On March 26, a local court in Kazakhstan invalidated the subsoil use contracts for Uranium One Inc´s two key joint ventures – Betpak Dala and Kyzylkum. Whatever the legal justification, the incident highlights how the volatile nature of the global uranium supply chain which relies on difficult jurisdictions for the majority of primary and secondary uranium supply.
If you weren´t already aware, Kazakhstan is the world´s largest source of uranium and when they decide to put the brakes on, it matters.
Let´s jump to Niger. After two years of negotiation, Areva has still been unable to renew their agreement with the government. 40% of Areva´s production comes from Niger and it´s said that one in three light bulbs in France is powered by uranium from Niger.
Now let´s look at some production delays: the Olympic Dam expansion is on hold – that´s 32M lbs per year, Imouraren – that´s another 11M lbs per year and then Trekkopje for 8M lbs. These three alone represent the majority of near-term production growth.
Uranium demand may be strong and growing but the opposite is true for the supply side. The fact is, uranium production is concentrated in a surprisingly small number of countries and, with over half of global supply coming from difficult jurisdictions, the potential for disruption to the world´s uranium supply chain is very real. Politics, civil unrest and even the weather can cause serious problems.
Admittedly, for a utility running a nuclear power station, uranium is actually a very small part of operational costs but it´s the most important. You cannot run a reactor without it and that´s why the bulk of uranium is bought and sold through long-term contracting. However, we are in a situation where approximately 40 percent of world production comes from two countries in Eastern Europe (Kazakhstan and Uzbekistan) and another eight percent from Nigeria. When it comes to secondary sources – Russia accounts for approximately 50% of supply.
Any time you are forced to rely on just a few sources for a crucial resource you are running serious risks to the security of supply. The bottom line is that upwards pressure on uranium prices is increasing as is the requirement for uranium supply to become more diversified and more stable.
That´s why China, with 29 reactors under construction and another 57 in the planning phase, is so keen to acquire a piece of uranium projects and mines in Canada – they are looking for ways to secure their supply. With a stable political infrastructure at local, provincial and national level, a 40 year history of uranium mining and the highest uranium grades in the world, Canada is the world´s second largest uranium producer for good reason.
Every pound of Canadian production comes from the Athabasca Basin, Saskatchewan, where of course Fission Uranium has its shallow-depth, high-grade discovery.
Based on recent events alone, uranium supply is unlikely to stabilize any time soon but that´s good news for Canadian explorers with serious pounds in the ground.
Anthony Milewski, Fission Uranium, Advisor to the Board
