EXPLORATION ’93 — Several influences reshaping international

Uranium and its uses have been controversial since the metal was first put to military use in the 1940s. Commercial use followed in the 1950s. Like gold, a lot of uranium has been mined over the years, and most of it, in one form or another, is still in inventory.

Now, after high growth in the 1960s and 1970s and much slower rates in the 1980s, several influences are reshaping the commercial uranium market. The radioactive spills at Three Mile Island (TMI) in the northeastern U.S. and Chernobyl in the Ukraine were loud reminders that the first generation of nuclear power plants (NPPs) are complex and, if mismanaged, can threaten or damage surrounding communities. Both of the spills were caused by the failure of operators to follow mandated procedures.

There are 108 NPPs operating in the U.S., providing some 20% of domestic electricity. As a result of the TMI fiasco and other accidents, nuclear power in the U.S. slowed to 1-2% in the 1980s. In the 1990s, shareholders were generally reluctant to even consider investing in proposals for new plants. Environmental groups loudly and successfully fought the construction of any new plants, delayed or cancelled units under construction, and ensured that many completed units were rendered idle — all to the severe financial detriment of investors, local utility companies and their communities. Also called into question were ancillary services such as transport, conversion, enrichment and waste disposal. To escape this continuing pressure, some U.S. utilities are considering closing their NPPs prematurely, effectively throwing in the towel. A recent application to shut down the Trojan NPP in Washington state testifies to the fact that non-operating costs have become unbearable.

Reflecting the slowing of military and commercial nuclear growth in the 1980s, uranium prices dropped steadily, forcing rationalizations and closures of mines, conversion, enrichment, fuel fabrication and builder plants. Supported by estimated reserves of 1.4 billion lb. and ore grades ranging between 1% and 9%, Canadian miners are now the largest producers of uranium in the world, accounting for 24 million lb. of U3O8 equivalent. That represents 40% of Western World annual output, and 25% of total world output of 92 million lb. (1993 figures). Among the six companies that account for 80% of world uranium production and subsequent processing capacity are France’s Cogema, Saskatchewan’s Cameco (TSE) and Russia’s Minatom. Nuexco, a Denver-based nuclear-fuel-trading and consulting organization, estimates total annual world demand for 1993 at 150 million lb. of U3O8 equivalent. Western miners will produce about 61 million lb. of this material, with the balance coming from four chief sources: drawdowns of utility company inventories; mine output from the former east bloc’s mining operations (which produce a 20-25-million-lb. surplus for export); Russian stockpiles; and eventually converted weapons materials.

Accurate world inventory numbers are difficult to assess. Nuexco says the surplus Russian military inventories of highly enriched uranium, previously estimated at 500-600 million tons, may total twice that amount, or 10 years of total annual commercial demand. However, only 10 million lb. of this material per year can be converted into commercial-grade reactor fuel, as a result of Western manufacturing constraints.

Additionally, Russia still has an estimated 250-300 million lb. of stockpiled U3O8 equivalent, which will probably be released, as is, to commercial markets. Grinding political processes and limited annual conversion capacity may slow the entry of this surplus (at least the military portion) into the marketplace. Eventually, a similar quantity potential may be possible from the U.S. and other Western military establishments as they dismantle outdated or unneeded armaments.

The extent of the uranium oversupply is naturally affecting attitudes in government and industry. Competition is improving service standards and reducing costs at all levels.

In the U.S., utilities are holding fewer than five years of strategic inventory; they now vary between zero and 36 months, depending on government and utility company policy. There is a growing trend for single utilities to stock and loan inventory to others, which then replace it at a later date. In fuel manufacture, excess capacity has forced facilities to close, rationalized ownership, and prompted equipment and process improvements — all of which has substantially cut levels of work in process, and thereby reduced costs.

To appease safety concerns, manufacturers are proposing new generations of reactors which shut themselves down automatically, without power or operator intervention, should normal operating limits be exceeded. Coated fuel pellets which are difficult to melt have also been proposed. Less costly and simpler, the new reactors consume 40-80% less piping, valves, controls and cement. European governments have adopted various strategies. France continues to erect and operate NPPs. Short of domestic hydroelectricity, oil or gas alternatives, France now depends on 55 NPPs to generate 75% of its power requirements (or about 56,000 megawatts), with another five NPPs (capable of producing 7,000 megawatts) to be operational before 2003.

Germany has elected to freeze further expansion but continues to operate existing plants.

Harassed by protesters, Sweden at first decided to close its plants but found it needed the power.

In Asia, the nuclear power industry is growing fast. Japan operates 46 NPPs, with another 12 under construction and 16 planned for installation within the next decade. Continuing to reduce their reliance on imported coal and gas, consumers of power are being offered rate discounts on nuclear power. South Korea has nine NPPs in operation, with seven under construction or in the planning stage.

China has decided its infrastructure cannot support the extraction, processing, transporting and burning of alternative fuels for all areas, in order to provide adequate power to its ever-burgeoning population. Accordingly, the country has begun a nuclear power program, with two NPPs now operational and eight more being planned for before the year 2000. For the future, while freshly mined uranium will continue to be required, it appears only the higher-grade orebodies will be mined. Supply and prices will be guided mainly by acquisition and conversion costs of stockpile materials. Conversion of the large above-ground stocks will continue to have a positive effect on fuel-related manufacturers, as construction of more NPPs outside North America and Europe seems assured. Growth in power consumption, the concern over burning fossil fuels, and safer reactor technology may eventually resurrect demand for nuclear power in North America and Europe. Jack Dupuis is a metals agent, broker and consultant specializing in the marketing of mining properties.