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Uranium Industry

Prior to the 1980s, global uranium production exceeded annual consumption for all uses. However, beginning in the late 1980s, worldwide consumption began to exceed annual production. Moreover, recent concerns about oil and gas shortages, along with rising prices for these fuels and environmental issues regarding greenhouse gas emissions, have fueled renewed interest in nuclear energy as the source of power to meet current and future global electricity demand.

Energy Needs and Nuclear Power

Electricity consumption is determined in part by economic and population growth in the world’s developing economies. Demand for electrical power is projected to nearly double between 2004 and 2030, growing on average 2.6% per year from 17,408 thermal watt hours to 33,750 thermal watt hours. Increased demand is most evident in developing countries where some two billion people have limited or no access to electricity and addressing their need is a high priority.

With the United Nations predicting the world’s population will grow from 6.4 billion in 2004 to 8.1 billion by 2030, energy demand will also increase substantially over that period. Both population growth and increasing standards of living in developing countries will contribute to strong growth in energy demand, expected to average 1.6% per year, or 53% between 2004 and 2030.

Nuclear energy offers a clean and efficient alternative to energy produced from coal, oil or natural gas. Electricity is produced at lower costs and a nuclear generating plant does not produce carbon dioxide emissions. Nuclear power provides about 16% of the world’s total annual electricity generation. France receives 78% of its electricity from nuclear, Belgium almost 56%, Sweden close to 50%, South Korea 40%, Switzerland 40%, Japan 25% and the United States 20%.

Uranium Demand

Demand for nuclear generating capacity is growing worldwide. More reactors are being built and existing reactors are being operated at higher capacity. Capacity utilization for US reactors, for example, has increased from an average of 58% in 1980 to approximately 90% in 2005.

There are an estimated 439 nuclear reactors operating worldwide, with another 33 under construction and 94 new reactors planned over the next five to ten years. By year-end 2015, Cameco expects there will be approximately 506 nuclear reactors operating worldwide. About 439 reactors, representing combined capacity of 372 Gigawatts, consume some 79,000 tons of uranium oxide concentrate, containing 67,000 tons of uranium from mines (or the equivalent from stockpiles or secondary sources) each year. Each Gigawatt of increased capacity will require additional mine production of about 195 tons of uranium per year, and three times this for the first fuel load.

In 2007, world uranium consumption is estimated to have increased 4% to 80,500 tons and a number of new reactors have come on-line in India, China and Romania. Concerns over energy security have been a driver for developing these and other new reactors in developing countries in Europe and Asia over the past decade. Cameco estimates that annual uranium fuel consumption will rise to nearly 100,000 tons in 2015.

Uranium Supply

Uranium supply sources include primary mine production and secondary sources. Principal primary uranium producers include Cameco (approximately 20% of global mine production) and AREVA, both of which produce principally from deposits in the Athabasca Basin of northern Saskatchewan.

Since the early 1990s, secondary supplies of uranium, particularly from the Russian Federation, have supplied a large percentage of world uranium demand. Secondary supplies have been sourced primarily from the conversion of highly enriched uranium from the disarmament of nuclear weapons, government inventories and reprocessing. The uranium supply from secondary sources is expected to decline marginally in 2006 and 2007. Substantial reductions in secondary supplies are projected beyond 2013.

New uranium production is likely to come from deposits in Canada, Australia, Africa, Kazakhstan and the US. Most new deposits are lower grade than the high-grade deposits found in the Athabasca Basin. As a result, experts anticipate that the new supply will come at higher costs and put upward pressure on uranium prices over the next several years.

In 2007, world uranium mine production is expected to increase 15% to 56,200 tons mainly due to increased production at existing mines and the opening of new mines in Canada, South Africa, Kazakhstan and Namibia.

Despite this projected growth, uranium supply will fall short of demand over the next decade. This will result in further price increases and limit the deployment of nuclear energy. Cameo estimates supply and demand imbalance could exceed 500 million pounds by 2016.

Uranium Spot Prices

Uranium ore spot prices reached a record $135 per pound in April 2007. However, the sale of 200 tons of uranium by the US Department of Energy caused prices to decline to $75 per pound in September 2007. Spot prices have since risen $17 from September’s low but remain volatile. During the last week of November, uranium rose to $93, while long-term prices remained at$95 for both the Ux Consulting and TradeTech market indexes. According to RBC Capital Markets, uranium prices will continue to rise, possibly breaking $100 by year-end 20071.

The substantial increase in uranium prices has encouraged mine operators to extend the operating lives of a number of existing uranium mines. For example, Rossing Uranium (a subsidiary of Rio Tinto) originally planned to close its Rossing mine in Namibia in 2007. However, Rio Tinto recently announced it was extending the life of this operation to 2016.

 

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