Cameco heads overseas for growth
This blog post is an edited version of a column published in Fuel Cycle Week, V9:N387, July 29, 2010, by International Nuclear Associates, Washington, DC.
Canada's largest uranium producer has some new customers overseas. In June Cameco (TSE:CCO) announced a series of deals with China, India, and Kazakhstan. At the top of the list Cameco said June 24 it is pursuing long-term cooperation opportunities with several Chinese state-owned nuclear power corporations to supply uranium for the country's growing fleet of nuclear power plants. Gord Struthers, a spokesman for Cameco, told FCW the company plans to sell 23 million pounds of uranium to China over the next ten years.
The long-term deals represent a change in the way Chinese nuclear power companies do business. The deals may also indicate the country is stockpiling uranium against expected future price increases and for overall energy security. China is expected to purchase 5,000 metric tons of uranium in 2010 which is more than twice the 2,000 tonnes will use for its existing reactor fleet.
Cameco's deals in the three countries come at the time when the price of uranium continues to be flat-lined at about $41/lb. RBC Dominion Securities said in a recent report that uranium producers show no sign of slacking off on production despite the stubborn low price. There was no significant price movement as a result of the announcement of Cameco's deals with China and India.
Terms and conditions of the deals have not been set with several state-owned nuclear power corporations. Cameco CEO Jerry Grandy said in a statement the current agreements are a "nonbinding framework."
He added that negotiations are underway to set up long-term purchase agreements. The intent, Grandy said is "to benefit from China's vigorous reactor construction program."
Chinese state-owned corporations involved in the negotiations include China Guangdong Nuclear Power Corp (CGNPC), China Nuclear Energy Industry Corp (CNEIC), and China National Nuclear Corp. (CNNC), a subsidiary of CNEIC, which has a stake in four operating reactors and a number of new projects which are or which will soon be under construction.
The interlocking nature of China's civilian nuclear energy industry suggests that a domestic exchange of uranium could develop depending on which reactors come online first. First fuel loads for new reactors will spike demand for uranium in China.
Demand for uranium in China will increase rapidly as the nation is the world's biggest developer of nuclear power plants. It plans to build from its current capacity of 9 GWe to 70 GWe in the next several decades.
Cameco is developing long-term sales agreements to sell uranium to India. Cameco inked its second major international long-term uranium sales agreement in less than a month. The deal with India was signed off by Canadian and Indian government's officials during the G20 Summit held in Toronto June 27. However, Cameco spokesman Gord Struthers told FCW it is too early to estimate how much volume will be sold to India. "There are no firm arrangements yet," he said.
In a statement released in India to the Hindu, one of that country's largest circulation newspaper, Cameco spokesman Rob Gereghty said Cameco is planning to participate with Indian partners in all aspects of the front end of the nuclear fuel cycle, "from exploration to fabrication."
Left unsaid is whether Cameco would enter the uranium enrichment business. The two years ago the firm took a 24%, $125 million stake in GE-Hitachi's laser enrichment process, but commercial operations of the new technology are still several years in the future. Cameco spokesman Murray Lyons told FCW "it is too early to pull that string [enrichment] on the India deal." He added the ministerial agreement must now be ratified by both parliaments in Canada and India before details are worked out in the form of commercial contracts.
Cameco told FCW the planned expansion of nuclear capacity in India is second only to China's in its scale and holds great opportunity for uranium fuel suppliers.
India now has 4 GWE of nuclear capacity and consumes about 2 million pounds U3O8 annually. Canada’s market success with India comes at Australia’s lose. That country has refused to sell uranium to India citing nonproliferation concerns.
The Toronto Globe & Mail reported June 25 India is less likely to use the uranium for weapons. The newspaper said experts feel the country is more interested in building its economy than its arsenals.
India has announced plans to increase its nuclear generating capacity to a range of 21-29 GWe by 2020. The removal of restrictions on nuclear trade with India would provide an additional market ranging from 7 to 9 million pounds U3O8 by 2020.
Competition for India’s fuel needs
Mindful of the differences between Canadian and Indian cultures, Cameco last year hired Chaitanyamoy Ganguly, a senior Indian nuclear fuel cycle executive with IAEA experience, to head its new office in Hyderabad. Another reason for hiring seasoned managers from India's nuclear industry is that Cameco is up against stiff international competition for India's nuclear fuel business.
The primary actors are state-owned corporations with Areva from France and TVEL from Russia which signed long-term agreements with India to supply fuel for reactors. Like China, India is pursuing an aggressive program to build new reactors taking the nation's capacity from 4 GWe to 20 GWe in the next two decades.
Russia has a December 2009 deal to build four new reactors for 4.8 GWe. Areva has a deal to build two and as many as six 1.6 Gwe reactors. Both deals come with 60-year commitments for nuclear fuel to run the new plants.
Cameco announced June 4 that is planning to build a uranium conversion plant in Kazakhstan. COO Bob Steane said at an energy conference held in Almaty June 4 work is underway on a feasibility study for a 12,000 ton/year plant. Some of the issues for the plant will include reliability of the supply chain for fluorine and transportation logistics in general. Kazakhstan's uranium industry suffered setbacks in production in the past because it could not procure sufficient quantities of sulfuric acid for its ISR mines.
Investments in future Canadian production are up
Two Canadian uranium juniors with stock prices in a better place than most of the competition announced new infusions of capital this month. Also, Areva achieved a 50% earn-in on its investment in Waseco's Labrador property.
Kivalliq - Kivalliq Energy Corp. (CVE:KIV) raised $6.2 million in a private placement for work on its Lac Cinquante uranium mine in the Nunavet province. Tony Reda, the firm's investor relations spokesman, told FCW the money comes in part from Lumina Capital and "high net-worth investors." Lumina will take a 19.6% stake in the firm as a result of its investment. The investors may take a controlling interest in the property, e.g., more than 20%, following a stockholder vote later this year.
Asked to account for the firm's ability to attract capital despite uranium's stubborn low price, Reda said investors will come for "high caliber projects with good potential." Also, Kivalliq is reportedly the first uranium miner to sign an agreement with the Inuit of Nunavut to explore for uranium on Inuit owned land in the territory.
It's too early to tell how exactly high quality the project will be Reda said. The firm has over 200 occurrences to follow-up. Covering 225,000 acres, the Angilak Project is Kivalliq’s core asset. It was consolidated from previously fragmented land positions developed in the 1970s and remained unexplored for the next three decades. Historic estimates place the resource at 20 million pounds U3O8. At this month's uranium price of $41/lb, it would be worth $820 million.
At mid-day July 27, market trading for Kivalliq Energy stock was at $0.34/share against a 52-week range of $0.11-0.55.
Fission – Fission Energy (CVE:FIS) has moved closer to selling its Waterbury Lake property to be developed as a producing mine. After three years and $15 million of investment by Korea's KEPCO, Fission is now putting its own money into the project.
Bob Hemmerling, investors relations spokesman for the firm, told FCW, Fission will spend $10 million a year for the next three years to fully explore the property. He said the firm expects to sell its 50% interest in it once exploration is complete.
"KEPCO doesn't have an offtake agreement with us," Hemmerling said. "We expect to sell the property to someone else to develop it."
At mid-day July 27, market trading put Fission (CVE:FIS) at $0.070/share against a 52-week range of $0.15-$1.20.
Waseco - Areva Resources has completed a $2 million 50% earn-in as part of its joint venture with Waseco (CVE:WRI) for that firm's Quebec Labrador Trough uranium properties. Waseco President Richard Williams told FCW the 330 sq km property has five showings and more survey work is needed to identify key prospects for drilling. Williams said the area was surveyed in the 1970s by several firms including Shell and Imperial Oil, but no mining ever took place. Despite a 250 page report full of findings, Williams said, "we're still in a broad brush effort."
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