Random Thoughts on a Wayward Bus

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A Nuclear Reaction to Global Power
Uranium price spike spurs mining in the Four Corners

http://www.cobizmag.com/articles.asp?id=1670
By Amelia Patterson

Inspecting his equipment at the mouth of the Pandora Mine on the southern slopes of the La Sal Mountains, Jick Taylor is double checking everything while he waits for the final approval from the Mining Safety and Health Administration to begin mining for uranium.

It is late November, and in the three months it has taken to fully permit the southeastern Utah mine, the price for uranium has gone up from $48 a pound in August of 2006 to more than $63 a pound. By late April, the price has risen to $113 a pound.

Uranium prices have soared in recent months due to a worldwide 80-million-pound production deficit of uranium used for nuclear reactors. For the last three decades, uranium supplies to fuel nuclear reactors have been filled with stockpiled uranium and reprocessed nuclear weapons left over from the Cold War. As energy demands continue to grow around the world, most notably in China and India, the demand for nuclear power has grown.

Growing concern over climate change also has increased the appeal for nuclear power as an alternative energy source that doesn’t produce greenhouse gases associated with global warming.

In 2006, according to the Nuclear Energy Institute, 30 new nuclear plants were under construction to add to the already 435 plants worldwide. In the United States, 27 nuclear power plants are planned along with a $1.5 billion uranium enrichment plant in New Mexico.

If the uranium market holds steady, Taylor, in his early 30s, would be part of a new wave of uranium miners learning the trade. Uranium mining in this part of the country has been dead for nearly 20 years, and few miners remain in the region to teach the next generation.

Uranium mines in the Colorado Plateau are now back in business with prices that support the cost and overhead of mining low-grade ore, which hasn’t been profitable for more than 20 years. The bulk of the uranium mining district in the U.S. is in the heart of the Four Corners region and concentrated in southwestern Colorado and southeastern Utah.

Communities in this region have boomed and busted at the whim of uranium prices in the past, and this latest boom may be no different. Uravan, Nucla and Naturita, on the western edge of Colorado, have all felt the glory of booms and the devastation of busts. Uravan, a former Union Carbide company town, is completely leveled now, save one historic building, and is part of a Department of Energy reclamation site.

The center of the current uranium boom straddles the Colorado-Utah border and contains several active mines and the only operating uranium mill in the country. The area covers about 9,000 square miles in four counties in Colorado, including Mesa, Montrose, San Miguel and Dolores counties and roughly three counties in Utah, including Grand, San Juan and Garfield counties.

Taylor’s hair is sprinkled with gray, and his face is weathered from a lifetime spent in the red rock desert of the Colorado Plateau in Moab, Utah. He is a partner of Reliance Resources with Michael Shumway, another Moab local, and together they are one of several independent contractors extracting uranium ore from mines owned by Canadian companies.

Shumway, a veteran miner, survived the bust of uranium mining when all the mines and mills closed in the entire region in the mid-1980s and into the 1990s. He shifted gears and started an earth-moving company, taking advantage of reclamation projects that 40 years of uranium mining produced.

The mining has scarred the landscape of the Colorado Plateau and left a web of roads, now frequented by off-road enthusiasts and mountain bikers, that provide access to scenery that has inspired four national parks and just as many national monuments.

"It is kind of funny," Shumway says. "I have guys out there cleaning up the Atlas tailings pile in Moab, and I have guys who just finished reclaiming the Rio Algom site, and now I am out here digging it out again." Standing in front of the Pandora Mine, Shumway adds, "This is my love right here."

When the uranium industry hit rock bottom in the 1980s, most of the American mining companies moved on or went bankrupt. Annual claim fees proved costly for numerous nonproducing claims. Those that struggled to hold onto mine claims paired them down to areas where they had proven reserves and waited for the market to recover.

At least 10 small- to medium-sized Canadian mining companies have swarmed the Four Corners region to buy up old uranium mines and mills, hoping to fill a supply gap for the world’s nuclear fuel industry.

Shumway and Taylor are now mining for Denison Mines (TSX: DML) based in Vancouver, B.C., which merged with International Uranium Corp. in early December 2006. Denison is gearing up to develop 11 mines between Utah and Colorado and owns the White Mesa Mill in Blanding, one of only two mills fully licensed to operate in the United States.
"With uranium close to $60 a pound (back in November 2006), it is back to being a viable commodity after you factor in all your overhead costs," says Jim Fisher, general mine superintendent for Denison Mines.

Small independent companies are contracting with the larger Canadian mine companies, which now own the mines, to extract the uranium ore. John Reams, owner of Tomcat Mining Corp., was contracted by Denison to work several mines in the Sunday Mine Complex just south of his home in Naturita, Colo.

"A small miner used to be able to afford to mine independently," Reams says. "But now with all the new regulations governing safety, equipment and environmental considerations, it is too expensive just to get started."

Most of the Canadian companies that hold mining claims in Colorado and Utah are exploring for uranium and re-examining old mines. Only a select few are in the position to actually mine. Denison and Energy Fuels (TSX: EFR) out of Toronto are the only companies fully permitted and licensed to mine in Colorado and Utah.

After the uranium ore is mined, it is then trucked to a mill where the uranium is separated from the parent rock. Mills charge extra for ore not originating in their own mines. The uranium then is sent to an enrichment plant to eventually become fuel for nuclear reactors.

Denison owns the White Mesa Mill in Blanding, Utah, the only U.S. mill in operation. Energy Fuels is in the planning stages of building a mill in Paradox Valley in eastern Colorado near Naturita. SXR Uranium One (TSX: SXR), based in Toronto, is in the process of acquiring two mothballed mills, the Shootaring Mill near the Henry Mountains and the Sweetwater Mill in Wyoming owned by Kennecott Uranium, thus positioning itself to collect ore from around the region.

Strathmore Minerals (TSX: STM), based in British Columbia, is determined to build a mill in Grants, N.M., regardless of considerable opposition from the Navajo Nation. The only other licensed mill in the country is in Cañon City, Colo., owned by the Cotter Co., from Colorado. Cotter briefly mined in 2005 near Naturita, but due to the 300-mile trip to its mill and high fuel prices along with technical problems with its mill, it shut down the mines and put the mill on standby.

The market forces that are driving up the price of uranium are global. Thirty countries are operating 435 nuclear reactors, and 30 nuclear plants were under construction as of January, according to the Nuclear Energy Institute, an industry organization.

In the United States, 27 reactors are planned, and a $1.5 billion uranium enrichment plant in New Mexico has been licensed to Louisiana Energy Services, a subsidiary of U.K.-based Urenco. The nation’s 104 current reactors are operating on dwindling stock piles, and the world consumption of uranium is 180 million pounds, where production levels are only at 100 million pounds.

The Energy Information Administration estimates U.S. nuclear reactors will need half a billion pounds of uranium over the next 10 years, during which 328 million pounds of required fuel will go unfilled. Prices for uranium have tripled since January 2006, when uranium was selling for $37 a pound; it now sells for more than $113 a pound.

"The easy uranium has been mined. Now that prices are higher it makes sense to go after the more expensive lower grade ore," said Bill Chenoweth, a retired geologist from Grand Junction, who worked for the Atomic Energy Commission in the 1950s. The ore in the Colorado Plateau ranges from 0.1 percent to 0.4 percent U3O8 (uranium).

The Canadian giant Cameco (TSX: CDN) is the world’s leading producer of uranium. One of its most promising mines flooded in October, which contributed to the rise in uranium prices.

"The Cigar Lake flood is driving up the prices of uranium, and this is a mine that has ore grades exceeding 23 percent uranium," Chenoweth said. "Another factor is that stockpiles for nuclear reactors are dropping."

The Cigar Lake mine flood is one of the reasons market analysts at Merrill Lynch raised uranium price forecasts from averaging $58 a pound in 2007 to averaging $100 a pound.
The higher price is fueling the renewed interest in mining in Colorado, Utah and the rest of the Colorado Plateau by smaller intermediate uranium companies from Canada.

"I believe the Canadians are the No. 1 producers of uranium, and so they are tooled up to go," said Carol Dahl, professor of economics and business at Colorado School of Mines in Golden.

Chenoweth agrees: "It is easy to promote uranium mining in Canada."

Uranium prospectors made millions in the 1950s on the Colorado Plateau off of the first government-sponsored mineral rush in history. For national security reasons, the U.S. government created an exclusive domestic market for uranium and guaranteed prices in order to build its nuclear weapons program. The boom was on, and companies big and small tunneled and mined the radioactive ore and put tiny remote towns on the map overnight such as Moab, Utah; Uravan, Colo.; and Grants, N.M.

By the 1980s, the market for uranium either for nuclear weapons or fuel for nuclear reactors in the U.S. had crashed. Nuclear reactor accidents in the U.S. and in Russia soured public support for nuclear power. Government stockpiles for nuclear weapons programs were full, and the prospect of reprocessing nuclear weapons for reactor fuel all but killed the uranium mining in the U.S.

Mines were abandoned, processing mills were shut down and many communities lost populations and slipped into depression. Moab remade itself as a tourist town and promotes the nearby national parks rather than uranium mining.

Shumway is going to hold onto his construction business, and Taylor will continue operating his business building prefabricated wooden trusses for homes. If uranium busts again they will have something else to sustain them.

The New West economy is not spread evenly across the region, but in many areas of western Colorado the Old West economy of resource extraction is reasserting its former prominence in the form of natural gas and oil shale development and now uranium mining.
The World Nuclear Association estimates that the United States has 7 percent of the world’s known recoverable uranium; Australia has nearly 25 percent. While 80 percent of uranium is imported into the United States, domestic production is on the rise with a 78 percent increase in production levels by the end of 2006 from 2005 levels.

In April 2007, the New York Mercantile Exchange and Ux Consulting Co. signed a 10-year agreement to introduce uranium to the futures market. Ux Consulting tracks the uranium prices for nuclear industry. Ux Consulting stated in April that establishing futures contracts should make it easier for new mines to get financing, thus reducing uranium production shortages.

Tom Pool, the president of International Nuclear Inc., speculates that the current stratospheric price of uranium will only last about two to three years as world production of uranium ramps up in response to current prices.

"Prices will decline significantly after that, maybe to about $50 a pound," Pool says. "But even at those prices it will continue to be a strong uranium industry for about a decade. After all, nuclear power will be needed to keep the lights on."

As the demand for nuclear power continues to grow, prices for uranium will continue to support the mining of low-grade ore on the Colorado Plateau. With the country’s only operating mill in eastern Utah, the fully developed mines in western Colorado and in eastern Utah should be the first to benefit from the soaring uranium prices.