Kazakh miners press on with uranium plans despite Japan nuclear crisis

By bne IntelliNews April 28, 2011

Clare Nuttall in Astana -

Kazatomprom and its international partners are pressing on with plans to boost uranium production despite the disaster at Japan's Fukushima nuclear power plant.

Speaking at the Minex conference in Astana on April 5-7, Kazatomprom's president, Vladimir Shkolnik, said the crisis at the Fukushima plant, which was severely damaged by the magnitude-9 earthquake and subsequent tsunami that hit Japan on March 11, would not greatly influence the Kazakh state atomic company's plans.

Kazakhstan has benefited from the global nuclear renaissance in recent years. High oil prices and fears about the future availability of fossil fuels have encouraged a growing number of countries to turn back to nuclear energy. Kazakhstan shot ahead of both Australia and Canada to become the world's largest producer of uranium in 2009 - a year ahead of schedule - and raised production further to 17,803 tonnes in 2010. A further hike in output to 19,600 tonnes is planned for 2011.

The situation at Fukushima is still critical. On April 12, the Japanese government raised the situation to the maximum severity level on the International Nuclear and Radiological Event Scale, putting it on a par with the 1986 Chernobyl disaster. Even so, Kazatomprom's Shkolnik appeared confident that uranium demand would remain strong. "All our contracts, including long-term contracts, are still operational - no one has said they will revoke their contracts with us," Shkolnik told delegates. "The banks are somewhat less keen to invest into developing new uranium deposits than before, because they have lowered their demand and price expectations. However, that is not relevant to Kazakhstan. When banks become less willing to invest into new projects, this will push the uranium price up, so don't worry about our country."

A report from VTB Capital points out that Kazatomprom's direct exposure to Japan is less than 8% tonnage-wise, and the company has no direct contracts with Tepco, the operator of the Fukushima plant, or any other Japanese utility - all its contracts are with uranium trader Itochu. In addition, even the loss of all six reactors at Fukushima would reduce Japan's nuclear capacity by just 10%, and global demand by under 1.5%. "We do not think Kazatomprom is going to be hurt by the tragic events in Japan, the uncertainty on the uranium spot market that has ensued or the potentially weaker outlook for global industry volumes going forward," says the VTB report "Kazatomprom: Any Impact from Uranium Market Jitters?"

The uranium spot price plummeted from over $70 per pound to just $49 per pound immediately after the Fukushima disaster. However, the market has shown a rapid recovery, rebounding to over $60 by the end of March. Even at the low of $49 per pound, prices were well above the average price during 2009. VTB forecasts that uranium prices will remain well above long-term historic averages.

While Kazatomprom is highly secretive about its production costs, they are understood to be relatively low, allowing the company to remain profitable even during 2002 to 2005, when prices were particularly depressed.

Still building

Meanwhile, the Kazakh government has also confirmed that it has no intention of dropping its plans to build the country's first nuclear power station. The plant will be constructed in the western Mangystau region, more than 1,000 kilometres from the area of high seismic risk in south-east Kazakhstan. However, speaking after the full scale of the Fukushima disaster emerged, Kazakh Deputy Industry and New Technologies Minister Duisenbai Turganov said that construction plans for the plant may be revised to put a greater emphasis on safety.

Other companies in Kazakhstan's uranium sector agree there is no case for abandoning their plans. Uranium One, an international mining company that has several joint ventures with Kazatomprom, forecasts that global demand for uranium will reach 300m pounds (around 115,000 metric tonnes) by 2020. "62 nuclear reactors under construction around the world - eight in Russia, seven in Korea, but only one in Japan. The real growth in nuclear power will come from Asia, with China, Russia and perhaps South Korea to account for most of demand," said the company's executive vice president for strategic affairs Fletcher Newton.

Jacques Peythieu, vice president of strategy and development at Areva Mining Business Group, which is also active in Kazakhstan, also said his firm doesn't expect a big change in the uranium market after Fukushima. Even so, Peythieu acknowledged that some countries may be more reluctant to invest in nuclear power after the disaster - there is a chance countries such as Germany, Switzerland and Sweden could abandon their investment plans. "However, the consequences in terms of demand are unclear, and I think that globally we have reason to be optimistic," Peythieu said. "For sure, the world will need electricity. We may see the market developing more slowly than expected, but numerous new projects will be needed."

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