In the last issue of Nuclear Monitor, we noted that some nuclear insiders and lobbyists are starting to confront the reality that the global pattern of nuclear power stagnation is likely to continue. With the number of 'operable' power reactors declining from 443 to 437 from January 2005 to January 2015, the rhetoric about a nuclear renaissance is becoming increasingly implausible.
Former World Nuclear Association executive Steve Kidd, for example, states that the "picture of the current reactors gradually shutting down with numbers of new reactors failing to replace them has more than an element of truth given the recent trends."1
Likewise, in a January 28 article for Nuclear Engineering International, nuclear economics consultant Edward D. Kee is downbeat about prospects in the US: "The US nuclear power industry geared up a decade ago for a nuclear renaissance that did not happen and is not likely to happen. ... Today, only five reactors are under construction in the US. ... Aside from these projects, no new US nuclear projects are expected to start construction in the next decade or longer. ... The US nuclear power industry will likely face unfavourable electricity industry conditions for another 20 years or longer."2
Similar opinions about the uranium industry are becoming increasingly common. Uranium and energy consultants Julian Steyn and Thomas Meade wrote in Nuclear Engineering International last October: "The uranium market is characterised by oversupply, which is forecast to continue through most the current decade. The oversupply situation has been exacerbated by the greater-than-initially-expected decline in demand following Fukushima as well as the increase in primary supply during the same period. Existing production capacity and output from mines under development could cause total supply to exceed demand through the year 2020."3
And in November, investment strategist Christopher Ecclestone from Hallgarten & Company wrote: "There has indeed been a nuclear winter verging on an Ice Age over the last few years with bad news heaped upon bad news within the context of a pretty dismal financing situation for mining all around. ... The yellow mineral had made fools and liars of many in recent years, including ourselves."4
Still, there is some hype around uranium, some of it based on implausible projections of nuclear growth. The Seeking Alpha website, for example, claims that uranium demand "is set to soar over the next 15 years as the number of reactors worldwide more than doubles from today's 437, with 557 more reactors already in the works."5
But even those prone to hype are mostly arguing that the uranium industry has to pick up because it couldn't get any worse. Thus uranium mining executive Jim Paterson wrote in December: "I believe it is an absolutely stunning time to be an investor in our business. But not stunning like how you feel after being punched in the nose repeatedly for almost four years, as participants in our industry have been. Rather, the valuations of the companies in the uranium sector are so deeply discounted, while the decade's long runway to demand growth is so clearly marked in front of us, that the opportunity for future gains is stunning."6
Massive stockpiles
Jim Paterson emphasises China's "staggering" nuclear power growth plans. He forgets that China has a history of failing to meet nuclear power projections and no hope of meeting the current target of 58 gigawatts (GW) by 2020.7 And he ignores the fact that China has amassed a huge uranium inventory.
According to Australian investment bank Macquarie, there are "serious question marks" about China's uranium requirements: "China is clearly the most positive story globally when it comes to nuclear-power-capacity expansion. The concern, however, is that China has already procured a substantial amount of uranium well in excess of what it has consumed and that this advance purchasing might limit its need to enter the market to source material over the next few years."8
Macquarie believes that China has enough uranium stockpiled to meet domestic demand for about seven years at forecast 2020 consumption rates − which is around three times greater than the current consumption rate.8
China is not the only country with large stockpiles. Raymond James analyst David Sadowski said in March 2014 that "many utilities are sitting on near-record piles" of uranium.9 Japan is estimated to have stockpiles of around 100 million pounds (or 45,000 tonnes) of uranium oxide.10 To put that in perspective, world uranium requirements for power reactors last year amounted to around 171 million pounds (78,000 tonnes). It will likely take a decade or more before Japan's stockpile is consumed given the protracted nature of the reactor restart process.
RBC Capital Markets analysts said in June 2014 that worldwide supply currently exceeds demand, and that it does not expect the uranium industry's situation to improve until at least 2021 because of accumulated inventories.11
With stagnant demand and large stockpiles, uranium miners are left clutching at straws. Some hope that supply from Russia might be curbed in response to Western sanctions, thus breathing some life into the uranium industry elsewhere. Some hope that dwindling secondary supply sources − in particular, the end of the US−Russia Megatons to Megawatts uranium downblending program − will breathe life into the uranium industry. But the Megatons to Megawatts program ended a year ago and has had little or no impact.
David Sadowski noted in August 2014: "[T]he end of the Megatons to Megawatts high-enriched uranium (HEU) deal was long anticipated to usher in a new period of higher uranium prices. But the same plants that were used to down-blend those warheads can now be used for underfeeding and tails re-enrichment. In this way, the Russian HEU-derived source of supply that provided about 24 million pounds (24 Mlb) to the market did not disappear completely; the supply level was just cut roughly in half."12
And if there was a shortfall, surplus weapons material is just one of the secondary sources that can reduce demand for primary mine production. Other secondary sources are underfeeding at enrichment plants (getting more uranium-235 from a given volume of uranium ore), re-enrichment of tails material, government and commercial inventories, and uranium recycle from reprocessing plants.
Rio Tinto
Rio Tinto has established itself as one of the uranium industry's underperformers. The company used to be one of the world's top five uranium producers, along with Kazatomprom, Cameco, AREVA and ARMZ/Uranium One.3 No more, due to problems at the Ranger mine (Northern Territory, Australia) and the Rossing mine (Namibia), including leach tank failures at both mines in December 2013.
Energy Resources of Australia (ERA), 68% owned by Rio Tinto, operates the Ranger mine. ERA recorded a loss of A$188 million (€130m; US$147m) in 201413, with losses over the past five years totally A$500 million (€345m; US$390m).14 ERA had to buy uranium on the spot market last year to cover contract shortfalls in the aftermath of the leach tank failure.15
The open pit mine at Ranger has been exhausted and ERA is milling ore stockpiles and also hoping to develop the Ranger 3 Deeps underground mine project. The company − notorious for its defeated attempt to mine uranium at Jabiluka in the late 1990s despite the unanimous opposition of Mirarr Aboriginal Traditional Owners − will decide this year whether to proceed with Ranger 3 Deeps. If ERA cancels the project, processing of stockpiles will be complete in two years, after which there will be no uranium mining or milling in the Northern Territory.
References:
1. Steve Kidd, 21 Jan 2015, 'Is climate change the worst argument for nuclear?', www.neimagazine.com/opinion/opinionis-climate-change-the-worst-argument-...
2. Edward D. Kee, 28 Jan 2015, 'US nuclear industry in decline', www.neimagazine.com/features/featureus-nuclear-industry-in-decline-4498254/
3. Julian Steyn and Thomas Meade, 1 Oct 2014, 'Uranium market doldrums continue', www.neimagazine.com/features/featureuranium-market-doldrums-continue-439...
4. Christopher Ecclestone, 10 Nov 2014, 'Ecclestone on NexGen Energy – A Survivor of the Nuclear Winter', http://investorintel.com/nuclear-energy-intel/nexgen-energy-nxe-v-surviv...
5. 4 Dec 2014, 'Spot U3O8 And Uranium Miners Rebound And Retrace As Japan Readies Nuclear Reactor Restarts', http://seekingalpha.com/article/2729395-spot-u3o8-and-uranium-miners-reb...
6. Jim Paterson, 21 Dec 2014, 'Stunning Uranium Industry Growth Ahead', http://resourceinvestingnews.com/80036-uranium-price-nuclear-energy-chin...
7. 19 Dec 2014, 'China's nuclear power plans: safety and security challenges', Nuclear Monitor #796, www.wiseinternational.org/nuclear-monitors
8. Rhiannon Hoyle, 17 Jan 2015, 'Uranium Rally Running Low on Juice', http://online.barrons.com/articles/uranium-rally-running-low-on-juice-14...
9. 29 March 2014, 'Conjuring Profits from Uranium's Resurgence: Interview with David Sadowski', http://theenergycollective.com/streetwiser/360291/conjuring-profits-uran...
10. 15 Jan 2015, 'Charting Uranium's Gain, Brent Cook Looks For Sweet Spots In The Athabasca Basin', http://seekingalpha.com/article/2822326-charting-uraniums-gain-brent-coo...
11. Vicky Validakis, 6 June, 2014, 'Price collapse sees junior miner ditch uranium to focus on property development', www.miningaustralia.com.au/news/price-collapse-sees-junior-miner-ditch-u...
12. Peter Byrne, 5 Aug 2014, 'Why predictions of uranium price boom flopped', www.mineweb.com/mineweb/content/en/mineweb-uranium?oid=249357&sn=Detail
13. WNN, 6 Feb 2015, http://us1.campaign-archive2.com/?u=140c559a3b34d23ff7c6b48b9&id=0658a5e...
14. ECNT and ACF, 9 Feb 2015, 'Rio's investment delay adds difficulty to Ranger 3 Deeps mine proposal', media release.
15. 7 Feb 2015, 'Rio uranium unit ERA's loss widens to $188m', www.theaustralian.com.au/business/mining-energy/rio-uranium-unit-eras-lo...