Staying ahead of the uranium curve

INSIDE STORY: Lately the global market price of uranium has been moving along at the rate of drying paint or growing grass, perhaps slower.

This hasn’t, however, curtailed the rate the commodity has been shipped around the world, with most yellowcake roads leading to China.

The country’s growing appetite for uranium was exemplified last year when it imported historically high quantities of uranium, building stockpiles at bargain basement prices before commissioning new nuclear plants. This year, China’s uranium imports have already outstripped last year, with around 17 million pounds already contracted in 2014.

The bulk-buying appears justified with the spot price for uranium hovering around US$29 per pound.

What makes the Chinese investment even more inscrutable is that most analysts predict a severe global shortage of uranium by the end of this decade.

That means, in the not too distant future, uranium mines will need to be either in, or ready to push the button on, operation if industry is to meet the expected demand of China’s nuclear power program, which involves some 31 reactors currently under construction – five to come on line this year, of which two have already been commissioned.

If there is a global slowdown in the demand for nuclear energy somebody obviously forgot to tell China, where 128 new reactors are anticipated by 2025.

At present some 37,000 megawatts of nuclear capacity is under construction, with planned projects slated to take that figure beyond 60,000MW.

The program is envisaged to take the country from being two per cent nuclear powered in 2015 to four per cent by 2020, eight per cent by 2025 and sixteen per cent by 2030. This easily surpasses the nuclear giant called the US in 2025.

Asia is emerging as the front line for global nuclear energy with Japanese Prime Minister Abe recently confirming nuclear energy’s importance to Japan’s energy policy mix for the next 20 years.

The nuclear restart program in Japan, while slower than expected, is gaining momentum with utilities submitting applications for the re-start of 17 facilities over the course of 2014 and 2015, which has been interpreted by industry boffins as a positive sign the inventory build-up in Japan will be drawn down.

 

“Clearly Fukushima had a pretty big impact on the uranium market – a prolonged effect, which has lasted much longer than what everybody probably expected,” Toro Energy managing director Dr Vanessa Guthrie told The Resources Roadhouse.

“All of the market analysts around the world thought it would be a two, maybe three year effect, but the Japanese have been very conservative about bringing their nuclear reactors back on stream.

“Fifty-four reactors closed down, and not all of them are expected to be re-commissioned.  What we are expecting is a phase-in over a three to four year ramp up in the industry.

“Then there is this incredible juggernaut, called China.

“The Chinese demand for iron ore may have dropped off slightly, however the country’s energy requirements, and in turn, nuclear power is growing.

“They will eventually surpass the United States as the biggest generator of nuclear power.”

All this adds up to a reasonably bright future for the Australian uranium mining sector, if it is able to get its house in order to meet the demand when it arrives.

Australia’s uranium mines meet nearly 12 per cent of world supply, among them is BHP Billiton’s Olympic Dam operation in South Australia, the largest uranium deposit in the world, which began operating in 1988.

In 2012, BHP Billiton put off a $20-billion expansion plan for Olympic Dam.

Energy Resources Australia opened its Ranger mine in 1980. In 2012 mining from the Ranger Pit 3 ceased and the company is now processing ore from its stockpiles.

ERA is considering the feasibility of an underground operation at Ranger, known as Ranger 3 Deeps.

The Four Mile project in South Australia is currently under construction and has potential to begin production within the year, however it is currently the subject of a boardroom battle between its joint venture partners Quasar Resources and Alliance Resources.

“The thing about the nuclear industry, and subsequently uranium mining, is that it is a long term game,” Guthrie said.

“It is very strategic, and is much longer term than any of the other commodities.  As a key energy source, reactors are built for 50 years, which means you have a 50 year investment horizon.

“In the uranium space you need to be thinking very long term, as the Japanese, Koreans and Chinese do.  Unfortunately, our investment market in Australia just doesn’t think in these time frames.

“The potential customers that we do our business with are thinking much longer term than Australia.

“Their key motivation, when it comes to buying uranium is security of supply – which is somewhat different to a commodity that is more immediately influenced by price.”

When that market price does turn and customers around the world look to secure a supply for 2030, Toro Energy expects its Wiluna uranium project in Western Australia to be centre stage, fully-approved and ready to go.

 

Toro recently completed an independent Mining Scoping Study and Preliminary Economic Assessment (PEA), which integrated the Lake Maitland deposit, which it acquired in 2013, into the project.

The studies confirmed:

An initial mine operations life of 16 years;

20.1 million tonnes ore mined at 799 parts per million (ppm), including 15.9Mt ore at 907ppm;

Processing head grade of 883ppm average over the first 10 years;

Total production at life of mine recovery of 85.6 per cent or 30.2 million pounds of uranium;

Average annual production over the first 10 years of 2 million pounds uranium; and

Average C1 cost for life of project of US$31.1 per pound.

“We always said that we wanted to position Wiluna ahead of the curve,” Guthrie explained.

“At $29 uranium spot price there would be a lot of producers around the world, currently in production, making a loss and we don’t want to bring Wiluna into that market unnecessarily.”

Wiluna is indeed ready to go, from the perspective of having an approval for a processing plant and the first two deposits of Centipede and Lake Way.

Having taken four years to finalise these approvals, Toro has already moved to submit a referral for the next two deposits Millipede and Lake Maitland and entered into the EPA process for the latter.

The company doesn’t consider it smart business to wait for a sudden market price turn and then go looking for approval, as the time lag could result in it missing the next wave of demand.

“To push the button on Wiluna – we need a partner – because of the long-term, strategic world view of the uranium market, we want to put Wiluna into production with a secured JV partner behind it,” Guthrie said.

“That is what is holding Wiluna back at the moment, because the negotiations for a strategic partner will always be about what price they want to pay and for what security of supply.”

Toro’s focus right now is to maintain the momentum it has created around Wiluna.

Once Millipede and Lake Maitland are approved, which it anticipates can be achieved by 2016, Toro expects to continue talks with potential Chinese and Japanese partners about Joint Venturing the project.

“Once we have secured a strategic partner, then the timing of bringing Wiluna to market will be dependent upon that partner’s need as much as the market price,” Guthrie said.

“We are confident that at the right point in time those two aspects will intersect.”

Toro Energy Limited (ASX: TOE)
…The Short Story

HEAD OFFICE
Level 3, 33 Richardson Street
WEST PERTH
Western Australia 6005

Ph: +61 8 9214 2100
Fax: +61 8 9226 2958

Email: info@toroenergy.com.au
Website: www.toroenergy.com.au

DIRECTORS and MANAGEMENT
Dr Erica Smyth, Dr Vanessa Guthrie, Greg Hall, Peter Lester, Andrew Coles, Richard Homsany, Richard Patricio

MAJOR SHAREHOLDERS
OZ Minerals             27%
Mega Uranium        26.6%
RealFin Capital        4.5%

SHARES ON ISSUE
1.56 billion

MARKET CAPITALISATION

$96.5 million (at 29/5/14)