Annual Uranium Review (November 01, 1988)

Something is going on in the Canadian uranium industry. It’s happening rather quietly, and it doesn’t involve the junior resource sector or most of Canada’s major mining companies. Foreign companies and Canadian uranium producers are buying high-grade reserves, beginning mine feasibility studies and committing more than $65 million to underground evaluations — all in anticipation of a big turnaround in the uranium market by the mid-1990s. By that time, a so- called window of opportunity could emerge, characterized by vastly reduced inventories, improved demand and, most important, much higher prices. Few domestic players are left in the uranium game following the collapse of prices in 1981. Uranium tags that once hovered around the $50 (us)- per-lb mark, are closer to $15 per lb today. During those heady days, just about every junior and senior company in Canada was involved in the uranium exploration boom. Uranium’s demise in the early 1980s, due to a glut of supply and inadequate demand (partly a result of the success of all that exploration) forced the companies to look to greener pastures.

However, the uranium game is not as dismal or boring as many believe it to be. The poor supply-demand fundamentals of the metal are beginning to change in favor of the producers. In fact, since 1985, the consumption of uranium has exceeded production, a trend that should continue for several more years until excess inventories are depleted. Once this happens, sometime in the 1990s, additional production will be required to meet demand.

For several good reasons, Canadian producers are in an excellent position to meet that increased demand. Canada is the world’s largest producer of uranium and will continue leading the field for many years. In 1987, uranium production increased by more than 6% to 32.2 million lb of uranium oxide, which is approximately one- third of world production, according to NUEXCO International Corp, a U.S.-based uranium brokerage company. The majority of that production came from the prolific high-grade, low-cost mines of northern Saskatchewan’s Athabasca Basin. Led by Key Lake, which produced 13.5 million lb last year, Saskatchewan is Canada’s premier uranium-producing province.

An important development this year has been the removal of a potentially detrimental trade action started by U.S. producers, who were seeking an embargo against all foreign uranium imports. In June, producers came to terms with Washington, which agreed to establish a $1.75- billion (us) fund charged with the task of purchasing U.S. uranium and providing funds for tailings reclamation. The fund will be administered by a new company called Enrichment Corp., which will fall within the regulatory guidelines set out in the Canada- U.S. free trade agreement. The removal of proposed barriers to Canadian uranium combined with the improving economic fundamentals bodes well for the industry.

New developments, which reflect these changes, are led by the creation of Cameco (Canadian Mining and Energy Co.). The offspring of the marriage of Eldorado Nuclear and the Saskatchewan Mining Devlopment Corp., Cameco is the world’s largest uranium producer, churning out about 15 million lb per year. Key Lake, the largest uranium mine in the world, is 67%-owned, whereas Rabbit Lake, Eldorado’s facility near Wollaston Lake, is fully owned by the company.

Although both mines host reserves sufficent for production into the 1990s, the future of Cameco rests with Cigar Lake. Hosting reserves of 385 million lb of uranium oxide in ore grading 14%, the orebody is the largest and highest grade in the world. In order to have supply ready for the 1990s, Cameco and partners Cogema Canada (32.62%), Idemitsu Uranium Exploration Canada (12.87%), Corona Grand (3.75%) and Korea Electric Power (2%), have started a $50-million underground evaluation program. A shaft is being sunk to a depth of 1,670 ft, which will facilitate test mining of a portion of the rich deposit. This program is scheduled for completion sometime in 1990. Mill construction could begin by 1992 with full production beginning in the following year.

Denison Mines, the dethroned king of Canadian uranium mining, has not quit the metal. Last year, the company purchased a 60% interest in the Midwest deposit for $12 million. Located near the eastern fringe of the Athabasca Basin, Midwest hosts reserves of 57 million lb of uranium oxide in 2.1 million tons grading 1.3% uranium oxide per ton. Denison is planning a $17-million underground exploration program this year, which will provide more information about metallurgy and ground conditions of the deposit. The acquisition gives Denison, better known for its Ontario mines near Elliot Lake, its first exposure to high-grade Saskatchewan reserves.

Rio Algom is also expanding its uranium interests, following its $28.5- million (US) purchase of all the uranium assets held by Kerr McGee in Wyoming. Development of Canada’s first uranium mine in the Arctic is also being timed to coincide with the mid-1990s. Owned by Urangesellschaft Canada (UG), Kiggavik is west of the Inuit hamlet of Baker Lake. Reserves, which are amenable to open-pit mining, total 37.2 million lb of uranium oxide in a deposit grading 0.6% uranium oxide per ton. Ug has started a feasibility study and is also seeking a development partner for the proposed $200-million mine.

All these developments, which were initiated in the past 15 months, underscore the growing belief among uranium producers that their world is slowly changing for the better. The deals and acquisitions have been quiet affairs garnering little attention. As most of the players are foreign firms and government agencies, investor interest has also been minimal, especially during the recent gold boom. The result is that the current uranium “mini-boom” has bypassed the juniors.

Something is going on in the Canadian uranium industry. It’s happening rather quietly, and it doesn’t involve the junior resource sector or most of Canada’s major mining companies. Foreign companies and Canadian uranium producers are buying high-grade reserves, beginning mine feasibility studies and committing more than $65 million to underground evaluations — all in anticipation of a big turnaround in the uranium market by the mid-1990s. By that time, a so- called window of opportunity could emerge, characterized by vastly reduced inventories, improved demand and, most important, much higher prices. Few domestic players are left in the uranium game following the collapse of prices in 1981. Uranium tags that once hovered around the $50 (us)- per-lb mark, are closer to $15 per lb today. During those heady days, just about every junior and senior company in Canada was involved in the uranium exploration boom. Uranium’s demise in the early 1980s, due to a glut of supply and inadequate demand (partly a result of the success of all that exploration) forced the companies to look to greener pastures.

However, the uranium game is not as dismal or boring as many believe it to be. The poor supply-demand fundamentals of the metal are beginning to change in favor of the producers. In fact, since 1985, the consumption of uranium has exceeded production, a trend that should continue for several more years until excess inventories are depleted. Once this happens, sometime in the 1990s, additional production will be required to meet demand.

For several good reasons, Canadian producers are in an excellent position to meet that increased demand. Canada is the world’s largest producer of uranium and will continue leading the field for many years. In 1987, uranium production increased by more than 6% to 32.2 million lb of uranium oxide, which is approximately one- third of world production, according to NUEXCO International Corp, a U.S.-based uranium brokerage company. The majority of that production came from the prolific high-grade, low-cost mines of northern Saskatchewan’s Athabasca Basin. Led by Key Lake, which produced 13.5 million lb last year, Saskatchewan is Canada’s premier uranium-producing province.

An important development this year has been the removal of a potentially detrimental trade action started by U.S. producers, who were seeking an embargo against all foreign uranium imports. In June, producers came to terms with Washington, which agreed to establish a $1.75- billion (us) fund charged with the task of purchasing U.S. uranium and providing funds for tailings reclamation. The fund will be administered by a new company called Enrichment Corp., which will fall within the regulatory guidelines set out in the Canada- U.S. free trade agreement. The removal of proposed barriers to Canadian uranium combined with the improving economic fundamentals bodes well for the industry.

New developments, which reflect these changes, are led by the creation of Cameco (Canadian Mining and Energy Co.). The offspring of the marriage of Eldorado Nuclear and the Saskatchewan Mining Devlopment Corp., Cameco is the world’s largest uranium producer, churning out about 15 million lb per year. Key Lake, the largest uranium mine in the world, is 67%-owned, whereas Rabbit Lake, Eldorado’s facility near Wollaston Lake, is fully owned by the company.

Although both mines host reserves sufficent for production into the 1990s, the future of Cameco rests with Cigar Lake. Hosting reserves of 385 million lb of uranium oxide in ore grading 14%, the orebody is the largest and highest grade in the world. In order to have supply ready for the 1990s, Cameco and partners Cogema Canada (32.62%), Idemitsu Uranium Exploration Canada (12.87%), Corona Grand (3.75%) and Korea Electric Power (2%), have started a $50-million underground evaluation program. A shaft is being sunk to a depth of 1,670 ft, which will facilitate test mining of a portion of the rich deposit. This program is scheduled for completion sometime in 1990. Mill construction could begin by 1992 with full production beginning in the following year.

Denison Mines, the dethroned king of Canadian uranium mining, has not quit the metal. Last year, the company purchased a 60% interest in the Midwest deposit for $12 million. Located near the eastern fringe of the Athabasca Basin, Midwest hosts reserves of 57 million lb of uranium oxide in 2.1 million tons grading 1.3% uranium oxide per ton. Denison is planning a $17-million underground exploration program this year, which will provide more information about metallurgy and ground conditions of the deposit. The acquisition gives Denison, better known for its Ontario mines near Elliot Lake, its first exposure to high-grade Saskatchewan reserves.

Rio Algom is also expanding its uranium interests, following its $28.5- million (US) purchase of all the uranium assets held by Kerr McGee in Wyoming. Development of Canada’s first uranium mine in the Arctic is also being timed to coincide with the mid-1990s. Owned by Urangesellschaft Canada (UG), Kiggavik is west of the Inuit hamlet of Baker Lake. Reserves, which are amenable to open-pit mining, total 37.2 million lb of uranium oxide in a deposit grading 0.6% uranium oxide per ton. Ug has started a feasibility study and is also seeking a development partner for the proposed $200-million mine.

All these developments, which were initiated in the past 15 months, underscore the growing belief among uranium producers that their world is slowly changing for the better. The deals and acquisitions have been quiet affairs garnering little attention. As most of the players are foreign firms and government agencies, investor interest has also been minimal, especially during the recent gold boom. The result is that the current uranium “mini-boom” has bypassed the juniors.