(Casper Star Tribune, May 29) – Wyoming uranium producers, buffeted by the lowest spot prices in almost a decade, expressed optimism this week that the industry will survive a recent market downturn, saying their low-cost operations and the expected revival of the Japanese nuclear market will see them through the economic maelstrom.
Spot prices on yellowcake uranium dipped to $28 per pound this month, their lowest level since 2006. That price was down from around $35 per pound a year ago and a high of $75 per pound in early 2011.
Prices have been on a steady decline since Japan mothballed its nuclear fleet in the wake of the Fukushima disaster in 2011, taking 15 percent of the world’s nuclear power plants offline. At the same time, U.S. utilities largely booked their uranium purchases through 2016, meaning there is little demand for additional yellowcake on the spot market.
“Although there is a long-term supply deficit, the current situation is that we have oversupply due to excess inventories,” said Rob Chang, an industry analyst at the New York-based investment firm Cantor Fitzgerald.
Japan alone was projected to consume 60 million pounds of uranium in the last three years. Instead, the country sat on that supply, Chang said.
In Wyoming, where the industry has witnessed something of a renaissance in the last decade, the downturn has prompted producers to suspend expansion plans, reduce production estimates and, in some cases, lay off employees in an attempt to trim costs.
Donna Wichers, Uranium One vice president for the Americas, noted her firm stopped drilling additional wells at its Willow Creek in situ mine last year when prices were closer to $40 per pound.
“At $28 a pound you can imagine what that is doing to us,” Wichers said.
Uranium One recently laid off eight employees and revised its 2014 production projections for Willow Creek downward. The company produced just under 1 million pounds of uranium there last year. It expects to produce about 550,000 pounds this year.
Willow Creek has been among the hardest-hit Wyoming uranium operations, as much of the yellowcake produced there is sold on the spot market.
Other producers like Cameco Corp., Ur-Energy Inc. and Uranerz Energy Corp. have been able to limit their exposure to the weak spot prices through long-term contracts. Uranium One, a Canadian company with mining operations in Kazakhstan, also sells on contract, though little of its Wyoming production is sold in long-term deals.
In a note to investors last week, Ur-Energy said it has secured commitments for this year to sell 518,000 pounds of U308, the official term for the low-grade uranium used to fuel nuclear reactors. The average price for those sales: $51 per pound.
“Because of the cost structure and the contracts we have, we will be able to hold on and maybe even grow a little bit,” Ur-Energy CEO Wayne Heili said in an interview.
All of Wyoming’s current uranium operations use in situ mining. The practice is not mining in the traditional sense. The process more closely resembles oil and gas development, where wells are drilled and water is pumped underground. The water dissolves the uranium deposit, and both are pumped to the surface and separated.
In situ production costs are cheaper than conventional uranium mine. Cameco recently suspendedits plans for its 75-million-ton conventional Millennium Mine in Canada. AREVA, a French company, also announced recently that it was putting plans for a large uranium mine in Niger on hold.
“The ones that will survive are the ones that can produce at the cheapest cost, and the Wyoming producers are at the lowest end of that,” said Chang, the financial analyst.
Still, Wyoming producers are revising their production estimates. Ur-Energy is no longer aiming to hit the 1 million pound threshold this year. Uranerz is revising its production projections downward from 600,000 to 800,000 pounds annually to 400,000 to 600,000 pounds annually.
The revisions are a product of simple math, said Uranerz CEO Glenn Catchpole. Companies can spend money to get the uranium out of the ground when it costs less, or they can wait until it has a higher value.
But the calculation points to the optimism underlying the industry. The Japanese governmentsignaled in February that it intends to turn on some of the nuclear reactors shuttered after Fukushima. The plants could turn on as soon as late 2014 or 2015, Chang said.
Demand from American utilities is also expected to pick up in 2016 when power companies begin booking new contracts.
Wyoming firms are planning accordingly.
Uranerz recently announced plans to submit a permit application for an expansion of its Nichols Ranch facility. On Wednesday, Ur-Energy released the results of testing done at a once and perhaps future mine in the Shirley Basin. And Uranium One expects to resume its drilling program at Willow Creek next year. The company also continues permitting at its Ludeman property in Converse County and has secured the permits for its Moore Ranch operation.
“You still have the fundamental support that there will be a lot more demand coming; it’s just when is it going to happen,” Chang said.
