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(Adds comments from CEOs of Areva Canada and Cameco )
By Rod Nickel
WINNIPEG, Manitoba, Oct 8 (Reuters) - French nuclear group Areva SA said on Wednesday it has begun processing uranium ore at its Canadian mill at McClean Lake, Saskatchewan, bringing a new source of the radioactive metal to market after delays.
The mill, idled in 2010, has been undergoing modifications to allow it to process ore from the province's Cigar Lake uranium mine, which is operated by Cameco Corp.
"It's been a long story (with) many challenges," Vincent Martin, chief executive officer of Areva's Canadian unit, said in a joint phone interview with Cameco's chief executive, Tim Gitzel.
The C$2.6-billion ($2.34 billion) Cigar Lake mine is set to become one of the world's biggest by 2018. The mine, which has been delayed often by flooding problems, adds uranium to a currently over-supplied market, but analysts forecast a shortage by the end of the decade once Japanese reactors resume operations.
The global market has long factored Cigar Lake production into uranium supply forecasts, Martin said.
"We have already long-term contracts based on production from Cigar Lake," he said.
The earthquake and tsunami in 2011 that crippled the Fukushima-Daiichi nuclear power plant led the government to shut down nearly all of Japan's reactors, driving the spot price of uranium lower.
Gitzel said there was "not a chance" that Cameco would take Cigar Lake off-line until market conditions improved.
"We would bring this mine on in any event," he said. Cameco and Areva need to replace uranium it once acquired through the now-expired program to convert highly enriched uranium from dismantled Russian nuclear weapons into low-enriched uranium for nuclear fuel.
Cameco started mining at Cigar Lake in March and has so far delivered 1,400 tonnes of ore to McClean Lake, Cameco said in a statement. Problems with a mining process that involves freezing ore and the ground led to a halt in production in July, but it resumed in early September.
Cameco shares rose slightly in New York after normal trading hours, recovering from an initial dip.
The mill is expected to produce up to 1 million pounds of uranium concentrate from Cigar Lake ore in 2014 and ramp up to 18 million pounds by 2018.
Areva owns 70 percent of the mill, with smaller stakes owned by Denison Mines Corp and Ourd Canada. Cameco operates the Cigar Lake mine and owns 50 percent of it, with smaller stakes held by Areva, Japan's Tokyo Electric Power Co Inc and Idemitsu Kosan Co Ltd. (U.S. $1 = 1.1106 Canadian dollar) (Editing by Cynthia Osterman and Leslie Adler)