End of the road? The entrance to Dominion (Image: Uranium One)
The Dominion uranium mine has been shut down, possibly permanently, because of start-up troubles and the sharp drop in the spot price of uranium. The mine was supposed to produce over 4 million pounds of uranium oxide per year.
The owner of the South African mine, Uranium One, announced today that the facility would be put in a state of 'care and maintenance'. The company explained that the decision was based on three main factors that ruined the project's economics. One was "inflation-related increases in project costs", another was "slower than expected ramp-up in development and uranium production," while the deciding factor appears to be the recent decline in uranium prices.
Currently, it could be cheaper for Uranium One to meet its supply commitments by sourcing uranium on the spot market than extracting from its own mines. One reason the uranium price has dropped sharply in recent weeks is thought to be the abrupt exit of speculators from the market as troubled financial institutions seek to raise cash.
The spot price of uranium oxide surged to an all-time high of $137 per pound in July 2007, then slumped to $75 by October that year. After that the price was variable but trended downwards until steadying for several weeks at $65 per pound from August this year. The current spot price is $44 per pound after a dramatic drop in the last six weeks, according to Ux Consulting.
Uranium One executives said during a conference call that its contract book - all with "blue-chip" North American nuclear utilities - has less in uranium deliveries for the next 12 to 18 months than in later periods. The company can meet those commitments from its own existing uranium stocks, by supplementing those with uranium from the spot market or by borrowing stocks from other companies.
Today's news comes after a general strike at the mine on 10 October which caused the suspension of operations. Following that, Uranium One reportedly sacked 900 of its 3000 workers on the site, raising questions about how the mine could continue development.
It also follows major trouble for the company in February this year, when production estimates from Dominion were reduced by 32%.
The company said today, "Uranium One will be exploring strategic alternatives available to it at Dominion, including a sale or other disposition of its interests and, absent any improvement in the project economics, the potential closure of the project."
Cash reserves of $99 million plus another $65 million would enable Uranium One to carry out its plans in Kazakhstan and the USA, after allowing approximately $30 million for the costs of closing Dominion.