A new pricing structure reflecting current uranium prices has been agreed for the remainder of a commercial deal under which Cameco purchases uranium from dismantled Russian nuclear weapons.
Canadian uranium company Cameco announced that, along with partners Areva and Nukem, it had reached an agreement on pricing with Joint Stock Company Techsnabexport (Tenex) of Russia, from which it currently purchases about 7 million pounds (3175 tonnes) of uranium per year under a commercial agreement dating from 1999 and due to expire in 2013. The uranium purchased by Cameco from Tenex is sold on for use as fuel in nuclear power plants.
Although the agreement was updated in 2001 and 2004, the purchase price paid for the uranium by Cameco was fixed in 2001 when the price of uranium was much lower than it is today. In 2001 the average spot market price of uranium was around $10 per pound U3O8; today it is in the region of $60 per pound U3O8. Last year, Tenex asked the three parties to consider a new pricing structure.
The new agreement will not affect the volumes of uranium that Cameco can purchase from Tenex, and the changes to the pricing structure will not come into effect until 2011. From that date, the first 0.4 million pounds U3O8 (180 tonnes U3O8) purchased each year by Cameco will be at the price as prescribed in the original agreement (a fixed price of $60 per pound including inflation). Cameco would pay a market-based price calculated according to a formula based on the uranium spot price for the remaining material.
Cameco president and CEO Jerry Grandey described the new agreement as "a fair and reasonable solution that enables all parties to share in the benefits of increased uranium prices that were not envisioned when the initial agreements were signed." He classed the deal as "additional evidence of our solid, long-term relationship with Tenex."
The commercial agreement falls under the umbrella of the so-called HEU agreement, also referred to as 'Megatons to Megawatts' - an agreement between the governments of the USA and Russia to convert highly enriched uranium (HEU) from dismantled Russian nuclear weapons into fuel for nuclear power plants. US nuclear utilities currently get about half of their uranium from dismantled Russian nuclear weapons under the scheme, and a quantity of highly enriched uranium equivalent to more than 13,000 nuclear warheads has been recycled to fuel electricity generation.
The new pricing agreement requires formal documentation as well as approval by the Russian and US governments and by Cameco's board of directors.