MANAGEMENT COMMENTARY
By Mr. Wallace M. Mays, President and Chief Operating Officer, World Wide Minerals Ltd.
October 1, 1998
Wallace M. Mays - President and COO of World Wide Minerals Ltd. of Toronto Canada, and a member of the Uranium Institute Working Group that prepared the Institute's latest supply and demand analysis in the market report entitled 'The Global Nuclear Fuel Market - Supply and Demand 1998-2020'- had the following comments about the recent articles in the Mining Journal of September 11 and 18, 1998, entitled respectively 'Uranium' and 'Uranium Producers Under Pressure'.
"While I certainly agree that uranium producers are under pressure - as we always have been - I believe a more careful analysis of the supply and demand report from the UI will demonstrate that under all 'reasonable' scenarios, low-cost uranium producers will still need to expand production to fill a large gap between supply and demand, even considering the scenario of large annual deliveries of secondary source uranium. Throughout my 25-year history of uranium mining, my experience has been that the industry has always had the potential to be oversupplied if production from higher-cost mines is considered; however, in preparing its report, the UI is constrained in making any differentiation based on mining costs and uranium prices, for anti-trust reasons".
"The Uranium Institute correctly identifies the significance of secondary uranium sources in its report. Pertinent
points in the report that have not been properly presented in the Mining Journal article are:
1. Current production supplies only 58% of reactor demand.
2. Western world commercial inventories are close to the minimum level required for reliability of supply.
3. Russian HEU annual feed deliveries are limited by law and economics, with uncertainties about future deliveries.
4. USEC and DOE uranium sources are constrained by the agreement between the US and Russia, and by the US DOE requirement to not disrupt the uranium market.
5. New production from new mining projects is required for all scenarios (high, low and reference) put forward in the UI report. Demand is satisfied only if a significant number of new mines are put into production.
6. Not all mines presently planned and used in the study are economically competitive under any scenario.
High-cost mines will probably never produce - only those mines that have low costs will supply the marketplace.
7. As for nuclear power demand, the nuclear option is economically competitive with other energy sources, but not in all regions.
8. The Kyoto Conference accords cannot be met in the US or Asia using existing technology without including nuclear power.
9. If appropriate economic benefits are provided for greenhouse gas emission reductions, nuclear is the more economical option competitive with any form of fossil fuel power generation.
10. The slowdown in Southeast Asia has limited impact on the demand for nuclear power as there are no nuclear power plants in the area.
11. The nuclear power growth in China, Korea and Japan is unlikely to be affected, unless Japan fails to correct its economic problems within the next few years, since nuclear power plants are planned over a long time frame and are not subject to temporary economic disruptions, especially in Asia where a long-term business perspective prevails."
In conclusion, the reference case put forward in the UI report is probably a lot closer to what might happen, in my opinion, in that considerable new production will be required, even with very substantial secondary supplies being available. The question for the investment community, is, as always, Are the company's mines
cost competitive with the lower-cost sector of the industry?" |
