EXCLUSIVE TO SIGHTLINE U3O8: In January 2017, while announcing planned production cuts, the Chairman of the Management Board of Kazatomprom (Kazakhstan’s national uranium arm) explained that the glut of uranium supply would be the reality of the market for the near term. He then went on to state, “It will be better for our shareholders and stakeholders that these strategic Kazakhstan resources remain in the bowels of the earth for the time being, rather than adding to the current oversupply situation”.
The fact is that despite a number of promised production reductions, Kazakhstan has left very little in the ground. Not only do they appear to be the possible architects of the global oversupply situation but have gone on to help choreograph the uranium market’s slow and painful recovery.
Kazakhstan’s Rise
Although uranium exploration in Kazakhstan began in 1943, significant mining did not commence until 1970. Up until 2000, only 1/3 of Kazakhstan’s production was performed via the less costly sedimentary In-situ leaching (ISL) technique. Today, however, almost all production is from ISL resulting in all-in productions costs of less than US$20/lb.
Over the 18 years since 2000, uranium production in Kazakhstan has risen at a significant and constant pace, seemly oblivious to events within the industry and monumental swings in the market price of the product. By 2009, the country’s production had grown by over 700% making Kazakhstan the world’s largest producer delivering 28% of the world production. Today, that number has grown to over 40% providing Kazakhstan with unchallengeable control over one of the planets primary energy sources.
Kazakhstan Uranium Production
The Industry Reacts to a Disaster
On March 11, 2011, following a major earthquake, a 15-metre tsunami struck Japan, disabling the power supply and cooling of three Fukushima Daiichi reactors. All three cores largely melted in the first three days. As a precautionary measure, Japan shut down the country’s 55 reactors representing 12.5% of the world’s nuclear fleet. Most of those reactors remain closed today.
The uranium industry’s reactions took a number of forms. Within six months, the spot price of uranium fell nearly 30%.
As a result of the time lags between the ordering, delivery and use of uranium fuel, however, the effect on the contract price of uranium and the actual movement of product was felt over a longer time period. Offsetting the loss of demand in Japan were numerous newly constructed reactors coming on line. By the end of 2017, those new reactors has all but replaced those lost or not re-started.
Since 2010, despite the disaster in Japan, the level of uranium required for the world’s nuclear reactors never dropped by more than 5%. In response, the world’s uranium producers hastened to adjust to their new reality as it became apparent that Japan’s reactors would not be returned to operation in the near future. As can be seen below, annual changes in production levels fluctuated only slightly until major reductions through mine closures finally resulted in a significant drop in 2018.
Kazakhstan, on the other hand, continued to ramp up their production, flooding the market with unneeded uranium fuel.
Global Uranium Production Change Since 2010
Kazakhstan’s Impact on Oversupply
So – what if the uranium industry had maintained their 2010 production levels?
In 2010, Kazakhstan produced 17,803 tonnes of U while the rest of the world produced an additional 35,868 tU. Had the rest of the world continued producing at that rate, they would have delivered 286,944 tU between 2011 and 2018.
The rest of the world actually produced approximately 284,000 during that time period meaning that they have reduced excess supply by about 3,000 tU (1%).
Meanwhile, Kazakhstan has produced 178,003 tU during those 8 years while production at 2010 levels would have resulted in only 142,424 – a difference of 35,579 tU
What this means is that since the disaster at Fukushima, Kazakhstan, rather than adjusting to the situation, has added the equivalent of a full years’ worth of production to the world’s excess inventory – clearly a predatory move.
Kazakhstan’s Impact on a Recovery
Just over two years ago, Kazakhstan responded to a languishing uranium market by announcing that they would reduce their 2017 production by 10%. A year later, they announced that they would further reduce their production by an additional 20% by the end of 2020.
Kazakhstan did keep their promise in 2017, reducing their country’s production by 11%. These reductions, however, were only maintained long enough to see Cameco shutter the world’s largest producing mine, McArthur River.
The next 20% has not been delivered quite as quickly with 2018’s production coming in about 100 tU less than the prior year – a drop of less than 0.5%. Moreover, Kazakhstan’s announced production levels for 2019 have come in at 22,742 tU – an increase of over 4% of the 2017 level.
To accomplish their 20% reduction promise they would have to close two of their largest mines in 2020 (or four smaller ones).
Kazakhstan Uranium Production
Kazakhstan’s End Game
Although many have looked at the 2011 Japanese Tsunami as the cause of the current uranium market woes, it was merely the straw that broke the back of a decade of growing overproduction. What is clear is that Kazakhstan has been able to establish itself – from a cold start – as the premier supplier of low cost uranium fuel, forcing others to make room at the table.
It’s a new day and higher cost mines such as Australia’s Ranger mine and Namibia’s Langer Heinrich and Rossing mines cannot compete. In addition to Cameco’s closure of their McArthur River and Rabbit Lake mines, Paladin’s Langer Heinrich was put on “care and maintenance” last year. The Ranger mine is in the process of considering decommissioning options while Rio Tinto is selling its share of the Rossing to Chinese interests.
With the competition vanquished, a new European marketing arm established and Kazatomprom’s IPO behind them perhaps we can now expect to see Kazakhstan take their foot off of the gas, allow uranium prices to rise and maximize the profitable fruits of their labor.