Uranium supply: a troubled market

3 October 2013

July saw the spot price indicator for uranium concentrates dip below $40 per pound for the first time in over seven years. With demand growing slowly amid adequate supply, it remains unlikely that any new projects will enter active development until the market environment improves significantly. By Julian Steyn and Thomas Meade

In spite of the fact that climate change continues to be an increasing cause for concern, the world does not seem likely to turn away from carbon-emitting fuels very quickly. The increasing low-cost production of natural gas through hydraulic fracturing (fracking) has slowed interest in nuclear power deployment in some countries around the world, and particularly in the United States. The economic advantages of gas have more than offset concerns about the environmental impact of its carbon emissions. While this may be reversed in time, it could be several decades before this occurs. In the meantime, the nuclear renaissance that was envisaged about five years ago has been put on hold in much of the so-called Western world, although not in China or India where industrial and residential demand is expected to go through substantial expansion.

The uranium requirements worries of the past decade have abated; supply jitters have been replaced by inventory build-ups and resource discovery and development. This has resulted in the uranium market softening significantly, while producers have been making every effort to avoid severe collapse. While optimists see the uranium market hardening in two or three years, many think that it could be closer to the end of this decade before this occurs. In the interim, it is likely that the industry will see more supplier consolidation as well as efforts to minimize nuclear plant generating costs.

Market prices continue to decline

In the more than two years since the Fukushima accident in Japan, the spot price indicator for uranium concentrates, as reported by TradeTech LLC, declined from $69.50 per pound U3O8 at the end of February 2011 to $35.00 at the end of July 2013. The price of $40 per pound appeared to be a solid floor for the spot price until June 2013, when daily market indicators showed the price dipping just below this level. Prior to this, the spot price indicators had resisted pressures such as the April 2013 reports that China had halted uranium imports (temporarily) and that Kazakh uranium was hitting the spot market as a result. While BHP Billiton's December 2012 step-back from the uranium market helped to halt the price decline at that time, the spot price over the past year has also been resistant to any significant upward movement.

The long-term market's immediate reaction to the Fukushima accident was more restrained than that of the spot market. By the end of 2011, the TradeTech LLC term market price indicator had declined from $70 to $61. The long-term price typically moves much more slowly than the spot price, and the past year has been no exception. Since the end of 2011 the term price indicator has fallen to $54 (31 July 2013). Suppliers continue to profess faith in the longer-term prospects for nuclear power and the uranium market. For several years, many suppliers and financial community analysts have anticipated that a tightening of supply will occur following the end of the HEU Agreement in 2013, but are now admitting that the market will remain over-supplied for at least a few years. The mining industry insists that uranium prices must rise if new uranium projects are to be developed, with more vocal mining industry members stating a price of $70 to $75 per pound is needed to 'incentivize' the development of new mines.

During the last few years, producers, traders and financial entities have made more than half of all uranium purchases on the spot market, with the balance going to end users, that is, owners and operators of nuclear power plants. As a result, spot market purchases by end-users are estimated to have accounted for about 10% of end user purchases over the last two years; the remaining 90% of deliveries were made under long-term contracts.

Mine production

The primary source of uranium supply for nuclear power plants is uranium from mine production centres around the world, accounting for 96% as a percentage of nuclear power plant requirements in 2012 (65% in 2006). Total mine production for 2012 was estimated to be 152 million pounds, an increase of 11.5 million pounds or 8% over 2011. (One million pounds U3O8 is equivalent to 385 tU).

Uranium mining is largely concentrated in 12 countries (see Figure 1) which have been the source of 98% of all uranium mined over the past six years. Kazakhstan, Canada and Australia produced 63% of all uranium mined in 2012. The top eight countries provided 91% of all uranium mined in 2012.

Overall, mine production has increased by more than 49% since 2006. Most (83%) of the net increase in mine production over this period has taken place in Kazakhstan, with the remainder in Niger (7%), Namibia (7%) and Malawi (4%). Production in Canada and Australia has declined by about 9% each when 2012 is compared to 2006.

Uranium mine production is obtained from four general mining methods: in-situ leach (ISL) which is also referred to in the US as in-situ recovery (ISR), underground mining, open pit mining, and by-product mining. ISL mining has grown rapidly over the past seven years, primarily due to its widespread use in Kazakhstan, and currently accounts for 44% of world production (compared with 24% in 2006). Underground and open pit mining methods, sometimes referred to as conventional mining, accounted for 29% and 21% of world mine production, respectively. By-product mining at the Olympic Dam copper mine (Australia) accounted for about 7% of uranium production. A single mine, McArthur River (Canada), was responsible for 13% of world production in 2012 and the ten largest mining projects (by output) accounted for 54% of world production.

The high level of concentration in the uranium mining industry is evident from Figure 2. The top four producers -- Kazatomprom, Cameco, AREVA and ARMZ/Uranium One -- were responsible for 60% of 2012 mine production and the top ten were responsible for 90%. 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 (Namibia) and Ranger (Australia) mines.

Kazakhstan has been the number one uranium-producing country since 2009. The explosive rate at which Kazakhstan's production continues to expand is remarkable. Production has increased ten-fold from 5 million pounds in 2001 to 54 million pounds in 2012. The Kazakh government declared in 2011 that it needed to limit the market pricing impacts of too rapid an expansion, further accentuated by the Fukushima effect on demand, but 2012 production represented an 8% increase over 2011. Further expansion potential exists, with nameplate capability potentially climbing as high as 70 million pounds in the next five years. Actual production is more likely to top out in the 60-to-65 million pounds per year range.

The total output of Canada's operating centres in 2012 was 23.3 million pounds U3O8. Canadian nameplate production capability has the potential to rise to 40 million pounds by 2020, but delays and more cautious expansion may be the reality. Following flooding-related delays, the Cigar Lake mine is scheduled to come on line later this year (2013) and is scheduled to produce about 18 million pounds annually by about 2018. Cameco is proceeding with the McArthur River extension project, which could increase the mine's production level to 22 million pounds per year. Prospective Canadian resources include the Phoenix Deposit at Wheeler Lake, Cameco's Millennium deposit, AREVA's Kiggavik deposit, Paladin's Michelin project and Rio Tinto's Hathor deposit. The decisions to develop most of these projects have been postponed until market factors improve. First production from these prospective mines is expected to be pushed back to around 2025.

Australian production in 2012 was 18.1 million pounds, a 19% improvement over 2011 thanks to improved performance at the Ranger mine. Uranium production centres in Australia include the Olympic Dam, Ranger, Beverly and Honeymoon projects. Ranger mine finished open-cut mining in December 2012 after 31 years of operation. Uranium production will continue by processing previously-stockpiled lower-grade material while studies proceed to assess the feasibility of underground operations at the Ranger 3 Deeps resource discovered in 2009. Australian production capability is projected to climb slowly, but will be limited as the large open-pit expansion of the Olympic Dam mine has been postponed indefinitely.

There are significant uranium resources that can be found in central, northern, and western Australia, as shown in Figure 3. Historically, many of the prospective Australian mines have been constrained by active antinuclear sentiment, but state governments have now opened up Western Australia and Queensland for uranium mine development. Still, it is unlikely that any new projects will enter active development until the market environment improves. Toro is trying to get equity investors so it can take Wiluna to the development phase, but has not been successful so far. Cameco placed Kintyre on hold until market prices improve and Paladin has stated that its projects (Valhalla/Skal, Bigrlyi, Angela/Pamela, Manyingee, and Oobagooma) need higher prices before they can proceed to development. When market conditions improve so that development investment seems justified, a few of the projects could potentially proceed to production in as little as three years, but most would need at least five years.

Niger, the world's fourth largest uranium producer, increased uranium production by 10% to 12.4 million pounds in 2012 from three centres. AREVA is the operator-owner in three of the four projects in Niger. Output from the Arlit and Akouta centres in 2012 was 8.0 and 3.9 million pounds, respectively. The Azelik mine started pilot uranium production in December 2010 and is believed to have produced 0.5 to 0.7 million pounds for its Chinese owners in 2012. There is also a large mine under development, Imouraren, where AREVA plans to produce first uranium ore in late 2015 and the first drummed uranium in 2016. 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. AREVA partially restarted uranium production at the site in June and was able to return to full operations in early August.

In Namibia, two large operating conventional mines produced 11.2 million pounds of uranium in 2012. The first of these is the very large, low-grade open pit Rössing mine that has been operating since 1976. Rössing production increased to 6.1 million pounds in 2012, but was still well below the 8.1 million pounds annual average between 2006 and 2010. Rössing's economics have been a challenge over the past two years, as the mine has operated at a loss, culminating in the March 2013 announcement of an 18% workforce reduction. The second mine, Paladin Resource Limited's Langer Heinrich, was brought into production at the beginning of 2007 and increased production to 5.1 million pounds in 2012. A stage 4 expansion, which could double site production to around 10 million pounds, will await improved market prices. Paladin will continue its efforts to lower production costs, which have met with some success. The Husab project is now under development and will double Namibia's production when operating at nameplate capacity of 15 million pounds per year, potentially vaulting Namibia past Niger to third place in the world's largest uranium producing countries (it is currently fifth. Development at AREVA's Trekkopje mine was officially cancelled in October 2012 due to the poor economics of developing such a low-grade deposit. Perth-based Marenica Energy has developed a new, patented technology that can purportedly increase the grade of such ore by a factor of 50 and is planning to test the technology at Trekkopje to demonstrate improved economics.

In Russia all uranium mining is controlled by the Rosatom subsidiary, Joint Stock Company (JSC) Atomredmetzoloto Holding Company (ARMZ). Russian production declined by 4% to 7.4 million pounds in 2012, as lower grades and production issues continue to impact the large Priargunsky mine centre in Siberia. Production from the small Dalur and Khiagda ISL mines were 1.4 and 0.9 million pounds for 2012, a slight increase from 2011. A new mine has been opened at the Priargunsky centre, with the potential to increase production there over time. The output from existing centres could increase to as much as 18 million pounds per year by the end of this decade, although actual production is expected to be more like 11 million pounds.

In January 2012 ARMZ entered into a definitive agreement with Uranium One, a Canadian company, under which Uranium One was taken private as a wholly-owned ARMZ subsidiary. Uranium One continues to operate uranium mining and exploration projects for ARMZ that are outside of Russia. Its operating mines are primarily in Kazakhstan (joint ventures with Kazatomprom). Uranium One also has small ISL mines in the US (Willow Creek) and Australia (Honeymoon) and plans to develop the Mkuju River deposit in Tanzania in the future.

Uzbekistan's production in 2012 is estimated to have totalled 6.7 million pounds. It is projected that annual production in Uzbekistan may rise to about 8.0 million pounds by 2016 and remain at about that level thereafter. While export marketing has been managed by Nukem to date, other Western and East Asian entities are becoming involved in Uzbek uranium production ventures.

Production of uranium in Uzbekistan is controlled and managed by the Navoi Mining & Smelting Combine and is obtained from three ISL mines, Nurabad, Zafarabad and Uchkuduk, and a central mill. Although the mines have substantial reserves, their grades are relatively low.

The remainder of production in 2012 amounted to 17.5 million pounds and came primarily from the US, Ukraine, China, Malawi, and South Africa.

Current production in the United States is primarily from ISL mines: Crow Butte, Highland/Smith Ranch, Alta Mesa, Palangana and Willow Creek projects, plus the newly-commissioned Lost Creek. The White Mesa mill centre processes toll ore as well as waste materials and was purchased by Energy Fuels in 2012. US production could climb from its 2012 level of 4.2 million pounds to as much as 7 million pounds by about 2016, but expansion plans may be scaled back until market prices improve. As evidenced by Uranium One's decision to temporarily halt the installation of new well fields at Willow Creek, some existing mines may be forced to scale back near-term production if the market price does not improve.

China's production in 2012 was an estimated 3.9 million pounds, but note that exact production numbers are typically not made available. Heap leaching is widely used in China's uranium mines.

Ukraine produced 2.5 million pounds in 2012, an 8% increase over that of 2011. Production could rise to 3.9 million pounds in the second half of this decade.

Malawi's production from Paladin's Kayelekera uranium mine ramped up to 2.9 million pounds in 2012 and could reach 3.3 million pounds in 2013.

South African production of 1.2 million pounds in 2012 was provided by operation of four Vaal River underground mines in the Witwatersrand Basin. Small quantities of uranium were also produced in the Czech Republic, Brazil, India and Romania.

Secondary supply

World uranium supply consists of the freshly-mined uranium just discussed and secondary supply, consisting of US DOE excess inventories, Russian HEU, Russian tails uranium recovery, enrichment underfeeding and plutonium and uranium recycle. These secondary sources supplied 59 million pounds in 2012 but are projected to decline to 42 million pounds in 2014 following the end of the US-Russian HEU Program. A further decline to 28 million pounds is expected to take place by 2025 as Rosatom tails processing comes to an end.

Forecast requirements

World cumulative requirements are projected to range between 2.1 and 2.8 billion pounds by 2025 and 3.7 to 6.0 billion pounds by 2035 over the range of ERI's reference, high and low nuclear power growth forecasts.

Total annual world requirements are projected to rise from 158 million pounds in 2012 to an average of 201 million pounds in the 2021 to 2025 period and to an average of 237 million pounds between 2030 and 2035.

Figure 4 gives a breakdown of uranium requirements by region. Much of the growth is expected to arise in East Asia. Note that while US requirements are expected to fall slightly from 45 million pounds in 2012 to 43 million pounds in 2030, US requirements can vary from year to year in a saw tooth pattern due to varying arithmetical combinations of 18- and 24-month refuelling cycles; 2030 happens to be a 'low' year. The three-year average covering 2029-2031 is 48 million pounds in 2030.

While three reactors began operation in 2012, six units were shut down. In the first half of 2013 one reactor was started up in China, but four were shut down -- all in the US. Three of those four units faced costly repairs, and one (Kewaunee) simply became uneconomic to continue operating. As of the beginning of August 2013, there were only two reactors operating in Japan, and whether or not the others will receive permission to restart and over what time frame remains highly uncertain.

Market outlook

Figure 5 presents the projected world uranium supply and requirements outlook based on ERI's reference case power growth forecast. The supply is based on output from currently-existing mines as well as those under active development, planned or prospective, plus secondary supply.

For the ERI reference requirements, the new supply does not need to come on line as quickly as published plans and/or potential schedules indicate. Note that the projected annual production for all mines, existing or new, is typically only about 90% of the nameplate capability on average.

As shown in Figure 5, the top six uranium-producing countries in 2012 continue to play a dominant role in expected uranium production through 2035. Additional new mine capacity will clearly be required to fuel the world's reactors in the future. Production from mines under development is dominated by three large projects -- Cigar Lake in Canada, Imouraren in Niger and Husab in Namibia. The combined nameplate capacity of these three mines is approximately 45 million pounds per year. If these mines enter production between 2013 and 2016 and ramp up to their full capacities as currently scheduled, significant over-supply will occur if reactor requirements and secondary supply conform to ERI's reference projections. In the case of Husab, much of its output may effectively go towards inventory-building in China for a number of years.

The actual future production from mines not under active development is also subject to factors in addition to the market need. In particular, individual mine economics, local politics and governmental policies will play key roles in determining which resources are ultimately brought into production. There should be sufficient time to meet the challenges associated with bringing new mine capability into production on a schedule that will maintain uranium supply adequacy.

Figure 5 shows that supply exceeds reference requirements, particularly in 2012 and 2013. During 2012, inventory-building by utilities took place in many parts of the world, led by China, but also occurred in the US, Europe and Japan, as well as at some suppliers. Total inventory-building during 2012 is estimated to have been quite high in the range of 50 million pounds. While inventory-building is expected to decline, future demand for uranium will be greater than nuclear power plant requirements, as end-users are expected to increase the amount of uranium held in strategic inventory as new units are brought on line and uranium requirements increase. Although Cameco has indicated it expects this strategic inventory-building to amount to 20 million pounds per year, ERI expects it to amount to around half that.


Julian Steyn (jjsteyn@verizon.net) president, Nuclear Energy Consulting Associates, 11205 Raehn Court, Great Falls, VA 22066, USA.

Thomas Meade (meade@energyresources.com), principal, Energy Resources International, Inc, 1015 18th Street, NW, Suite 650, Washington, DC 20036, USA.

Figure 1: Uranium production by country
Figure 2: Supplier shares
uranium supply Figure 4: Uranium requirements by region
Mining operations in Kazakhstan
Figure 3: Map of Australian uranium deposits
Figure 5: Uranium supply adequacy and reference requirements

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