Asian Demand Driving Global Uranium Mine Prospects and Projects

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Reported by Richard Finlayson, Senior International Editor, Industrial Info Resources (Sugar Land, Texas)--The identification and development of uranium resources by the international nuclear power industry contains interwoven elements of competition and cooperation. Uranium ore bodies are no scarcer or more difficult to mine than many industrial mineral resources, but the inexorable push for major additions to base-load power generation is introducing a competitive edge in terms of the relative cost and security of the supply source. At the same time, the nature of the nuclear-power fuel cycle leads to cooperation between a mix of miners, power customers, companies and countries that have developed the high-end heavy engineering required to serve the cycle.

The nuclear-fuel-cycle supply chain begins with the mining and leaching of uranium ore to produce triuranium octoxide (U3O8) "yellowcake," containing about 80% uranium. High-technology engineering is then required in the conversion, enrichment and fuel-fabrication process by diffusion- or centrifuge-based processes. The construction of the power plant, employing heavy engineering and equipment, enables the fuel assemblies to feed the generation process and supply electrical power to the grid.

Current news from Kazakhstan's state nuclear company Kazatomprom (Almaty) summarizing production activity during the past five months illustrates the interwoven nature of suppliers and users in the sector. Kazatomprom reports that in June the company held meetings with foreign partners to discuss the implementation of joint plans starting from uranium-mining to new joint-production projects. These discussions have been held with Japanese companies Marubeni Corporation (TYO:8002) (Tokyo), Sumitomo Corporation (TYO:8053) (Tokyo) and Nuclear Fuel Industries Limited (Tokyo), as well as financial and credit insurance companies and banks - Nippon Export and Investment Insurance (Tokyo), the Japan Bank for International Cooperation (Osaka, Japan), Environmental Resources Management (London, United Kingdom) and ING Groep NV (NYSE:ING) (Amsterdam, Netherlands). Talks were also held with Russia's Atomredmetzoloto (ARMZ) (Moscow), China Guangdong Nuclear Power Holding Group (Shenzhen, China), France's Areva SA (EPA:CEI) (Paris), Canada's Uranium One Incorporated (TSX:UUU) (Vancouver, British Columbia), Nuclear Power Corporation of India Limited (Mumbai, India) and other interested groups. Imminent negotiations are scheduled with Canada's Cameco Corporation (NYSE:CCJ) (Saskatoon, Saskatchewan) and Japan's Toshiba Corporation (TYO:6502) (Tokyo) with Westinghouse Electric Company LLC (Monroeville, Pennsylvania).

The meetings were designed to progress business and at the same time allay fears about the volatility of the country's uranium contracts after the earlier arrest of the head of Kazatomprom and four senior executives in connection with investment by foreign companies in domestic entities. The international nuclear industry had appealed to the government to "uphold the sanctity" of uranium contracts in the furor surrounding the arrests.

Uranium-mining countries will always look to add value to the sale of their resources in the ground by leveraging engineering and technology transfers in order to participate in the fuel-supply chain for as long as possible and secure partnerships with customers who can provide the ways and means to build nuclear power plants in the mining countries. Kazatprom's corporate statement provides a good illustration of a mining country laying out its manifest "value-added" bill of fare. "Kazatomprom is the national operator for the export of uranium and its compounds, rare metals, nuclear fuel for power plants, special purpose equipment, technologies and double use materials. The main activities are geological exploration, uranium production, and manufacture of nuclear fuel cycle products, reactor construction, nuclear power plants, non-ferrous metallurgy and production of construction materials, the electric energy sector, scientific support of production and social welfare and training of personnel." None of the company's 25,000 employees worldwide need flinch when asked, "What does your company claim to do in the sector?"

Australia, while being a member along with Canada and Kazakhstan in the top trio of global uranium-rich countries, in some of its federal states maintains a certain coyness about the uranium-nuclear connection, while at the same time, as a nation accounts for 36% of the global uranium supply. With international majors established in the country's mining sector, three mines currently supply the uranium output. While heated domestic discussions continue about the future of nuclear power, more official license is being given to the lucrative export of uranium, with pressure for supplies from China and India proving to be unstoppable. How long Australia's domestic sentiment to explore and export uranium without generating nuclear power itself remains to be seen. Meanwhile the executive director of the Australian Uranium Association has said that the country is poised to cash in on a growing acceptance that nuclear energy offers a solution for reliable energy with a low carbon footprint.

Countries with massive future demands for nuclear-power fuel will have the Australian uranium-mining sector on their list of prime potentials. BHP Billiton Limited (NYSE:BHP) (Melbourne, Australia) is planning to develop the country's first uranium mine in 20 years at Yeerlirrie in Western Australia, after the state lifted the ban on mining last year. Planning to produce an average of 5,000 tons per year of uranium for 20 to 40 years, the company proposes to start mine development in 2011 and start production at the 52,000-ton resource in 2014, provided it can negotiate some stiff environmental and permitting hurdles that have strong supporting lobbies. BHP is also working on the expansion of the Olympic Dam mine in South Australia, estimated to have the world's largest uranium deposit, to a production capacity of 19,000 tons per year. In the face of other Australian states taking the uranium export gap, with major untapped reserves and stalled projects, it may only be a question of time before Queensland, which allows exploration but not mining and has an estimated $15 billion in uranium reserves, succumbs to the lure of Asian markets.

In 2008 Canada topped the global uranium-production league with 9,000 tons, followed by Kazakhstan with 8,521 tons and Australia with 8,430 tons. Together, these three countries provided about 60% of total global production. They are followed by Namibia with 4,366 tons, Russia with an estimated 3,521 tons and Niger with 3,032 tons. The production league table does not match the Organization for Economic Co-operation and Development's 2007 inferred/recoverable resources table, which lists Australia as having 1,243,000 tons of uranium, Kazakhstan with 817,300 tons, Russia with 545,700 tons, South Africa with 435,100 tons, Canada with 423,200 tons, and the U.S. with 339,000 tons. The disparity between these lists provides opportunities for resource-seekers to inspect those countries that are not fully exploiting their uranium reserves and, in addition, to look at those countries below the top six that may be under-explored and at the same time avid to engage in the exchange of resources for technology.

In 2008, the World Nuclear Association (WNA) reported that 10 companies marketed 87% of global uranium-mine production (excluding secondary supplies of fuel from weapons salvage conversion and mining byproducts). Out of a total of 43,930 tons, Rio Tinto (NYSE:RTP) (London) headed the league with 7,975 tons (18%), followed by Cameco with 6,659 tons (15%), Areva with 6,318 tons (14%), Kazatomprom with 5,328 tons (12%), ARMZ with 3,688 tons (8%), and BHP Billiton with 3,344 tons (8%). Other companies contributed a total of 24%. With the current activity in the market from China, India and Japan, companies from these countries are expected to soon appear as principals in the uranium-mining league in addition to being major associates and stakeholders in global uranium-mining projects. This is reflected in China's appetite for African mining projects and, in particular, its close ties with South Africa, a country which not only has resource potential, but a developed mining and financial infrastructure and opportunities for reciprocal nuclear scientific project and trade exchange.

Uranium mine output is forecast to rise 13.5% in 2009, with eight new mines scheduled to start production. Major mine-development plans are under way in Canada, Kazakhstan and Australia through 2011, and WNA forecasts world uranium demand will be about 74,000 tons through 2015, with the majority of this demand supplied from mines, whereas in 2007, 36% of the uranium fuel supply came from secondary sources.

The current price of enriched uranium is similar to the price in mid-2006 but is far below the temporary peak of mid-2007. Short-term price trends are hard to call, but the overall trend should be upwards, based on the fundamentals as witnessed by the Internal Atomic Energy Agency's forecasting a possible 168 new nuclear power plants to be built through 2024. China alone has plans to build 40 nuclear reactors over the next 15 years. These would present massive new fuel demand in addition to the current 441 nuclear reactors in operation globally. Uraniumletter International (Amsterdam) estimates global uranium demand will reach 92 million kilograms (202 million pounds) by 2020.

Championing the fuel-efficiency credentials of U308, Uranium International Corporation (London) presents a package of persuasive "factoids," beloved by those whose energy source is greener on their side of the street. Examples include, "A typical 7-gram pellet of uranium can generate as much energy as 3.5 barrels of oil, 17,000 cubic feet of natural gas or 580 kilograms of coal," and "One kilogram firewood = One kWh (kilowatt hour) of electricity produced; One kilogram coal = 3 kWh; One kilogram oil = 4 kWh. One kilogram uranium = 50,000 kWh."

Investors and developers in the uranium markets, after savoring these factoids, should bear in mind that nuclear power projects can take six years to complete. The demands on the engineering supply chain are heavy and already pressured and, combined with the need for premium security, have brought about the necessity of extending construction schedules. Some nuclear power projects will surely be postponed or stalled as economies move out of the current downturn and credit crunch. These heavy investment factors that impact nuclear projects will increase focus on securing uranium resources at the best rates as well as cooperative modes of association and supply.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project opportunity databases, market forecasts, high resolution maps, and daily industry news.