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Uranium glowing brightly
David McKay
Posted: Mon, 04 Jul 2005
[miningmx.com] -- THE renewed interest in uranium – and ways of finding new sources of the mineral – shouldn’t really be that surprising. The global economy has been worrying about energy sources for several years, a concern reflected in the prices at which oil and coal have been trading.
Since valued at US$10/barrel in May 1999, the oil price has increased five fold – and may sustain its rally. JP Morgan estimates that crude oil prices will average $51/b for the remainder of the year. Coal prices have also responded. In January 2004, thermal coal was trading between $40/lb and $45/lb but was worth 50% more six months later.
It’s a similar story with uranium, notwithstanding the horrors of the Chernobyl and Three Mile accidents. Spot and contract prices for uranium oxide, an unbeneficiated form of uranium, have increased from between $14 to $16/lb in 1996 to $28/lb eight years
later. According British stockbroker RBC Capital Markets the market can sustain a spot uranium price above $30/lb for the foreseeable future.
The driving force behind the relatively sudden attraction of uranium is fresh interest in finding cleaner forms of energy supply.
Anindya Mohinta, an analyst for JP Morgan, says there will be a total of 26 new nuclear plants worldwide, with a generation capacity of 23 000MW. Says Mohinta: “If governments abide by their announced commitment to nuclear power we calculate that this number has the potential to rise by a further 40 new plants.”
About 30% of total uranium supply – just under 30m lb since 2000 – has been from so-called secondary sources, such as arms redeployment, particularly Russian. But these sources are depleting. Alternative renewable energy sources are also failing to reach expectations.
Compounding the issue is the relative dearth
of new, virgin supply – even though uranium is relatively widely distributed worldwide. “There’s simply not enough new material coming on the market quickly enough,” says Neal Froneman, CEO of Aflease Gold & Uranium (Aflease). He hopes to supply 5% of the world’s uranium in 2008 from a resource that equates to 6% of world total supply. SA has a 10th of all known uranium.
Sprott Asset Management, a Canadian stockbroker, is a uranium bull of note. It’s established a C$100m fund focused on buying up to 16% of the world’s uranium supplies. Says George Topping, an analyst at Sprott: “We believe supply will remain behind the curve for years, as most investors, producers and consumers have only ever known weakening uranium prices.”
Even the SA Government is getting in on the act. In May, Minerals & Energy Minister Phumzile Mlambo-Ngcuka said new laws would be drafted regarding increasing SA’s uranium production. A special dispensation would be issued for exploring the
mineral. That’s understandably fanned some worries at Aflease, which shares control of SA’s resources with AngloGold Ashanti.
Says Froneman: “The danger is that uranium resources are given to individuals who cannot explore and produce from them quickly enough.” A recent letter to Mlambo-Ngcuka by Froneman makes the point that Aflease is hoping to raise awareness of SA’s uranium through the company’s listing on the Toronto Stock Exchange.
The fact of the matter is that uranium, while relatively abundant in SA, is not always economic. Aflease had first-hand experience of that, having bid R200m to buy uranium contained in tailings from Harmony Gold. If successful, Harmony’s uranium would have quadrupled Aflease’s resources. However, Aflease reversed out of the proposal in May because Harmony’s uranium was too scarce to be recovered economically.
Aflease is now seeking other ways of bulking up its resources, offering to buy the uranium owned by Gold Fields
and Simmers & Jack if that company succeeds in buying Randfontein 4, a gold mining shaft on the west Rand.
Not all observers are fans of Aflease. Mark Tyler, head of resources at Nedbank Capital, says that Aflease’s uranium is low grade. Froneman believes that his low-cost experience will stand him in good stead. However, Tyler prefers the higher grade uranium owned by listed Australian firm Paladin Resources, operating in Namibia.
Jaco Kriek, CEO of SA’s Pebble Bed Modular Reactor (PBMR), is hoping to capitalise on demand for nuclear power. The PBMR is mobile and safe and years ahead of its rivals in terms of the sophistication of its technology, Kriek says.
“It’s genuine technology,” says Stephen Priestley, MD of JP Morgan Chase. “It’s the envy of the sector and has a commercial case. However, that commercial case starts to creak if it fails to get US state backing.”
That’s why there’s speculation that Areva, a French nuclear company with global reach,
is preparing to pump in as much as R5bn for a 30% stake in PBMR. Kriek won’t comment on the future investment but believes that PBMR combines First World interest in seeing improved climate control and the development of Africa. “Britain has an agenda for Africa and climate change, so there’s no better combination than in the PBMR.”
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