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Opinion - The rise of uranium prices and its economic potential

2022-04-28  Staff Reporter

Opinion - The rise of uranium prices and its economic potential

Uranium prices had remained low for more than a decade, following Japan’s Fukushima Daiichi nuclear power plant accident in 2011, which sparked a sharp decline in the demand for nuclear energy. However, over the past few months, we have witnessed a rapid turn of fortunes in the price of uranium over a short period of time. Uranium is currently trading at US$64/lb, which is a 200% increase in less than 36 months. So, what is driving this price increase, and what does it mean for our country?

What is driving the uranium price surge?

The uranium spot price increase has been mostly driven by institutional investors, most notably Sprott Physical Uranium Trust (SPUT). SPUT is a closed-ended trust created to invest and hold substantially all of its assets in physical uranium. SPUT, the world’s largest physical uranium fund, has been on a buying spree since it was launched in July 2021. It reportedly holds 50.4 million pounds of U3O8 as of March 2022, and this quantity has risen 13.8% from February figures.

Due to the ongoing crisis between Russia and Ukraine, there is widespread panic in Western Europe for security of energy supply. Europe heavily relies on gas supply from Russia, and because of this market disruption, countries are now scrambling for alternative energy sources. Obvious capacity limitations on renewables, combined with mounting pressure to reduce carbon emissions from fossil fuels, puts nuclear energy back in the race for clean energy.

Unbeknownst to many, Namibia was the third-largest uranium producer in 2020, superseded only by Kazakhstan and Australia, respectively. Russia and Ukraine follow closely, all in the top 10 world-leading uranium producers. The rising instability in the eastern region has exerted additional pressure on uranium supply, thereby accelerating further price increases.

Whether these prices can be sustained remains a debate, but the following should be considered in demystifying the role of uranium. 

Nuclear energy still has the highest energy capacity factor of 92.5%, followed only by geothermal energy at 74.3%, while solar energy has the lowest capacity factor at 24.9%. This makes nuclear energy the most viable, carbon- free, base load globally.

Nuclear fission does not produce any carbon emissions during power generation, while coal produces carbon dioxide. Additionally, for each kilogram of uranium, 20000kg of coal would be required to produce the equivalent amount of energy. This is relevant, as the world and Namibia gear towards clean and carbon-neutral energy.

Radioactive waste is negligible in comparison to the enormous amount of energy produced. Assuming Namibia’s demand stands at 600 MW, an equivalent size nuclear plant would only produce 15 t of High-Level radioactive Waste (HLW), whilst an equivalent coal plant will produce 6Mt of Carbon Dioxide.

Lastly, the analysis of the Levelised Cost of Electricity (LCOE) shows significant variability when it comes to the cost comparison of solar or nuclear-generated electricity. The costs differ, depending on the entity or institution doing the estimation. The International Energy Agency (IEA), Intergovernmental Panel on Climate Change (IPCC) & National Environment Agency (NEA) closely estimate the cost to be about US$88/MWh for solar and US$63/MWh for nuclear. These figures indicate that nuclear energy is still competitive when compared to solar.

 

The World Nuclear Organisation reports that roughly 440 nuclear power reactors with a combined capacity of approximately 390 Gigawatts are now operational in 32 nations, with an additional 55 reactors under development in 19 countries.

What does this price increase mean for Namibia?

Namibia is the third-largest producer of uranium, but also holds the seventh-largest resources of uranium. Rossing Uranium and Swakop Uranium are the main producers in Namibia, and have accounted for 6384 tonnes of uranium production in 2020. A 200% increase in spot price means mining companies can gain increased revenue and government can collect increased royalties, which currently stands at 3% for uranium. Although the majority of mines hedge their metal production through long-term supply contracts with fixed prices, there is a clear benefit and opportunity to sell surplus production at spot price.

Namibia currently has two uranium mines that have closed or were placed on care and maintenance due to the previously low uranium prices. In addition, three other uranium projects have halted exploration and feasibility studies due to the fall of uranium prices between 2011-2019.

Increased demand for uranium, coupled with rising uranium prices, would undoubtedly motivate Namibian miners to reopen mines that have otherwise been placed on care and maintenance. These mines have the ability to close a 40-million-pound production gap between present mine output and utility demand. Increased uranium spot prices will also drive additional investment in uranium exploration in order to identify additional production potential in the vast resource base in the Erongo region.

Potential mines and their impact 

Langer Heinrich Uranium was placed on care and maintenance in 2018 due to the low uranium prices. At its peak, Langer Heinrich employed around 500 permanent employees and had been producing 2000 tonnes of uranium per annum. Due to improved uranium prices, Paladin Energy has now secured funding to restart Langer Heinrich by 2023, with a LoM (Life of Mine) of 17 years.

Orano’s Trekkopje Mine was placed on care and maintenance in 2012 following the fall in uranium prices and a significant resource write-down. The past few years have given the shareholders enough time to improve efficiency in the recovery and extraction processes. The mine is envisioned to be one of the largest in the world with a uranium output of 3000t/annum, and has a projected life of mine of 11 years.

Bannerman Resources’ Etango project is estimated to become the second-biggest uranium mine after Swakop Uranium due to its large shallow resource base. Bannerman will complete the bankable feasibility study in September 2022, and could signal the construction and start of the mine.

Norasa’s Valencia Mine completed a definitive feasibility study in 2015, and has enabled the declaration of proven and probable reserves that can sustain a 11Mt/ year processing plant and a 15- year life of mine. Norasa is seeking strategic partners to develop this projec,t which should be imminent, given the current uranium prices.

Deep Yellow’s Reptile project at its Tumas and Tubas deposits are still largely at exploration phase, with the exception of Tumas that was approved to proceed to a definitive feasibility study. Tumas is estimated to have a life of mine of 11 years to exploit its 104 Mlb uranium resource base.

The above projects all have the potential to transform the entire Erongo region into an industrial hub. In the same light, they have the potential to jumpstart the economy with much-needed jobs in the shortest time. These projects combined have the capacity to absorb at least 3 000 jobs within the next three years, should the current uranium prices be maintained. The infrastructure and skills in Namibia are fully-developed for all the projects to be constructed, developed and operated by Namibians. 

What should be done?

With this much potential lying dormant, it is imperative that policymakers take an intentional and proactive position to actively advocate for uranium at all relevant local and international platforms. Uranium has long been neglected, despite its relevance in a carbon-free or green energy future. Green hydrogen has been exclusively singled out as a national strategy on energy transition, but the conversation should be expanded to include the exploitation of uranium, which is a significant clean energy source.

Namibia stands to benefit greatly from the imminent uranium boom, and thus must be clear and unequivocal in its quest to promote Namibia as a preferred source and producer of uranium. Policy should be adopted to fast-track the exploitation of these resources so as to attract foreign direct investment and create much-needed jobs in the mining industry.

*Tomas Aipanda is a mining engineer with over 11 years’ industry experience. Festus Nampweya is a mining engineer with a profound interest in energy and mineral economics. They can be contacted on tom.aipanda@gmail.com / fpandeni@gmail.com or 0813209004 / 0818671729


2022-04-28  Staff Reporter

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