Eric Shackleton, THE CANADIAN PRESS

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TORONTO - Cameco Corp. (TSX:CCO) is suspending production of uranium hexafluoride at its complex in Port Hope, Ont., due to a long-simmering contract dispute with its supplier of hydrofluoric acid.

Layoffs are expected to number "less than 100" among the 440 workers at the conversion plant, Cameco said Friday, blaming "unreliable and expensive" deliveries of the acid.

The shutdown is expected to last until at least the middle of next year, the world's largest producer of uranium said.

The operation along the Lake Ontario shore had reopened in September after being shut down in July 2007 when Cameco found material from the plant had seeped into soil and groundwater. The environmental cleanup cost more than $50 million.

The suspension announced Friday arises from a disagreement with Cameco's sole supplier of the acid needed to produce uranium hexafluoride, a highly toxic and corrosive compound used in the enrichment process for nuclear fuel.

"The dispute remains unresolved and Cameco has exhausted the inventory of HF it had purchased on a spot basis," the company stated, adding that it is in talks with other sources of the acid while seeking to resolve the contract problem.

"Given the uncertainty, Cameco has decided to suspend UF6 production until the second half of 2009," it said. It expects to meet UF6 deliveries to customers in the first half of 2009.

Cameco declined to name the supplier, but Honeywell International Inc. of New Jersey, the world's largest producer of hydrofluoric acid from three plants including one in Amherstburg, Ont., has announced three price increases this year.

The costs of producing the acid are rising due to a tightening of regulations governing the transportation and storage of the hazardous liquid, said Raymond Goldie, an analyst with Salman Partners.

"If you take a drop of it and put it on your hand it will just disappear into your hand and keep going through your skin until it reaches bone, and it will dissolve the bone," said Goldie.

The two sides have been trying to iron out "differing interpretations" of their contract since September, Goldie said in an interview.

Meantime, he said, Cameco has been looking for alternative suppliers but has found that the hydrofluoric acid business "is pretty much a monopoly industry."

The acid is needed to produce uranium hexafluoride for use mainly in enriching fuel for nuclear reactors in the United States. In Canada, Candu reactors do not use enriched uranium.

The rule tightening - along with higher costs of sulphur and transportation - boosted the cost of the acid, he said, leading to demands for the contract to be modified.

Cameco said winding down production in Port Hope will take several weeks and "the exact number and type of positions that will be affected have not been determined."

The complex's other production of uranium dioxide is not affected.

The latest cuts from Cameco come as the global uranium industry delays projects, cuts costs and places mines on care and maintenance to deal with in current economic conditions.

Not only have prices been falling but the industry faces rising costs for labour, capital and raw materials.

Denison Mines Corp. (TSX:DML) and French partner Areva disclosed this week they are postponing the Midwest uranium project in Saskatchewan. Denison also plans to temporarily shut down its Tony M mine in Utah, and cut capital spending.

Earlier this month, Uranium One Inc. (TSX:UUU) said it has taken a US$2.8-billion writedown and is cutting costs across its operations after placing its Dominion mine in South Africa on care and maintenance.

Although uranium mining is considered a relatively recession-proof venture - nuclear plants require constant supplies of fuel - the spot price of uranium has plummeted in recent months, from a high of $137 per pound in mid-2007 to as low as $44 in October before rebounding to $55.

Cameco shares were up 31 cents at $21.96 Friday afternoon, with a 52-week TSX high and low of $44.38 and $14.33.