For those of you in the stock CCJ the following is an update.

A recommendation was Cameco (CCJ: NYSE), the world’s largest uranium producer. Cameco accounts for about 20% of world production from its mines in Canada and the U.S. Cameco claims to hold 500 million pounds of proven and probable reserves, and extensive uranium resources.

Cameco also holds land positions in some of the world’s most promising areas for new uranium discoveries in Canada and Australia, the product of an intensive global exploration program. Additionally, Cameco is a leading provider of processing services required to produce fuel for nuclear power plants, and generates 1,000 MW of nuclear electricity through a partnership in North America’s largest nuclear-generating station, located in Ontario, Canada.

Worldwide, there is a growing demand for electricity, but it is coupled with concern over emissions of greenhouse gases such as CO2. This is causing a renewal of interest in using nuclear power as a clean, reliable and affordable source of base-load electricity. Yet with this growing interest in nuclear energy, it is also a fact that existing uranium supply is falling short of demand. Much of the uranium currently being used or staged to fuel or refuel reactors is a legacy of the Cold War, as thousands of ex-U.S. and Soviet nuclear warheads are dismantled and the nuclear material is reprocessed to use for power generation. Once the bombs are used up, there will be an instant shortage of uranium for fuel.

Cameco is positioned to benefit from this uranium shortfall due to its low-cost operations, extensive reserves and control of more than 45% of identified new uranium production that may come to the market over the next 10 years. However, Cameco suffered a major setback in October 2006 when its mine at Cigar Lake, Saskatchewan flooded. The Cigar Lake project is a joint venture owned by Cameco Corp. (50%), AREVA Resources Canada Inc. (37%), Idemitsu Canada Resources Ltd. (8%) and TEPCO Resources Inc. (5%).

According to both Cameco’s and other independent geologic assessments, Cigar Lake is a challenging deposit to develop and mine. The major challenges include controlling groundwater, digging within weak ground formations and radiation protection for workers.

Since the flooding last year, Cameco has spent the past many months and budgeted nearly $500 million to remediate the mine. Cameco recently released an update on the progress. The first phase of the Cigar Lake remediation plan involves drilling holes down to the source of the inflow and to a nearby tunnel where reinforcement is needed. Cameco will then pump concrete through the drill holes, seal off the inflow with grout and drill dewatering holes.
Subsequent phases for remediation include pumping and dewatering the mine, freezing the ground in the area of the inflow, restoring underground areas and resuming mine development. There is nothing easy about this effort.

The sandstone overlying the basement rocks at Cigar Lake contains significant water under conditions of hydrostatic pressure. Freezing the ground is expected to result in several improvements to the ground conditions, including: (1) minimizing the risk of water inflows from saturated rock, (2) reducing radiation exposure from radon dissolved in the ground water and (3) increasing rock stability. However, freezing will only reduce, not eliminate, these challenges. There is also the possibility of a water inflow during the drilling of holes to freeze the ground. Therefore, the risk of water inflows at Cigar Lake remains.

Canadian regulatory agencies have looked at Cameco’s operations, and not liked what they have seen. “In response to the third-party investigations into the water inflow events at Cigar Lake, the regulators have made it clear that we need to demonstrate improvements in our quality culture. We agree and are taking concrete steps to address the underlying issues,” said Tim Gitzel, chief operating officer of Cameco. “The remediation work at Cigar Lake is technically challenging and our approach has been cautious and prudent. However, we are making steady progress in moving this valuable project toward production.”

So far, the regulatory agencies have approved plans to flush sand and fine material away from the inflow area and to pour the initial stage of concrete plugs. Cameco is now working to provide regulators with the information needed to secure approval for installation of dewatering pumps and infrastructure, and ongoing operation of water treatment facilities required for dewatering. Cameco is also seeking regulatory approval to dewater the underground development, initiate the installation of the surface freezing infrastructure and do any additional remedial work identified in phases two and three, such as determining if additional reinforcement is required in higher-risk areas. Finally, Cameco is preparing to submit an application to the Canadian Nuclear Safety Commission for extension of the Cigar Lake construction license, which expires at the end of 2007.

Previously, Cameco expected that it would complete the second phase of remediation by the end of the third quarter of 2007. However, Cameco now expects it will require a number of additional months to seal the inflow and dewater the mine. It may also be necessary to construct a second shaft in the mine workings. Completing the second shaft, and the associated delay in completing phase two, would set back the planned production startup date from late 2010 to 2011.

So Cameco has its work cut out for it. But we are still very bullish on uranium, and we believe that Cameco is still a good long-term buy for the Outstanding Investments portfolio. But you need to understand that there is an additional element of geologic, regulatory and financial risk in buying or holding shares in this company.