The Long-Term View

We remain confident in the long-term fundamentals of the nuclear industry, despite the near- to medium-term challenges. Our industry is driven by demand for energy, which continues to grow as a result of continued increases in world population and industrial development. The 2012 World Energy Outlook predicts that by 2035 electricity consumption will have grown by about 70% from current levels. Most of this energy will be used by developing (non-OECD) countries as their populations and standards of living increase.

New reactor outlook

Within this context, most countries are pursuing a diversified approach to energy growth, with an emphasis on energy security and clean energy. Nuclear power can generate baseload electricity with no toxic air pollutants, carbon dioxide (CO2) or other greenhouse gas emissions. It has the capacity to produce enough electricity on a global scale to meet the world’s growing needs, and while it is not the only solution, it is an affordable and sustainable source of safe, clean and reliable energy. As a result, we expect nuclear energy to remain an important part of the energy mix.

This is evident in the growth in reactor construction we expect over the next 10 years. There are 433 reactors operable today with a total generating capacity of 392 gigawatts. We expect nuclear generating capacity to reach about 510 gigawatts (524 reactors) by 2022, which represents average annual growth of 3%. Of this growth, approximately 64 reactors with 64 gigawatts of generating capacity are under construction today. This is a significant rate of growth in new reactor construction.

India, Russia and South Korea are expanding their nuclear generating capacity, and China continues to lead the growth, with 29 reactors under construction. Near the end of 2012, China resumed approvals of new reactor construction.

In the UK, government commitment to nuclear energy is strong, driven by concerns about energy security and the need to limit CO2 emissions. In 2012, the first site licence in 25 years was granted at the Hinkley Point nuclear power plant, where two new units are planned. The US also continues to make progress toward new nuclear development with one unit under construction and preparatory work ongoing at four units.

Other previously non-nuclear countries are either moving ahead with their reactor construction programs or considering adding nuclear to their energy programs in the future. The United Arab Emirates (UAE) recently became the first non-nuclear country in 27 years to start building its first nuclear power plant. The UAE is proceeding with its plans to have 5.6 gigawatts of nuclear capacity in place by 2020, and in 2012 secured long-term fuel supply contracts for those reactors. In Saudi Arabia, where power demand has been increasing by 7% to 8% annually, plans to build 16 reactors by 2030 have been announced. Vietnam, Bangladesh, Poland, Turkey, and Belarus are also moving forward with plans to proceed with nuclear power development.

Demand For Uranium Is Growing

Not surprisingly, as the number of reactors grows, so too does the demand for uranium.

We expect world demand of approximately 2.2 billion pounds over the next 10 years, which includes both world consumption and strategic inventory building. By 2022, we expect world uranium demand to be about 240 million pounds per year, representing average annual growth of about 3%.

Supply Is Tightening

While demand is expected to increase over the next decade, 2012 saw a great deal of supply destruction as many producers announced delays and cancellations to their projects. We were counted among this group with the adjustment to our uranium growth strategy in response to market conditions. The resulting impact on the long-term outlook for uranium supply could be significant if these delays continue.

We estimate roughly two-thirds of global uranium supply over the next 10 years to come from existing primary production—mines that are currently in commercial operation—and about 15% to come from existing secondary supply sources. However, most secondary sources are finite and will not meet long-term needs. Currently, one of the largest sources of secondary supply is uranium derived from the Russian HEU commercial agreement, which is scheduled to end in 2013 and leave a gap of about 24 million pounds per year. This volume is more than our current total annual production.

The result is that we estimate about 20% of supply will need to come from new sources at a time when new projects are being delayed or cancelled because of current market conditions. The situation is exacerbated by barriers to entry and lead times for new uranium production being as long as 10 years or more, depending on the deposit type and location. As conditions continue to evolve, it is important to keep an eye on supply.

We Are Well Positioned

Despite the current challenging industry environment, we are well positioned to continue to succeed and meet the growing demand for uranium. We have advantages like extensive mineral reserves and resources, low cost operations, a strong contract portfolio, experienced employees and a growth strategy that will allow us to remain competitive in challenging environments and respond quickly when the market signals more production is needed.