Kazakhstan and Global Uranium Supply

Tue, Jun 9, 2009. Uranium Investing News

By Melissa Pistilli

Kazakhstan and Global Uranium SupplyBy now, those interested in the uranium industry are familiar with reports that Uranium One [TSX: UUU] is caught up in a scandal involving the now former head of Kazakhstan’s state uranium firm (Kazatomprom), Mukhtar Dzhakishev.

The KNB (successor to the Soviet-era KGB) has arrested Dzhakishev and accused him of using offshore firms to steal billions of dollars worth of uranium assets from the wealthiest nation in post-Soviet Central Asia.

Rumors are circulating that political motivations are behind Dzhakishev’s arrest.  Some question how Dzhakishev could have stolen “more than 60 per cent of state uranium deposits worth tens of billions of dollars,” as the KNB claims, out from under such a heavily monitored and audited industry as exists in Kazakhstan.

Those that question the allegations believe Dzakhishev is only the latest political victim of Kazakh president Nursultan Nazarbayev, who has ruled the country, with what some describe as an iron fist, for twenty years.

It seems Nazarbayev has been in the habit of backing KNB arrests of people in government-owned industry since the financial crisis brought on the fall of the nation’s banking system.

“Mukhtar Dzhakishev was the latest businessman detained in what some have called a crackdown on executives with ties to opponents of President Nursultan Nazarbayev,” said an Associated Press report Tuesday. “The arrest follows a string of widely publicized corruption cases and arrests in Kazakhstan, which is firmly controlled by Nazarbayev, his family and his allies,” the report continued.

Last year, the national railway chief was sentenced to three years on bribery charges. Already this year, the former head of the state-run oil and gas company was sentenced to six years for corruption. Now, Kazakh prosecutors are attempting to arrest the former head of BTA Bank, the nation’s largest lending institution.

Some analysts in the mining industry, like senior editor of Case Energy Opportunities Marin Katusa, believe the political risk in post-Soviet era countries like Kazakhstan is bound to negatively affect the uranium mining sector at least in the short term.

When asked about his outlook for uranium in a recent interview with The Energy Report, Katusa said that “when it comes to the ‘-stan’ countries, short term, it’s thumbs, thumbs, thumbs, down. I couldn’t give more of a thumbs down. Nothing to do with uranium, just the political risk in the -stan countries.”

Nevertheless, with the uranium supply/demand fundamentals leaning more to the demand side the uranium-rich nation of Kazakhstan is key to maintaining the global aboveground uranium supply.

Uranium demand is expected to surpass supply levels as demand for nuclear fuel rises and the impact of the financial crisis on mine development and production capacity becomes much clearer. “The market is relatively balanced and utilities are well covered, but if you go out several years there has got to be some concern about where supply is going to come from,” said George Assie, Cameco’s senior vice-president of marketing and business development.

Further impacts on supply will come in 2013 when the megatons for megawatts program that converts Russian nuclear warheads into reactor fuel comes to an end. By 2015, secondary supply lines from Russian and US uranium stocks, which currently supply 40 per cent of world needs, may fall to as low as 5 per cent.

“The most important thing that is controlling the uranium market are the secondary sources, the uranium that has been mined in the past and diverted mainly for weapons purposes,” said Chaitanyamoy Ganguly, head of IAEA nuclear fuel forecasts. “Maybe by 2015 to 2020, the secondary-source contribution will dramatically fall to 5 to 10 per cent and then you’ll need a lot of uranium from the mines.”

The uranium industry needs uranium-rich countries like Kazakhstan. And many are confident the Kazakh government understands quite well the importance such an industry plays in the future success of their nation.

“There could well be power plays taking place, but certainly the operations will continue to run and I think that Kazakhstan and the government know that it’s important that the Western world is treated in an appropriate way,” said former Uranium One CEO Neal Froneman in a recent interview.

It is widely accepted that Kazakhstan is on the fast-track to overtaking Australia and Canada to become the global leader in uranium production either this year or next. It is estimated that as much as 50 per cent of uranium industry growth over the next few years could likely come from Kazakhstan.

Home to nearly 20 per cent of the world’s uranium reserves, Kazakhstan produced 6,637 tonnes of uranium in 2007 and 8,521 in 2008. The Central Asian nation plans to produce around 11, 900 tonnes this year.

So, despite its obvious potential for political risk, it’s likely Kazakhstan will continue to attract key players in the uranium industry.