Published on Monday October 07 2013 (AEST)
Nuclear power plant operators benefited from a slump in uranium prices following the reactor meltdown in Japan’s Fukushima facility. Areva SA (AREVA), the second-biggest producer of the metal, says that’s about to end.
Power utilities need to boost orders of uranium by 2015 or face potentially soaring prices as new atomic plants come on line in addition to reactivated reactors in Japan, Olivier Wantz, who heads Areva’s mining division, said in an interview.
“It would be wise for buyers to make decisions in 2015 at the latest,” he said at the company’s headquarters near Paris.
Uranium prices in August plunged to the lowest level in more than seven years, still suffering from a drop in demand following the March 2011 meltdown of the Fukushima Dai-Ichi plant that was caused by an earthquake and a tsunami. Even with some western nations such as Germany shutting nuclear plants, new reactors in emerging markets such as China and India are now reversing that trend, Areva said.
“All new nuclear plants will significantly boost demand in coming years, even taking into account the phasing out of German plants” by 2022 and other possible closures,Wantz said. “We see first a stabilisation of prices, with the start of a pick-up as soon as 2014.”
Global uranium demand will probably rise by 48 percent by 2023, according to the World Nuclear Association. Sixty-eight reactors are under construction, including 28 in China, 10 in Russia, 7 in India and 5 in South Korea, according to the WNA. About 435 reactors around the world with combined capacity of more than 370 gigawatts already consume about 78,000 tons of uranium concentrate annually, the association said.
Nuclear Disaster
In the wake of the nuclear disaster, Japan idled its 50 remaining reactors and Germany immediately shut some of its 17 plants.The spot price of uranium, which climbed as high as $138 per pound in June 2007, dropped as low as $34.5 two months ago and recently held at $35.75, according to the Metal Bulletin.
“That doesn’t seem to reflect a lasting market trend as prices for long-term contracts are higher,” at about $54, Wantz said. Prices will also get a boost as uranium supplied from reprocessed nuclear weapons under a U.S.-Russian agreement will no longer be available.
Highly-enriched uranium from weapons stockpiles supplied about 9,720 tons of U3O8, its tradable form, each year, representing about 13 percent of global reactor requirement, according to the WNA.
Weapons Stockpiles
Areva shares dropped 61 percent since the Fukushima disaster, valuing the company at 5.4 billion euros. Canadian rival Cameco Corp. (CCO), the world’s third-largest uranium producer, declined 48 percent. Kazakhstan’s state-owned Kazatomprom is the world’s largest producer.To reflect falling uranium prices and delayed production, Areva wrote down the value of its mines by a total of 1.62 billion euros in the 2011 to 2012 period, following the $2.5 billion acquisition of Toronto-listed UraMin in 2007. Areva, which also faced construction delays at a nuclear plant in Finland, sold 1.2 billion euros of assets last year and plans to cut costs by 1 billion euros between 2012 and 2015.
“We’re certainly not considering new asset writedowns” in mines, Wantz said. The company also has “no reason to consider selling a stake” in the mining division, as the turnaround plan is “well underway” and demand is rising, he said.
Long Game
In the first half, earnings before interest, taxes, depreciation, amortization and divestments climbed 41 percent to 315 million euros at Areva’s mining unit, representing 39 percent of the division’s revenue, and 66 percent of the group’s total profit.Areva benefited from increasing prices and the end of some “less favorable contracts,” Wantz said. “It will be slightly less favorable in the second half, without being problematic. We’re among producers that are least exposed to spot prices, we’re rather strongly exposed to long-term prices.”
Last year, the company’s output of uranium concentrate known as yellowcake, which is later converted, enriched and fabricated into fuel rods, reached a record 9,760 tons, including 3,661 tons at a joint-venture in Kazakhstan, and 3,065 tons at Areva’s Somair mine in Niger.
Wantz predicts Areva will produce a similar amount of uranium concentrate this year as in 2012, as increased production in Kazakhstan will make up for a shortfall at the Somair mine in Niger where processing was temporarily curbed after a terrorist attack in May.
Niger Mine
Canada’s Cigar Lake mine, in which Cameco owns 50 percent and Areva 37 percent, is due to open next year.“Cigar Lake will operate for at least 15 years, and maybe longer because we’ll probably find additional resources,” Wantz said. “It will be an extremely profitable mine. The output will be 6,900 tons per year when the ramp-up is completed in several years.”
Areva is also considering creating a venture with Japan’s
Mitsubishi Corp. (8058) and the government of Mongolia this year to
operate mines in the region, following investments of about $120
million in exploration works over the past 15 years.
The new mines will allow the company to meet rising demand,
the executive said.
“We’ll be totally in line with the demand curve of the
market,” he said.
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