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USA offshores Uranium conversion

ConverDyn has today announced the shut down of the Metropolis conversion facility – the United States’ only uranium conversion facility - leaving less than a handful of operating conversion facilities around the world. Importantly, only two conversion suppliers remain to serve the western nuclear marketplace (Cameco in Canada and Comurhex in France) greatly increasing Russia’s influence given that China’s conversion capacity exists to protect its domestic nuclear industry.

This would have been unthinkable a few years back when national security interests dictated self-reliance across the US nuclear fuel cycle, so the shut down will rattle nuclear utilities, particularly in the US which operates 25% of the world’s nuclear reactor fleet.

Metropolis is the only conversion facility in the United States and its shut down leaves conversion facilities in only Russia, China, Canada and France. The plant had an annual conversion capacity of approximately 15,000 tU as UF6 (approximately 20% of worldwide conversion capacity), but in January 2017 made a permanent reduction in capacity to 7,000 tU in an effort to make the economics more sustainable.

The company said the plant will have the potential to reopen, although suggested that this is unlikely before 2020 at the earliest. Applying WNA calculations, there will still be 10% excess capacity in world conversion after deducting Metropolis’ capacity, a gap that is not projected to close until 2020. ConverDyn is in the process of extending the operating licence, with a decision due by the end of 2019, so the shut down raises the possibility of permanent closure.

Implications

I believe this development will have the following implications:

  1. The shut down is indicative of severe economic stress across the entire nuclear fuel cycle, including uranium mining and enrichment. Conversion and enrichment facilities are long-lead items and large capital investments were made expanding these facilities in the 2000s, ahead of the nuclear renaissance (and before Fukushima). As a result, these markets are even more oversupplied than uranium and a re-opening of Metropolis is unlikely until conversion prices substantially increase.
  2. Closure of the only conversion facility in the US further concentrates supply risk and may help to focus the US government on endemic national security issues, which will particularly affect U3O8 supply. The US produces only 10% of its uranium and sources an alarming proportion of nuclear fuel from former foes, Kazakhstan and Russia. By comparison, EU utilities are restricted by Eutatom requirements to diversify supply with 20% quotas attached to any particular region. Any similar moves in the US will particularly benefit African-sourced uranium, which is regarded as the most politically neutral supply source.
  3. To some, shuttering the only US conversion facility was unthinkable, even though the negative economics had been in plain view for some time. This now opens the possibility of shuttering excess enrichment facilities in the US or elsewhere – which would already have happened on pure-economics considerations. Excess enrichment capacity is Culprit Number One for current unsustainably-low uranium prices because of secondary supply via underfeeding and tails re-enrichment. Although this excess capacity will taper from 2020, any abrupt reduction in capacity would sharply reduce secondary supply and would be a sharp uranium price catalyst.

Overall, this development combined with last week’s announcement by Cameco that they will suspend production at McArthur River mine will shake up utilities’ mind-set. The increased concentration of conversion supply will leave utilities feeling less bloated by their current inventory levels, particularly inventory they are holding as UF6. The complacency that has characterised utilities’ stand-back approach to long-term contracting is coming to an end – and could sharply reverse if we see another supply disruption. 

Next year promises to be very positive for the uranium sector, given there are at least two further odds-on supply disruptions on the horizon: further supply discipline from Kazatomprom/THK and commissioning underperformance at the Husab uranium mine.

Background 

ConverDyn is a 50/50 joint venture between Honeywell and General Atomic. The Honeywell operated Metropolis Works Facility was built in 1958 and has undergone various upgrades and expansions in the decades since. Conversion involves turning U3O8 (yellowcake, a powder) into a gas (UF6) which can then be fed into a centrifuge enrichment plant. Enrichment concentrates the fissile uranium-235 isotope from natural levels (0.7%) to between 3 and 5%, depending on the specifications of the nuclear power plant it will supply.

The plant temporarily shut down for post-Fukushima safety upgrades in 2012 and reopened in 2013, in the process reducing its workforce by almost half. Honeywell laid off a further 22 employees in January 2017, citing challenging industry conditions. ConverDyn has invested US$150 million in the plant over the last ten years and had approved a further US$60 million investment in the next 5 years, most of which will now be deferred.


Brandon Munro
CHIEF EXECUTIVE OFFICER
BANNERMAN RESOURCES LTD