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Saturday, July 23, 2005


This is a great paper on u mining: Canada has the most mining (29%). Mining only covers 60% of demand. The rest comes from reserves (and has been for decades). Mining supplies about 40K tonnes (this has actually been decreasing in the last 4 years). Mining has consolidated so that 8 companies produce 82% of the world's mined uranium.

You can see from the chart that uranium mining production peaked around 1960 and again around 1981. Prices since 1981 have been in the toilet and mining has greatly decreased. Look at the faint black line in the chart showing reactor requirements. Demand has been dramatically increasing over the decades, but mined supply has been decreasing.

Here's a description of the in situ leaching method. ISL tends to be cheaper and more environmentally friendly, so long as the uranium ore resides within the right kind of permeable rock. Either an acid or alkaline is pumped into the ground at one point, and pumped out of the ground about 90 feet away. Acids tend to have about the same pH as vinegar. Side located pumps check for any movement of fluid outside the mining area. It takes about 6 months to a few years to get most of the uranium out (they get about 80% of it out). Reading the whole thing, you can't help but be impressed by how far business has come in being friendly to the environment and to the indiginous people.

Here's a description of the supply/demand situation. Production only supplies 55% of power utility use (ok, now it's up to 60%). A lot of the shortfall was supplied by ex-military uranium. Efficiency has improved to where there has been a 25% reduction in uranium demand per kWh of electricity.
Because of the cost structure of nuclear power generation, with high capital and low fuel costs, the demand for uranium fuel is much more predictable than with probably any other mineral commodity. Once reactors are built, it is very cost-effective to keep them running at high capacity and for utilities to make any adjustments to load trends by cutting back on fossil fuel use. Demand forecasts for uranium thus depend largely on installed and operable capacity, regardless of economic fluctuations. For instance, when South Korea's overall energy use decreased in 1997, nuclear energy output actually rose, to replace imported fossil fuels.
So uranium is essentially economically inelastic. The same amount will be used regardless of price.

And also:
Looking ten years ahead, the market is expected to grow slightly. Demand thereafter will depend on new plant being built and the rate at which older plant is retired. Licensing of plant lifetime extensions and the economic attractiveness of continued operation of older reactors are critical factors in the medium-term uranium market. However, with electricity demand by 2030 expected (by the OECD's International Energy Agency) to double from that of 2004, there is plenty of scope for growth in nuclear capacity in a greenhouse-conscious world.
They claim the stockpiles of uranium are "now largely depleted." Secondary sources are:
Only about the equivalent of 2000 U3O8 tonnes of fresh mixed oxide (MOX) fuel is used each year. Weapons grade uranium is about 97% U-235, which is diluted about 25:1 with depleted uranium (or 30:1 with enriched depleted uranium) to about 4% U-235 for reactor food as part of a balanced breakfast.
From 1999 the dilution of 30 tonnes such material is displacing about 10,600 tonnes per year of mine production.
Military Warheads as a Source of Nuclear Fuel
Highly-enriched uranium from weapons stockpiles is displacing some 10,000 tonnes of U3O8 production from mines each year, and meets about 15% of world reactor requirements.
And this:
World stockpiles of weapons-grade plutonium are reported to be some 260 tonnes, which if used in mixed oxide fuel in conventional reactors would be equivalent to a little over one year's world uranium production.
MegaTons to MegaWatts
Surplus weapons-grade HEU resulting from the various disarmament agreements led in 1993 to an agreement between the US and Russian governments. Under this Russia is to convert 500 tonnes of HEU from warheads and military stockpiles (equivalent to around 20,000 bombs) to LEU to be bought by the USA for use in civil nuclear reactors.

In 1994, a US$12 billion implementing contract was signed between the US Enrichment Corporation (now USEC Inc) and Russia's Techsnabexport (Tenex) as executive agents for the US and Russian governments. USEC is purchasing a minimum of 500 tonnes of weapons-grade HEU over 20 years, at a rate of up to 30 tonnes/year from 1999. The HEU [high enriched uranium] is blended down to 15,259 t of LEU [low enriched uranium] at 4.4% U-235 in Russia, using 1.5% U-235 (enriched tails), to restrict levels of U-234 in the final product. USEC can then sell the LEU to its utility customers as fuel. By mid-November 2001, Russia had dispatched 137 tonnes of HEU to USEC, (4,031 tonnes of LEU) arising from 5481 nuclear warheads.

For its part, the US Government has declared just over 174 tonnes of HEU (of various enrichments) to be surplus from military stockpiles. Of this, USEC has taken delivery of 14.2 tonnes in the form of uranium hexafluoride (UF6) containing around 75% U-235, and 50 tonnes as uranium oxide or metal containing around 40% U-235. Downblending of the UF6 was completed in 1998, to produce 387 tonnes of LEU. Some 13.5 tonnes of the HEU oxide or metal had been processed by September 2001 to produce 140.3 tonnes of LEU. The rest should be processed by 2005.

Overall, the blending down of 500 tonnes of Russian weapons HEU will result in about 15,000 tonnes of LEU over 20 years. This is equivalent to about 152,000 tonnes of natural U, or just over twice annual world demand [or about 4 years worth of mining deficits].
The process for dealing with Russian downblended material has been problematic because the natural uranium feed (eventually owned by Russia) can't be sold at a sufficiently high price, so 11,000 tonnes has accumulated at USEC. The US reached a deal in 1999. 163K tonnes of U3O8 feed is to be supplied [to who?] over the next 15 years. The various oligarchs of mining have signed exclusive options to buy 118K tonnes. The rest is "available to Tenex".

It sounds like there's still a lot of uranium floating around. I'm surprised the spot price has gone up to $29.50 with all this supply.

There is also 150-200 tonnes of weapons-grade plutonium. This could end up as MOX fuel for reactors. In 2000, the US and Russia agreed to dispose of 34 tonnes of it by 2014. A lot of this is going to be MOX, but it will take time and a special plant to do the conversion.

The World Supply and Demand Scenario chart is a good picture of the present and future for uranium sources.

In East and South Asia, there are currently about 100 reactors, 20 more are under construction, and there are plans to build another 40. China is supposedly planning to build 2 reactors per year. A lot of reactors will be replacing retiring ones (one third?). [This article is from 2003 and seems out of date]

QuickFacts from Canada
There were 439 reactors worldwide at the end of 2004. As of May 2005, there were 24 new reactors under construction and another 40 being planned, 73 proposed

ValueInvestorsClub has an outstanding writeup and Q&A on Strathmore, but I can't link to it because registration at the very least is required. It argues that from 1985 to 2003, 339K tons more uranium was used than mined. Cost of mining was far higher than the price, which killed exploration and development. President Clinton transferred 28.6K tons from the national stockpile to USEC (USU:NYSE) and IPO'ed it. Russia sold 20K tons to the US. The remaining 90K tons was sales from Russia's stockpiles directly to utilities. During the currency crisis of 1997, Russia needed currency and signed a contract to deliver 9K tons per year. The US also sold off more of the stockpile. With the new tensions in the world, there are a lot of reasons why the US would curtail selling off the stockpile.

At first Strathmore simply bought properties which already had some work done on them, but Strathmore conserved capital for more mineral rights purchases and did not further pursue the exploration and development. Now that uranium prices are high, Strathmore is starting to do the work to develop the properties. They also raised a bunch of cash to ensure they can get the work done. Most of the exploration and development work done long ago on Strathmore properties was before the more stringent Canadian rules for declaring reserves, so they can't really rely on what they have. But you can go through the table and get a pretty good idea for roughly how much uranium they have.

One of the ValueInvestorsClub members (not the one who pitched Strathmore) talked at length with David Miller, the top geologist consultant at Strathmore. The investor was very impressed with Miller, but Miller seemed too dismissive of two items: 1) the potential for increased production (Miller said China won't find much because its geologists are underpaid), 2) environmental opposition [this seems to be rapidly changing [hat tip Vijay on the links] as the greens of the world realize nuclear power is the best solution for rapidly growing power consumption worldwide].

One of the ValueInvestorsClub members had mentioned the South Park underpants gnomes analogy. The thing is that I had read this before actually seeing that episode and I totally forgot all about it. My using the underpants gnomes analogy may have been unconciously inspired by seeing it here, but I doubt it. Any investor with experience would recognize how well it captures bad business plans.

Apparently, weapons grade HEU costs $3 million per pound to produce. Since each pound of HEU translates to 30 pounds of reactor food, this means $100K per pound of cost. Anyone selling off HEU must consider this if they ever sell too much and need to produce more.

Strathmore has a number of in situ leaching properties that can get into production in only 24 months (a relatively short time period).

Some of the existing US reactors have applied for 20 year extensions on their 30 year permitted life cycle. None have been turned down.

Insiders are selling because for 5 years, no one would finance them and they had to use their life savings to keep the company going. Now they want to scale that back to a more reasonable investment.

This is a good account on the current state of Uranium availability and its economic position. There are some small mistakes in your post but they are minor though.

Overall, good work man !

Also, i recently read through some articles at economic times. If you haven't read them yet, here is the link.


Thanks. I added the links with an appropriate hat tip. I looked through your blog. The map of all the places I've been to in India would be Karnataka... and that's it. I like India, it's a great place and I plan to go back soon (and see more of it).
Wow ! I am sure you must have been to Bangalore in Karnataka. It is a great place ...

And glad to be of help :)
Yes, Bangalore. But I also went with a group of Indians to Mysore on Independence Day.

When I was in Bangalore, I explained to the engineers there that they are at the beginning of a huge expansion of technology in Bangalore that will continue for a very long time. I told them how I started work in the Boston area in 1982 and witnessed the continuation of an amazing multi-decade long technology boom where people I worked with not only became millionaires but some became billionaires (at least for a while), and they made history pioneering the technology that the whole world was using. Years from now the engineers in Bangalore will be able to tell their grandchildren, "I was there in the early days."
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