The Global Uranium Market –C ti i t E lContinuing to Evolve
Dustin J. GarrowE ti G l M M k tiExecutive General Manager - Marketing
Paladin Energy Ltd.
U2009 – Global Uranium SymposiumKeystone, ColoradoKeystone, Colorado
May 11, 2009
Uranium Market Factors / Trends
Increasing Uranium Demand
• Existing Nuclear Fleet Expanding
• New Build Programs
Lagging Production Response
Production Cost Pressures
Uranium Price Trend
• Near-Term (spot) VolatilityNear Term (spot) Volatility
• Long-Term Price Strengthening
Investment Analysts’ Perspectives
“Global nuclear utilities and producers, including Chinese players, are moving aggressively to secure future uranium supply. The main
d i i h i h d i f f l h (i h f driver is heightened uncertainty of future supply growth (in the face of expected strong Chinese demand)”
Macquarie Research – Commodities (24 April 2009)
“We believe that the uranium market is in the early stages of a bull market rally that could last three to four years. We think the
primary drivers of the bull market will be:primary drivers of the bull market will be:1) Looming supply/demand shortfall that will drive pricing significantly
higher;2) Asian utility buying is driving up both uranium asset and equity ) y y g g p q y
evaluations; and,3) We believe consolidation will occur in the uranium sector that will
result in higher equity valuations.”RBC Capital Markets (29 April 2009)
Paladin’s Uranium Production Centers and Projects
Advanced Exploration Project
Pre Development Project
Commissioning of MineReserves of 25MlbResources of 35Mlb
jResources of 23Mlb Resource - 85Mlb
pro uranium
pro uranium
Re-activate EvaluationManyingee Resource of 24Mlb
New ProjectAngela/Pamela Deposits
pro uranium
Operating Mine plus expansion
Reserves of 65.8Mlb
DepositsHistorical ~28Mlb
P l di 100%Attributable Pounds
Resources of 164MlbPaladin 42.06% Paladin 50% (plus 81.99% control of Summit –
in its 100% owned properties) Paladin 50% JV Cameco
Paladin 100% Paladin 85%
Questions?• STAGE I - at above design production • STAGE II - expansion being commissioned
• STAGE III - expansion in design phase
• Large Resource Upgrade
Langer Heinrich Mountain
O PitOpen Pits
Plant Tailings
Kayelekera Uranium Project
Paladin’s Uranium Production Outlook
9.310
6.6
8.4
7
8
9Actual Forecast
3 354
5
6MlbU3O8
1.71
3.35
1
2
3
4
0
1
2007/08 2008/09 2009/10 2010/11 2011/12
Langer Heinrich Production Kayelekera Production
Nuclear Power Growth and Uranium Demand
The Nuclear Reactor Fleet (1965 to 2050)
800 Future growth ibilit(2007)
- From stagnation to full revival
600
700possibility
(2006)
(2007)
400
500
acto
rs
DRAMATIC TURNAROUND
200
300
00?
?
Rea
Dying/stagnating industry. (di l tl k i f d
100
200
WNA 01 forecast (ref case)WNA 05 forecast (ref case)Reactor build up 1965-2005
?(dismal outlook reinforced over 20 years)
01970 1980 1990 2000 2010 2020 2030 2040 2050
Second Commercial Nuclear Power Era
Driven by China India Russia (rather thanDriven by China, India, Russia (rather than United States, Japan and Western Europe)
National nuclear power programs driven by escalating electricity needs and energy security
Governments responding to growing concerns regarding climate change
World Nuclear Capacity (May 2009)
Current Nuclear Capacity
Under Construction Planned
Reactors / (Capacity) 436 (372,220 MWe) 45 (39,948 MWe) 112 (131,145 MWe)
170Mlb U3O8 required (WNA Estimate)
Countries 30 13 25
China 11 (8,587 Mwe) 12 (12,100 MWe) 33 (35,320 MWe)
Russia 31 (21,743 Mwe) 8 (5,980 MWe) 8 (9,360 MWe)
India 17 (3,779 Mwe) 6 (2,976 MWe) 10 (9,760 MWe)
South Korea 20 (17,716 Mwe) 5 (5,350 MWe) 7 (9,450 Mwe)
Japan 53 (46 236 Mwe) 2 (2 285 Mwe) 13 (17 915 MWe)Japan 53 (46,236 Mwe) 2 (2,285 Mwe) 13 (17,915 MWe)
United States 104 (101,119 Mwe) 1 (1,180 Mwe) 11 (13,800 MWe)
In additionProposed Reactors (May 09): 276 Reactors (299,405 Mwe) in 36 countries
In addition:
China
Current Program: 11 reactors (8,587 Mwe)12 reactors (12 100 Mwe) under construction12 reactors (12,100 Mwe) under construction
Planned Program: 75,000 Mwe by 2020120,000-130,000 Mwe by 2032
• Current generation mix: 80% coal / 18% hydro / 2% nuclear• National goal of no less than 5% nuclear by 2020• National economic stimulus – US$585 billion focused on
infrastructure including power generation• Increased uranium market activity (spot purchases; long-term c eased u a u a et act ty (spot pu c ases; o g te
contracting; production sector investment)
United States
• Formal applications for Combined Construction/Operating licenses (COL) filed with the USNRC
NRG Energy & South Texas Project (2 reactors; 2700 MWe)– NRG Energy & South Texas Project (2 reactors; 2700 MWe)
– TVA & NuStart Energy (2 reactors; 2000 MWe)
– Dominion (1 reactor; 1000 MWe)
– Duke (2 reactors; 2000 MWe)Duke (2 reactors; 2000 MWe)
– NuStart Energy (1 reactor; 1000 Mwe)
– SCE&G (2 reactors; 2000 Mwe)
– Progress Energy (2 reactors; 2000 Mwe) g gy ( ; )
– Georgia Power (2 reactors; 2000 Mwe)
– UNISTAR (1 reactor; 1000 Mwe)
– AmerenUE (1 reactor; 1000 Mwe)
• USNRC expects total of 23 COL applications (34 reactors) to be filed during 2007-2010
• U.S. utilities filed applications for USDOE loan guarantees totaling pp g gUS$188 billion (21 reactors at 14 sites; 28,800 Mwe)
Uranium Supply
Secondary Uranium Supplies
• U.S.-Russia Highly Enriched Uranium Program• Generates 24 0 million pounds U O /year• Generates 24.0 million pounds U3O8/year• Terminates 2013• Will not be extended
•USDOE Excess Uranium Inventory Management Plan
• Released 16 December 2008• Inventory totals 58,931 MTU (153.2 million pounds U3O8)• Various forms including HEU (further processing required)• Market introduction at annual rate equal to no more than 10% of U.S. reactor requirements (5.0 million pounds U3O8/year)• Program extends post-2040
Uranium Production
Global production industry devastated by depressed prices extending over prolonged periodprices extending over prolonged period
Major new production centers taking longer and costing more than originally plannedcosting more than originally planned
Junior companies will provide minimal relief in the near to intermediate termnear-to-intermediate term
Access to financial resources diminishing for j i iunproven junior companies
Need for additional “Tier-1” producers
Building a New Mining Supply Industry2007 to 2030 and beyond
20M250
2007
30M
20M---------------------------------------------------------------------------------------------
--------------------------------------------------220
250+
180M
72M
160M220
180M108
40M108M 90M
Paladin Energy Ltd
Huge discovery/development effort required(ADDITIONAL NEW DISCOVERIES ESSENTIAL TO MEET 2030/40 REPLACEMENT/GROWTH REQUIREMENTS)
25-30
Global Uranium Production2000-2008
Uranium Production(2003 vs. 2008)
Project Development Delays
• Cigar Lake development delay due to mine flooding (October 2006 / August 2008); Production start had been as early as 2007 but/ August 2008); Production start had been as early as 2007 but now 2013/2014 at earliest
• Olympic Dam expansion delay (start date pushed back from 2012/2013 2016)2012/2013 to at least 2016)
• Midwest Mine (McClean Lake) shelved (expected start-up had been 2010)
• Equinox Minerals deferred uranium recovery plant at Lumwana Project (Zambia) (planned 2.0 million pounds U3O8/year beginning 2010)2010)
• Kazatomprom lowered previous 2009 production forecast for Kazakhstan by 14%
Uranium Production Supply Sector / Costs
Limited understanding of uranium production sectorp
o Nuclear Utilities
o Investment Community
o Junior U Companies
Development of uranium projects which were already well-defined (“low hanging fruit”)
P d ti t filProduction cost profileo Recent estimates of total uranium
production costs at or above US$60-p70/pound U3O8
Uranium Prices and Market Factors
UU33OO88 Spot Volumes, 1990Spot Volumes, 1990--20082008
45© UxCMillion pounds U3O8e
30
35
40Investors/
Funds
20
25
30
5
10
15
090 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Source: Uranium Market Outlook, January 2009 Preliminary
Participants – Spot / Near-Term Market(Delivery Within 6-12 Months)
Nuclear UtilitiesUranium Producers
(e.g. Cameco)
Fuel Cycle Companies(conversion/enrichment/fuel fabrication)(conversion/enrichment/fuel fabrication)
Trading Companies (e.g. Nukem, Itochu)
Investment Funds (public) (e.g. UPC, Nufcor Uranium)
Investment Funds (private) (p )(e.g. American Fuel Resources)
National Governments (“Sovereign Stockpiling”)( Sovereign Stockpiling )
Utility LT UUtility LT U33OO88 Contract VolumeContract Volume19901990--20082008
275© UxCMillion lbs U3O8e
200
225
250 Non-U.S. CompletedU.S. Completed
125
150
175
50
75
100
0
25
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08Contracting Yearg
Source: Uranium Market Outlook, January 2009 Preliminary
Participants – Term Market(Multi-Year Deliveries Beginning 2 - 3 Years Forward)
Nuclear UtilitiesUranium Producers
(e.g. Tier – 1 (Cameco) / Tier – 2 (Paladin))
Fuel Cycle CompaniesFuel Cycle Companies(conversion/enrichment/fuel fabrication)
Trading Companies / Intermediaries (e.g. Nukem, Itochu)
Investment Funds (private) (e.g. American Fuel Resources)( g )
Uranium Price Trend2006 - Present
Commercial Terms and Conditions
• Delivery Periods• Annual Delivery Volumes• Delivery Locations (book transfer; physical)• Origin (project specific; country specific; “open”)• Origin (project-specific; country-specific; open )• Force Majeure• Interruption of Supply• Payment Terms (including currency)• Pricing Mechanisms
Term Contract Pricing Mechanisms
• Base Price, subject to adjustment (economic indices; fixed l t )escalator)
• Fixed (defined) Price• Market Price at time of delivery
• Spot and/or Long-Term Price• Floor (minimum) Price• Ceiling (maximum) PriceCeiling (maximum) Price
• Hybrid / Combination Price• Base/Fixed Price component
M k t P i t• Market Price component• Negotiated Price (annual?)
Investment in Uranium Production
• 1970’s – 1980’sS f b A f d h A o Significant investment by Asia-Pacific, European and North American utilities
• Synatom – PowerTechChubu Electric Kazakhstan ISR• Chubu Electric – Kazakhstan ISR
• Tokyo Electric/Toshiba/BOJ - UraniumOne• Korea Electric Power – Denison Mines• CGNPG / CNNC – UraMin (Areva); Kazakhstan ISR• Mitsui – Honeymoon ISR (UraniumOne)• Sumitomo – Church Rock (Strathmore); Kazakhstan ISRSumitomo Church Rock (Strathmore); Kazakhstan ISR• Nuclear Power Corporation of India (NPCIL) - ??
Conclusions / Observations
