URANIUM MINING IN NIGER: EXPLODING PRODUCTION

UNCLAS SECTION 01 OF 04 NIAMEY 000508 DEPT FOR AF/W, AF/RSA, EEB/ESC, AND EEB/CBA ACCRA ALSO FOR USAID/WA DAKAR ALSO FOR FCS DEPT PLS PASS TO USAID AFR/W DEPT PLS PASS TO USGS PARIS FOR AF WATCHER DOE FOR SPERL AND PERSON USDOC FOR ITA/DIEMOND SIPDIS SENSITIVE E.O. 12958: N/A TAGS: EMIN ECON EINV ENRG KCOR KNNP SENV NG SUBJECT: URANIUM MINING IN NIGER: EXPLODING PRODUCTION REF: NIAMEY 00371 Note: Not for Distribution on the Internet - Contains Business Proprietary Information ¶1. (SBU) Summary: On May 4, President Mamadou Tandja laid the foundation stone of a massive new uranium mining complex at Imouraren, Niger. The project will be developed by AREVA, the French nuclear giant, which is majority owned by the Government of France. Imouraren will be the second largest uranium mine in the world with a projected investment of 1.2 billion Euros (approximately 1.7 Billion USD; current exchange rate 1 USD = .719 EU) and production of 5,000 tons per year at completion. AREVA also operates the two existing uranium mining operations in Niger, which produced 3,000 metric tons, representing 43% of Niger's export income, in 2008. The Government of Niger (GON) has issued a large number of new uranium exploration permits in order to attract investors from other countries, but the Imouraren project ensures that AREVA will continue to dominate uranium exports from Niger for the foreseeable future. End summary. -------------- Recent Mania for Exploration and Development -------------- ¶2. (SBU) The Government of Niger has been promoting exploration activities actively in the mining sector since the mining law was updated in February 2006. Booming international prices attracted new mining exploration and investment around the world, and Niger wanted to diversify beyond AREVA. According to Mahaman Nomao Djika, a Deputy in the former National Assembly, Niger awarded 127 exploration permits for uranium and 27 exploration permits for other metals between June 2006 and December 2008. (Note: Mahaman's efforts to promote an audit and full accounting of all parties, including intermediaries who benefitted from this process, was subsequently voted down. End note.) The process of negotiation and the precise terms of these exploration agreements have not been made public, but the law establishes a three-year term for exploration, renewable for two further terms providing that the company investment in exploration activities meets specified levels. -------------- Who Are the New International Players? -------------- ¶3. (SBU) Among companies with active uranium exploration permits, Embassy Niamey has identified only one U.S.-based company: American Technologies Incorporated, based in Oak Ridge, TN, which has two permits immediately north of the Chinese operations at Azelik, but does not currently maintain an office or staff in Niger. American Technologies Incorporated has provided nuclear services to a wide range of American and international companies, and ATI Chairman Dr. Dinh Duc Huu, a Vietnamese-American nuclear scientist, is a senior advisor on nuclear energy to the Government of Vietnam. Other U.S. firms provide exploration services to companies with exploration permits, including a number of established "junior" mining companies based in Canada. (Note: The term "junior" refers to smaller exploration companies, frequently based in Canada, where the large and well established mining sector provides access to potential investors. End note.) ¶4. (SBU) The permit mania attracted other investors with more enthusiasm than mining expertise, and a number of exploration permits have already changed hands or been reassigned. The Chinese originally obtained a second exploration permit for Madaouela, a deposit near Arlit that originally had been evaluated by AREVA. (Note: AREVA has been conducting research and exploration in Niger for decades. Research information is supposed to be shared with the NIAMEY 00000508 002 OF 004 Ministry of Mines and Energy, but it has been reported that AREVA declined to share the research maps and information with the Chinese. End note.) The Madaouela permit subsequently was reassigned to Trendfield, a China-based company involved in mining negotiations; Trendfield exchanged the exploration rights for a 12% shareholding in GOVI EX, a private uranium exploration company headed by Govind Friedland, whose father has been involved in various global mining ventures for decades. GOVI Ex also exchanged a 12% shareholding for the uranium permits held by Semafo, and subsequently announced an investment by the Canadian mining giant Cameco, the world's largest uranium mining company, which retains the right to increase shareholding to up to 50%. These robust ties to larger and better financed companies make Govi-Ex the strongest player among the various exploration companies. ¶5. (SBU) Other players with uranium permits include companies from Canada, England, Russia, and India: -- Homeland Uranium of Canada, which is actively evaluating permits at Adelal, immediately west of Societes des Mines de L'Air (SOMAIR) and Compagnie Miniere de'Akouta (COMINAK),and at Asekra, west of Imouraren; -- Brighton Energy, a joint venture between Orezone and North Atlantic Resources, each of which contributed multiple permits. Both these companies appear to be focused at present on gold mining projects elsewhere in West Africa; -- Niger Uranium, a company registered in the British Virgin Islands, whose shareholders include Northwestern Mineral Ventures (30%),RAB Capital (17%) UrAmerica (4%),North Sound Capital (4%), Libra Advisors (4%) and Southern Rock Insurance Company (4%). Niger Uranium holds permits at Ingal, Irhazer, and Kamas 1, 2, 3 and 4; -- BVI registered Semmous Lion Mining, under the direction of Russians Sergey Matveev and Dmitry Bakaev, is said to have more than 10 exploration permits obtained with through Matveev's close connections to the President's office. Their original funding was from Russia; and -- Companies with ties to India include Mumbai-based Taurian Resources and Earthstone Group, founded by a non-resident Indian based in Indonesia. India's announced focus on nuclear power generation will translate into significant demand for uranium fuel, but it is not yet clear that either of these companies has the financial resources to develop its permits in Niger at this point. -------------- AREVA Dominates Current Production -------------- ¶6. (SBU) The Imouaren site was first discovered in 1966. Development was delayed until renewed interest in nuclear electricity generation dramatically increased the price of uranium. Prices, which peaked in June 2007 at over USD 130 per pound, have dropped considerably, but remain high. The GON granted AREVA an exploration license in ¶2006. The average ore grade at Imouraren is lower than at the two older operations, but total reserves are very large. AREVA plans to produce 3500 to 5,000 tons per year for over 35 years, which AREVA claims will make Niger the second largest uranium producer in the world. (Note: This calculation compares Niger's anticipated production in 2012 (8,000 tons) with current levels of production in other countries. Niger is currently the sixth largest producer, and is unlikely to surpass Canada (9,000 tons in 2008),Kazakhstan (8,500 tons in 2008),or Australia (8,400 tons in 2008). End note.) NIAMEY 00000508 003 OF 004 ¶7. (SBU) The French have been mining uranium in Niger since the Arlit open pit mine was opened in 1965 by SOMAIR, which is jointly owned by AREVA (63%) and the GON (37%). In 2007, the SOMAIR processing plant produced approximately 1,750 tones of yellow cake uranium, and current reserves are sufficient to maintain this level of production for at least 15 years. AREVA also operates the second mine at Akouta, which is owned by COMINAK, which is composed of AREVA (34%),the GON (31%),Overseas Uranium Resources Development Company of Japan (25%),and ENUSA of Spain (10%). Akouta is an underground mining operation that began production in 1978 and produced around 1,400 tons in 2007. The ore as originally mined contains only a low concentration of uranium. It is milled at mine sites to produce the uranium concentrate of over 80% uranium called "yellowcake." ¶8. (SBU) During the 1970s, income from uranium production sustained Niger's economy, but production fell significantly when the world lost its appetite for nuclear energy following accidents at Three Mile Island and Chernobyl. Four shareholders: AREVA, OURD (Japan), UNUSA (Spain),and SOPAMIN (Niger),purchase the total output of the two producing mines at a price set by agreement between the companies' shareholders and the GON. Between 1987 and 2003, a period of low uranium prices, long-term contracts maintained prices above market levels, but the subsequent rise in world prices did not benefit Niger until the pricing was renegotiated and payments increased 50% effective January 2007. The most recent price negotiation, announced in January 2008, set purchasing terms and conditions for 2008 and 2009. According to World Nuclear Association records, AREVA had been paying royalty of US$57 per kg of production. The new two-year agreement boosted this to US$83 per kg. AREVA has honored this new price structure, even after prices dropped lower. ¶9. (SBU) As part of the pricing agreement in 2007, GON negotiated the right to sell a portion of the production of the existing mines directly on world markets. In late 2007, Niger established a government-owned company, SOPAMIN, which holds the government's ownership share in the uranium companies and manages independent sales. SOPAMIN's direct sales option was subsequently increased to 900 tons, and the new mining contract for Imouraren also gives SOPAMIN the option to sell its share of production independently. SOPAMIN currently sells 300 tons per year to Exelon Corporation, the largest electric utility in the United States. This sale, however, is in part mediated by AREVA; because of the cost and difficulty of shipping uranium from Niger, SOPAMIN fulfills the Exelon contract by barter with AREVA, which arranges delivery of yellowcake produced in AREVA's Canadian operations. SOPAMIN has yet to identify a customer for the remaining 500 tons. Exelon reports that it plans to extend its existing contract with SOPAMIN, but has no interest in purchasing a larger amount from Niger at this time. ¶10. (SBU) Comment: The special characteristics of the world uranium market make it difficult for SOPAMIN to market large volumes of uranium at prices above what it would get from AREVA. Most yellowcake uranium is sold on long-term contracts to the limited number of companies that have the facilities to process it for use as fuel. As the world's most vertically integrated nuclear power company, AREVA has a dominant position in processing and sales of enriched fuel and a commanding presence in the development and construction of new nuclear power plants, which generally include long-term fuel contracts. SOPAMIN, a tiny organization based in the GON Ministry of Mines and Energy, does not have the transportation system or the global reach to be cost competitive. End comment. ¶10. (SBU) AREVA controls and monitors the transfer of uranium produced at both mines. It is sealed in drums and transported by NIAMEY 00000508 004 OF 004 truck to the port of Cotonou, Benin, for shipment to the French port of Montoir. It is further refined and enriched at AREVA's Comurhex-Malvesi plant in southern France. -------------- Chinese Production to Start in 2011 -------------- ¶11. (SBU) A consortium led by China Nuclear International Uranium Corporation (SINO U),a subsidiary of the China National Nuclear Corporation (CNNC),is developing the Azelik uranium mine at Teguida, a remote area north of Ingal. Ownership in the consortium, incorporated in Niger as SOMINA, is made up of SINO U (37%),the Government of Niger (33%),Beijing ZXJOY Investment (25%),and the Government of South Korea, which recently purchased the remaining 5%. The Teguida Mine is projected to produce 600 tons per year from 2011, with the potential for higher levels of production if SOMINA's continued exploration of the concession identifies higher reserves. Because of the remote location of this mine, the US$ 140 million construction contract signed in April 2008 with Sinodydro Corporation includes a coal-fired power plant as well as the mine and processing plant. -------------- French Domination Likely to Persist -------------- ¶12. (SBU) Niger's uranium resources are among the globe's largest, but costs are high due to Niger's remote location and poor infrastructure. Historically, the French have dominated the uranium sector in Niger, and AREVA's new commitment at Imarouren further consolidates Niger's strategic importance to France. The new operations already under construction are projected to make Niger the second largest global producer, with considerable potential for additional production if the global market for uranium is sustained by renewed investment in nuclear energy. ¶13. (SBU) French dominance of the uranium sector in Niger is not without its risks, among them the public perception that the GON is too close to AREVA. This perception is reinforced by the fact that negotiations with AREVA as well as other mining companies have not been managed by technocrats from the Ministry of Mines and Energy, but instead have been negotiated by politicians at the highest level. France and AREVA have actively promoted Niger's participation in the Extractive Industries Transparency Initiative (EITI). As reported in reftel, Niger's EITI project has been established, but the political commitment to significantly greater transparency is not clear. -------------- The Future of Niger's Uranium Sector -------------- ¶14. (SBU) In order to diversify investment in the mining sector, Niger has opened vast new areas of the country to exploration. This has attracted interest and exploration by new companies, a significant percentage of which are new to mining and lack sufficient capital or access to capital to develop their claims; they hope to demonstrate sufficient resources to attract investment from larger, more-established, producers. Other countries, including Namibia, Kazakhstan, Australia, and Canada, also have significant uranium resources and are attracting new investment. If Niger is to compete successfully for new investment and create a more diverse uranium sector, it will have to address both policy and infrastructure issues in a more open and pragmatic way. ALLEN