Wyoming Uranium Miners Look to Capitalize on End of Russian Exchange Program

(Casper Star Tribune, December 15) – It is hard to imagine, staring out into the expanse of the Great Divide Basin, how events in Russia could shape the future of the Lost Creek uranium mine.

The closest town, Bairoil (pop. 106), is some 30 miles of bumpy dirt road away. The Wind River Mountains to the west and Green Mountain to the east offer the only break on the horizon, an otherwise unabated sea of rolling sagebrush. And the sole inhabitants, besides the bands of roving wild horses, are the Lost Creek miners themselves, though to call them miners is slightly disingenuous. Lost Creek is more oil field than it is mine, and those that work here are far more likely to tap a keyboard than wield a pickax.

But as unlikely as it may seem, this isolated facility in south-central Wyoming is inextricably linked to the land of Catherine the Great, Lenin and, more recently, Vladimir Putin.

Lost Creek began production in June. On Dec. 3 the mine made its first shipment of yellowcake uranium to a conversion facility in Illinois. A few weeks prior, on the other end of the globe, the final shipment of weapons-grade uranium was packed into a shipping container in St. Petersburg and sent via boat to Baltimore. Once in the United States it was scheduled to be blended into fuel for the country’s fleet of 104 nuclear power plants.

The timing of the two events was no coincidence.

“There were people with the foresight to see that the uranium market would be undersupplied significantly,” said Ur-Energy CEO Wayne Heili one recent afternoon, as he steered his car down the road and over washboards toward Lost Creek.

Heili was speaking about the founding of Ur-Energy, the Casper-based company that owns and operates the mine. The firm was formed by Canadian investors in 2004, a time when uranium prices were skyrocketing. The group also had their eye on the end of the Russian exchange program.

As Heili put it, “They saw an opportunity.”

Ten percent of all U.S. electricity has come from Russian nuclear weapons over the past two decades. During that time, the Russians shipped 500 metric tons of highly enriched uranium to the U.S. under an exchange program negotiated by the two countries. Some 20,000 Russian nuclear weapons were disarmed in the process, providing fuel for roughly half of America’s nuclear power generation.

This year is the exchange’s last. Russia declined to extend the program, creating a shortage in the world’s supply of uranium. The program had provided balance to the international market, said Rob Chang, an analyst at the Toronto-based investment firm Cantor Fitzgerald.

“Now that has disappeared,” Chang said. “I don’t believe it is going to have an impact on the supply and demand numbers because people knew it was going to end for some time.”

Wyoming producers have long been planning to help fill that void. Several facilities have come online in recent years and several more are expect to begin operations soon.

Uranerz, a Casper company, expects to begin production at its Nichols Ranch facility in northeast Wyoming early next year. Uranium One plans to begin mining at its Ludeman site in 2016 and Moore Ranch in 2017. And Cameco, a Canadian firm, recently began work at North Butte, a satellite mine that will complement the company’s existing mine, Smith Ranch-Highland. Cameco also has plans to open its Gas Hills and Reynolds Ranch projects, in central and northeast Wyoming respectively, in the coming years.

Chang estimated Wyoming’s annual production could increase from 2 million pounds, the current rate, to as much as 10 million pounds in the coming decade.

That’s not a lot by global standards, and it won’t likely reshuffle the world’s supply and demand equation for uranium. The McArthur River mine in Canada produces 18 million pounds alone and U.S production trails far behind Kazakhstan, Canada and Australia, which combine for 64 percentof the world’s total production. American uranium consumption, meanwhile, was 57 million poundsin 2012, according to the U.S. Energy Information Agency.

Still, the impact for Wyoming, the country’s largest uranium-producing state, could be big.

“I think the future is quite bright for Wyoming ISR because that is where much of the uranium in the U.S. is coming from,” Chang said.

ISR is the term for in-situ uranium mining, or “in-place” mining — the type largely being done today in Wyoming. The practice is similar in many respects to water-flooding methods used in some oil fields. Water, baking soda and oxygen are injected into the ground to dissolve uranium lining the rock ore. The dissolved uranium is then pumped to the surface, where a giant water treatment facility essentially separates uranium from water.

In-situ uranium mines have several advantages. Conventional mining for uranium makes more sense in places like Canada, where the radioactive substance can make up 20 percent of the rock ore. In Wyoming, that percentage is 0.4 or 0.5 percent. In-situ mining is also far cheaper. It requires a smaller capital investment and is less labor intensive than conventional methods.

The smaller cost structure gives Wyoming producers an advantage at a time when uranium prices have plummeted. They are able to survive, if not prosper, with spot prices clocking in at $36 a pound in December. That’s down from a high of $130 a pound in 2007.

“We are truly an international commodity,” Uranerz CEO Glenn Catchpole said. “Those projects that can keep their costs low are the ones that can do low prices. It’s a straight matter of economics.”

Those prices nonetheless remain the industry’s greatest challenge. Uranium One, which began operations at its Willow Creek mine in 2010, laid off 26 employees in Wyoming this summer. The company has stopped new exploration at the site and it won’t begin production at Moore Ranch until 2017, despite the fact the project is already permitted and ready to go, said Donna Wichers, a senior vice president at the company.

“We’ve pulled back our aggressive stance and are waiting to construct a new project until the prices start to rise and get to around $40,” Wichers said.

A significant uptick in the price of uranium is projected in 2016, when Japan is expected to turn on many of the reactors it shuttered after its Fukushima nuclear plant disaster in 2011, Chang said. Recent suspensions of mining projects in Russia and Kazakhstan should also constraint supply, helping to push prices upward, he said.

Out at Lost Creek, Wayne Heili is ready to wait. Surveying the well field before him, Heili reflected on his company’s fortunes. Ur-Energy is lucky, he said. Many of the operators who set out in 2007 when uranium prices were high never made it to construction, yet alone production. Others hoping to develop new projects today face the challenge of convincing investors their money will be well spent when uranium prices are so low.

“That is the real challenge to get done before the boom ends,” Heili said. “We didn’t technically do that, but we can proceed because of our cost structure. If this is the bottom, I’ll be pretty happy.”

Ur-Energy and other Wyoming producers will be ready to cash in if the good times return. The mine is already on pace to produce 1 million pounds a year and the company is exploring projects in the Shirley Basin that would increase production by another 1 million pounds.

But the future of mines like this one will largely be determined by events unfolding thousands of miles away. Lost Creek might look like the middle of nowhere, but in truth it is intricately linked to the global economy.

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