Uranium Mining Industry Gives Move ‘Mixed Reviews’
Kenneth Fletcher
WC Monitor
5/8/2015
In a move that is expected to impact funding for cleanup work at the Portsmouth site, the Department of Energy is reducing the amount of excess uranium it will transfer to contractors to help pay for cleanup activities and downblending programs. Under the latest uranium transfer Secretarial Determination, released late last week, DOE will transfer up to 2,100 metric tons of natural uranium in 2016, down from to the 2,705 metric tons allowed under the determination completed in May 2014. Beginning on June 30 this year, transfers supporting Portsmouth cleanup will be reduced from 600 metric tons per quarter to up to 400 metric tons per quarter. In 2016, up to 1,600 metric tons per year will support Portsmouth cleanup, while up to 500 metric tons will go to the HEU downblending program.
The transfers are used to help pay for cleanup work at the Portsmouth site, as well as a program to downblend highly-enriched uranium to low-enriched uranium. A determination by the Secretary of no “adverse material impact” on the domestic uranium industry is required before DOE can move ahead with any change in the level of the transfers. Notably, the increase in DOE’s 2014 determination above a previous guideline of no more than 10 percent of the domestic nuclear fuel market gained significant opposition from some in the uranium industry and some lawmakers and sparked a lawsuit from uranium conversion company ConverDyn. DOE subsequently opened the latest determination to public comment, which was taken into account before issuing the document on May 1.
Uranium Producers Still Concerned Over Predictability
The uranium mining industry has long opposed increasing DOE uranium transfers, citing negative impacts in a market that is already depressed, and the latest Secretarial determination gets “mixed reviews,” former Uranium Producers of America President Scott Melbye, of the Uranium Energy Corporation, told WC Monitor. “We are encouraged that the DOE is recognizing that they are having an impact, recognizing that the markets are tough right now and the last thing we need is to have more government inventory coming into the market,” he said. “But the thing that it lacks for us is the permanence or predictability of those levels going forward.”
The latest transfer level approved by DOE is nearly in line with a level previously proposed by the mining industry as acceptable. However, Melbye said that without a hard cap there is no guarantee that the Department won’t increase transfers, for example, after the ConverDyn lawsuit is resolved. “There’s nothing to stop DOE from changing it two months from now,” Melbye said. “There are still a lot of unanswered questions about transparency and how they come up with Secretarial Determinations. The light we’ve shed on it hasn’t been flattering for DOE.”
DOE Outlines Impacts of Transfers
The Department’s latest determination also included an analysis outlining the impacts of the new level of transfers on the industry. For the uranium mining industry, the transfers will suppress prices by about $2.70 per pound on average. “While this price effect will decrease producers’ revenues, the near-term impact will be smaller because most producers primarily sell on long-term contracts and therefore have limited exposure to price fluctuations,” the analysis states. For the conversion industry, transfers are expected to decrease the global spot price by about $0.70 per kilogram of uranium. The uranium enrichment industry could see a decrease in the price of separative work units of up to $5.40. DOE also said long-term contracts would help reduce impacts on that industry.
However, Melbye took issue with DOE’s characterization of the buffering effect of long-term contracts. “Anytime I find the government, particularly DOE, telling industry how things work—the spot market is critically important. Even if you have long-term contracts, sometimes they are indexed to the market price. It certainly influences the starting point for base prices in new contracts. Whether a producer is hedged or unhedged is none of the government’s business,” he said. He added: “That’s a real perverse argument and not a role the government should have in a market. We are happy to compete against all of the other U.S. producers and global producers, but not the U.S. market that doesn’t have the same drivers a commercial entity would.”
