The World Digs Uranium

Published in Mid-Canada Forestry & Mining, Winter 2008:
The most populous country in the world is expanding its nuclear power capacity, and our country is ready to help.

China’s plan to build more nuclear power plants is one reason why executives at Canadian uranium companies are smiling these days.

The Asian giant’s government approved a plan in 2007 to quintuple its nuclear power generation capacity to 40,000 megawatts by 2020. As of last year, China has 11 nuclear reactors in operation and another eight units under construction. Most of China’s present electricity generation is via fossil fuels.

For uranium companies, the China plan was a significant part of an encouraging year which saw the spot price of yellowcake soar to about US$138 a pound in June. That number fell in the ensuing months, but was still $85 in September with the long-term price used by utilities for bulk buying steady at more than $90. Those numbers were way up from 2006 prices.

That June price jump was simply a matter of “a lack of material and a whole bunch of buyers,” Uranium Participation Corporation president E. Peter Farmer says from Toronto. Uranium Participation is a trading company managed (but not owned) by Denison Mines, one of Canada’s largest mining companies.

“You have to remember that the spot market is a small portion of the total market,” he continues. “It’s the tail-end market. And we had a whole bunch of buyers out, including a number of producers, who were out to get material in the first half of the year.

“The belief at the time was – and it was absolutely true – was that in order to get it you had to bid above market. So every time some material came out for bid it pushed the market up.

“There is a constant demand. What happened in June was, some of the producers were short of material that they had to get material and at least one if not more utilities felt they had to get material, and they went out to get it. And of course you had traders involved on top of that. It was kind of an alignment of the planets, really.”

After that, he says, buyers notched down their demand for yellowcake and “the normal kind of market has returned.”

Exploration

Prices have seen a dramatic rebound since 2000, when the spot price was as low as $7.10. Canadian companies have responded to price trends and generally upbeat forecasts with exploration projects at familiar and new regions alike.

For those familiar with the history of uranium mining in Canada, the revival of exploration in the Elliot Lake and Beaverlodge areas is perhaps most interesting.

The Elliot Lake area, north of Lake Huron and west of Sudbury, first bustled with uranium activity in the mid-1950s. One mine operated by Denison produced nearly 70 million tonnes of ore in 35 years before closing in 1992. Denison and Rio Algom closed the last of their Elliot Lake mines in the 1990s.

Now Pele Mountain Resources and International Montoro Resources have begun work near Elliot Lake. With hopes of developing a “world-class mine,” Pele has drilled at a property east of the city; Montoro is assessing the viability of renewed mining at the Serpent River property a few kilometres east of Pele’s project.

The Saskatchewan Beaverlodge mines, operated by Eldorado Mining, closed in the early ’80s after some 30 years of operation. Nearby Uranium City, which once had a population of nearly 5,000, all but disappeared. Uranium City Resources, a junior exploration company headquartered in Kirkland Lake, Ont., has conducted drilling and found reason to believe uranium extraction could profitably return to that area along the north shore of Lake Athabasca. The company posts frequent updates on its website.

Other Athabasca Basin properties have seen diligent exploration. At Mann Lake, 25 kilometres southwest of the McArthur River mine, Triex Minerals and Consolidated Abaddon Resources have been drilling for uranium. ESO Uranium and Hathor Explorations have embarked on an exploration project near the former Cluff Lake mine. Denison Mines and rival Cameco Corporation each have interests in several exploration projects in the region, where nary a sliver of land is unclaimed for exploration.

More than $120 million was spent on uranium exploration in Saskatchewan in 2006, 25 per cent more than in 2005, and the tally for 2007 is expected to be still bigger. Hundreds of claims have been staked and permits taken in the Wheat Province since the dawn of this millennium, as market trends declare that there is much profit to be had. The Saskatchewan government estimated 2007 uranium exploration expenditures in the province would reach $130 million, nearly half the spending in a record year for mineral exploration.

Alberta locations are also being eyed for uranium potential. Red Dragon Resources and UraMin, for instance, drilled this year at their Rea property on the western edge of the Athabasca Basin. France-based AREVA Resources (formerly Cogema Resources), which purchased UraMin in 2007, has claim to the nearby Maybelle River uranium deposit.

Further north, enterprising minds see potential in the Northwest Territories and Nunavut. Alberta Star Development is drilling in the northeast Great Bear Lake area, near the defunct Port Radium mines. Uranium North Resources and Ur-Energy are among the firms checking out properties in Nunavut.

Two companies – CanAlaska Uranium and Hinterland Metals – are exploring the uranium potential of Manitoba, heretofore not a uranium producer. Hinterland recently reported that it has found both uranium potential and gold potential at its Hearne property west of Churchill.

And Canadian companies aren’t confining their uranium quests to Canada. They’re looking for or extracting uranium in Namibia, South Africa, Zambia, Kazakhstan, Peru and other countries.

  

Top producers

Canada is tops among uranium-producing countries, putting nearly 9,900 tonnes on market in 2006. That’s 25 per cent of the year’s world uranium output and much more than Australia (7,600 tonnes, 19 per cent), the globe’s second leading producer, though Australia’s known uranium reserves are much greater than Canada’s. Kazakhstan, an Asian country that borders both Russia and China, has emerged as a major uranium source; it was responsible for 13 per cent of global uranium production in 2006. Russia, Niger, Namibia and Uzbekistan (another neighbour to Kazakhstan) are also major producers.

Canada has the largest-producing uranium mine in the world – the McArthur River underground mine in Saskatchewan operated by Cameco Corporation. More than 7,000 tonnes come out of that mine annually. But McArthur River may not stay No. 1 for much longer. In Australia there are plans to triple the output of the Olympic Dam mine owned by BHP Billiton. That would bring its production past McArthur River levels.

At present, all of Canada’s uranium output is from three Saskatchewan mines: McArthur River and Rabbit Lake controlled by Cameco, and the McClean Lake open-pit mine which is majority-owned by AREVA. Denison Mines has a 22.5 per cent stake in McClean Lake.

A fourth Saskatchewan mine was supposed to have begun operations by 2007, but that plan was stymied by flooding in 2006. Cameco, which has a majority stake in the Cigar Lake joint venture with AREVA and other companies, stated in October 2007 that production at the underground mine will be delayed until 2011.

Cameco, based in Saskatoon, is the world’s largest publicly traded uranium company. Besides its Saskatchewan properties, it also operates uranium mines in Nebraska, Wyoming and Kazakhstan, and owns conversion plants at Port Hope, Ont., and a refinery in Blind River, Ont. It also owns one of the two mills in the Athabasca Basin region, near McArthur River.

AREVA Resources Canada, which also has offices in Saskatoon, is looking to expand its uranium production at a site 16 kilometres west of the McClean Lake operation. The Midwest Project, a joint venture in which AREVA is the majority partner, aims to establish an open-pit mine that is expected to yield 360,000 tonnes of ore averaging at four per cent uranium. Production is scheduled to start in 2011, pending regulatory approval. AREVA’s mill at McClean Lake will handle the Midwest ore as well as ore from Cigar Lake once that mine is in operation.

One emerging player in the uranium business is Toronto-headquartered Uranium One, which operates mines in South Africa and Kazakhstan. It’s also involved in exploration activities in Saskatchewan, South Africa, Kyrgyzstan, the United States and Australia.

Major markets

Uranium’s sole commercial use is as fuel for the nearly 450 reactors at nuclear power plants around the globe. The U.S. has more than 100 reactors in operation while France and Japan have more than 50 each, but one country is set to rival those last two as a market for the processed uranium used as reactor fuel.

That would be China, where the government aims to have nuclear plants supply four per cent of the country’s power needs by 2020 – double the present percentage. To that end, it will have to build several new reactors including the two AREVA agreed in late November to build for China. Westinghouse Electric signed deals in December 2006 to build four reactors in China. Both companies hope to land contracts for still more reactors, further enlarging the market for uranium in China.

AREVA is also building power plants in France and Finland, company spokesperson Alun Richards says from Saskatoon, and there are signs that a new generation of power plants is ahead in the U.S. The Tennessee Valley Authority, Constellation Energy and other companies are keen to build new plants, and the first new plants in the U.S. could be up and running as early as 2014.

Three of China’s neighbours - India, Russia and Korea – each have several nuclear power plants as well as plans for many new ones in the next decade.

Cameco projects three percent annual growth in global uranium demand to 2016, company spokesperson Gord Struthers says from Saskatoon. “It could be considerably higher than that, depending particularly on what happens in terms of reactor construction and the performance of operating plants.”

Market growth is projected to be especially strong in Asia, he remarks.

Uranium Participation’s Farmer says his company projects a two per cent annual growth in the world market – about the same as in recent years. He concurs that the growth will stem largely from new plants in Asia “and the perception in North America that we’ve got to do something about our environment – we can’t keep burning coal the way we’ve been burning it, and we can’t keep burning so much natural gas in order to produce oil.” (Nuclear reactors don’t produce greenhouse gases.) He, too, expects a nuclear-energy revival in the U.S.

  

Major challenges

These are boom times for uranium, but challenges come with the opportunities. Mining and exploration companies are coping with shortages in labour and equipment.

“We recognize that we are challenged to find the people to grow our production - and to sustain our production, for that matter,” says Cameco’s Struthers. But he adds that they have a strategy for addressing human resources issues and “we’re confident that we’re going to get the people we need in order to sustain our business.”

Geography and history are on Cameco’s side, he says. “One advantage that Cameco has is in all of this is that our largest mining operations are in northern Saskatchewan and for many years now we have been working with Northern people to … provide training through registered programs and other programs and scholarship programs to make sure that they have the skills to participate fully in this industry.”

AREVA’s Richards says one reason the industry faces “big challenges” in human resources is that “it’s an industry that hasn’t done much expansion until recently, so it’s an aging workforce.” An additional factor for the Athabasca Basin is competition with the oilsands in northern Alberta, he adds.

The tight labour market has made the mining industry a little less choosy in recruitment. “The days of insisting on five or 10 years’ experience … are over,” Richards remarks.

The solution to the labour crunch may lie partly in luring foreign workers to the Athabasca Basin, Richards concedes. “We’re trying to find as much locally as possible, but we’re open to all sorts of approaches.”

“Right now, we certainly are challenged to get people and equipment,” Consolidated Global Minerals president George Heard says from the exploration company’s Vancouver head office. He notes that drilling costs have doubled since mid-2006.

Heard points out there are also significant technical challenges (such as finding good deposits, and fixing the Cigar Lake mine) and legislative or public-policy challenges (Saskatchewan’s new government may change the regulatory regime).

Challenges aside, the outlook seems rosy for uranium, he says. “I believe the commodity price is going to increase. … The uranium market is going to grow because of concern over carbon emissions.”

Energized by such optimism, Consolidated Global and scores of other companies continue their search for Canada’s next big uranium mine. Looks like 2008 will be another big, busy year for the uranium business.