An impending shortfall in the supply of uranium will become apparent in the next two years, within which time production of the mineral from African resources will rise to significant levels, predicts resource consultant and con- tractor MSA Geoservices associate Richard Wadley.
“The forecasted uranium consumption up to 2015 exceeds the forecasted uranium production up to the same period. In the short term, by 2015 or 2020, there will not be enough uranium production from primary sources to meet the committed expansion in nuclear generating capacity,” he explains.
Uranium is used in nuclear power stations for the generation of electricity.
Wadley comments that the use of African resources for the production of uranium features well in the emerging shortfall of the mineral. In Africa, there is generally a favourable legislative environment for the development of uranium mines.
While in comparison, in Australia, which contains about a quarter of the world’s known resources, prohibitive environmental and political legislation towards uranium-mining inhibits the mining of the resource. An example is that existing mines, like resources giant BHP Billiton’s Oympic Dam mine, are allowed to expand, but not permitted to open new mines.
Africa, however, with its large resources of uranium is more likely to be allowed to develop these resources, and is already becoming an increasingly signifi- cant uranium producer.
Currently, South Africa, Namibia and Niger are the only three uranium producing countries in Africa. By the end of this year, new uranium producer Paladin Energy’s Kayelekera mine, in Malawi, will be coming on line, making Malawi the next uranium producer to come on line in Africa.
At Lumwana, in Zambia, explorer and mine developer Equinox Minerals published its uranium feasibility study (UFS) earlier this year in April. Equinox has stated that before the company can implement the UFS, it will require the Zambian Government to complete national uranium mining, processing and export code and grant the company environmental impact assessment approval, for which submission has already been made.
Further, Equinox still needs to negotiate viable yellowcake off-take agreements and secure its requisite Uranium project capital financing. Should the company achieve these remaining requirements, it expects plant construction to take 18 to 24 months.
The world’s newest uranium mine belongs to Paladin Energy, which opened the Langer Hein-rich mine and uranium plant in Namibia over a year ago.
At Mokobaesi, in Botswana, an old well-known deposit is being evaluated by Australian company A-Cap Resources, which is busy with a prefeasibility study in the area. If the area is established as a feasible project, it will be brought into production fairly rapidly.
Uranium for Nuclear Power
Currently, there are about 440 operating nuclear plants around the world, with another 130 plants under construction. These are expected to be completed and to come on line over the next five years. World uranium production has to supply these operating plants, as well as the new ones that will be coming on line.
Current global consumption of uranium from the 440 operating plants is about 170-million pounds of triuranium octoxide (U3O8) a year, with production at about 110-million pounds of U3O8 a year. The deficit of 60-million pounds of U3O8 is being made up from the reprocessing of US and Soviet nuclear warheads. U3O8 is the most stable form of uranium oxide and is the form most commonly found in nature.
Wadley says that consumption will definitely increase to over the 200-million pounds of U3O8 a year required, by as soon as 2015.
The nuclear warheads are being reprocessed under a 20-year agreement between the countries, which will come to an end in 2013. Currently, about 60%, or about 400-million pounds of uranium, has been reprocessed.
“Although both countries still possess nuclear warheads, there is no indication of a new agreement to continue this repro-cessing. Each of these countries wants to keep a small nuclear arsenal. Each country will, however, continue to reprocess from its own stockpile, but not under any agreement, and not in the same amounts currently being reprocessed. The current shortfall in primary production that is being met by the reprocessing of the warheads will, therefore, most likely not happen after 2013,” says Wadley.
In 2015, when demand will most likely increase to 200-million pounds a year of U3O8, primary production would have increased to only 160-million pounds a year of U3O8. This increase in production will come from a number of the world’s uranium mines increasing their production.
Increased production will come from projects such as uranium producers Cameco, Areva, Idemitsu Canada Resources and the Tepco Resources joint venture at Cigar Lake mine, in Canada. The mine had flooded and has been restored, with com- missioning to start in 2009.
This project should bring about 10-million pounds a year of U3O8 into production. In Australia, resource giant BHP Billiton’s Olympic Dam mine is looking at a huge expansion of its current operations. In Niger, Areva will be opening a new mine within the next two years.
These and other projects will bring in a likely 50-million pounds of U3O8 a year of new production, that will take primary production to 160-million pounds a year, which is still short of the projected required consumption for 2015.
An additional challenge for uranium production is that several current operations in places such as Canada, Niger and Kazakhstan, as well as diversi- fied miner Rio Tinto’s Rössing mine, in Namibia, will be reaching end-of-mine-life between now and 2015. New greenfield uranium mines take at least eight to ten years to come into production.
“New explorers have been searching for uranium deposits and collecting funds from investors, and by the time these speculative explorations are proven, the shortfall gap would have passed. The most likely candidates to fill in some of the production shortfall will be the uranium-miners who are currently developing known deposits,” says Wadley.
Uranium is not an uncommon element, and the International Atomic Energy Agency quotes extensive known recoverable resources of uranium, at costs less than current prices.
“Much of the world’s already known uranium deposits are now being re-evaluated, and could be brought into production by the committed established uranium miners as well as new committed miners,” says Wadley.
He comments that the profit will be made by the companies already conducting feasibility studies or those in the process of developing known uranium resources into mines. “This kind of exploration will continue to boom,” he adds.
Wadley points out that new explorers that are serious about entering the uranium market and are committed to bringing mines into production stand a good chance of succeeding with exploration and development.
He says that the same can be said of the old uranium operations on the Witwatersrand. Miners such as gold and uranium producers First Uranium and Mintails, and gold-miner Durban Roodepoort Deep are re-evalua- ting old uranium deposits on the Witwatersrand. “These re-evaluations of old deposits all stand a good chance of becoming profitable, producing mines,” he adds.
Wadley says that the spot price of uranium has very little relevance to the real uranium market. “About 85% of uranium is not sold on the spot market – it is sold under contract,” he says.
The spot price is based on the few transparent public sales of uranium that are surplus to contractual requirement sales. Alternatively, if a producer has not managed to secure a contract for some reason, the uranium is sold on the spot market. “Even though the spot market price is widely quoted, it has very little relevance to the real uranium market, other than as a frequently abused way of exciting the interest of investors,” says Wadley.
The current spot market price of uranium has fallen to half of what its peak was at in June 2007.
Wadley says, “An important issue is that the long-term contract prices have increased.” Contract prices are confidential contracts between producers and users, which are not readily available or seen publicly. These prices were $10/lb of U3O8 to $15/lb of U3O8 during 2000 and 2002.
That was at the same level to which the spot price of uranium had fallen at that time. Currently, contract prices have risen to about five times that level and most contracts are now being settled at between $40/lb of U3O8 and $60/lb of U3O8.
Further, at the beginning of the decade, contract terms were drawn up for periods of up to a year, with contracts now being signed for much longer terms of up to five years.
“This significant increase in contract prices as well as contract terms, is very good news for producers,” says Wadley.
However, the downward spot price has had a significant impact on uranium exploration projects. “The uranium exploration market has been characterised by a lot of hype over the last few years, by a number of speculative junior exploration investors. A lot of them have had no intention of mining in uranium, but have created a speculative hype to attract investment in uranium exploration.
“Much of this has disappeared because of the collapse of the spot price to half of what it was a year ago. A lot of the speculative players have left the market, and many investors have lost their money. This will impact on greenfield and grass roots projects, which will decline in the next year,” says Wadley.
The serious participants in uranium-mining have largely been unaffected by the drop in the spot price. Wadley says the big companies like Cameco, Areva and BHP Billiton have had their share prices going up and coming down, without really affecting the companies.
“These are strong companies with good growth projects, which grow and thrive despite investor market hype. Contract prices for these companies are possibly as much as five times higher than what they were at the beginning of the decade,” he says.
Wadley comments that, even though Uranium One’s Dominion operation was suspended in October, this does not mean that other Southern African uranium producers are vulnerable, provided that these companies have secure contracts and projects that are well on the way to production.
“Dominion’s suspension should not be seen as symptomatic of industry vulnerability. Southern African producers are still well placed to take advantage of the imminent production shortfall. However, difficulties to secure funding in the current financial market could possibly slow down, defer or postpone operations that are currently under construction,” he says.
Wadley says that the uranium spot price will probably turn and rise again within the next year, because there is a genuine shortage looming, which cannot be easily resolved. Contract prices will remain steady at current levels, which will continue to be profitable for producers.
In the long run, however, there will be a shortfall in uranium production, which will lead to investments in the development of new deposits. Wadley expects that investors will move from speculative explorers to the genuine producers, because that is where they will make money. “In early October, Kayelekera, in Malawi, announced that it had secured a long-term contract for its uranium, which, for an investor, is good news,” he adds.
Wadley believes that from an economic point of view, the downward adjustment in spot prices has been healthy for the market, in that it has taken a lot of distracting noise out of the market.
“The current downward trend has left behind the serious players with serious objectives who are much easier to evaluate, because they have known resources. These uranium producers have time frames on developments, and long-term contracts at reasonable prices, which the serious investor can analyse and invest in,” concludes Wadley.