not good news people

In the west australian the other day,

BHP buys uranium to meet contracts
22nd February 2007, 8:30 WST


BHP Billiton is being forced to buy third-party uranium at boom prices to meet increased contract customer demand despite owning the world’s biggest uranium deposit at its Olympic Dam copper/uranium project in South Australia’s outback.

The need to buy uranium has nothing to do with below-capacity production at Olympic Dam.

It’s all about some savvy customers exercising volume options under which they can increase the amount of uranium they can ask BHP to supply. The contracts were written by WMC years ahead of its takeover by BHP in 2005 and well ahead of the uranium price taking off.

The inclusion of the volume option was a way to entice buyers at a time when uranium was hard to sell.

The problem for BHP is that while nearly all of Olympic Dam’s uranium contracts are locked in at prices of less than $US20 a pound until 2010, the spot market price has exploded to $US75/lb as the world warms to the idea that nuclear power is part of the solution to global warming.

The good news for BHP is that not all of its customers (overseas power utilities) are taking advantage of the situation. Most of Olympic Dam’s customers have decided to pass up on exercising their volume options. They are presumably taking a long-term view of their relationship with BHP, knowing that BHP plans to triple uranium output at Olympic Dam to 15,000 tonnes by 2013.

At that rate Olympic Dam will be the world’s biggest uranium mine. And because of the massive size of the orebody — about 40 per cent of the world’s economic reserves — it could also be around in 100 years, according to BHP managing director Chip Goodyear.

The spot uranium price of $US75/lb is a 635 per cent increase on the December 2002 price of $US10.20/lb.

Between May and November last year the number of planned and proposed nuclear power plants jumped dramatically, with the total rising by 70 reactors to 223.

This has increased pressure for new mines to fill the perceived widening of the gap between new mine supply and consumption. The World Nuclear Association has forecast that uranium demand could rise from about 65,000 tonnes last year to 78,000 tonnes in 2015 and 111,000 tonnes in 2030.