Desperate uranium miners
switch to survival mode despite nuclear rebound
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[October 03, 2016]
By Geert De Clercq
LONDON
(Reuters) - The nuclear industry is gradually recovering from its
post-Fukushima slump, but excess capacity keeps uranium prices at record
lows, forcing mining companies to mothball mines, slice costs and cut
debt as they struggle to survive.
In the wake of the March 2011 Fukushima disaster, Japan closed its
nuclear reactors, which accounted for some ten percent of the more than
400 reactors operating globally.
Several other countries including Germany announced plans to exit
nuclear, and in the past three years several nuclear reactors in the
United States were closed as they could no longer compete with cheap
shale gas.
Five years later, only three of Japan's 42 reactors are back in
operation but new reactors brought online in China and other countries
have partly made up for the Japanese closures.
In the next few years, eight Westinghouse reactors are expected to open
in the United States and China, four Areva reactors in Finland, France
and China, and four Kepco-built reactors in United Arab Emirates.
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The World Nuclear Association (WNA) says it is feasible that global
nuclear electricity production, at around 2,441 terawatt hours (TWh) in
2015, may return to 2011 levels this year and to pre-Fukushima levels in
two-three years. In 2010, the last full year before Fukushima, nuclear
generation came to 2,630 TWh.
Long-term perspectives have picked up too.
China plans to build at least 60 nuclear plants in the coming decade,
South Africa last month kicked off a major nuclear tender, and
Thursday's signature of the Hinkley Point contract between French
utility EDF and the UK government opens the way for up to 12 new
reactors in Britain.
As nuclear reactors need fuel, all this should be good news for uranium
miners, but the radioactive metal last week hit a new decade low of
$23.5 per pound.
Uranium, which before the 2008 financial crisis had briefly peaked
around $140 per pound in June 2007, traded around $70 per pound just
before the Fukushima disaster and has been on a downward trend ever
since.
"It has never been a worse time for uranium miners, although globally
the nuclear industry does well," Alexander Molyneux, CEO of Australian
uranium miner Paladin Energy told Reuters in an interview.
BULGING INVENTORIES
Mining executives partly blame the slump on their customers'
wait-and-see attitude, as utilities believe that the uranium market's
over-capacity will persist for years and see no need to rebuild their
dwindling stockpiles.
Demand for uranium is determined by the number of nuclear plants in
operation worldwide, but supply and demand are disjointed by huge stocks
and uranium's long production cycle.
In coal, a bulky and inexpensive commodity, there is relatively little
inventory on the planet, as it typically takes six to eight weeks
between mining it and burning it.
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Uranium however has to be mined, converted, enriched and turned into
fuel rods in an 18 to 24 month process. And as security of supply is so
important and uranium makes up just a few percentage points of the cost
of running nuclear reactor, utilities tend to have 5-7 years' worth of
inventory.
"At the moment, nobody feels the need to buy and the price is lower
every day. We are still waiting for the inflexion point," Molyneux said.
In the five years before Fukushima, utilities worldwide bought about 200
million pounds of uranium per year, he said. Although Japan's
consumption averaged only around 25 million pounds per year, when it
closed its reactors demand was cut far further, falling by half.
European and U.S. utilities saw that the market was over-supplied and
reduced inventories, buying less.
Mining firm Energy Fuels estimates global uranium stocks held by
utilities, miners and governments are now at around 1 billion pounds.
That is down from a peak around 2.5 billion pounds in 1990, but still
many years' worth of consumption.
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![](../images/100316pics/busine22.jpg)
The Tamgak open air uranium mine is seen at Areva's Somair uranium
mining facility in Arlit, Niger, September 25, 2013. REUTERS/Joe
Penney/File Photo
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Despite the plunge in uranium prices after the 2008 financial crisis and again
after Fukushima, uranium production has doubled from 80-90 million pounds in the
mid-1990s to about 160 million pounds last year, according to Energy Fuels data.
Most
of that new supply came from Kazakhstan, which over the past decade has more
than quintupled its output to become the world's leading source of uranium with
a 38 percent market share in 2013, WNA data show.
DESPERATE TIMES
With so much new supply, and demand sliding, prices have fallen to a level where
most uranium miners operate at a loss.
"At today's spot prices, the primary uranium mining industry is not
sustainable," US uranium producer Energy Fuels COO Mark Chalmers told the World
Nuclear Association's London conference last month.
He added that many legacy long-term supply contracts will expire in 2017-18,
which will force many mines to close or throttle back even further than they
already have.
Miners
like Canada's Cameco, France's Areva and the uranium arms of global mining
companies have closed or mothballed several mines and deferred new projects in
order to cut back supply.
Paladin - the world's second-largest independent pure-play uranium miner after
Cameco and the seventh or eighth-largest globally - has production capacity of 8
million pounds of yellowcake uranium but produced just 4.9 million pounds last
year at its Langer Heinrich mine in Namibia.
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Molyneux said the firm will produce about 4 million pounds this year and will
cut output further to about 3.5 million pounds next year if prices do not
recover.
Paladin suspended production at its 2.3 million pounds per year capacity
Kayelekera mine in northern Malawi in 2014 but maintains equipment so it can
resume when prices recover.
Meanwhile it is trying to further reduce its debt, which already fell from $1.2
billion five years ago to $362 million.
Paladin has agreed to sell 24 pct of Langer Heinrich to the China National
Nuclear Company and plans to use the expected proceeds of 175 million dollars to
further reduce debt.
Bigger peer Cameco in April suspended production at its Rabbit Lake, Canada mine
while also curtailing output across its U.S. operations, saying market
conditions could not support the operating and capital costs needed to sustain
production.
Cameco marketing head Tim Gabruch told the WNA conference that "desperate times
call for desperate measures".
Supply adjustments and producer discipline had not yet been sufficient to
counter the loss of demand, he said.
"As difficult as those decisions have been, we recognize that those actions may
not be enough."
(Reporting by Geert De Clercq; editing by Peter Graff)
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