(Thanks DUB)

Uranium to be supply driven rather than inventory driven
By: Rhona O'Connell
Posted: '11-JAN-05 07:00' GMT © Mineweb 1997-2004



LONDON (Mineweb.com) -- At the inaugural Uranium Mining Conference held in London on January 10th by stockbrokers Hargreave Hale in conjunction with LM Associates and at which six uranium producers or explorers / developers presented (of which more later this week), the Keynote address concerned the changes in and outlook for the uranium market itself.

The paper was delivered by Dustin J. Garrow, President of International Nuclear Inc., and a seasoned member of the market, with over thirty years’ experience in the uranium and nuclear power industries. His primary conclusions were that the international uranium market is in transition from being inventory-driven to production-driven.

Demand is set to outstrip supply by a considerable margin, the inventories built up during the period of excess (effectively from 1945 to 1986) will not be sufficient to supply the developing shortfall and the uncertainty over potential uranium supply through to 2010 suggests the development of shortages. He contends that the future price trend will accordingly be determined by the price necessary to support new production centres and that a term uranium price at or above US$30 per pound (of U3O8) is not unreasonable.

He also stressed that it is important, when looking at the market, to consider the long-term contract prices that are being struck rather than the spot price, as not much more than 10% of uranium transactions are concluded at spot with the rest in term contracts.

Secondary uranium sources are rapidly declining, notably the US-Russian highly-enriched uranium programme, which has been delivering uranium to the market at the rate of 24m lb per annum and this level is not thought to be viable for the future. In addition China is in transition from being a uranium exporter to importer. And critically, of course, the collapse in market prices through the 1980s and 1990s following record levels at the end of the 1970s (reminiscent of another highly-priced metal) has meant that there was a dearth of exploration during the 1980s and the first half of the 1990s. This was a key feature of some of the producers’ presentations as a number of them have picked up cheap properties and are now looking to develop or joint venture (see separate piece later this week).

As a consequence of market developments, uranium mine production dropped significantly in the first half of the 1980s from approximately 150M lb at the start of the 1980s, when it just exceeded demand, to below 100m lb per annum during the 1990s, while consumption was rising from roughly 150M lb towards 175M lb per annum.

Nuclear power generation has been on the increase over the past decade although during the 1990s there was little freshly commissioned greenfield capacity. This has been due to improved reactor performance, increased fuel burn-up (i.e. the amount of energy recovered from the fuel bundles), extended fuel cycles, and capacity increases of between 5 and 15% at existing plants. The average load factor in the United States has risen from approximately 65% in 1990 to roughly 90% by 2000, while the extension of the fuel cycle now means that the period between refuelling the core in the reactors has extended significantly and now runs at between 18 and 24 months, whereas in the 1970s it could be as short as twelve months. In addition, the average capacity factor for nuclear plants stood in 2003 at 89.6%, compared with 70.6% for coal, while the natural gas-fired plants were operating at only approximately 40% of the time – and renewable, wind-powered plants only operated for one-third of the time.

These increases in efficiency have resulted in considerable cost reduction and in the US nuclear power is now competitive with coal and natural gas ($31-46/MWh post absorption of early plant costs, against $33-41/MWh for coal and $35-45/MWh for batural gas). This is one of the factors that have led to a renais