Bloomberg News

Areva Advises Buying Uranium as Nuclear Glut Price Drop Ends (2)

October 07, 2013

Uranium Ore

Rail trucks loaded with uranium ore wait for transportation at a uranium mine operated in Rozna, Czech Republic. Photographer: Vladimir Weiss/Bloomberg

Nuclear power plant operators benefited from a slump in uranium prices following the reactor meltdown in Japan’s Fukushima facility. Areva SA (AREVA), the second-biggest producer of the metal, says that’s about to end.

Power utilities need to boost orders of uranium by 2015 or face potentially soaring prices as new atomic plants come on line in addition to reactivated reactors in Japan, Olivier Wantz, who heads Areva’s mining division, said in an interview last month.

“It would be wise for buyers to make decisions in 2015 at the latest,” he said at the company’s headquarters near Paris.

Uranium prices in August plunged to the lowest level in more than seven years, still suffering from a drop in demand following the March 2011 meltdown of the Fukushima Dai-Ichi plant that was caused by an earthquake and a tsunami. Even with some western nations such as Germany shutting nuclear plants, new reactors in emerging markets such as China and India are now reversing that trend, Areva said.

“All new nuclear plants will significantly boost demand in coming years, even taking into account the phasing out of German plants” by 2022 and other possible closures,Wantz said. “We see first a stabilization of prices, with the start of a pick-up as soon as 2014.”

Demand Forecast

Global uranium demand will probably rise 48 percent by 2023, according to the World Nuclear Association. Sixty-eight reactors are under construction, including 28 in China, 10 in Russia, 7 in India and 5 in South Korea, according to the WNA. About 435 reactors around the world with combined capacity of more than 370 gigawatts already consume about 78,000 tons of uranium concentrate annually, the association said.

In the wake of the 2011 nuclear disaster, Japan idled its 50 remaining reactors and Germany immediately shut some of its 17 plants.

The spot price of uranium, which climbed as high as $138 per pound in June 2007, dropped to as low as $34.50 two months ago and recently held at $35.75, according to the Metal Bulletin.

“That doesn’t seem to reflect a lasting market trend as prices for long-term contracts are higher,” at about $54, Wantz said. Prices will also get a boost as uranium supplied from reprocessed nuclear weapons under a U.S.-Russian agreement will no longer be available.

Weapon Stockpiles

Highly enriched uranium from weapon stockpiles supplied about 9,720 tons of U3O8, its tradeable form, each year, representing about 13 percent of global reactor requirement, according to the WNA.

Areva shares fell 0.2 percent to 14.09 euros as of 1:29 p.m. in Paris, extending a slump since the Fukushima disaster to 61 percent and valuing the company at 5.4 billion euros ($7.33 billion). Canadian competitor Cameco Corp. (CCO), the world’s third-largest uranium producer, has declined 49 percent. Kazakhstan’s state-owned Kazatomprom is the world’s biggest producer.

To reflect falling uranium prices and delayed production, Areva wrote down the value of its mines by a total 1.62 billion euros in the 2011 to 2012 period, following the $2.5 billion acquisition of Toronto-listed UraMin in 2007. Areva, which also faced construction delays at a nuclear plant in Finland, sold 1.2 billion euros of assets last year and plans to cut costs by 1 billion euros between 2012 and 2015.

Turnaround Progress

“We’re certainly not considering new asset writedowns” in mines, Wantz said. The company also has “no reason to consider selling a stake” in the mining division, as the turnaround plan is “well under way” and demand is rising.

In the first half, earnings before interest, taxes, depreciation, amortization and divestments climbed 41 percent to 315 million euros at Areva’s mining unit, representing 66 percent of group earnings. In 2012, the division accounted for 15 percent of Areva’s sales.

Areva benefited from increasing prices and the end of some “less favorable contracts,” Wantz said. “It will be slightly less favorable in the second half, without being problematic. We’re among producers that are least exposed to spot prices, we’re rather strongly exposed to long-term prices.”

Niger Mine

Last year, the company’s output of uranium concentrate known as yellowcake, which is later converted, enriched and fabricated into fuel rods, reached a record 9,760 tons, including 3,661 tons at a joint venture in Kazakhstan, and 3,065 tons at Areva’s Somair mine in Niger.

Wantz predicted Areva will produce a similar amount of uranium concentrate this year as in 2012, as increased production in Kazakhstan will make up for a shortfall at Somair, where processing was temporarily curbed after a terrorist attack in May.

Niger, which owns 36 percent and 31 percent of the Somair and Cominak mines, respectively, wants more “balanced” mining conventions with Areva to replace those expiring at the end of 2013, Prime Minister Brigi Rafini told journalists yesterday.

In 2012, Niger received 70 percent of the value created by these activities, while Areva and other shareholders got 30 percent, Wantz said. Areva and those investors, Overseas Uranium Resources Development Company Ltd. and Empresa Nacional des Uranio SA, “are willing to leave to Niger a legitimate and major share of the benefits, but they also need some return on their investments.”

Areva is also developing the Imouraren mine in Niger, where first ore extraction is due in 2015. The site, whose development bill will probably reach 1.7 billion euros by the start of yellowcake production at the end of 2016, will yield 5,000 tons of the metal per year, according to Wantz.

Canada’s Cigar Lake mine, in which Cameco (CCJ:US) owns 50 percent and Areva 37 percent, is due to open next year.

“Cigar Lake will operate for at least 15 years, and maybe longer because we’ll probably find additional resources,” Wantz said. “It will be an extremely profitable mine. The output will be 6,900 tons per year when the ramp-up is completed in several years.”

“We’ll be totally in line with the demand curve of the market,” he said.

To contact the reporter on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net;


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