THE ECONOMICS OF MINING AND EXPORTING URANIUM

The Committee's terms of reference did not expressly embrace the economics of uranium mining for Australia. This aspect, however, has not been entirely excluded from the inquiry.

In the first instance, expansion of the present mines and potential development of new mines is based on a view that there is a strong likelihood that demand for uranium, not least in Asia, will support further mining in Australia.

Secondly, a financially viable uranium mining industry is important in ensuring that the high standards - environmental as well as health and safety - are fully and properly met.

Thirdly, the danger of diversion of nuclear materials to unacceptable purposes especially of a military character is substantially minimised so long as supply of uranium approximates the level of demand for uranium for such purposes as electricity generation.

There is thus a strong security as well as environmental interest in the financial viability and relative stability of the uranium market.

Opinions vary about the prospects of the uranium market, governments and producers generally being more optimistic than those with reservations about the usefulness of nuclear energy. Appendix 1.4 contains an extract from an Industry Commission report of 1991 summarising estimates of future demand. Appendix 1.5 includes a summary of expectations contained in submissions to the Committee.

A recent analysis by the Australian Bureau of Agricultural and Resource Economics (ABARE) is illustrative of a more confident view of the international market. According to the Bureau:

Demand from Australia's current customers in Asia is continuing to grow. And France is a newly expanding market for Australia. Further, demand for additional mine supply of uranium is increasing in response to the sustained drawdown of excess civilian inventories around the world since the mid-1980s.

The outlook for industry expansion in Australia is positive. With uranium mining proposals now considered on their merits, it is feasible that by early next decade Australian exports of uranium could be as high as 17,000 tonnes U3 08 (over three times current exports), yielding export revenue of $828 million (in 1996-97 terms). (Daniel Stubbs and Paul Graham, "Australia in Future Uranium Markets", ABARE Conference Paper 97.6, 24 February 1997, 2)

In its analysis of markets the ABARE view is that:

Although Australia's uranium exports are expected to increase, the main markets are not expected to change significantly. Currently Australia's largest uranium export market is Japan. In 1995-96, Japan purchased 37 per cent of Australia's uranium. Other important uranium markets for Australia include the United States (18 per cent), South Korea (11 per cent), the United Kingdom (9 per cent), Spain (7.5 per cent), France (7 per cent) and Sweden (6 per cent). (Ibid., 3)

ABARE believe that demand for uranium can be estimated "with reasonable accuracy" because it is a function of -

the number and types of reactors to be commissioned during the forecast period. Utilities' plans in the medium term are reasonably firm and substantial planning lead times mean electricity production over the medium term will take place at known levels. Slow growth is anticipated in the net world stock of nuclear reactors and, therefore, in world uranium demand. Total generating capacity is projected to increase from 350 gigawatts in 1996 to 380 gigawatts in 2002. As a result, uranium demand is expected to increase from 73,100 tonnes U3 08 in 1996 to around 78,200 tonnes U3 08 in 2002. (Ibid., 4)

In forecasting increasing demand for uranium, ABARE have taken account of the usefulness of nuclear energy in reducing greenhouse gas emissions.

On the other hand, ABARE point to "community concerns about nuclear energy's perceived risks and cost disadvantages." Inability so far to find a permanent means of disposing of nuclear wastes is a major impediment. In a telling observation, ABARE state:

The US government is closer than any other to establishing a permanent nuclear waste repository, but even in that country many experts in the nuclear fuel industry do not expect to have a site ready before 2010 - 55 years after the first nuclear power station was commissioned in the United States. (Ibid., 4-5)

An illustration of a less optimistic view is provided by Friends of the Earth Sydney. It contended, claiming to be in agreement with analysis of ERA prior to its acquisition of the Jabiluka lease, that

. . . further expansion of the Australian uranium industry will lead to price-cutting between Australian producers in an attempt to maintain market share and will depress the uranium market globally . . . the development of further uranium mines in Australia before the year 2000 or 2005 would be economically unjustifiable. (S 40, Part 2, 29)

Part of the FoE Sydney analysis derives from a view that reactor demand "cannot expand very much in the short-medium term, and which we expect ultimately to contract" (S 40, Part 2, 29).

For both governments and miners alike the world uranium market will be of continuing interest. The more optimistic scenarios may not come to pass but it is equally unlikely that the more pessimistic will.

The Committee have thus concluded, on the basis of available evidence, that the uranium mining and milling industry will be sufficiently viable financially to be able to meet its environmental, health and safety, and security responsibilities fully. (Senator Margetts dissented.)

One factor of some importance influencing supply of uranium is availability of reactor grade uranium derived from weapons-grade uranium previously held by the former Soviet Union. Former weapons-grade uranium from US sources, although of lesser quality, may also influence the market.

The Department of Primary Industries and Energy have advised the Committee that this is unlikely to occur before excess civilian uranium inventories have depleted to minimum levels.

According to the Department:

In any event, forecasts by market analysts of a substantial shortfall in uranium supplies from around year 2000 have taken account of potential supplies from blended down H[ighly] E[nriched] U[ranium]. These forecasts assume an important role for supplies from this source but clearly identify they will be insufficient to meet the predicted shortfalls unless complemented by new mine output from around 2000.

The Uranium Institute (a London based nuclear industry association) earlier this month released its latest uranium market report which analysed uranium supply/demand to 2015, including the impact of current plans for diluting ex military HEU for civil use. The Institute warned of a looming uranium supply shortage, pointing out that only if the lowest demand projection is compared with the highest supply scenario (including HEU) will production be sufficient to meet demand. Otherwise, demand may exceed present planned supply by up to 17,700 t of U3 O8 pa.

(Department of Primary Industries and Energy, background brief on Military Highly Enriched Uranium, 9/96, 3)