Identifier
Created
Classification
Origin
07NIAMEY641
2007-05-08 16:33:00
CONFIDENTIAL
Embassy Niamey
Cable title:  

NIGER PROFITS FROM URANIUM IN REVITALIZED MARKET

Tags:  EINV EMIN ENRG ETRD PGOV PREL NG BBSR BTIO 
pdf how-to read a cable
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ZNY CCCCC ZZH
P 081633Z MAY 07
FM AMEMBASSY NIAMEY
TO RUEHC/SECSTATE WASHDC PRIORITY 3455
INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE
RUEHZK/ECOWAS COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0167
RUEHMD/AMEMBASSY MADRID 0244
RUEHFR/AMEMBASSY PARIS 0524
RUEHIN/AIT TAIPEI 0050
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF INTERIOR WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHUNV/USMISSION UNVIE VIENNA 0015
C O N F I D E N T I A L SECTION 01 OF 05 NIAMEY 000641 

SIPDIS

SIPDIS

E.O. 12958: DECL: 05/04/2017
TAGS: EINV EMIN ENRG ETRD PGOV PREL NG BBSR BTIO
ECON, EIND, ETTC
SUBJECT: NIGER PROFITS FROM URANIUM IN REVITALIZED MARKET

REF: A. NIAMEY 610 (NOTAL)

B. 06 NIAMEY 303 (NOTAL)

C. WINSTEAD-HARKENRIDER E-MAIL OF 4/27/07

D. 06 NIAMEY 1055 (NOTAL)

NIAMEY 00000641 001.2 OF 005


Classified By: POLITICAL OFFICER ZACH HARKENRIDER FOR REASONS 1.4 (B&C)

-------
SUMMARY
-------

C O N F I D E N T I A L SECTION 01 OF 05 NIAMEY 000641

SIPDIS

SIPDIS

E.O. 12958: DECL: 05/04/2017
TAGS: EINV EMIN ENRG ETRD PGOV PREL NG BBSR BTIO
ECON, EIND, ETTC
SUBJECT: NIGER PROFITS FROM URANIUM IN REVITALIZED MARKET

REF: A. NIAMEY 610 (NOTAL)

B. 06 NIAMEY 303 (NOTAL)

C. WINSTEAD-HARKENRIDER E-MAIL OF 4/27/07

D. 06 NIAMEY 1055 (NOTAL)

NIAMEY 00000641 001.2 OF 005


Classified By: POLITICAL OFFICER ZACH HARKENRIDER FOR REASONS 1.4 (B&C)

--------------
SUMMARY
--------------


1. (C) For the first time since 1983, the Government of Niger
(GON) will exercise its right to purchase and sell some of
the country's uranium production this year. Moreover, it may
sell its share (anticipated to be 300 tons this year and as
much as 1,045 tons/year from 2008) to an American power
generation firm - Excelon - which appears interested in
buying as much as the GON has to sell. GON officials
anticipate a ten-year contract with Excelon, and continued
high market prices for uranium until 2015 or 2017.
Thirty-year high prices and Excelon's expressed interest in
purchasing ore have led the GON to take on a more active role
in the sale of its most valuable export. It has also led it
to trade some of the security offered by traditional price
floor arrangements for more flexibility - as embodied in the
GON's new contract clause that requires mining companies in
all fields to sell for "the highest possible price." By
seeking higher prices and awarding new exploration permits to
Canadian and Chinese companies, the GON has to some extent
sidelined the French company Areva, the major shareholder in
Niger's uranium mining companies and the largest purchaser of
Nigerien uranium. China's CNUC (Chinese National Uranium

Corporation) will begin mining uranium in Niger as early as
2009, producing an estimated 700 tons/year. END SUMMARY

--------------
WHAT IS WHAT AND WHO IS WHO
IN THE NIGER URANIUM SECTOR?
--------------



2. (C) ONAREM - the "Office National des Ressources Minieres"
- is the division of the Ministry of Mines and Energy
responsible for managing the GON's shares in local extractive
industries, regulating the mining industry, and negotiating
with purchasers on behalf of the government. Its current goal
is to ensure that the world's least developed country gets
top dollar for its exploitable resources. Its Director
General (DG),Illiassou Abdourhamane, is a former mining
engineer who has run the office for the last nine years. His
immediate superior is the Secretary General (SG) of the
Ministry of Mines and Energy, another mining engineer named
Amadou Abdoul Razack. Both men are "old uranium hands," and
offered a combination of technical expertise and historical
knowledge in meetings with Emboffs. Poloff interviewed the SG
on April 23 and, (with ECONOFF),the DG on May 3. Both men
gave frank, detailed assessments of the structure and future
of Niger's uranium mining industry.


3. (SBU) Currently, only two companies mine and process
uranium in Niger: SOMAIR (Societe des Mines de l'Air) and
COMINAK (Compagnie Miniere de l'Acouta). Both have always
been joint ventures between the GON and several traditional
purchasers of Nigerien uranium, a relationship reflected in
their ownership structure:

SOMAIR shareholders
--------------
ONAREM (GON) - 36.6 percent
AREVA (France) - 63.4 percent

COMINAK shareholders
--------------
ONAREM (GON) - 31 percent
AREVA (France) - 34 percent
OURD (Japan) - 25 percent
ENUSA (Spain) - 10 percent


4. (SBU) Each shareholder has the right to purchase a
percentage of production equal to its percentage of shares.

NIAMEY 00000641 002.2 OF 005


Thus, the GON has always had the right to purchase (and
re-sell, as Niger produces no nuclear power) 36.6 percent of
SOMAIR's and 31 percent of COMINAK's annual production. The
GON did so from the 1970s until 1983, when a combination of
low market prices and concerns about its international legal
responsibilities prompted it to stop. During that period, the
GON's customers included Dutch, Belgian, German, Libyan,
Iraqi and Pakistani purchasers. With production declining
from 4,000 tons in 1981 to just 700 tons in 1983, even the
foreign shareholders failed to exploit their full quotas,
although they purchased ore at above-market prices negotiated
annually with SOMAIR and COMINAK in order to maintain the
mining companies in which they had invested. NOTE: In the
case of COMINAK, a more rigid contract compelled the French
not only to set a price, but to purchase two-thirds of the
company's annual production. END NOTE.


5. (C) The security of the negotiated price-floor (which, in
1981, was twenty percent higher than the global market
price),kept SOMAIR and COMINAK afloat and the GON satisfied,
even as the mining town of Arlit lost the expat community and
facilities that made it a "little Paris" in the 1970s (reftel
A). The payoff for consortium purchasers like Areva came when
prices rose, and the GON agreed to prices below market
levels. Today, the GON is on the verge of re-entering the
market, and at least temporarily abandoning the security of
negotiated price floors for the allure of short-term profit
maximization. The days of trading profit on crests for
security in troughs are over - at least for now.


6. (C) COMINAK and SOMAIR are in the final year of a
three-year contract (2005-7) that sets the price per kilo at
27,300 CFA ($56.75),as compared to the current market price
of about $275 per kilo. The DG noted that in the 2004
negotiations the mining companies got a ten-percent price
hike in exchange for the three year contract. He also told
Emboffs that the GON (through ONAREM) would play a direct
role in this year's negotiations for the first time since

1983. Past practice had consisted of COMINAK and SOMAIR
executives negotiating an annual price each December with the
purchasers; those executives looked out for the GON/ONAREM's
interests as a fiduciary would for a shareholder, and
produced results that satisfied the GON during the period of
low prices. Given that the GON had not been a purchaser since
1983, it did not assume a large role in the negotiations.
ONAREM will now deal directly with the consortium of
traditional buyers. DG Abdourhamane, who will be the
principal GON negotiator during this summer's contract
renewal talks in Paris, is preparing for a tough slog. There
is evidence that Areva (which traditionally also negotiates
on behalf of Spanish shareholder ENUSA) is upset with Niger's
more assertive policy.


7. (C) Youssouf Mazou, head of the GON's Office of Geological
and Mineral Research, runs the Ministry division that awards
exploration permits. In conversations with Econ assistant,
Mazou noted that Areva wanted to have at least fifty percent
of the new uranium exploration licenses, but the GON refused.
Areva was not made aware that the GON had signed the first
new exploration license with a Canadian company until the
deal was concluded. Mazou also claimed that Areva's
resistance to the GON's demands for a higher price
contributed to his office's decision to issue exploration
permits to new Canadian and Chinese ventures. Thus hedged,
Mazou indicated, the GON would be better positioned to
negotiate with Areva.


8. (C) DG Abdourhamane was unsure whether negotiations will
yield a one-year contract or longer arrangement, but seemed
indifferent. He stressed that the GON's recent shift from
long term security to short term profit maximization was a
function of higher prices. In 2004, ONAREM began to insert a
profit maximizing clause into its agreements with mining
companies, for the first time explicitly requiring them to
sell their product at the highest possible price.


9. (C) COMMENT: The insertion of the "highest possible price"
clause into agreements with gold and uranium mining firms
signals Niger's shift, in this era of high prices, from
long-term security to short-term profit maximization, but not

NIAMEY 00000641 003.2 OF 005


all of the impulses behind this are economic. The shift in
emphasis may have much to do with the current political mood
in Niamey. Niger President Mamadou Tandja peppers his public
remarks with claims that Niger is on the road to better days
thanks to rising prices for its ores, and new discoveries
thereof. The GON was embarrassed by the food crisis of 2005,
and by its dead-last ranking on the UNDP Human Development
Index in 2005 and 2006. Vocal optimism about the durability
and transformational effect of high metal prices is a
response to this, and that political position dictates
actions and mood at the working level. While experienced
technocrats like the DG and SG know that optimism about high
long-term prices may prove ill-founded, the political class
(which includes Minister of Mines and Energy Mohamed
Abdoulayi, a political appointee thought to have little
substantive knowledge of his portfolio (reftel B)) may have
set a tone they are compelled to parrot. If so, DG
Abdourhamane played the part convincingly. END COMMENT

--------------
HOW DOES NIGER PROFIT
FROM THE SALE OF URANIUM?
--------------


10. (C) Whether viable in the long-term or not, Niger's move
toward short-term profit maximization will focus on the
principal streams of revenue by which the country profits
from the sale of its most marketable commodity. Niger profits
from uranium mining in four ways: The GON levies a per-ton
tax on the quantity of uranium exported each year. As prices
rise, so too will production and thus tax revenue. There
appear to be no plans afoot to change this tax rate. The GON
also levies a corporate income tax; again, revenue will rise
even without a rate increase. Through ONAREM, the GON
receives dividend payments on its stock and royalties on
mined uranium, which derive from the sale price. After this
year's negotiations with the consortium buyers produce a
markedly higher sale price, royalties will rise and
SOMAIR/COMINAK stock will yield higher dividends. Now, there
is the added promise of the direct sale of thirty-some
percent of mined ore to a new American buyer.

--------------
ENTER EXCELON
--------------


11. (C) For the first time since the early 1980s, Niger has a
potential buyer outside of the traditional consortium (Areva,
OURD, and ENUSA). In a March 26 letter to Emboffs, Excelon
President and Chief Nuclear Officer Christopher M. Crane
announced his company's "interest in entering into an
agreement with the Republic of Niger to meet a portion of our
uranium supply needs." Noting that Excelon "is the largest
buyer of uranium in the United States," Crane looked forward
to "working with our government and the government of Niger
to obtain the necessary regulatory approvals and ensure that
the agreement is consistent with all relevant domestic and
international standards."


12. (C) DG Abdourhamane stressed ONAREM's concern with
legality and standards in his discussion with Emboffs. ONAREM
hasn't sold ore since 1983, and wants to be sure that it does
it right. He noted that ONAREM would require documentary
proof from purchasers and their governments that uranium
purchases will be for civil nuclear power generation only;
that the ore will be used by the purchaser and not
transferred to a third party; and, that the purchaser's
country of origin is party to all relevant international
treaties.


13. (C) DG Abdourhamane discussed a meeting in Toronto with
executives of Excelon and a subsequent phone conversation in
which the principles of a purchasing agreement were laid out.
According to Abdourhamane, Excelon is interested in entering
into a long-term (i.e. 10 year) agreement to purchase "as
much ore as Niger can sell" to them. Abdourhamane noted that
an Excelon team would be in Niger from May 15 to continue
discussions.

--------------

NIAMEY 00000641 004.3 OF 005


RISING PRICES, RISING PRODUCTION
--------------


14. (C) Poloff asked DG Abdourhamane and SG Amadou about
Niger's production. Both anticipated greater quantities for
sale, for three reasons: the expiration and re-negotiation of
COMINAK's quota system; expanded production at current mines;
and, new Areva and Chinese-owned mines coming on line.


15. (C) Speaking to aggregate production levels, Abdourhamane
anticipated annual production of 4,860 tons by 2011, compared
to just 3,750 tons today.

Current Production Anticipated 2011 Production
-------------- --------------

SOMAIR 1,800 tons 2,200 tons
COMINAK 1,950 tons 1,960 tons
Chinese none 700 tons


16. (C) COMINAK would increase production, though marginally.
It is limited by high capital costs for replacing old
equipment and maintaining its underground mine, which is
yielding less than it used to. In the 1970s, COMINAK could
produce up to 2,000 tons per annum; now, 1,950 is considered
a more reasonable maximum. SOMAIR's production will rise
thanks to a new mine near Imourarene in northern Niger.
China's CNUC will open its mine at Teguidda-n-Tessoumt by
2010, adding another 700 tons to Niger's total. Neither DG
nor SG mentioned the Canadian mining company Northwest
Mineral Venture, which has prospecting rights near Ingal
(reftel D). That company too may start to produce in the long
term. Other companies with exploration rights in Niger are:
SEMAFO, North Atlantic, Trendfield, Ura Mines, and Ira Mines
(all apparently Canadian).


17. (C) All of this amounts to added flexibility for ONAREM,
which has a 30 percent option on the production of the new
Imourarene mines. Noting that 2007 was too far along for
ONAREM to obtain much more than 300 tons of an estimated
1,800 tons of SOMAIR production, Abdourhamane argued that
Niger would claim more of its quota next year, when it would
purchase and re-sell 300 to 400 tons of COMINAK ore and 645
tons of SOMAIR ore. He predicted that ONAREM would stick to
that level for the near future, enabling it to sell between
945 and 1,045 tons a year to interested buyers such as
Excelon. In theory, by 2011, ONAREM would be able to sell
another 120 tons - 30 percent of the anticipated Imourarene
yield.

--------------
POOR COUNTRY, RICH SECTOR:
WHAT URANIUM CAN DO FOR NIGER
--------------


18. (C) Uranium's promise has always been compelling in the
world's least-developed country, and the past informs
Nigeriens' reactions to today's rising prices. The uranium
boom of 1975-1981 helped Niger to recover from a period of
drought and famine (1968-73). GDP growth from 1975 to 1981
averaged 12 percent a year, while per capita GDP rose from
$120 in 1974 to $300 in 1980. Judicious use of uranium
revenues by the military regime of General Seyni Kountche led
to a building boom in Niamey, and road, school, irrigation
project, and health clinic construction across the country.
Nigeriens look on the Kountche period as one of
good-governance, social stability, and uranium-based economic
growth -- often contrasting it with today's reality. DG
Abdourhamane noted that the Ministry of Mines and Energy, one
of Niamey's most striking buildings, was built by ONAREM in
1981 at a cost of over $4 million. The present dilapidated
condition of GON office buildings is one visible index of how
far the country has fallen since. Abdourhamane expressed hope
that uranium revenues would again help Nigeriens reach their
development goals. Coming after a food crisis in 2004-5 and
two successive years of dead-last rankings on the UNDP Human
Development index, today's "boom" inspires hope in many.

--------------
COMMENT

NIAMEY 00000641 005.4 OF 005


--------------


19. (C) Popular excitement aside, the GON needs to balance
the allure of higher short term profits with long term price
stability. Unlike in the past, the GON now seeks to do that
by diversifying production in the sector. Where "hedging" in
the 1970s meant trading profit for price floors with a
limited number of traditional buyers, in today's more
flexible global market the GON is able to hedge by inviting a
diverse array of investors into the sector.


20. (C) The GON's profit maximizing behavior, the likelihood
of sustained high prices over the next decade, and interest
from new Canadian and Chinese investors augers well for the
future. Providing revenue is well spent, Niger may again
realize significant development gains. There are already
ideas on the table. One new plan calls for sharing 15% of
mining royalties (for all minerals) with the local
communities of the mining zone. This would answer local
commune governments' critical need for enhanced revenue, and
Tuareg claims of unfair revenue sharing by southern-dominated
GON. ONAREM anticipates negotiations yielding new contracts
with purchasers by September. It remains to be seen how much
more revenue Niger obtains, where, and with what degree of
transparency and efficacy it uses it.


21. (C) The prospect of purchasing by an American firm is
significant. Bi-lateral trade is limited, and no major
American companies do business with Niger. The "Nigerien
street" would likely react positively to news of an American
buyer. For a better informed audience within the GON, the
prospect of a deal with Excelon - coming on the heals of new
relationships with Canadian and Chinese exploration firms -
confirms that Niger will profit from unprecedented
flexibility and choice in a reinvigorated global market. END
COMMENT
ALLEN