Our anticipated uranium projects will not go ahead, except one
Bannerman Resources, the Australian company driving one of four new uranium projects in Namibia, recently said at a mining conference, the price for uranium U308 needs to be between US$75 and US$90 per pound (0.454kg) to drive any new investment in greenfields uranium mines.
Hidden in this seemingly neutral observation and analysis, are many serious consequences for the further development of the uranium sector in Namibia. Following a simple line of deductive logic, the syllogistic conclusion shows that the development of new uranium mines will only be considered once the price exceeds US$75 per pound.
For us the risk lies in a protracted delay of new projects due to the uncertainty of market movement. At the same conference, the Bannerman CEO said: “The market has to look seriously at those companies that have taken their projects to definitive feasibility stage because this is where the cost realities come in for future uranium projects.It gets rid of the blue sky numbers at the scoping study levels and sets the range at where new uranium mines can be viable.” And at this point, he stated the cost reality – uranium below 75, no new mine.
So it seems the market price of uranium is the key factor and not necessarily the ore grade. Of course, the ore grade is important, the higher the yields the more diluted the overheads, but the long term trend in the price cycle, is clearly the determinant for calculating the break-even line.
Looking at price movement over the last 10 years provide some significant insights for the prospects in uranium. Unbelievingly, ten years ago, August 2002, uranium sold for US$9.85 per pound. It was at this point, and we were eye witnesses of this scenario, that Rio Tinto announced its intention of either scaling down its Rössing operation, or closing it entirely. Any new mine was nowhere on the horizon. The price churned along steadily but with a discernible, though modest upward trend reaching US$47.44 four years later in September 2006. There were some distant rumbling and a new interest from a number of Australian uranium miners, and Rio Tinto was mum on the closure of Rössing. Prospecting continued in several localities, but nothing was guaranteed.
Then less than a year later, in June 2007, the commodities boom, bubble and bust struck the industry in quick succession. In that month, uranium reached its alltime high of US$136.22 per pound. Suddenly interest in this mining sub-sector was at a frenzy but within a year the price had fallen back below US$50. In 2008, 2009 and 2010, the price meandered between US$39 and US$52. This was not sufficient to entice new entrants but the exploration side continued and subsequently the very rich Rössing South deposit was discovered and scoped. In February last year, the price showed a minor spike, reaching US$65 but this soon petered out, settling at the US$52 level but with a gradual declining trend. End of last month, the price had fallen to US$49.25 and for most of September, it hovered at the US$48 mark. This is almost 60% below the entry level target as calculated by Bannerman. The impact on the development of new mines, is obvious.
Rio Tinto’s Rössing and Paladin’s Langer Heinrich mines will continue. After all, Rössing has survived a uranium price below US$10 and Langer Heinrich based most of its projections on a price of US$54. The Rössing South (Husab) deposit, I believe will also continue as it is now controlled by the Chinese, and their funding breakdown looks significantly different from any other operator that has to source its funding on the open market. Rössing South is also an exceptionally rich deposit, to the chagrin of Rio Tinto, who tried to acquire it, but lost the political game. The Husab project will certainly go ahead.
For the other projects driven by Areva at Trekkopje, Forsys Metals at Valencia and Bannerman at Etango, I see no immediate future unless, unpredictably, the uranium price backs around and heads for the cut-off US$75, a scenario which I find unlikely in the medium term.
True, there are more than 60 new nuclear plants under construction, and Bannerman claims there are almost 500 planned, but after Fukushima, I doubt any new nuclear plant will simply be a white-wash.
Also, we are not the only uranium producer and certainly not the biggest. Essentially, uranium is not a scarce mineral. It is found in many localities, as often given away by using a simple Geiger counter in the early stages of exploration.
Much needs to change before we see a meaningful new momentum. How long it will take the Chinese to get the Husab project going, I do not know. They have their own constraints to deal with. I just do not anticipate a uranium price much above US$50. I believe the commodities boom is over, or at least on hold for another five years. In the meantime, no new mines.