Tim Boreham reports that the paradox of the current uranium market is that the more the major uranium producers curtail output because of low prices for the commodity, the higher the hopes of a prices recovery sometime in the foreseeable future. With a number of false "new beginnings" since the 2011 Fukushima incident caused by the tsunami that shuttered all nuclear power plants in Japan and some in Germany, and therefore cutting demand for uranium fuel, industry management contends that the market will drift back into undersupply as the plants in Japan are re-started after safety improvements have been made and approved by the regulators. After the stockpiled uranium has been used up in Japan, utility buyers will need to look to re-fuel when their current long-term contracts expire, which creates a new market for uranium fuel worldwide.
Paladin Resources last month joined other major global producers by flagging a likely mine closure: it’s taken the first steps to putting its Langer Heinrich mine in Namibia on care and maintenance, citing the lowest spot uranium prices in 15 years. In November of last year Kazakhstan’s Kazatomprom said it would cut output by 20 percent for three years. In early December Canada’s Cameco suspended its output at the McArthur River mine for ten months. In all, the cuts were to remove 17 million pounds of primary uranium supply this year, or 12 per cent of supply. Kazakhstan is the world’s biggest uranium producer McArthur River alone supplies 10 per cent. Langer Heinrich produced 3.4 million pounds in 2017, with the mill fed by previously stockpiled ore.
Amid a global oversupply, the spot uranium price hovers around $U23.00 a pound, not far off the late 2016 low of $20/lb. The price peaked at $140/lb in 2007, when more than 500 resource explorers purported to be looking for the element (with the exception of a handful of them, they’re now looking for lithium or growing cannabis). Predictable shares in ASX-listed uranium explorers and developers such as Vimy Resources, Bannerman Resources, and Toro Energy are at historic lows.
Vimy’s Mike Young recently said the yellowcake market is on the crest of a wave of a price recovery in the near future. On Young’s reckoning, uranium costs an average $55 a pound to produce, so most miners would go bankrupt at the current spot price. While contract prices are less than transparent, they’re much higher than the spot price. In 2016, Peninsula Energy signed a ten-year supply contract, while Berkeley Energia inked a five-year offtake deal at $43.78/lb. At the time the spot price was below $20/lb.
“The uranium market is unique compared to other commodities in that contracts are signed years in advance of first delivery,” Young says. Vimy has good reason to talk up the market, given Vimy is due to release its definitive feasibility study on its flagship Mulga Rock project (near Kalgoorlie) in the current quarter. The country’s third biggest undeveloped uranium mine, Mulga Rock, was approved by the Western Australian Barnett government and has been honored by the Labor administration.
With a resource of 71.2 million tonnes or ore containing 90.1 million tons of uranium oxide, Vimy is envisaged as a 3.5 million pounds a year producer. The economics of Mulga Rock are supported by side revenue production from copper-zinc and nickel-cobalt contained in the ore, which are key ingredients of alternative battery technology. Vimy will stockpile uranium in the meantime and assumes that global demand of 240 million pounds will be needed by 2024, compared with the current 150 million pounds. The U.S. alone consumes 50 million pounds per year for it to operate its 99 reactors.
Based on Vimy’s numbers, worldwide there are 447 reactors across 31 countries, with a further 56 under construction and 160 planned or permitted. Of these, China accounts for 38 reactors, with 20 under construction and 40 planned.
Joining Vimy, is Peninsula, which is seeking to expand its Lance project in Wyoming. The mine currently produces about 400 pounds a day (146,000 pounds a year), but is licensed for three million pounds a year. Berkeley Energia this year it starts building its Salamanca mine in Spain, the only major uranium project under construction. Bannerman, meanwhile, is developing its Etango project in Namibia as an open pit and heap-leach operation, based on a nano-filtration technology that is expected to reduce costs.
The uranium processing innovator, Silex, is one of those once high flyers the market has long forgotten about. But a vaunted deal with a heavy-hitting consortium of U.S. nuclear companies could put Silex back on investors’ radars. Having shed its solar assets some time ago, Silex’s focus has been on commercializing its laser uranium enrichment technology. This know-how, which makes the process far more efficient, has been licensed to the U.S.-based Global Laser Enrichment (GLE) consortium. In May 2016, the 76 percent GLE owners GE Hitachi said they wanted out of the venture, citing “changing business priorities and difficult market conditions.” Silex intended to introduce new shareholders, but with no apparent interest it has been negotiating to buy the stake at a “heavily discounted valuation”. Nuclear power producer Cameco would continue to hold the remaining 24 percent of GLE. Rather than receiving royalties as initially planned, the purchase will give Silex a controlling stake in a facility intended to be built at Paducah, Kentucky.
The initial feedstock probably would be 300,000 tonnes of depleted uranium called the Paducah tails, owned by the U.S. Department of Energy (DOE). While subject to change, the plan is to process the tails into natural grade uranium at a nominal rate of 2,000 tonnes a year over 40 years. That output, to be sold on the global market, would be equivalent to that of one of the biggest uranium mines. There’s a few missing parts of the equation, notably the likely purchase price and the cost of building the plant. As a rough guide for the latter, Cameo acquired its stake for $124 million in 2008, which suggests a $550 million valuation for the entire venture at the time.
Understandably, Silex also needs the approval of the DOE, the U.S. nuclear watchdog. Silex had expected a deal to come to fruition in the March quarter, but deadlines have slipped. The company said its due diligence had identified “additional risk factors”, with some sort of result in the “near future”. In its heyday Silex was worth more than $1 billion, compared with today’s market cap of $57 million supported by $36 million of cash on hand.
A third-generation processing technology, Silex’s process involves laser excitation to separate isotopes, rather than the old gaseous or centrifuge diffusion. It’s more efficient and enables smaller, modular plants to be built.
Original URL: http://www.sharecafe.com.au/2018/05/11/The-Uranium-Sector-On-The-Crest-Of-A-Recovery-Wave-Or-Down-In-The-Dumpers/
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