Industry News

The world uranium market continued to attract increasing attention during 2005, as prices rose even more strongly throughout the year, a process that began during 2003. Nevertheless, with producers already at close to 100% capacity utilisation levels, production could not expand quickly to meet rising demand. Furthermore, historical contracts negotiated at old prices were still running through. World production, therefore, rose only slightly, to 41,595 t U, from a revised figure of 40,251 t U in 2004, an increase of just 3%.

There were, however, some notable production increases during 2005, concentrated in Australia and in two countries in the Commonwealth of Independent States (CIS) area, Kazakhstan and Uzbekistan. In Canada, the largest producing country, output was static, before the expected commissioning of Cigar Lake in 2007. Australia's output improve strongly, owing to an excellent performance at Ranger, with over 5,000 t U produced for the first time. Production by in situ leaching (ISL) in both Kazakhstan and Uzbekistan was also up sharply. Signs of a revival in US uranium production were also experienced, although the volumes are so far very limited. In Namibia, the Rossing mine had its life extended and produced at a level slightly ahead of 2004.

Primary supply filled only about 60% of world reactor requirements during 2005, but this represented an increase on the 55% level, which was the average in the period 2000-2003. The balance was made up by secondary supplies, including an expected further reduction in uranium inventory levels throughout the world, and by the recycling of both reprocessed spent reactor fuel and other fissile materials. These included a major contribution from former military materials and also from re-enriched depleted uranium stockpiles.

Uranium spot market prices continued to rise sharply during 2005, starting the year at around US$20.00/lb and ending at US$35.00/lb. Substantial price increases had begun in the second half of 2003 and, indeed, the upward price trend continued in the early part of 2006, with US$45.00/lb reached in June. The extent of the price increase (more than a tripling during 2003 to 2005, from US$11/lb to US$35/lb) takes it well beyond the temporary spike of 1996, when prices peaked in mid-year at around US$16.50/lb. The magnitude is much greater this time and is clearly more than a short-term market reaction to a technical shortage of material, as was the case in 1996.

Although the vast majority of uranium is traded under longer-term contracts, the spot market provides a guide to the material traded at the margin and is also an influence on these contract terms themselves. Prices quoted by the year-end were at last sufficient to cover the marginal operating costs of most mines and should provide a necessary stimulus to production increases.

The explanation for the substantial price increase is quite complex, but is mainly to do with the realisation that primary uranium production must now rise to take the place of apparently dwindling secondary supplies. There remains uncertainty surrounding the timing and magnitude of secondary supplies on the commercial market, which are needed every year to fill the balance between supply and demand.

These have been overhanging the market for years, notably the uranium component of the blended down highly enriched uranium (HEU) sold by Russia to the US. This has been marketed prudently following the agreement in early 1999 between the Russians and three Western companies. The balance has been largely made up by a run-down of inventories from sources such as the United States Enrichment Corp (USEC), some Japanese utilities running down their inventories and from re-enriched depleted uranium. However, it now appears that the notion that fuel supply will be freely available into the medium term has ended. This position has been long-anticipated by those in the market, but its sudden arrival is always surprising and it will still take some time for people fully to react.

With the abolition of restrictions on most supply from the CIS in the US market (now only remaining for Russian origin uranium) the gap between spot prices quoted for supply from this source and from elsewhere in the world has narrowed to the extent that market makers no longer quote a separate price. In the European Union (EU), the Euratom Supply Agency (ESA) maintains a policy of aiming to restrict supply from this source to 25% of demand. Producers in the CIS continue to export all their production, and Russia is believed to have substantial inventories of fissile material of various types to fuel domestic and captive customers up to perhaps 2010.

The conclusion everybody is making is that new investments in uranium production facilities are likely be needed in the near future and that prices must remain at levels sufficient to give producers the incentive to do this.

Australia

Total Australian uranium production rose by 6% in 2005, following a 19% increase achieved in 2003. There has been a long-term upward trend experienced since 1994, with only a couple of temporary annual reverses. Total production of 9 519 t U again represented over a fifth of world production in 2005, in line with recent years. ERA's production at Ranger was at record levels in 2005 at 5 006 t U, in line with the rated capacity. Plans to develop the Jabiluka orebody, 20 km from the existing Ranger mill, remain on hold and depend on agreement being achieved with the local people. Production can continue from the existing Ranger orebody until 2011-2012, with the higher prices allowing more ore to be economically processed.

Uranium output at WMC's Olympic Dam copper/uranium mine was static in 2005 at 3,688 t U. Substantial investments have been made in the mine, amounting to A$500 million, which have allowed production to return towards the 4,000 t/U level. Following the acquisition of WMC Resources by BHP Billiton, substantial increases in uranium and copper production capacity are currently being investigated at Olympic Dam.

The Beverley ISL mine in South Australia, owned by Heathgate Resources (a General Atomics subsidiary),suffered a small decline in production in 2005, at 825 t U, just below rated capacity. The Honeymoon ISL project is still "on hold" but may enter production in the near future.

Canada

Canada's uranium output was static in 2005 at 11,628 t U, following the recovery experienced in 2004. It easily retained its place as the leading world producer, accounting for 28% of total output, slightly down on previous years. The dips in production experienced in 2002 and 2003 were mainly due to the continuation of the period of transition as production moves towards the new higher-grade mines, but the mine flood in 2003 at McArthur River, the world's largest uranium mine, also had an impact. Output at McArthur River stayed constant at 7 200 t U and production is now running close to licensed capacity. An application has been made to increase this to 8,460 t U and this is expected to gain full approval soon. Rabbit Lake production was higher, at 2,316 t U from ore extracted locally at the Eagle Point underground workings. The life of the mine has been extended until at least 2007, and further ore pockets to exploit are being actively sought.

McClean Lake produced at a lower level of 2,112 t U during 2005, owing to declining ore grades. This is expected to continue in the near future.

The Cigar Lake project is progressing, despite a flooding incident, and the start-up date is likely to be in late 2007.

Europe

French uranium mining production has now terminated with the exhaustion of economic reserves, and residual production is associated with decommissioning activities. German production was also solely associated with the decommissioning and environmental clean-up of mining operations belonging to Wismut, in the former East Germany, which ceased production in the early 1990s after being a major world producer in the 1950-80 period. Mining operations in Spain also terminated at the end of 2000, and any residual production is from clean-up activities.

DIAMO in the Czech Republic is now the only substantial European producer, but is planning to phase out uranium production gradually. Nevertheless, better market conditions are delaying closure, and production in 2005 was a respectable 408 t U.

Africa

Overall production was slightly down in 2005, at 6,914 t U. Niger's production from Akouta and Arlit was 6% lower at 3,093 t U, reversing the recent trend of rising steadily beyond 3,000 t/y. There is still some potential for expanding production here if market conditions justify it. South Africa was well down, at 674 t U, with all production there now from AngloGold Ashanti's operations after Palabora ended uranium production following the closure of the heavy minerals recovery plant. However, the increased uranium price is encouraging producers to look at extracting more uranium in the near future from various ores.

Production at the Rossing mine in Namibia rose slightly in 2005, to 3,147 t U, following the nearly 50% increase in 2004. Although the operation has been struggling financially owing to the strong appreciation of the Namibian dollar against the US dollar, the recovery in world uranium prices has allowed the mine's life to be extended with a US$112 million investment plan. There was previously some doubt as to whether production would continue after 2006.

United States

Production rose strongly in 2004 to 1,039 t U, the second year of recovery, and arresting the declines seen in the previous period. US uranium requirements are over 20,000 t/y of uranium, so there is a substantial trade deficit. ISL production accounted for virtually all production, with Cameco's Power Resources Inc (PRI) and Uranium Resources Inc (URI) the only significant producers. Acquisition of the Smith Ranch ISL mine in 2002 by PRI led to rationalisation of the Highland and Smith Ranch projects, with all processing from the two areas now at Smith Ranch. Production from both Smith Ranch and Crow Butte were slightly up on 2004, and URI produced a small amount of uranium at the Vasquez ISL mine during 2005.

There were small contributions from two conventional mining operations. A revival of other ISL production and by-product output in the US (and indeed from any conventional mills) is seemingly under way, but remains heavily dependent on the continuation of improved market conditions.

Other Countries

Production is believed to have remained virtually constant in India and Pakistan. It is believed that Chinese uranium production has stabilised at the 750 t/y level, but ISL mines are being developed, which could potentially lead to an increase in production in the near future. Each of these countries can be termed ‘captive producers' in that they produce for domestic reactor requirements only. Their reserves tend to be low grade, making widespread commercial exploitation unlikely in foreseeable market environments.

Brazil

recommenced mining uranium in 2000 but has once again experienced licensing problems in 2005, which prevented production. It is hoped that output will soon return to the 300 t/y level and above.

CIS

Overall uranium production has continued to rise steadily after the low point reached in 1997. This followed a long decline, apparent from the early 1990s. The rise in the Western market price is a strong incentive to expand production and encourages the provision of financing. Output in Kazakhstan and Uzbekistan rose sharply in 2005, stemming from successful ISL operations. Kazakhstan and Uzbekistan have the best links with Western partners, with the former having two JV ISL mines with Western companies close to the production stage. In both countries, conventional mines have largely closed down and they are now almost completely dependent on ISL technology. Russia continues to rely mainly on the Krasnokamensk mine owned by Priargunsky, but ISL operations are also expanding slowly, and are now in their fourth year of production.

Outlook

The production outlook has now improved, owing to the substantial uranium price price escalation. The prospect is for a steady rise in world production towards 50,000 t/y U over the next three to five years, led by major producers such as Canada, Australia and Kazakhstan. Increases are also expected in southern Africa (Namibia and South Africa) and in the US. The trend for supply to become concentrated in a few large low-cost mines in a limited number of countries may abate somewhat, as new producers start up. Some of the smaller projects mentioned over the past few years, will find it easier to compete now that uranium prices have risen. Delays to approval for the major projects may provide a further opportunity for these, as would any interruption in the expected supply of blended-down HEU. Kazakhstan has announced that it intends to expand production very sharply, partly via JVs with foreign companies. The increasing demand to feed Russian-designed reactors, for example in India and China, suggests that production will also increase in Russia.

Exploration

Exploration programmes are now beginning to show signs of improvement as a result of the uranium price increases experienced since 2003. As surveys of uranium reserves identify well-established deposits totaling over 4 Mt of uranium, equivalent to almost 100 years of production at recent levels, the incentive to explore for more has required a sharp price stimulus. The focus remains directed at identifying deposits amenable to low-cost production, either through their high grade or through their suitability for ISL technology. The search for high grades has continued in Canada (Saskatchewan and the Northwest Territories) and in Australia, where previous successes have been achieved. Sandstone deposits suitable for ISL have been sought in the US, the CIS, Mongolia, India and China.

Demand

At the end of 2005, there were 440 nuclear reactors in operation throughout the world with a combined capacity of 366 GWe. An increasingly important factor is the rise in generating capacity at existing reactors via upgrades, as opposed to new reactor start-ups. At the end of 2005, there were also 25 reactors throughout the world either under construction or temporarily suspended from operation, with a combined capacity of 19 GWe. These can be expected to come into operation over the next ten years, to be partly offset by closures of some older (and usually smaller) reactors.

Although nuclear generating capacity is an important indicator of demand for uranium, the operating characteristics of reactors are also crucial and are sometimes ignored by commentators. The almost universal recent experience has been for higher reactor load factors to be achieved, which pushes up uranium demand. Despite only a slow increase in nuclear generating capacity, nuclear production has maintained its share of world electricity at approximately 16% throughout the 1990s into the new century. There are also other important factors to consider, including fuel burn-ups and enrichment levels, plus the length of reactor operating cycles. The annual current world reactor requirement is for around 66,000 t U, and this is expected to grow slowly over the longer term by around 2% per annum.

Steve Kidd

Steve Kidd is director of Strategy & Research at the World Nuclear Association, the international association for nuclear energy based in London, England. After a brief period as an economics tutor at Sheffield University, he followed a career as an industrial economist with leading UK companies from 1981-1990. These specialised in the raw materials and engineering sectors and included Rio Tinto and Rover Cars. His prime responsibility was the analysis of markets of interest to his employers, including possible business diversification. He practised as an independent consultant covering similar areas from 1990 onwards and then joined the former Uranium Institute as senior research officer in 1995. He assumed his present position when the Institute changed its name to the World Nuclear Association in 2001.

Mr Kidd received his BA and MA in Economics from Queens' College, University of Cambridge. He was the winner of the Adam Smith Prize in 1976. He is a member of the International Association for Energy Economics and is a regular speaker at their meetings and other conferences in the general energy field.

News

Uranium - 2006 (Last updated July 25th)