Outlook for uranium mining costs

INDUSTRIAL METALS, MINERALS
AND MINEABLE ENERGY
INVESTMENT SUMMIT 2010
LONDON CHAMBER OF COMMERCE & INDUSTRY ● WEDNESDAY, 30 NOV 2010
www.ObjectiveCapitalConferences.com
Outlook for uranium mining cost
Ian Hiscock – Consultant, CRU Strategies

© 2010 CRU International Limited confidential
What Price Supply?
An analysis of uranium costs
Ian Hiscock – CRU International

Presentation Outline
 Introduction - Why Study Costs
 Where Are We Now? - 2009 Costs and Cost Curve
 Where Are We Going? - The Outlook to 2030
 What Does It Mean? - Conclusions

Why is the cost of uranium
mining important, and to whom?
Producers Consumers
Mining Costs
Investors Regulators
Benchmarking
& Project
Valuation
Market
Opportunities
Contract
Negotiation
Optimise
Regulations &
Royalties
Future
Performance
Supply
Security
Anticipate
Opportunities
and
ProblemsLong-term
price indicator

Who are CRU?
 Leading research group focused on:
• Mining and metals
• Chemicals and fertilizers
 Independent, with a global presence
• Established in the late 1960s
• Privately owned to ensure its
independence
• Offices in London, Beijing, Santiago,
India, Australia and North America

CRU’s 2009 cost curve covers over
98% of primary uranium supply.
• Costs are estimated on a bottom-up basis
• Consistent approach between mines and across
macro-economic and consumable inputs
• Key input drivers (e.g. sulphuric acid price, wage
rates, exchange rates) are provided by dedicated in-
house analysts and economists

Costs are assessed at four different levels, offering
insight into industry behaviour over different time
horizons
Site costs:
Labour, fuel, power,
consumables, etc.
Business costs:
Site costs +
realisations costs (i.e.
sales & marketing,
transportation)
Corporate costs:
Business costs +
corporate overhead +
remediation costs
Economic costs:
Corporate costs +
capital charge
CRU’s Value-Based Costing (VBC) methodology:
Benchmarking
Long run
investment
decisions, long
run price
Measure free
cash flow
Business efficiency

Breakdown of uranium supply in 2009
Uranium supply, by source type and by country
Primary Supply
Secondary Supply 18,079 tonnes of U3O8 equivalent:
 Recycled or reprocessed material, either from
surplus nuclear weapons or used fuel
Drawdown of stockpiles and inventories
59,857 tonnes of U3O8 equivalent:
 Material produced at mining operations
Data: CRU Analysis

New low-cost ISL supply and lower input
prices drive average costs down to $28.51/lb
 Average economic cost down -14.1%
 More low-cost supply in 2009
• An additional 4,636 tonnes U3O8 from ramp-ups at Kazak ISL
operations.
• 6 out of the 10 lowest cost mines are in Kazakhstan
• McArthur River increased production by 1,169 tonnes U3O8
 Wages and consumable costs fall in 2009

Cost curve is still relatively flat with a sharp
step tail.
Economic Cost Curve 2009
0 10 20 30 40 50 60
NominalUS$/lbofU3O8
Cumulative Production ('000 tonnes U3O8)
Data: CRU Analysis. Note: The cost curve covers 98% of world primary production in 2009.
(This includes 1.3 k tonnes from China, India and Pakistan, which is treated as zero-cost)

Kazakhstan is expected to be the
dominant producer to 2020
0
5
10
15
20
25
30
35
40
'000tonnesofU3O8
2009 2014 2020 2030

Strong growth potential for Kazakh supply,
but significant challenges and risks.
Sulphur Burner
(under construction)
P2O5 production
Smelter
Uranium Mine
 Output could double within 10 years
 Geology – the Key cost advantage
 Cost structure is more varied
 Sulphuric Acid consumption high
 Skilled labour shortages
 Infrastructure bottlenecks
$39.70
2009 2014 2020 2030
NominalUS$/tonne
Sulphuric Acid Costs
Black Sea Benchmark Estimated costatmine gate

Most of the world’s primary uranium was
found within 30 years of WW2…
Total amount of exploration expenditures and uranium resources found (in
primary deposits): 1940-2010
PrimaryUraniumFound(ktU3O8)
Olympic Dam (Cu-U-Au deposit) found in 1975 – contains 2517 kt U3O8
ExplorationExpenditures(2010$M)
Data: Expenditures derived from OECD Red Book and MEG, MinEx Consulting and
CRU Analysis
Note: Based on all primary uranium deposits >0.5 kt U3O8. Includes adjustment for
deposits with no reported discovery year
860 kt

…and uranium exploration spending has
dropped over the last two years
Uranium spot price versus total expenditure on uranium exploration: 1940-2010
UraniumPrice(2010$/lbU3O8)
Data: Expenditures derived from OECD Red Book 2009 and MEG, MinEx
Consulting and CRU Analysis
ExplorationExpenditures(2010$M)

On average, the next generation of projects
have lower grades than current operating mines
0.1
1
10
100
1000
0.1 1 10 100 1000 10000
Closed Mine
Operating Mine
Development
Feasibility
Exploration
Stalled
Pre-Mined Resource (mt ore)
Grade(kgU3O8/t)
Data: MinEx Consulting and CRU Analysis

In 2020, macro-economic cost pressures slow down.
New supply at both ends of the cost curve...
Economic Cost Curve 2020
0 20 40 60 80 100 120
NominalUS$/lbofU3O8
Cumulative Production ('000 tonnes U3O8)

…“next generation” projects will make their mark;
steeper curve, and clear cost step change by 2030.
0% 20% 40% 60% 80% 100%
Real(2010)US$/lbofU3O8
U3O8 ProductionPercentile
2009 2014 2020 2030

Conclusions
More low cost supply in the pipeline – Cigar
Lake, Kazakhstan .....but

Conclusions
 More low cost supply
Post 2020 significantly higher costs, due
to..

Conclusions
 More low cost supply in the pipeline
 Post 2020 significantly higher costs
Higher cost new entrants not rising input
costs

Conclusions
 More low cost supply in the pipeline
 Post 2020 significantly higher cost
 Higher cost new entrants not rising input costs
Price will need to rise to incentivise
exploration spending and investment in
new higher cost mines

Conclusions
 More low cost supply in the
 Higher cost new entrants not rising input costs
 Price will need to rise to incentivise exploration spending
and investment
Demand growth and delays to major
projects likely to lead to greater price
volatility

Conclusions
 More low cost supply in the
 Higher cost new entrants not rising input costs have the
greatest impact on the cost curve
 Price will need to rise to incentivise exploration spending
and investment
 Greater price volatility

Thank you for listening

Contact Details
CRU contacts for further information:
In London
Philip Macoun, Principal Consultant, CRU Strategies
(+44 20 7903 2200 * philip.macoun@crugroup.com
Ian Hiscock, Consultant, CRU Strategies
(+44 20 7903 2244 * ian.hiscock@crugroup.com
In the USA
Irv Adler, VP, Business Development, North America, CRU
(+1 260 918 3643 * irv.adler@crugroup.com
In Sydney
Philip Sewell, Business Development Manager, Australasia, CRU
(+61 2 9387 8842 * philip.sewell@crugroup.com
In Perth
Allan Trench, Regional Director, Australasia, CRU
(+61 (0)43 709 2466 * allan.trench@crugroup.com
Website: www.crugroup.com

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