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Need or Greed? Uranium Prices and Demand

The sevenfold increase in uranium prices during the past four years has resulted in a tidal wave of uranium ore exploration and development activity around the world. But based on a close review of existing and projected world uranium supplies, there’s really no need for any new mining sites. The fact is, there’s more than enough yellowcake (uranium oxide) in existing deposits and secondary sources to meet projected demand for nuclear fuel for more than 50 years.

The rise in the uranium spot market price (for buyers without long-term contracts) reflects that investors and private industry are focused more on profiting from an imaginary “shortage” than filling a fuel gap to address increased uranium demand to feed new nuclear power stations being advocated by reactor manufacturers. All of which begs the question: is the sudden interest in new uranium mining a matter of real need or plain old-fashioned greed?

That opportunist profiteering may be at the root of the current uranium boom is suggested by the entrance into the market of a new wave of uranium companies — many of which are “junior mining companies” joining the uranium market. The “old wave” of the world’s major uranium producers had already identified uranium ore resources at existing deposits that are sufficient to meet the more than 50 years of current or projected uranium demand. Junior mining companies often have limited financial resources, and instead plan to make money on a commodity that is relatively inexpensive to find and produce in comparison to current prices. Many junior companies have never actually mined anything, and are instead buying up existing claims, leases and other forms of “uranium properties” in the hope of attracting capital to develop them at some time in the future. Often, junior companies want to attract more substantial “senior” mining companies and banks to invest in the deposits that the juniors may identify, but lack the financial resources or corporate track record to fund them.

The current boom is resulting in renewed uranium exploration and development activities in communities that have suffered from the legacy of uranium mining in the 20th century and prospecting near communities that have never faced the juggernaut of uranium mining or other industrial development activity. Many of the communities facing renewed interest in long-dormant mining districts are in low-income rural areas and indigenous communities that have little long-term benefit to show from past uranium mining. The legacy of the first 50 years of uranium mining in those communities can provide a warning to areas where new mines, and rosy projections of economic benefit from the new mining activity, are being touted.

How do we know there’s enough uranium for the next 50 years?
In 2003, the World Nuclear Association (“WNA”) asserted that the known recoverable uranium resources already identified provide a 50-year supply for conventional nuclear reactors at a projected long-term demand of about 70,000 tonnes per year, countering perceptions that uranium for any future nuclear reactors might be in short supply. Recognizing the enormity of the known recoverable uranium resource, WNA asserted:
"The world's present measured resources of uranium in the lower cost category (3.5 million tonnes) and used only in conventional reactors, are enough to last for some 50 years. This represents a higher level of assured resources than is normal for most minerals.”

By 2005, WNA’s global total of known recoverable uranium resources had increased by 34% to 4.7 million tonnes. The 1.2 million tonnes of additional uranium in unmined deposits identified in just the last three years is roughly equal to the total amount of uranium consumed by the nuclear weapons and reactor industry from its inception in the 1940s through 2005. Estimates of world uranium resources are a long-time interest of the WNA (www.world-nuclear.org), formerly called the Uranium Institute, and a prominent source of uranium supply and demand information for industry and government for decades. The on-line proceedings of WNA’s annual symposia are a readily available source of detailed nuclear fuel market information and a major source for this article.

Table 1 identifies the countries with the largest known recoverable uranium resources and the amount of increase in those resources between 2003-2005. The commonly used term for uranium in unmined mineral deposits that can be exploited at market prices is “known recoverable uranium resources,” which are identified as the amount of uranium that can be extracted at a specified cost. The standard cost category for known recoverable uranium resources has been set at $80 per kilogram (/kg), or $36/ per pound, for several decades.

TABLE 1 INCREASES IN KNOWN RECOVERABLE URANIUM RESOURCES* 2003 – 2005 $80/pound ($176/kilogram) cost category • 1 tonne = 1 metric ton = 2,200 pounds
COUNTRY	TONNES U 2003	WORLD PERCENT 2003	TONNES U 2005	PERCENT INCREASE 2003-2005	WORLD PERCENT 2005
Australia	989,000	28%	1,143,000	16%	24%
Kazakhstan	622,000	18%	816,000	31%	17%
Canada	439,000	12%	444,000	1%	9%
South Africa	298,000	8%	341,000	16%	7%
Namibia	213,000	6%	282,000	33%	6%
Brazil	143,000	4%	279,000	97%	6%
Russian Federation	158,000	4%	172,000	9%	4%
USA	102,000	3%	342,000	235%	7%
Uzbekistan	93,000	3%	116,000	20%	2%
All Other Countries	480,000	14%	808,000	68%	18%
World total	>3,537,000		4,743,000	34%
Sources: World Nuclear Association 2005 Symposium, International Atomic Energy Agency

* Throughout this article, the terms “uranium resources,” “uranium oxide,” and “yellowcake” refer to natural uranium that has been concentrated after extraction from its host rocks, which are called “uranium ore.” Concentrated uranium (U3O8) must be converted, enriched, and fabricated before being used as fuel in nuclear power plants.
While large increases in recoverable resources are reported for many countries, the largest total increase and largest percentage increase is for the United States (U.S.). Much of this increase can be attributed to reconsideration of U.S. deposits — some through paper exploration involving review and republication of decades-old resource estimates — that were previously identified as recoverable at the cost of $50/pound in the 1970s. “Uranium reserves” are a category of available uranium determined based on future operating and capital expenditures incurred in the recovery of uranium and reflect greater certainty regarding the availability uranium from a mineral deposit than uranium “resources.” In 1979, U.S. “reserves” of uranium at the $50/pound cost of recovery were 979,000 tonnes — almost three times the total of U.S. recoverable uranium “resources” for 2005 — of which New Mexico uranium reserves were 511,500 tonnes, or 52% of the total. New Mexico would be listed as having the third largest uranium resource tonnage in 2005 if the 1979 New Mexico “reserves” figure was used as New Mexico “resources.”

How are uranium resources and uranium demand estimated?
WNA reports that annual uranium consumption in 2005 was approximately 70,000 tonnes. Even at the most optimistic of growth projections, future uranium consumption would top off at 125,000 tonnes by 2025; consumption of uranium as nuclear reactor fuel would be even less under more moderate growth predictions. These uranium demand figures are dwarfed by the known recoverable uranium resource in 2005: 4.7 million tonnes, which represents more than 67 years of world requirements at the 2005 rate of 70,000 tonnes. Using the 2025 medium growth scenario of 100,000 tonnes, this total would provide more than 47 years of world requirements. World uranium demand projections are updated frequently by WNA and other sources to reflect changing market conditions.

Is uranium from unmined deposits the only source for potential future use?
Though the amount of identified unmined uranium is enough for 50 years of current and projected use, “recycled or secondary uranium” derived from previously mined and processed uranium (processed for use in nuclear fuel or weapons) has been a significant and growing source of uranium for reactor use in recent years. Secondary sources include:

• Commercial inventories — uranium supplies owned by reactor operators;
• Government inventories — uranium supplies owned by governments;
• Nuclear weapon/military inventories — uranium supplies in the form of “highly enriched uranium” used in nuclear weapons manufacturing and owned by governments;
• Reprocessed uranium and MOX fuel — uranium supplies in used nuclear reactor fuel;
• Re-enriched depleted uranium — uranium supplies in residuals from uranium enrichment processing — called “uranium enrichment tailings,” or “depleted uranium.”

Uranium from secondary sources such as commercial inventories, weapons-grade uranium stockpiles and, in Russia, uranium enrichment tailings, has been used for nuclear reactor fuel for the past decade. In 2005, secondary sources provided more than 45% of the roughly 70,000 tonnes used worldwide. WNA uranium supply and demand projections estimate that secondary sources will provide 35% of the uranium to be consumed in 2010.

How does the availability of secondary sources of uranium affect uranium prices and future demand?
Secondary uranium sources affect the uranium market in a range of complex ways. In brief, government-held secondary uranium resources entered the reactor-fuel uranium market in a major way during the period when uranium prices were less than $10/pound. The market entry resulted from policy changes by the U.S. and Russian governments that strictly limited the volume and prices of those supplies that have been allowed to enter the market. The prices for the secondary uranium are much higher than the cost of uranium from mines. During the past five years, the price of the uranium at existing mines and unmined deposits or “primary” uranium has risen to approach the secondary uranium prices.

However, mining uranium is very inexpensive compared with the current spot market price. The historic “finding cost” — the cost of finding and identifying mineable uranium ore deposits — is estimated at about $0.60/pound ($1.50/kgU). Estimates of the cost of recovery of uranium oxide by milling or in situ recovery have been in the $15 - $25/pound ($33 - $55/kg) range for more than 20 years. In five years, the uranium market has turned on its head; ore that cost twice the market price to recover in 2000 when the price was $7/pound now costs less than half the September 11, 2006 market price of $52.00.

While the price of uranium has risen, in part, because of secondary supplies, the long-term availability of uranium from secondary sources is yet to be determined. Although the amount of uranium available from secondary sources is very large, the lack of long-term agreements to use the secondary uranium sources leaves the projections of secondary uranium consumption beyond 2010 very uncertain. As plans, and eventually contracts, emerge for use of secondary sources of uranium for reactor fuel, demand for newly mined primary uranium may decrease.

How much uranium is available from secondary supplies?
Substantial amounts of uranium are available in each of the categories of secondary uranium supply. Commercial inventories of uranium — the supplies of uranium owned by reactor operators — were estimated at 110,000 tonnes of uranium in 2005, equal to about 1.5 years of global uranium demand in 2005. Commercial uranium inventories represent holdings for future use and are not predicted to be maintained near current levels for the next several decades by WNA analysts.

Government inventories of uranium are considered by WNA to be composed primarily of non-military government-owned supplies of “highly enriched uranium” (HEU), a form of uranium usable for nuclear weapons production, held largely by the government of the Russian Federation. As noted in Voices in 2004 (Vol. 5, No. 4), the U.S. and Russia, as well as other nations that have nuclear weapons, continue to retain extensive HEU stockpiles. World HEU stocks at the end of 2003 are reported as 1,900 tonnes, of which non-military resources total 175 tonnes and military resources total 1,725 tonnes. Of the total military uranium, 300 tonnes of HEU in Russia are "declared excess," and available for blending down to reactor grade.

Assuming that one tonne of HEU contains the U-235 content of 360 tonnes of yellowcake (which is refined, but unenriched uranium oxide), then 300 tonnes of HEU contain the U-235 content of 108,000 tonnes of yellowcake. The "recycling" of the Russian "excess" HEU is the projected source of 10,000 to 12,000 tonnes of future uranium supply through the year 2013, though future agreements to reuse HEU may be developed sooner.

Russian civilian HEU — HEU transferred from military to non-military government ownership — was estimated at 175 tonnes, or equivalent to 63,000 tonnes of uranium oxide. This resource is projected to contribute about 9,000 tonnes of uranium to global uranium supplies until existing HEU blending and marketing agreements involving the U.S. and Russia expire in 2013.

The 1,725 tonnes of military HEU, held primarily by the governments of U.S. and Russia, is equivalent to more than 600,000 tonnes of yellowcake. Though the global inventory of HEU is under a sales embargo until 2009, the U.S. has initiated plans to market that uranium when the moratorium expires. The first sale of the U.S. civilian uranium inventory is to Bonneville Power Administration, a federally-owned power provider, in an amount equivalent to 2,500 tonnes of yellowcake to be provided during the 2009-2017 period.

The uranium content of enrichment tailings has been estimated to be equivalent to roughly 770,000 tonnes of uranium oxide. Of that amount, U.S. enrichment tailings contain the equivalent of roughly 450,000 tonnes of uranium and Russian enrichment tailings contain roughly 300,000 tonnes of uranium. In recent years, Russian has made 3,000 tonnes of uranium from enrichment tailings available on the world market. The U.S. has yet to make any uranium from enrichment tailings available for use as reactor fuel.

Uranium market analysts estimate that only about 20%, or 130,000 tonnes of uranium oxide equivalent in uranium enrichment tailings, is likely to be marketed during the next 25 years. Of that amount, some 60,000 tonnes of uranium are projected to come from Russian enrichment tailings and 70,000 tonnes from uranium from U.S. enrichment tailings. Since current U.S. policy is not to use recycled enrichment tailings for reactor fuel, stockpiles of uranium enrichment tailings have been growing at the U.S. uranium enrichment sites at Portsmouth, Ohio; Paducah, Kentucky; and Oak Ridge, Tennessee.

The uncertainty about future availability of large amounts of uranium from secondary sources is a focus of considerable speculation within the nuclear industry and is reflected in presentations from WNA symposia. Analysts recognize that government policies play a key role in determining if and when major amounts of secondary sources — particularly highly enriched uranium and uranium enrichment tailings — will enter the uranium market. This uncertainty involves many issues that governments must address, from nuclear weapons production and nuclear non-proliferation policy to the need of states to assure domestic uranium supplies when the U.S. might free up uranium enrichment tailings to supplement primary uranium sources. Certainly, if uranium from non-proliferation-driven “blending down” of highly enriched uranium and reuse of the uranium content of enrichment tailings enters the uranium reactor fuel market during the next several decades, the need for primary uranium, ore from yet to be mined deposits, will be significantly reduced, and the market price would likely drop considerably.

Who is involved in the new uranium boom?
In 2000, about 30 companies were actively involved in uranium exploration. About half were uranium producers, including government-owned companies, and the other half were junior companies. By 2005, the number of firms involved in uranium exploration had increased 500% to approximately 175 companies, and almost all the new entrants are juniors.

Uranium exploration expenditures have also risen steeply. World uranium exploration spending grew from $55 million (U.S.) in 2000 to approximately $185 million (U.S.) in 2005, an increase of more than 333%. During the 2000-2005 period, exploration work by juniors grew from $15 million, about 27% of world uranium exploration spending, to $100 million, or about 54% of world uranium exploration spending.

While the number of uranium exploration companies has exploded in the past five years, the number of uranium producing companies has remained relatively static. In 2004, the leading uranium producer in the world controlled about 20% of world uranium production capacity and 28% of “Western World” capacity. The top three companies controlled more than 50% of world production and more than 70% of Western production capacity. The top five companies controlled 70% of world capacity and 89% of Western capacity.

In 2005 the top uranium producing companies, both “Western World” and “non-Western World” were:

• Cameco — a company that is part-owned by the government of the Province of Saskatchewan, Canada, with production primary from its home Province; 20% of world production
• Rio Tinto — a private company with production in Australia and Nambia; 13% of world production
• Areva (formerly known as Cogema) — a company part-owned by the government of France with production in Saskatchewan and Niger; 12% of world production
• KazAtomProm — A government-owned company in Kazakhstan that produces uranium in its home country; 10% of world production
• BHP Billiton — a private company with production in Australia; 9% of world production
• TVEL — a company owned by the government of the Russian Federation with production in Russia; 8% of world production
• Navoi — a company owned by the government of Uzbekistan that produces uranium in its home country; 6% of world production

That list demonstrates the growing significance of uranium production from the Former Soviet Union — the Russian Federation, Kazakhstan and Uzbekistan — and the lack of significant major U.S.-based uranium companies or production.

The 235% increase in known recoverable uranium resources in the U.S., the largest for any country during the 2003-2005 period, may be an indication that the U.S. will return to the list of major uranium-producing regions. Recent uranium exploration and development activity in the U.S. has included both major uranium producers and juniors. Cameco is the only leading world uranium producer operating in the U.S. with in situ leach (ISL) uranium properties in Wyoming and Nebraska.

Only four conventional uranium mills remain in the U.S., as more than 50 have been dismantled since the late-1960s. Cotter Corporation’s Canon City, Colo., mill has been in operation the longest, beginning in 1958, but operating only intermittently since 1979. International Uranium Corp., which has kept its White Mesa uranium mill at Blanding, Utah, operating in the past decade by recovering uranium from “alternate feed sources” — usually wastes from remediation projects with high uranium content — has announced plans to operate uranium mines in southeastern Utah. In July 2006, SXR Uranium One (SUO) announced its acquisition of the other two uranium mills in the U.S., the Sweetwater mill in Wyoming (formerly owned and operated by hardrock mining giant Rio Tinto) and the Shootaring Canyon mill in Utah. Both of these facilities have been inactive for many years. Uranium is also being produced from at least three ISL mines operating in Nebraska, Texas and Wyoming. Unlike conventional mills, which crush and grind rocks to extract and concentrate uranium, ISL plants “recover” uranium from groundwater that has been oxidized by injection of chemicals that liberate uranium from the host rocks underground.

Junior companies with no past history of uranium production lead the uranium exploration boom in the U.S. Ur-Energy is actively re-exploring formerly investigated uranium properties in Wyoming. Energy Metals, which recently acquired fellow junior Quincy Energy, Inc., has exploration activities in Wyoming, Arizona, Colorado and New Mexico. Laramide Resources, a Canadian firm, announced the acquisition of Homestake Mining Co.’s properties in the Grants, N.M., area, and is planning exploration on the flanks of Mt. Taylor in the Grants Minerals Belt, the most productive uranium district in the U.S. Mesa Uranium is developing deposits in the Lisbon Valley of southeastern Utah. Strathmore Minerals Corp. (SMC), another Vancouver-based company, has acquired properties in predominantly Navajo areas of New Mexico. Hydro Resources, Inc. (HRI), the wholly owned subsidiary of Uranium Resources, Inc. (URI), a Texas-based uranium company, continues to pursue permits for its Church Rock and Crownpoint holdings. Numerous other junior companies — for example, Glen Hawk Minerals, Golden Patriot, Mill Bay Ventures, Mangum Uranium, Powertech Uranium — have been big splashes in the trade and investor press in the past year with their announcements of acquisitions of existing uranium deposits in the Western U.S. Each of these firms touts the prospects of making serious money in the “hot” uranium market.

Few, if any, of these junior uranium companies have articulated policies reflecting the internationally recognized guidelines for socially responsible mineral development and informed prior consent for mineral exploration and development reflected in the Equator Principles adopted by a growing set of international firms. The principles are reflected in the International Finance Corporation emerging Environmental and Social Development Guidelines (www.ifc.org/enviro) and other institutional policies of the World Bank Group.

The new uranium boom is driven by a rising price of uranium that is considerably higher than the cost of discovery and extraction of known unmined uranium resources. Thus, greedy companies are eagerly pursuing potentially large profits from development of previously explored and cheap to mine uranium deposits. The victims of the boom could again be communities around the world — and including many native communities in the Western U.S. and Canada — that have the legacy of busted uranium economies, health impacts from human exposures, and land and water contamination from past uranium exploration and production.

- Paul Robinson