Outlook for uranium mining costs

INDUSTRIAL METALS, MINERALS AND MINEABLE ENERGYINVESTMENT SUMMIT 2010

LONDON CHAMBER OF COMMERCE & INDUSTRY ● WEDNESDAY, 30 NOV 2010

www.ObjectiveCapitalConferences.com

Outlook for uranium mining costIan Hiscock – Consultant, CRU Strategies

© 2010 CRU International Limited confidential

What Price Supply?An analysis of uranium costs

Ian Hiscock – CRU International


Presentation Outline

Introduction - Why Study Costs

Where Are We Now? - 2009 Costs and Cost Curve

Where Are We Going? - The Outlook to 2030

What Does It Mean? - Conclusions








Why is the cost of uranium mining important, and to whom?

Producers Consumers

Mining CostsInvestors Regulators

Benchmarking & Project Valuation

Market Opportunities

ContractNegotiation

Optimise Regulations &

RoyaltiesFuture

Performance

Supply Security

AnticipateOpportunities

andProblemsLong-term

price indicator


Who are CRU?

Leading research group focused on:

• Mining and metals

• Chemicals and fertilizers

Independent, with a global presence

• Established in the late 1960s

• Privately owned to ensure its independence

• Offices in London, Beijing, Santiago, India, Australia and North America


CRU’s 2009 cost curve covers over 98% of primary uranium supply.

• Costs are estimated on a bottom-up basis

• Consistent approach between mines and across macro-economic and consumable inputs

• Key input drivers (e.g. sulphuric acid price, wage rates, exchange rates) are provided by dedicated in-house analysts and economists


Costs are assessed at four different levels, offering insight into industry behaviour over different time horizons

Site costs:Labour, fuel, power, consumables, etc.

Business costs:Site costs +

realisations costs (i.e. sales & marketing,

transportation)

Corporate costs:Business costs +

corporate overhead + remediation costs

Economic costs:Corporate costs +

capital charge

CRU’s Value-Based Costing (VBC) methodology:

Benchmarking

Long run investment

decisions, long run price

Measure free cash flow

Business efficiency








Breakdown of uranium supply in 2009Uranium supply, by source type and by country

Primary Supply

Secondary Supply 18,079 tonnes of U3O8 equivalent: Recycled or reprocessed material, either

from surplus nuclear weapons or used fuel Drawdown of stockpiles and inventories

59,857 tonnes of U3O8 equivalent: Material produced at mining operations

Data: CRU Analysis


New low-cost ISL supply and lower input prices drive average costs down to $28.51/lb

Average economic cost down -14.1%

More low-cost supply in 2009

• An additional 4,636 tonnes U3O8 from ramp-ups at Kazak ISL operations.

• 6 out of the 10 lowest cost mines are in Kazakhstan

• McArthur River increased production by 1,169 tonnes U3O8

Wages and consumable costs fall in 2009


Cost curve is still relatively flat with a sharp step tail. Economic Cost Curve 2009

0 10 20 30 40 50 60

Nom

inal

US$

/lb

of U

3O8

Cumulative Production ('000 tonnes U3O8)

Data: CRU Analysis. Note: The cost curve covers 98% of world primary production in 2009. (This includes 1.3 k tonnes from China, India and Pakistan, which is treated as zero-cost)








Kazakhstan is expected to be the dominant producer to 2020

0

5

10

15

20

25

30

35

40

'000

tonn

es o

f U3O

8

2009 2014 2020 2030


Strong growth potential for Kazakh supply, but significant challenges and risks.

Sulphur Burner (under construction)P2O5 production

Smelter

Uranium Mine

Output could double within 10 years Geology – the Key cost advantage Cost structure is more varied Sulphuric Acid consumption high Skilled labour shortages Infrastructure bottlenecks

$39.70 2009 2014 2020 2030

No

min

al U

S$

/to

nn

e

Sulphuric Acid Costs

Black Sea Benchmark Estimated cost at mine gate


Most of the world’s primary uranium was found within 30 years of WW2…Total amount of exploration expenditures and uranium resources found (in primary deposits): 1940-2010

Prim

ary

Ura

niu

m F

ou

nd

(kt

U3O

8)

Olympic Dam (Cu-U-Au deposit) found in 1975 – contains 2517 kt U3O8

Exp

lora

tion

Exp

en

ditu

res

(20

10

$M

)

Data: Expenditures derived from OECD Red Book and MEG, MinEx Consulting and CRU AnalysisNote: Based on all primary uranium deposits >0.5 kt U3O8. Includes adjustment for deposits with no reported discovery year

860 kt


…and uranium exploration spending has dropped over the last two yearsUranium spot price versus total expenditure on uranium exploration: 1940-2010

Ura

niu

m P

rice

(2

01

0$

/ lb

U3O

8)

Data: Expenditures derived from OECD Red Book 2009 and MEG, MinEx Consulting and CRU Analysis

Exp

lora

tion

Exp

en

ditu

res

(20

10

$M

)


On average, the next generation of projects have lower grades than current operating mines

0.1 1 10 100 1000 100000.1

1

10

100

1000

Closed MineOperating MineDevelopmentFeasibilityExplorationStalled

Pre-Mined Resource (mt ore)

Gra

de (

kg U

3O8/

t)

Data: MinEx Consulting and CRU Analysis


In 2020, macro-economic cost pressures slow down. New supply at both ends of the cost curve... Economic Cost Curve 2020

0 20 40 60 80 100 120

Nom

inal

US$

/lb

of U

3O8

Cumulative Production ('000 tonnes U3O8)


…“next generation” projects will make their mark; steeper curve, and clear cost step change by 2030.

0% 20% 40% 60% 80% 100%

Real

(201

0) U

S$/l

b of

U3O

8

U3O8 Production Percentile

2009 2014 2020 2030








Conclusions

More low cost supply in the pipeline – Cigar Lake, Kazakhstan .....but


Conclusions

More low cost supply

Post 2020 significantly higher costs, due to..


Conclusions

More low cost supply in the pipeline

Post 2020 significantly higher costs

Higher cost new entrants not rising input costs


Conclusions

More low cost supply in the pipeline

Post 2020 significantly higher cost


Price will need to rise to incentivise exploration spending and investment in new higher cost mines


Conclusions

More low cost supply in the



Price will need to rise to incentivise exploration spending and investment

Demand growth and delays to major projects likely to lead to greater price volatility


Conclusions

More low cost supply in the


Higher cost new entrants not rising input costs have the greatest impact on the cost curve

Price will need to rise to incentivise exploration spending and investment

Greater price volatility


Thank you for listening


Contact Details

CRU contacts for further information:

In LondonPhilip Macoun, Principal Consultant, CRU Strategies(+44 20 7903 2200 * [email protected] Hiscock, Consultant, CRU Strategies(+44 20 7903 2244 * [email protected]

In the USAIrv Adler, VP, Business Development, North America, CRU(+1 260 918 3643 * [email protected]

In SydneyPhilip Sewell, Business Development Manager, Australasia, CRU (+61 2 9387 8842 * [email protected]

In PerthAllan Trench, Regional Director, Australasia, CRU (+61 (0)43 709 2466 * [email protected]: www.crugroup.com

mailto:[email protected]






Economy & Finance

Outlook for uranium mining costs