How Will India's Nuclear Growth Affect Uranium Demand?

Energy Investing
ASX:TOE

Toro Energy CEO Vanessa Guthrie on what the Australia-India uranium trade deal could mean for Australia, India and uranium demand and prices.

Uranium market participants tend to focus on catalysts like reactor restarts in Japan and new builds in China, but the recent news that an Australian governmental committee supports the Australia-India uranium trade deal makes it clear that India is worth watching as well.
India plans to triple its nuclear capacity by 2024, from 5 gigawatts up to 17 gigawatts, and is aiming to have 25 percent of its electricity come from nuclear power by 2050. At present, the Southeast Asian nation has 21 nuclear reactors in operation and six under construction, as well as 22 planned and an estimated 35 proposed.
According to World Nuclear News, India is a major potential market for Australia’s uranium, but India’s status as a nuclear-armed country that has not signed the Nuclear Non-Proliferation Treaty (NPT) complicates the situation.
To gain a better understanding of what the Australia-India deal means and how India’s growing uranium demand could affect the global market, the Investing News Network caught up with Toro Energy (ASX:TOE) CEO Vanessa Guthrie. Guthrie not only has a long history of experience in the mining industry, but was also appointed this year as MP to the Australia-India Prime Ministers’ CEO Forum by former Prime Minister Tony Abbott. Her role is to help drive the economic relationship between Australia and India.

The Australia-India deal

The Joint Standing Committee on Treaties (JSCOT) is the Australian governmental committee that has expressed support for the Australia-India deal, and it did so via a report on the topic. But while the report is a step forward in the process, Guthrie said that it has no legislative or statutory power, meaning that the government isn’t required to comply with it. 
“I think it is also very important for us to keep in mind that the Australian government has no right to tell the Indian government how to run its country — there is that importance of sovereignty in this. So while the JSCOT report might recommend that the Indian government do certain things, it’s not necessarily for the Australian government to tell it to do that,” Guthrie said.
The JSCOT report was created by parliamentarians from various political parties, but also took public submissions from both pro-nuclear and anti-nuclear positions into consideration. “A lot of public input and expert advice went into it,” noted Guthrie.
While there is no expected timeline for the deal to go through, Guthrie said that Australia is working to get both the nuclear cooperation agreement and a free-trade agreement with India in place.
As mentioned, one thing that has complicated the situation for India is that has not signed the NPT. The NPT is an international treaty whose objective is to prevent the spread of nuclear weapons and weapons technology and to promote peace. Guthrie explained that when the treaty was signed in 1968, it recognized five countries as nuclear weapon states: the US, the UK, Russia, France and China — they are all permitted to both be members of the NPT and hold nuclear weapons. All other 191 NPT member states are not granted the same rights.
“There are five countries that are not signed to the NPT: India, Pakistan, North Korea, South Sudan and Israel,” she said. North Korea was once a signatory, but announced its withdrawal in 2003. Guthrie explained that India has challenged the treaty and has questioned why five countries are given preferential treatment. Still, India has a “no first strike” policy in place and has created relationships with countries like Canada and the US despite not being part of the NPT.
It’s not like India is a new entrant into the nuclear market in that sense. It has operating reactors and it has international relationships of supply with other countries,” she added.

Uranium in Australia

Australian Liberal-National MP Wyatt Roy told the Australian Broadcasting Corporation that the Australia-India deal could increase export revenues by $1.75 billion, almost doubling the size of Australia’s uranium mining industry; it would be especially lucrative for rural and remote areas. That’s important considering that Australia has been producing less and less uranium in recent years.
“Olympic Dam is continuing to produce and will continue to do so at its current rate, but it is not expected to expand. Beverley and Four Mile are producing, but their small production goes directly to the US because they are US owned. The Ranger mine is the only other producer and [it has just been] announced that Ranger 3 Deeps [will not be expanded], so it will cease production in 2018,” Guthrie explained, adding, “Australia’s production, if no new mines are brought on, will continue to decline, and that is where stimulating new demand out of India is very important for Australia.”
She said that the incentive price for new projects is around $70 per pound, a price not likely to be seen in the next few years. What’s more, it can take anywhere from five to 10 years to bring a uranium resource to market. Still, there are a handful of companies that have already worked through some of the process for their projects, with Toro Energy’s Wiluna project at the front of the troop.
“Wiluna is all set. Most of the other projects in Australia are a couple of years behind. It gives Toro and Wiluna a great advantage to have all environmental approvals in place,” Guthrie said. “Mulga Rock, which is owned by Vimy Resources (ASX:VMY), is in the queue after Wiluna, They are not yet approved and they haven’t done the technical studies to the maturity that we have, but they would be a potential supplier after Wiluna. Cameco (TSX:CCO,NYSE:CCJ) has the Kintyre project, which is approved, but they have put it on hold because it does not have sufficient resources to justify the capex or the economics. And then of course Cameco’s Yeelirrie, which is currently going through the approval process.”
There is also the matter of uranium bans put into place in different states and territories in Australia. Guthrie said that while the Northern Territory, South Australia and Western Australia are clearly open for business when it comes to mining, Queensland is not. Victoria and Tasmania also have bans in place, though neither has much uranium. When it comes to New South Wales, companies are allowed to explore for uranium, but mining it is banned.

India uranium demand

As India continues to increase its nuclear capacity, it has made clear that it wants to secure its uranium supply from three countries: Kazakhstan, Canada and Australia — currently the world’s three top uranium suppliers. India has also decided not to pursue any new domestic uranium projects as local residents are against uranium mining and it has limited funds to allocate to new mines.
In April, Cameco inked a deal with India’s Department of Atomic Energy, and will be supplying 7.1 million pounds of uranium concentrate to India through to 2020. A few months later, Kazakh uranium mining company KazAtomProm signed a contract to supply India with 5,000 tonnes of uranium over a four-year period. Guthrie said that when India decides where it wants to go for more uranium, it will likely come down to price negotiations and reliable supply.
All in all, at this point it’s difficult to say how new uranium demand from India may affect the uranium price. “What will hold back the impact on the prices is that there is significant inventory currently on hand due to the four years that Japan did not use its supply of uranium. What would help stimulate the process would be a drawdown on that inventory — as demand grows, the inventory will be drawn down, and that will help stimulate prices. That will then allow new production to be developed,” Guthrie said.
“In the current market, there isn’t an incentive price that would stimulate new production, so all of the current demand needs to be met from current production or current inventory,” she concluded.


 
Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article. 
Related reading:
Australia-India Uranium Deal Receives Conditional Approval
The Conversation (2)
andy garcia
andy garcia
13 May, 2016
boe was been short listed boss energy ? why
andy garcia
andy garcia
13 May, 2016
boe was been short listed boss energy ? why
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