By: Nghiinomenwa Erastus
By the end of October 2021, the average international uranium spot price increased by 12% to US$33,56 per pound, however it was still not adequate for local miners to make a profit or sufficient to revive the “under-care” mines.
During the same period, the country sold, via exports, some N$7,7 billion worth of uranium mostly to China.
This is according to the analysis of the Bank of Namibia included in its Quarterly Bulletin for the third quarter of 2021, released in December- together with Namibia Statistics Agency trade data.
The analysis by the central bank evaluated whether Namibia had benefited from the recent surge in commodity prices by evaluating the contributions to growth in nominal export receipts relative to shares of growth contributions.
The recovery in global demand during the first 10 months of 2021 has resulted in a recovery in international commodity prices, while specifically, higher prices were recorded in zinc, gold and to a lower extent uranium.
The central bank assessment revealed that despite this gain in prices of various commodities including uranium, the gains were not felt back from where they were extracted from.
“Namibia’s gain from the recent surge in commodity prices was offset by the strengthening of the exchange rate which led to low export volumes particularly for uranium and gold,” said the bank.
The case for uranium is quite interesting and somehow puzzling.
By the end of the third quarter the country had six mines, two that were operating and four under care.
However, the current spot price for uranium is not beneficial for many producers, unless they are owned by Chinese investors.
The two of the uranium miners in the country that are owned by Chinese shareholders (vertical integration) are extracting and selling back home through supply contracts.
“The two uranium mines currently in operation continued to benefit from contractual prices that remained above the prevailing spot prices,” wrote the bank.
At the US$33,56/pound spot price the central bank said those supplying to their parent company in China through fixed contracts were at an advantage as their supplying contractual prices were above the spot price
“At this level, the spot price was significantly below the subsidized average contract prices that the two local mines are getting from the foreign shareholders,” the bank wrote.
Despite this, the central bank noted that the two miners just managed to cover their production, and no profit was recorded.
“Thus, the difference between the spot and contract prices has largely allowed the currently operating mines to break even and has not been associated with profitability,’’.
This has diminished corporate profit taxes from uranium operators, for the 10 months.
By the end of the third quarter last year, supply contract prices were around US$42/pound.
According to the Bank of Namibia, uranium production is not low cost and the average operating costs at the uranium mines has also exceeded the spot price in recent years.
This has been a key factor behind some of the mines remaining under care and maintenance in Namibia.
Furthermore, most of the domestic uranium production is sold to China due to the vertical integration of local mines in the structures of the parent companies that have nuclear reactors.
China’s demand for uranium is strategic in nature and mainly focuses on security of supply.
The rise in spot prices was largely underpinned by binge buying of uranium in the spot market by developers and investment funds, particularly Sprott Physical Uranium Trust that began trading on the Toronto stock exchange during July 2021.
In addition, the demand for nuclear energy as a clean and efficient power source has increased and that has pushed up the prices.
Extraction and Performance
Mining is not profitable, but the Chinese subsidiaries are extracting and sending back home, where the yellow cake is useful.
For 2021 the NSA trading statistics shows that by the end of October last year, the country had extracted and exported uranium valued around N$7,7 billion.
This is almost worth the country’s development budget.
Uranium was also the other top performing mineral commodity in the first half of 2020, with spot price increasing to US$34/lb in June due to supply disruptions induced by Covid-19 at the Cigar Lake mine in Canada, and a three-month production cut from Kazakhstan.
The latest performance review for the operating uranium mines are for only 2020, as prepared by the Chamber of Mines- showing that none of them paid corporate tax for that year.
Swakop Uranium/Husab, one of the world’s biggest mines, had extracted 3 893 tons of uranium oxide in 2020, with a N$6,98 billion turnover and incurring losses of N$2,36 billion.
The more than 40 years old Rossing Mine has extracted 2,489 tons of uranium oxide in 2020, with a turnover of N$4,42 billion and making a profit of N$443,2 million.
The government is a shareholder in the two mines, however, for 2020 no dividends were declared either by the two miners.
Since the extracted uranium is shipped to the countries that have a plan for it, the companies paid N$28,2 million in export levies in 2020.
The Future Prospects
Looking ten years ahead from October 2021, the long-term uranium prices could increase to around US$43/pound, as projected by the central bank.
However, “it is still not enough for the mines that are currently under care and maintenance to return to operation”.
While long-term uranium prices closely mirrored the developments in the spot prices in the past, uranium prices are expected to trend upwards as energy firms are set to phase down coal usage.
In addition, China plans to build up to 150 new nuclear reactors over the next 15 years, while Japan plans to put 30 reactors back to activity to meet emission goals.
In this regard, the central bank highlighted that Namibia is well positioned to benefit from sustained higher prices.
Namibia has about four uranium mines that are currently under care and maintenance, namely the Orano’s Trekkopje Mine, Paladin’s Langer Heinrich, Etango mine and the Valencia Mine.
These mines will remain under care and maintenance until the uranium price recovers to anything above US$55/pound as these mines are very sensitive to changes in prices, due to their low-grade ore.