Uranium market doldrums continue

1 October 2014

The continuing nuclear power policy uncertainty in Japan and the effects of low-cost natural gas on nuclear development, particularly in the USA, have pushed the uranium market into the doldrums where it is expected to remain throughout the next several years, possibly until the end of this decade. By Julian Steyn and Thomas Meade

The uranium market is characterised by oversupply, which is forecast to continue through most the current decade. The oversupply situation has been exacerbated by the greater-than-initially- expected decline in demand following Fukushima as well as the increase in primary supply during the same period. Existing production capacity and output from mines under development could cause total supply to exceed demand through the year 2020. Production from mines under development is dominated by two large projects: Cigar Lake in Canada and Husab in Namibia.

Mine production

The primary source of uranium supply for nuclear power plants is uranium from mine production centres around the world, which amounted to 154 million pounds U3O8 in 2013 (96% of world requirements). One million pounds U3O8 is equivalent to 385
tU. Uranium mining is largely concentrated in six countries — Kazakhstan, Canada, Australia, Niger, Namibia, and Russia — which produced approximately 130 million pounds in 2013 (81% of reference requirements). Uzbekistan, the US, China, Malawi, Ukraine, South Africa and several other countries met the remainder of the requirements (note that Malawi is no longer producing).

In terms of individual suppliers, the uranium industry remains concentrated. Eleven suppliers controlled 90% of world uranium production in 2013, with the top four - Kazatomprom, Cameco, AREVA and the combined ARMZ/Uranium One - responsible for 61%. Historically, Rio Tinto's production has rivalled that of the top four, but has been down since 2010 due to production problems at its Rössing and Ranger mines.

"Eleven suppliers controlled 90% of world uranium production in 2013, with the top four - Kazatomprom, Cameco, AREVA and the combined ARMZ/Uranium One - responsible for 61%."

In-situ leach or in situ recovery mining accounted for 46% of world mine production in 2013, up from about 10% in 2006 thanks primarily to its use in Kazakhstan. Underground and open pit mining methods accounted for 28% and 19% of world mine production, respectively. By-product mining as is carried out at the Olympic Dam copper mine in Australia accounted for the remaining 7% of uranium production in 2013.

The uranium market has been significantly oversupplied during the past several years, and market prices for uranium have dropped sharply as a result. The spot price indicator reported by TradeTech has declined from $69.50 on 28 February 2011 to $28.50 on 31 July 2014. Spot price has shown limited or no response to incidents reducing supply, such as the May 2013 terrorist attack on the Arlit mine in Niger, the December 2013 leach tank ruptures at Rössing and Ranger, or the November 2013 decision by Paladin to place the Kayelekera mine in Malawi into care and maintenance. This is primarily a reflection of the discretionary nature of near-term demand combined with excess supply and inventory overhang. Market participants have been making discretionary purchases, but withdraw when suppliers try to raise prices.

The TradeTech long-term price indicator's reaction to the post-Fukushima market has not been quite as severe as the spot market price indicator but still registered a major decline, from $70/lb on 28 February 2011 to $44/lb on 30 June 2014. Unfortunately for uranium suppliers,excess supply is expected to persist for a number of years, which will hinder price recovery. In response, suppliers have postponed new mines under development, planned production activity cut-backs at some existing mines, and completely halted production at several other mines during the last year. In the US, UrEnergy and Uranerz both announced recently that they are limiting output at their Lost Creek and Nichols Ranch projects until prices improve. Energy Fuels put its Daneros, Beaver and Pandora mines on standby in late 2012 and placed its White Mesa mill on standby for at least one year starting in mid-2014.

"Suppliers continue to profess faith in the longer-term prospects for nuclear power and the uranium market, but now admit that prospects through 2015 are dismal."

Suppliers continue to profess faith in the longer-term prospects for nuclear power and the uranium market, but now admit that prospects through 2015 are dismal. Virtually all miners remain vocal that uranium prices must rise if new uranium projects are to be developed. Some project a "supply crunch" in about five years, fearing that the price signals needed to support new mine development will not manifest themselves within the lead times needed to develop new projects.

Spotlight: the top six

Uranium production activities in the six top uranium producing countries are reviewed next.

Kazakhstan has been the number-one uranium producing country in the world since 2009. Production has increased almost twelve-fold from 5 million pounds in 2001 to 58 million pounds in 2013 from more than 20 production centres. The declaration of the Kazakh government in 2011 that it would limit the market pricing impacts of too rapid an expansion was followed by a diminution of demand from the Fukushima accident. Still, 2013 production represented a 15% increase over 2011. Production in 2014 is starting to level off, but maintaining uranium export revenues now remains a key concern for the Kazakh government.

Canada's operating centres produced 24.2 million pounds of uranium in 2013. Though its nameplate production capability has the potential to rise to 35 million pounds by 2018, delays and economic considerations could result in output being limited to approximately 29 million pounds through the early 2020s. Though the Cigar Lake mine has already come online, it will not reach
its maximum capacity of 18 million pounds annually until about 2018.

Australian production, which in 2013 was 16.7 million pounds, suffered a 9% decline from 2012 primarily due to the end of Ranger mining operations in 2012. The processing of stockpiled lower-grade ore continues at Ranger, but a December 2013 leach tank failure has caused the loss of about six months of uranium production in 2014. Australian production is likely to remain at about 16 million pounds per year until at least 2020, if and when Olympic Dam expansion begins.

Niger, the world's fourth largest uranium producer, decreased uranium production from 12.4 to 11.5 million pounds in 2013 from its three operating production centres: Arlit, Akouta, and the smaller Chinese (CNNC)-owned Azelik mine. AREVA is the operating-owner of Arlit and Akouta. The ten-year contract between the government of Niger and AREVA for uranium mining in the country expired at the end of 2013. Negotiations for the renewal of the agreement were protracted and a new agreement was not announced until May 2014. At the same time, AREVA and the Niger government agreed in the second quarter of 2014 to put the Imouraren project on hold until market prices justify renewed development. Initial production had been scheduled for 2016, but now seems unlikely prior to 2020. Despite Niger's long history of uranium production, political instability continues to be a concern, as highlighted by the May 2013 suicide bomber attack on the Arlit production centre. In Namibia, there are two large conventional operating mines which produced a total of 11.2 million pounds of uranium in 2013. The first of these is the very large, Rio Tinto low-grade open-pit Rössing mine that has been operating since 1976. The second mine, Paladin Energy's Langer Heinrich, was brought into production at the beginning of 2007. A third mine owned by CGNPC of China, the Husab project, is now in the late development stage and expected to go into production in 2015 and produce 15 million pounds per year for 30 to 40 years.

Rössing production declined 11% to 5.3 million pounds in 2013 and for the past three years has been well below the 8.1 million pounds annual average achieved between 2006 and 2010. Despite a small profit in 2013, Rössing's economics are a real challenge. The March 2013 18% workforce reduction was followed by the June 2014 decision to cut back production to 4.4 million pounds per year through 2017 (consistent with existing contract commitments), which will entail additional workforce reductions.

In Russia all uranium mining is controlled by the Rosatom subsidiary Joint Stock Company (JSC) Atomredmetzoloto Holding Company (ARMZ). Russian production has averaged 8.6 million pounds annually during the past eight years and was 8.2 million pounds in 2013. Production increases at the small Dalur and Khiagda ISL mines has helped offset production declines at the Priargunsky mine, which has encountered lower grades and production issues. A new mine is being developed at the Priargunsky centre, but plans for significant increases in Russian production are unlikely to meet with much success.

Secondary supply

In addition to production from mines just discussed, uranium supply consists of secondary supply from underfeeding at enrichment plants, re-enrichment of tails material, US DOE excess inventories, Russian HEU, commercial inventories, and plutonium and uranium recycle. These secondary sources, which supplied 74 million pounds in 2013, are expected to decline to 53 million pounds in 2014 as the US-Russia highly enriched uranium (HEU) disposition programme has ended. AREVA's greater than 10 million pound inventory draw-down was also a significant and unexpected contributor in 2013.

While secondary supply is projected to decline from recent levels, it will still remain a significant source of supply for the long term, averaging 41 million pounds per year between 2015 and 2021 and 27 million pounds per year in 2023 and later. Uranium supply from enrichers via underfeeding and re-enrichment of tails material is expected to be the primary source of secondary supply in the future.


World natural uranium requirements are projected to rise from 161 million pounds in 2013 to an annual average of 199 million pounds in the 2021 to 2025 period and to an average of 240 million pounds between 2031 and 2035. Most of the growth by the year 2035 takes place in East Asia but growth in the Other region is also notable (Figure 3). The natural uranium requirements for each nuclear power plant now operating are projected based on plant and country- specific discharge burn-ups, initial core and reload enrichment assays, cycle lengths, and capacity factors. These "reactor requirements" do not include purchases of uranium to build up strategic inventory for new reactors, or the drawdown of strategic inventory as some countries reduce nuclear power capacity.

"Forecast uranium requirements are currently down significantly — 7% — when compared to those of just one year ago."

Forecast uranium requirements are currently down significantly when compared to those of just one year ago. The reduction is 7% in the near term (2014-2016), and about 2% over the following seven years (2017- 2023). The reduction in requirements over the next three years is primarily due to the slower pace at which shut-down Japanese reactors are expected to return to operation, but the early retirement of several reactors in the US and unplanned outages and delayed startups in Korea have had impacts as well. Additionally, early retirements are expected in the US as compared to 2013, leading to lower requirements between 2015 and 2020.
Cumulative reference requirements are projected to reach 2.2 billion pounds by 2025 and 4.5 billion pounds by 2035. While substantial, these cumulative requirements are considerably less than world estimated resources reported in the most recent (2013) IAEA Red Book. Note that the ERI reference requirements forecast is lower than forecasts made by others such as the World Nuclear Association.

Market outlook

As shown in Figure 4, the top six uranium- producing countries in 2013 will continue to play a dominant role in expected uranium production through 2035. The figure, which compares mine production to reference reactors' requirements and demand, also shows the extent of supply from secondary sources.

Demand includes net strategic inventory- building, assuming two year's forward requirements are maintained. In this assessment, it is assumed that while mines under development may move forward, there will be significant delays in the schedules for bringing many of the planned mines into production because of decreased market demand. Development of Imouraren in Niger and expansion of Olympic Dam in Australia are not assumed in the figure. In addition, no production from prospective mines is shown. Production from mines under development is dominated by the expanding Cigar Lake project in Canada, and Husab in Namibia, which have a combined nameplate capacity of ~33 million pounds per year.

As has been the case for several years, China is expected to absorb a significant amount of the excess supply expected over the next ten years into its strategic inventory. The discretionary portion of strategic inventory-building by China could average about 20 million pounds per year through 2018 before tapering off by 2023. The relatively constant gap between projected production and forecast requirements through the early 2020s indicates that there will be no significant upward pressure on market prices until after the end of this decade, as excess inventories must first be worked off. The level of excess supply indicates additional mine closures, or further slowing in the ramp-up of Cigar Lake and Husab.

"New development will not be initiated at current price levels"

Another variable affecting when upward price pressure could begin is the extent of inventory availability. The recycle component of secondary supply is in the range of 7 to 8 million pounds per year, a level that is not likely to increase but could be reduced if reprocessing capacity is reduced. Western and Russian enricher underfeeding and tails recovery supply could also be reduced below the 23 to 26 million pound levels assumed through 2020 and the approximately 14 million pounds levels during 2023-2035.

When market conditions are supportive, future supply can be augmented by the more than 40 prospective resource projects that are currently identified. While some of these resources have already received preliminary development and could be brought to production more quickly, others could take 10 years or more to bring into production. However, new development will not be initiated at current price levels.

About the authors

Julian Steyn (jjsteyn@verizon.net), president, Nuclear Energy Consulting Associates, 11205 Raehn Court, Great Falls, VA 22066, USA, and Thomas Meade (meade@energyresources. com), principal, Energy Resources International, Inc, 1015 18th Street, NW, Suite 650, Washington, DC 20036, USA

Figure 1
Figure 2
Cigar Lake
Figure 3
Figure 4

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