The Uranium Market

Uranium is supplied from primary production (the mining of uranium ores) and secondary sources which include excess inventories held by producers and utilities, and government inventories such as recycled uranium from stockpiles or down-blending of high enriched uranium (“HEU”) from Russia. The primary uranium production industry is international in scope, with a small number of companies operating in relatively few countries. According to market analyst UxC Consulting, in 2010 world uranium mine supply totaled 139 million pounds, of which approximately 72% was produced by only five companies (Figure 1). The combination of Uranium One and ARMZ accounted for just over 13% of global mine production in that year. Approximately 93% of estimated world production was sourced from eight countries (in order of production from greatest to least) – Kazakhstan, Canada, Australia, Namibia, Niger, Russia, Uzbekistan, and the United States. The highest rate of growth in recent years has been from Kazakhstan and the African nations.

Figure 1. 2010 World Production by company (Source: UxC Consulting)

The principal use for uranium is as fuel for nuclear power plants. Demand for uranium is relatively predictable and directly linked to the level of electricity generated by nuclear power plants which tend to be the base load (twenty-four hour per day, seven days a week) operators on their respective grids. New uranium demand comes in the form of up-rates and operating life extensions on existing reactors or from new build capacity being brought on line. According to the World Nuclear Association (“WNA”), as of September 2011, there were 440 commercial nuclear power plants operating worldwide, with an aggregate installed generating capacity of approximately 377 GWe, requiring approximately 180 million pounds of uranium per year. These plants are currently supplying approximately 14% of the world’s electricity requirements.

As illustrated in Figure 2 below, the trend of increasing activity in the planning and construction of new nuclear power reactors has been on the rise since 2007. WNA data show that as of September 2011, 63 commercial nuclear power plants were under construction in 13 countries, and another 155 are in the planned category.

Figure 2. Global Nuclear Power Reactor New Builds

The WNA reference case for forecasted demand in 2020 indicates that primary mine production will need to increase substantially from current levels in order to meet projected reactor requirements. Much of this additional supply will be required from new mines that are not yet in production. Since 1990, the consumption of uranium has exceeded primary production by a substantial margin. This supply gap has been filled by sales from existing inventories of uranium, stockpiles of HEU and recycling programs. The largest single source of secondary supply is the U.S./Russian HEU Agreement under which Russia downblends HEU extracted from nuclear warheads into low enriched uranium for commercial nuclear fuel. This program, which ends in December 2013, currently supplies the world market with 24 million pounds of uranium annually. Russia has expressed no desire to continue this program beyond that date.

Uranium One Market Strategy

Utilities secure a substantial proportion of their uranium requirements by entering into medium and long term contracts with producers. As such, Uranium One pursues a strategy which seeks to place the majority of its production into a globally diversified portfolio of these multi-year term contracts which reference the market price at the time of delivery. Uranium One also sells a substantial portion of its production through market-related terms to its majority shareholder ARMZ, who in turn supplies the needs of the domestic Russian nuclear energy industry (Russia being one of the world’s fastest growing markets for nuclear power). Uranium One’s strengths as a reliable and competitive uranium supplier can be summarized as follows:

• Globally diversified production assets (Kazakhstan, United States, and Australia)
• World’s lowest cost producer
• Development plans for further growth in Tanzania
• Leading presence in Kazakhstan (the world’s largest uranium producing country) with a close strategic relationship with Kazatomprom (the Kazakh National Atomic Company).
• Financial and strategic support of Rosatom, Russia’s fully integrated nuclear energy company
• Customer focus