, there is sufficient global conversion capacity. Going forward, some of the existing conversion plants will need to be refreshed or replaced and then there will need to be new business."

Block 3 at Inkai

While conversion is a possibility for the future, Cameco is also working hard to secure even more primary uranium production from the undeveloped Block 3 field at Inkai. Right now, the uranium potential of the Block 3 field is not included in the 142 million pounds U₃O₈ of proven and probable reserves listed for Inkai.

Although production from Block 3 could be several years into the future, Cameco is working right now to secure its future interest in the property ahead of a July 2010 expiration of Cameco's current exploration licence.

"Right now, we've got up to 19 drills working on Block 3," Gitzel explains. "We need to drill off Block 3 to a certain density so that we can declare a commercial discovery on Block 3. We believe we will be in a position to do that by February 2010.

"Once we declare a commercial discovery, we submit that information to the government and that should allow us to finish off the drilling, conduct a pilot demonstration test on the property and eventually bring it into production."

As part of the process, Cameco will do a feasibility study and submit a reserve report for approval at the State reserve committee.

There are some within Cameco who say the potential of Block 3 at Inkai may prove to be one of the largest undeveloped uranium deposits in the world. To find out for sure, Cameco will be tripling its exploration and development budget in 2010 at Inkai to more than $30 million Cdn to ensure that it has defined the resource at Block 3 in accordance with Kazakhstan's mine development regulations.

"We're quite confident in our ability to retain Block 3 and eventually develop it," Gitzel said.

Inkai Investment Socially Responsible

In the meantime at the existing Inkai operation, Cameco remains committed to retaining the highest workplace safety and health standards at Inkai as well as implementing internationally-rated environmental programs at the operation.

While the arid landscape of central Asia in no way resembles the boreal forest area of northern Saskatchewan where Cameco derives the majority of its production, there are a number of similarities. The region is sparsely populated with very limited infrastructure to support an operation. The nearest town to Inkai, Taikonur, is 20 kilometres away and has only 400 people. It is well over 100 kilometres by road to the next community, Shieli.

As a result, Joint Venture Inkai has built a camp on the edge of town that can accommodate workers who travel to the operation from a much wider area and stay and work for a two week period before a break of two weeks. This is quite similar to Cameco's fly-in northern mines in Canada where people work seven days in and seven days out.

Cameco has also limited the number of personnel from its North American operations who are attached to JV Inkai at any given time. Currently, only about 20 of the approximately 500 Inkai employees are from Cameco's North American operations.

Gitzel says Cameco is having great success in developing and training the local Kazakhstani work force and giving them a meaningful stake in the project's success. The relative lack of services in this remote part of Kazakhstan is reflected in the difficulties in delivering health care and education.

Partly to remedy the situation, Cameco and Kazatomprom set up the Demur Fund and Cameco itself provided a $4 million US donation to get it going. The fund supports social, cultural, health, educational and scientific improvements in communities that are directly impacted by Inkai.

This community development investment is similar to what Cameco has done in northern Saskatchewan in Canada to support the educational advancement of northern residents through generous scholarship programs and direct funding of community infrastructure.

In Kazakhstan, Cameco's donation has helped pay for reconstruction of the Taikonur village school, a community recreational centre and to rebuild the village medical station.

On site at Inkai, the mine's safety record is also a matter of pride within Cameco. Inkai was the 2007 winner of the Mary-Jean Mitchell Green award, emblematic of being the top-rated site for safety within Cameco. Inkai's lost time injury rate remains among the lowest throughout Cameco and the mine's safety systems are certified to world standard of OHSAS 18001.

Inkai has also achieved ISO 14001 certification in its environmental management system, including groundwater management which is critical to ensuring the environmentally friendly nature of in situ recovery solution mining.

Strong Relationships

As 2009 draws to a close, the partnership between Cameco and Kazatomprom remains strong as Cameco worked quickly this past June to establish relationships with the new management team that was installed at Kazatomprom as well as with government ministries and Samruk-Kazyna, the Kazakh government's holding company.

Gitzel says the continuing strong relationship with Kazatomprom and government officials reflects the fact that Cameco is no Johnny-come-lately to Kazakhstan and has had a formal arrangement with the Kazakh government since 1993 and created the Inkai joint venture in 1995.

Gitzel says Cameco has taken the long view on its investment in Kazakhstan and helped the country build its uranium industry and this groundwork was acknowledged in the comments made by senior officials this year.

"We got all the assurances we were looking for, both from Kazatomprom and the government ministries, that in fact that Cameco was welcome in Kazakhstan, that our investment was solid."

Indeed, in their most recent visit to Kazakhstan, senior Cameco officials were invited to provide further input to the development of Kazakhstan's nuclear industry strategy through a formal invitation to join the country's Foreign Investment Council, an invitation Cameco has happily accepted.

"So we believe we're 'persona grata' and that's a comfort," Gitzel said.