McClean Lake mill / Uranium
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A world-class mine located in the Athabasca Basin, Saskatchewan, Canada, approximately 660km north of Saskatoon. The McClean Lake mill is located 69km north-east of the mine site by road.
Producing
Uranium
Orano
Canada
Royalty rate and type
Tolling revenue
Balance sheet classification
Loan and royalty financial instrument
In 2017, Ecora Resources provided Denison Mines Inc (‘Denison’) with a C$40.8m, 13-year loan bearing interest at a rate of 10% per annum. The interest payments are payable from the cash flows received by Denison from the toll revenue generated from its 22.5% interest in the McClean Lake mill, located in Canada and operated by Orano Group (previously Areva). The mill processes all ore produced from the nearby Cigar Lake uranium mine, operated by Cameco, and pays a C$/lb toll rate for use of the mill. In any period where the cash flow from the toll revenue exceeds the interest payment, the balance is received by Ecora Resources as a repayment of principal. In any period where the cash flows are less than the interest, the interest will capitalise and be repaid out of cash flows in the following period. Any amounts outstanding at maturity are due and payable regardless of the cash generated from the toll. As the income from the toll revenue is based on a C$/lb of throughput, it is not sensitive to movements in the uranium price. As such, the Group’s cash flows will not alter with uranium price fluctuations. The risk to the Group’s cash flow is instead from any shut down of the mine or the mill.
In addition to the loan, the Group also entered into a financial transaction with Denison to purchase the entire share of its toll receipts received from Cigar Lake for C$2.7m. This allows for potential mine life extension at Cigar Lake.
The McClean Lake uranium mill is one of the world’s largest uranium processing facilities. It is currently processing ore from the Cigar Lake mine under the Cigar toll milling arrangement between the McClean Lake Joint Venture and the Cigar Lake Joint Venture. The site consists of the mill, a tailings management facility, administration offices and building, camp facilities, back-up power supply, water treatment plants and a host of other minor facilities. The site is connected to the provincial power grid and provincial highways.
The Cigar Lake mine, whose output provides the throughput at the McClean Lake mill from which the Group derives a toll revenue, faced operational disruption as a result of the COVID-19 pandemic.
The mine was placed on care and maintenance for a six-month period in 2020 and again from January to April of 2021. During this time, there was no throughput at the mill and as such no toll revenue accrued.
Operations at Cigar Lake and the McClean Lake mill resumed in April 2021 and monthly toll revenue has now returned to normal levels, averaging C$0.5m in H2 2021. Despite not receiving toll milling receipts during the periods that the mill was shut down, the interest on the Denison loan continued to accrue. The Group received $3.4m in capital and interest payments in 2021 (2020: $2.5m) on throughput of 12.5Mlbs (2020: 10.0Mlbs). Total interest earned under the loan in 2021 was $2.4m (2020: $2.3m).
As part of its supply discipline strategy, however, Cameco announced in mid-2022 that starting in 2024, it plans to operate Cigar Lake 25% below licensed capacity targeting 13.5Mlbs of production per year. The reduction in production volumes from Cigar Lake will impact volumes processed at the McClean Lake Mill, resulting in lower tolling revenues for the Group.
Key facts
C$2.7m
In addition to the loan, the Group also entered into a financial transaction with Denison to purchase the entire share of their toll receipts received from Cigar Lake for C$2.7m
C&M
The McClean Lake mill was placed on care and maintenance for a six-month period in 2020 and again from January to April of 2021 by the operator, Cameco, in response to the risks posed by COVID-19
$2.4m
The Group received $2.4m in capital and interest payments during the year (2020: $2.5m) on throughput of 12.5Mlbs (2020: 10.0Mlbs). Total interest earned under the loan for the year was $2.4m (2020: $2.3m)