Deputy Director General of World Nuclear Association not optimistic about new uranium mines

with demand lower than was expected before, the price outlook is also down in both the medium and long-term..

It is clear that some of the anticipated new mines, heavily promoted by financial backers, will be ‘out of the money’—in other words, too expensive to develop in the new environment. Future uranium projects are very sensitive at prices in the $50 to $70 per pound level, and many may need more than $70 for viability.

Uranium – what are the prospects post-Fukushima?, Nuclear Engineering, Steve Kidd Deputy Director General of the World Nuclear Association, 06 October 2011“………..Falling uranium demand in the short-term is likely to delay some new projects, particularly those in Africa where financial requirements are heavy. But the reaction of producers will largely depend on the continuation of China’s new build programme and its willingness to finance new mines abroad.

…….Turning to potential new reactors, where the anticipated demand has been important in pushing up the uranium price since 2003, the position has also become arguably more difficult. A highly politicised industry has become, rightly or wrongly, even more politicised, and nuclear plans in some countries may be scaled back, or at best delayed. The position of China in this is not surprisingly crucial, as it has almost half of the reactors under construction around the world. Its immediate reaction to stop the approval process for new units and look more closely at the safety of those already approved is a typical reaction.

It will probably now be more difficult to gain approvals at some of the anticipated inland sites in China that have seismic issues. India has said that its expansive programme will go ahead as before, but there must now be increased doubt on its ability to gain political and public acceptance for reactors on some of the planned sites.

Russia has cut back on its anticipated reactor sales to new nuclear countries, which seems reasonable, on the basis that plans in many of these look like being delayed. In particular, countries in South East Asia that have historically been vulnerable to tsunamis, such as Indonesia, Malaysia, the Philippines and Thailand, may rethink their plans for their first reactors in about 2020.

Given that the future level of uranium demand will now be lower than previously expected…… the reaction of the producers will be interesting to observe. It is clear that several of the planned and prospective mines will now face greater problems in financing, notably those in Africa (where the ore grades are relatively low and the financing requirements heavy). More and more will depend on China, for the continuation of its strong nuclear build programme but also its willingness to finance new mines, for example, CGNPC’s interest in the Husab project in Namibia.

……. but those where costs are high and/or where the big buyers are unwilling to offer finance or long-term off-take contracts may fall by the wayside. So with demand lower than was expected before, the price outlook is also down in both the medium and long-term; in essence, it will no longer be necessary for buyers to offer the higher price levels that the more expensive projects require.

The only realistic way to forecast where the uranium price is going over the next five to ten years is to assess the cost levels at the mines. …..

Mines will only go into production if the price is sufficient to cover both capital and operating costs, and provide a reasonable rate of return on the capital employed. ….

Accurately estimating the so-called long-run marginal cost of production is the holy grail of metal and mineral price forecasting. It is particularly tough in uranium, where each mine tends to be very different. It is not just a question of the ore grade, as there are a huge range of factors in play. ….

BHP Billiton has also announced that its review of the enormous potential expansion at Olympic Dam is still going ahead, so it seems that the best projects will still proceed, but those where costs are high and/or where the big buyers are unwilling to offer finance or long-term off-take contracts may fall by the wayside. So with demand lower than was expected before, the price outlook is also down in both the medium and long-term; in essence, it will no longer be necessary for buyers to offer the higher price levels that the more expensive projects require……

The big buyers at nuclear utilities work for institutions that have very well-established contractual formats. A lot of the financial sector’s interest in nuclear and uranium has been based on it becoming a dynamic growth market. But now the outlook is for rather slower growth, with similar delayed adaptation of new ways of doing business…..

October 7, 2011 - Posted by Christina Macpherson | 2 WORLD, business and costs, Uranium

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