Recovering Prices Give Rössing Uranium Hope

IN the words of Roumlssing Uranium managing director Werner Duvenhage, 2014 was ‘tough.’

The company experienced a combination of uranium price fluctuations, volatile exchange rates, shareholder pressures and cost challenges.

Roumlssing, which is celebrating its 40th anniversary this year, made a loss of N$91 million last year.

Duvenhage said in Windhoek this week that part of Roumlssing cost-saving measures included only selling uranium via long-term contracts and not the spot market.

All uranium produced by Rio Tinto’s mines is marketed by Singapore-based Rio Tinto Uranium under a buysell arrangement with the mines.

Roumlssing Uranium, one of the largest and longest operating uranium mines in the world, supplies its final product via Rio Tinto Uranium to electricity companies located in all three major markets: Asia, EuropeMiddle East, and North America.

In addition, Roumlssing Uranium supplies uranium directly to South Africa’s national power utility Eskom to produce power for southern Africa.

The uranium market in 2014 suffered further price declines, as buyers mostly sat on the sidelines and excess production and secondary supplies continued to overhang the market. With inventories so high throughout the system, long-term demand stayed at historically low levels few utilities were very active in the spot market either, according to an analysis of the markers contained in the 2014 stakeholders report released in Windhoek this week.

Demand is expected to pick up in the next few years as utilities look to secure fuel for their 2017-2023 needs. This should boost demand somewhat in 2015.

According to the report, a full three years after the Fukushima tsunami-related accident in Japan and the corresponding drop in uranium demand, world production finally declined compared with 2013. Previously, world mine production had continued to expand each year despite the loss of demand – a situation caused by producers, which only made their price problems worse.

Leading this trend was Kazakhstan, which, after its astonishing expansion over the last decade, now produces almost 40% of world mine supply. Kazakh production increases slowed in 2014, and were offset by several mine closures, including Paladin’s shutdown of the Kayelekera mine in Malawi.

SPOT PRICE

The spot price for uranium began in 2014 at US$35, 50 per pound, but by mid-year, with too much supply and very little demand, the price dropped below US$30 a pound for the first time since 2005, reaching a low of close to US$28 per pound.

By the third quarter, several speculators started to buy, bringing in some discretionary utility demand. Thus, the year ended at essentially the same price as it had started.

Roumlssing Uranium’s long-term sales contract portfolio has limited exposure to the spot price, and therefore presents a resilient revenue stream for the company.

Moreover, the roughly US$5ound rise in the long-term indicator toward the end of the year had a positive effect on Roumlssing Uranium’s revenue line for the year, since its contracts are primarily long-term in nature and utilise a variety of long-term pricing mechanisms.

JAPAN RESTARTING

According to Duvenhage, 2015 is likely to see the first units restarted in Japan during the first half of the year. This is an important step forward after the past four years, when most plants were kept offline. However, the pace of restarts will probably remain slow, while some of the older units or those which require costly upgrades may never be allowed to restart, the report said.

The Japanese industry is unlikely to return to its previous size and position in the uranium-consuming market, but any resumption of operations at nuclear power plants in that country is a positive sign.

Elsewhere, some of the operating nuclear plants in the United States remain under severe pressure from very low-cost natural gas to heavily subsidised renewables.

China, meanwhile, continues to lead the world in new reactor construction. Twenty-two reactors are now in operation, with another 26 under construction.

“The long-term outlook for the nuclear industry remains encouraging. The challenges are in finding a path leading from today’s weak, oversupplied market to the brighter days of higher demand,” the report said.

Source : The Namibian