Fuel review: supply

Stability in tough times

3 November 2009



The dramatic change in the global financial outlook during the past year, coupled with the change in the administration in the United States, have underlined the uncertainties confronting the nuclear industry, and in particular the uranium market. By Julian Steyn & Thomas Meade



The Ezulwini mine in South Africa, not yet in production
The Ezulwini mine in South Africa, not yet in production

Finding capital to go forward with either uranium mine development or nuclear power plant construction has now become more difficult. The junior mining companies’ enthusiasm for new mine development has largely dried up. The market cooling since mid-2007 has caused some new uranium projects to slow, others to be re-assessed, and some to be put on hold. There are even projects which received positive go-aheads a year ago that are now being slowed down. The availability of financing and the concerns caused by climate change are weighing against each other. Fortunately, there is an increasing awareness in public and political circles of the reality that the nuclear option is the only long-term carbon-free alternative for base load electricity generation.

While the nuclear power renaissance around the world and the associated increase in uranium requirement forecasts were factors contributing to the 2004-2007 price rise, this in turn led to production capacity increases that resulted in moderating prices during the past 18 months. This moderation led utilities to take advantage of options in their legacy contracts and build up inventories when they could. They also entered into commitments through much of the next decade and even beyond, a fact that has now resulted in requirement stabilisation and the cooling of market prices. Utilities feel comforted by the increasingly positive supply outlook, and will continue to, so long as supply expansion continues. Market prices are currently being supported in part by China and India purchasing uranium to build up inventory for their ambitious nuclear power programs.

While uranium supply and demand has been relatively tight during the past several years, supply should be adequate through at least 2020 to meet ERI’s reference requirements projection. However, if the ERI high case projection becomes reality then currently prospective deposits will need to be developed and brought into production to maintain adequacy through at least 2020.

Market Activity

The spot market volume in 2008 as reported by TradeTech was substantial, approximately 35 million pounds compared to about 11 million pounds in 2007. The 2008 long term volume was approximately 100 million pounds, which is about three times the spot market volume.

The uranium spot market price indicator which was $7.00 per pound U3O8 at the beginning of 2001, was propelled upward to a peak of $135 per pound by the end of June 2007, largely by a series of supply-interrupting events and the entry of speculators into the market. Since then the spot price has slowly fallen to its current ( 24 July 2009) level of approximately $47 per pound.

The long-term market price increased from $9.25 at the end of 2001 to $95.00 by the end of April 2007, and remained frozen at that level during the following eleven months. It fell to $65 (TradeTech Long-Term Price Indicator) on 30 April 2009, and has since remained at that level.

TradeTech began publishing a new mid-term uranium price indicator on 30 June 2009, $60 per pound U3O8, to reflect the evolution of the international uranium market, which today includes three separate and distinct markets – the traditional spot and long-term markets, as well as a recently adapted market for mid-term transactions. “The mid-term price indicator applies in cases where deliveries begin immediately beyond the 12-month spot delivery window and occur within one to two years from that point, as either stand-alone agreements or as part of longer-term contracts,” according to TradeTech.

Forecasts

The uranium requirements projected in this paper are based on nuclear power generation forecasts developed on a plant-by-plant and country-by-country basis. The forecasts take into consideration the social, political, and economic conditions in those countries implementing nuclear power for electricity generation. In light of the uncertainties involved in long-term predictions of economic and political climates around the world, two nuclear power forecasts were prepared for each country and region representing reference and high cases. In the reference case, US and world installed nuclear power capacities are projected to increase from 101 and 374GWe to 119 and 524GWe respectively between 2009 and 2030. In the high case US and world installed nuclear power capacity is projected to increase to 137 and 746GWe by 2030. A total of 15 new plants (18.8GWe) are projected to be operating in the USA by 2030.

Requirements

The following assumptions were made in developing the uranium requirements projections:

• Average capacity factors rising from a world average of 79.3% in 2008 to 84.5% by 2016. The average capacity factor for the US remains at 90% for the long-term;

• Typical first core uranium lead times of 24 to 42 months (from commercial operation date) and 12 to 18 months for reloads (from start of refuelling outage;

• Individual plant enriched product assays based on plant design, energy production, design burn-up, and fuel type;

• Long-term Western world average tails assays at 0.25% by wt. The C.I.S. and Eastern Europe tails assays at 0.11 % by wt;

• Current light water reactor specific fuel discharge burn-up rates for the US and other countries;

• Plant specific fuel cycle lengths averaging approximately 20 months for the US, and 16 months for all of the world’s LWRs .

The analyses assume equivalent uranium supply resulting from plutonium and/or uranium mixed-oxide (MOX) fuel in France, Russia, Germany, Switzerland, and Japan. The Japanese implementation of recycling will not be significant for several years. The analyses also assume that equivalent uranium supply will result from the loading of government weapons plutonium MOX fuel in several US nuclear power plants beginning in 2018 in the reference case and in 2015 in the high case. Russian military MOX could be loaded into the BN-600 breeder starting as early as 2012. The total uranium-equivalent world supply from plutonium and MOX use for the reference case increases from 5.7 million pounds U3O8e in 2009 to 9.7 million pounds by 2015

The ERI-projected world regional reference and high case nuclear power plant uranium requirements in millions of pounds U3O8, after rounding, are summarized in Table 1.

US and world cumulative reference requirements through 2030 are projected to be approximately 1.2 and 4.7 billion pounds, respectively. The US cumulative requirements will be approximately a quarter of the world’s cumulative requirements. It is projected that US and world cumulative high case requirements will be 1.3 and 5.5 billion pounds by 2030, respectively.


The output of Australia's Olympic Dam could quadruple by 2030
The output of Australia's Olympic Dam could quadruple by 2030

Supply

The world U3O8 supply capacity to meet requirements during the coming decades will be obtained from civilian and government U3O8 (and U3O8-equivalent) inventories, plutonium and uranium recycle, that is, from already mined uranium (AMU) in many forms, and from uranium mine production. The projected mine and AMU?supply capacity is shown in Table 2.

The table shows that current mine capacity, mine capacity under development plus total AMU are projected to be more than adequate to meet reference requirements through about 2025.

While the excess commercial stocks of AMU held by utilities have now been largely consumed, AMU held by governments will continue to enter the market at a significant rate during the next 15 to 20 years. The most significant components of AMU will be Russian HEU through 2013 and uranium enrichment tails upgraded in Russia. US government down-blended HEU, natural uranium, and upgraded enrichment tails will also provide AMU supply corresponding to about 10% of US civilian domestic uranium requirements.

Projected mine production capacity in 2009 is taken as 95% of actual nameplate capacity and 90% in 2010 and thereafter. These uranium production capacity factors are approximately based on the industry’s experience since 2000. The projected mine production does not include supply from prospective mine capacity, of which there is a significant amount, unless the mines are already well into development, for example, the Imouraren project in Niger. The Cigar Lake project is included in the ‘in development’ category even though it is not likely to be in production until at least 2014.

Mine Production

Six countries are expected to provide about 85% of world mine production during the next ten years: Kazakhstan, Canada, Australia, Namibia, Russia, and Niger.

Kazakhstan

Kazakhstan, which only ranked sixth in the world as a producer in 2001 with an output of approximately 5 million pounds, is expected to produce approximately 30 million pounds in 2009.

Production in 2008 was reported to have been 22.8 million pounds, just behind Canada and Australia. This was obtained from 19 in-situ leach (ISL) mines and several conventional mines at Stepnogorsk Combine Mines’ operations. Eight of the ISL mines are owned by the National Atomic Company (NAC) Kazatomprom. NAC is a partner in the other ISL ventures. The other co-venture partners include Canadian, French, and Russian mining companies and utilities and trading companies in Japan, China, and South Korea.

While the rate of Kazakhstan’s uranium production growth is causing some infrastructure stress, Kazatomprom expects annual production to exceed 60 million pounds by 2015. However, the country’s economic problems due to the decline in oil and other commodity revenues could serve to quench some of this predicted heat.

Canada

While Canada is expected to be the world’s third largest producer of uranium in the coming years, its pace of growth as a producer has been slowed in recent years by set-backs at some of its production centres. The most significant of these set-backs was the 2006 flood at the large deep underground Cigar Lake project which was to have begun operation in 2008 but is now not likely to start up before about 2014. The Midwest project in Saskatchewan’s Athabasca Basin has been put on hold because its development cost is too high to be viable until market prices rise at some time in the next decade. The large Michelin project has been put on ‘slow track’ pending the findings of a three-year public assessment by the native people in the Labrador region in which it is located; it will be another two years before its future is clear. A positive outcome is expected but not yet certain. Canada’s regulatory climate is becoming increasing difficult for the mining industry to cope with.

Canada was the world’s second largest mine producer of uranium in 2008 at 23.5 million pounds U3O8, but is being overtaken by Kazakhstan in 2009. With mining at the McClean Lake (Areva/Denison) centre ended, McArthur River (Cameco/Areva) and Rabbit Lake (Cameco) will be the only Canadian producers until the Cigar Lake (Cameco/Areva) centre is brought into production by the middle of the next decade; stockpiled ore is still being milled at the McClean Lake Jeb mill. Production at Rabbit Lake could end by about 2013 because of reserve depletion. As matters now stand Canadian production is projected to rise to about 45 million pounds by 2017, assuming the Cigar Lake, McArthur River, and Midwest mines are in production.

Australia

Australia’s uranium production level will more than double by the end of the next decade if the huge Olympic Dam project’s output is quadrupled, as indicated in its Draft Environmental Impact Statement (DEIS) issued on 1 May 2009. Australia’s production outlook could be further bolstered if the plans for bringing several historical projects into early operation materialize, projects with mineable resources that have been held back for decades by the country’s infamous three-mine policy.

Australia was the world’s third largest uranium producing country at about 23.2 million pounds U3O8 in 2008, almost the same as Canada. It has two large production centres in operation, Ranger (Rio Tinto) and Olympic Dam (BHP Billiton), and a single small ISL centre, Beverly (Heathgate Resources). The Ranger mine’s existing reserves are sufficient to allow production to continue through about 2020, though at a diminishing rate. However, the recently developed Ranger 3 Deeps resources adjacent to the existing reserve deposit will allow operation to continue beyond 2020. In 2007, Quasar Resources and Alliance Resources announced that an economic ISL deposit near Beverley containing about 30 million pounds would be brought into production in 2010, the Four Mile Project. The well-field product will be processed at the Beverley plant that is owned by Quasar’s parent, Heathgate Resources, an affiliate of General Atomics of the USA. There are three substantial prospective resource deposits in Western Australia being moved into development: Yeelirrie (BHP Billiton), Kintyre (Cameco/Mitsubishi), and Lake Maitland (Mega Uranium/JAURD & Itochu). A small solution-mining prospective operation, Honeymoon (Uranium One/Mitsui), is targeted to begin production during the next few years.

The large Olympic Dam centre, which currently is licensed to produce up to 17 million pounds per year, produced about 9.1 million pounds in 2008. According to the DEIS, a very large open pit is to be developed over five years from 2011. Production from this pit would begin in 2016 and rise to 32 million pounds per year by 2021. With the present underground operation, total mine output would be about 42 million pounds per year from 2021 onward. If the necessary governmental approvals are positive in 2010, then the BHP board of directors must face a substantial investment decision.

Namibia

Namibia is emerging as an increasingly attractive country in which to explore for and develop uranium projects because of its reasonable economics and inviting regulatory system.

With two operating uranium mines, Rossing (Rio Tinto) and Langer Heinrich (Paladin), and a third under development, Trekkopje (Areva), scheduled to start up in 2010, Namibia is headed toward becoming a major source of supply. Production in 2008, which was 11.2 million pounds, is projected to increase to about 22 million pounds by 2013. Several major deposits are being developed: Rossing South (Extract Resources), Etango (Bannerman Resources), and Valencia (Forsys Metals). On 22 July 2009, Extract Resources reported an initial resource estimate of 267 million pounds, inferred, at the Rossing South project. If these projects are brought to production then Namibia’s annual output could reach at least 30 million pounds in the second half of the next decade.

Neighbouring South African production, which is currently obtained from the Vaal River (Goldfields) and Buffelsfontein (First Uranium) centres, is expected to increase from its current level of about 2 million pounds to between 6 and 8 million pounds by the middle of the next decade when and if the Ezulwini (First Uranium), Rand (Accord), and Ryst Kuil (Areva) projects are in production.

Niger

While production in Niger is expected to remain relatively constant at about 8 million pounds during the next few years, it could more than double by 2015 when the Imouraren (Areva) mine reaches full production of 13 million pounds per year.

Production is also likely to increase elsewhere in Africa. Paladin is currently starting up its Kayelekera mine in Malawi. The Lumwana (Equinox Minerals) copper mine’s uranium ore output in Zambia is currently being stockpiled and will not be milled until the uranium market improves. Areva may develop its Bakouma deposit in the Central African Republic by the middle of the next decade.

Russia

Russia has not yet been successful in developing new domestic uranium production centres and has therefore decided to limit uranium exports beyond that included in existing agreements such as the US-Russia Highly Enriched Uranium (HEU) Agreement of 1993 and nuclear power plant export sales. In fact, Russia has already begun entering into uranium import arrangements for the longer term.

Production in Russia by ARMZ, which is obtained from the several large underground mines at the 8 million pound Priargunsky centre in Siberia, and from two ISL mines, Khiagda and Dalur, is projected to be expanded to about 10 million pounds by 2010, and about 15 million pounds by 2015. Russia has plans to develop the large Elkon deposits at Yakutia in Siberia in the coming decade. Even as Russia is slowly expanding domestic production, it is increasing imports from Kazakhstan and other countries. It is a partner in a number of joint-venture centres in Kazakhstan.

Ukrainian production could be more than doubled by 2014 in order to reduce the costs incurred for imports. Uzbekistan production from the Zafarabad, Uchkuduk, and Nurabad centres is expected to remain relatively constant into the next decade at about 8 million pounds.

USA and elsewhere

There are several existing ISL production centres in the USA, although they are usually called in-situ recovery (ISR) there. Some of them have been in operation for a number of years: Cameco’s Crow Butte and Highland/Smith Ranch centres, and Mestena’s Alta Mesa project. The Alta Mesa project was brought into production at the beginning of 2006. In addition, there is Denison’s White Mesa mill which processes alternate uranium waste feed (not necessarily mine production) from other uranium processing facilities, and has recently been toll milling regional mine ores. While the 2005-2007 price rise resulted in a number of old mines being dusted off and developed toward production, this development has recently stalled in most cases. Denison is currently planning to begin mining in the Arizona Strip and processing that ore in the White Mesa mill, some 200 miles to the north-east. These and several other projects will result in US production ranging between 4 and 6 million pounds for the next several years.

Chinese and Indian domestic uranium production activities during the past ten years have not been generally successful, and thus, these countries have recently begun to negotiate long-term supply from other countries. It is expected that China will import substantial amounts of uranium from Kazakhstan during the next five years or so. Both countries are investing in exploration activities in other countries.

For the foreseeable future, China will be expanding production slowly; it is expected to be a significant importer of uranium from other countries during the next 15 years.

References

1 Historical and current spot and term market prices and volumes for the uranium markets that are referred to in this paper are based upon information published by Trade Tech LLC. International Business Resources (IBR) has provided ERI with information regarding C.I.S. uranium supply activities.


Author Info:

Julian Steyn, president of Energy Resources International (ERI) 1015 18th Street NW, Suite 650, Washington DC 20036, USA

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Uranium market to recover in 2010, says TradeTech
Nuclear fuel market to double by 2020
Enough for today
The coming oversupply
Red Book reveals plenty of uranium
Paladin's Australian mine lacks government support
KEPCO takes a 10% stake in Imouraren
Tables

Uranium demand forecasts
Uranium supply (and demand) forecasts

The Ezulwini mine in South Africa, not yet in production The Ezulwini mine in South Africa, not yet in production
The output of Australia's Olympic Dam could quadruple by 2030 The output of Australia's Olympic Dam could quadruple by 2030


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