URANIUM MINING IN NIGER: EXPLODING PRODUCTION

UNCLAS SECTION 01 OF 04 NIAMEY 000508

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TAGS: EMIN ECON EINV ENRG KCOR KNNP SENV NG
SUBJECT: URANIUM MINING IN NIGER: EXPLODING PRODUCTION

REF: NIAMEY 00371

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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.

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Recent Mania for Exploration and Development
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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.

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Who Are the New International Players?
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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

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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.

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AREVA Dominates Current Production
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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.)



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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

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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.

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Chinese Production to Start in 2011
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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.

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French Domination Likely to Persist
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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.

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The Future of Niger's Uranium Sector
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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