AN ANALYSIS OF URANIUM DISCOVERY IN CANADA, 1930-1983

Rates of discovery, exploration expenditures, discovery costs and geological deposit types D.A. CRANSTONE

Mineral Policy Sector R.T. WHILLANS

Energy Commodities Sector

Energy, Mines and Resources Canada, Ottawa, Ontario, Canada

Abstract

In 1932, Canada emerged as the world's second important source of uranium and in 1958 became the major uranium

producer. Surpassed by the United States in terms of uranium production in 1959, Canada retained its role as leading

exporter. It was not until 1984, however, that Canada again became the western world's leading uranium producer.

During the past 40 years, enormous market pressures, unprecedented in any other major mineral commodity, caused levels of uranium exploration and rates of discovery in Canada to fluctuate considerably.

Blessed with a large and growing inventory of known high-grade deposits, Canada has maintained its status as leading uranium exporter and focus of international uranium exploration activity. With average discovery costs in

Saskatchewan, Canada's foremost uranium-producing province, of

$Cdn 1.53 per kilogram of uranium and the potential for many additional major discoveries, Canada is assured of being able to supply its own uranium needs and those of its customers well into the 21st century.

INTRODUCTION

The deposit that became Canada's first uranium mine and the world's second significant uranium producer was discovered by Gilbert La Bine on the shore of Great Bear Lake, Northwest Territories, in May 1930. La Bine was prospecting, not for uranium but for silver. During the 1930s and early 1940s, the deposit was operated as the Port Radium mine of Eldorado Gold Mines, Limited; it yielded radium, uranium, silver, polonium, copper, cobalt and lead. The uranium compounds produced at Eldorado's refinery at Port Hope, Ontario, were in demand as a colouring agent for glass and for ceramic glazes.

Closed from 1940 to 1942 because of disruptions in world radium markets, the Port Radium mine was reopened and ownership

was transferred to Canadian government-owned Eldorado Mining and Refining Limited. Uranium for nuclear purposes became the

significant product. The economic importance of radium decreased when most of its uses were captured by reactor-produced radioisotopes. Uranium ore was exhausted at the Port Radium mine, which closed in 1960 (the mine yielded silver and copper again from 1977 to 1982).

Since 1932, Canada has been a major world uranium producer and supplier. With the need for uranium for nuclear purposes, a considerable number of new Canadian uranium deposits were discovered, beginning in the late 1940s; the most remarkable of

these is the large, very high-grade Cigar Lake deposit

discovered in Saskatchewan in 1981. Discovery of high-grade deposits in Saskatchewan together with a sharp decline in

uranium production in certain other countries because of low uranium prices led to Canada once again becoming the world's largest uranium producer in 1984. Additional known high-grade Canadian deposits will be able to support even higher

production rates should market conditions improve.

The effects of changing market conditions on exploration and discovery in Canada have been much greater in the case of uranium than they have for other major mineral commodities, because:

(i) Demand for uranium was, until the discovery of nuclear fission in 1938, limited to use as a colouring agent for glass and ceramic glazes. Although steady, the need was easily met by the by-product uranium from the world's two significant radium mines at Port Radium and in Zaire (then the Belgian Congo).

(ii) The application of nuclear fission introduced an instantaneous demand for uranium for defence purposes beginning in 1942. In their efforts to accumulate large stocks of an element for which known sources were few, the governments of the United states and United Kingdom offered both premium prices and bonuses for uranium. By 1959, the uranium so accumulated far exceeded short-term requirements. Moreover, the total uranium production capacity that had been developed in Canada, the United States, Australia, and South Africa in particular, was much too large with respect to foreseeable world requirements.

As sufficient domestic uranium production capacity had been developed in the United States, that country did not take up options for further uranium purchases from foreign sources, so that other than honouring existing contracts, the U.S.

effectively excluded foreign-produced uranium from U.S. markets for almost 20 years.

The effects of uranium market conditions on the Canadian uranium exploration and discovery record are further examined below.

A RECORD OF URANIUM PRICES

Because of the strategic military importance of uranium, only the Canadian government was permitted to search for uranium deposits from 1944 to 1947. During that period, uranium exploration in Canada was therefore restricted to Eldorado Mining and Refining Limited (now Eldorado Nuclear Limited) and the Geological Survey of Canada. The ban on private prospecting for uranium in Canada (similar to those in effect in Australia and the United States) was lifted in 1947, and various incentives were offered to encourage uranium

exploration and production, including guaranteed prices and development allowances.

Eldorado was the sole purchaser of privately-produced Canadian uranium, acting on behalf of the United States Atomic Energy Commission (USAEC) and the United Kingdom Atomic Energy Authority (UKAEA). In March 1948, the first schedule of prices for Canadian uranium was published. This provided for a price*

of ^7.15/kg U (£J!2.75/lb ^03) contained in ores or concentrates.

Development and milling allowances were later added to bring the price up to $18.85/kg U ($7.25/lb 0303) but no uranium was forthcoming at these prices.

In 1953, special prices were offered and uranium purchase agreements negotiated with several companies. Under these

contracts the average price of uranium contained in concentrates was about $27.3Q/kg U ($10.50/lb U30s). Such prices were

available until 1956, when the USAEC announced that it had fully contracted for its immediately foreseeable needs and would not offer any new contracts.

As sales of Canadian-produced uranium for commercial

purposes were not permitted until 1958, there was no market for Canadian uranium beyond that already under contract. In 1959 the USAEC indicated that it did not intend to exercise any of the options it had under various contracts, all of which had been scheduled for completion between 1962 and 1966.

Arrangements were made with the USAEC to stretch out deliveries and to transfer contracts from higher-cost to lower-cost

operations. Subsequently, in 1962, the UKAEA contracted for more Canadian uranium to meet a commitment in a letter-of-intent

that it had signed during the 1950s. The average price of

$13.08/kg U ($5.03/lb UaOg) - plus an escalation clause to cover cost increases - was just sufficient to cover operating costs. Later, two stockpiling programs were negotiated between Canadian producers and the Government of Canada, at prices that averaged $12 and $12.75/kg U ($4.60 and $4.90/lb U308)

respectively, plus escalation for increased costs of labour and materials. These were intended to keep some mines in

production to help support the communities of Uranium City,

Prices are in current Canadian dollars per kg U and current Canadian dollars/lb U^OQ unless otherwise noted; the

equivalent current U.S. dollar/lb H^OQ prices may be found in Table 1 for comparison.

Saskatchewan, and Elliot Lake and Bancroft, Ontario, until commercial markets developed. A third stockpile, the joint venture stockpile, was agreed upon between the federal

government and Denison Mines Limited in 1971; the government acquired a 76 per cent ownership in the stockpile by paying Denison ^11.85/kg U ($4.56/lb t^Og) against a book value of

$15.60/kg U ($6.00/lb

Canada's first commercial contract was negotiated by a Canadian producer in 1966 and by the end of 1967, six such contracts had been signed by Canadian companies. Contract prices were not released owing to highly competitive market conditions. By the late 1960s, sufficient numbers of commercial contracts were being negotiated throughout the world that the Nuclear Exchange Corporation (NUEXCO), a California brokerage firm, began publishing a price index, referred to as the NUEXCO Exchange Value (EV). It is defined as "NUEXCO's judgement of the price at which transactions for significant quantities of natural uranium concentrates could be concluded" as of the date

indicated.

In the United States, the principal price series for the pre-commercial contract period is one for the average price paid each year for 0303 in concentrates purchased by the USAEC. This series provides a reasonable indication of costs of production in the United States, the world's major producer and consumer of uranium during the 1950s and 1960s, It also provides some indication of prices likely to have prevailed if normal market conditions had existed. The average USAEC price was reasonably consistent with the ^27.30/kg U ($10.50/lb 0303) price available for Canadian uranium in the 1950s, as well as with the NUEXCO EV around 1969 when the NUEXCO series began.

A second U.S. price series is available from the United States Department of Energy (USDOE) beginning in the early 1970s. This series provides the price of actual deliveries made under contracts between U.S. suppliers and U.S. utilities;

prices are given for contract-specified and settled market-price procurements.

Table 1 presents a composite U.S. price series prepared from: (i) the average price paid to the United States producers by the USAEC from 1948 to 1970 inclusive, and (ii) the average contract price and market price settlements for actual

deliveries from 1971, compiled by the USDOE. Table 2 presents a composite Canadian unit value series prepared from: (i) the value of Eldorado's uranium deliveries from 1944 to 1955, and

(ii) the value of all Canadian producers' shipments from 1956 onwards. In Figure 1, these two series are expressed in constant (1985) Canadian dollars per kilogram of uranium.

For long-term commercial contracts that provide uranium consumers with a reliable source of supply, Canadian producers have generally been able to obtain prices higher than the NUEXCO EV. In 1974, prompted by concerns about domestic

security of supply, the Government of Canada announced revisions to its uranium export policy designed to ensure that the needs of Canada's growing nuclear power program would be met.

TABLE 1 U308) DEFLATOR 1985 $

$7.

Atomic Energy Commission (USAEC) Department implicit deflator of the

751

data to 1970 inclusive.

data from 1971onwards. rate.

Gross National Expenditure (GNE)

TABLE 2: CANADIAN URANIUM UNIT VALUES * 181,403 TOTALS $18,509,544 AVG. UNIT VALUE ($C/kgU) 1944-85= $102

* Unit values reflect average annual prices received for Canadian uranium deliveries.

SOURCES :

Eldorado Nuclear Limited uranium deliveries data from 1944 to 1955.

Statistics Canada producers' shipments data from 1956 onwards and implicit deflator of the Gross National Expenditure (GNE) .

Bank of Canada "average noon spot" exchange rate.

CO O)

u

Comparison of

U.S. Uranium Prices and Canadian Uranium Unit Values*

7948-7985

270-^

240-<«

Q 210-Ü

180-

150-

90-

60-

30-0

Values reflecting the average price received for annual Canadian uranium deliveries or ,<""4. . shipments as recorded by Eldorado Nuclear

* \ jf\ and Statistics Canada

V '•!.

Prices paid for United States uranium as recorded by the U.S. Atomic Energy Commission (to 1970) and the U.S.

Department of Energy (from 1971).

»Prices/Values are in 1985 $Cdn/kgU

1950 1955 1960 1965 1970 1975 1980 1985

FIGURE 1

As part of this policy, EMR's Uranium Resource Appraisal Group (URAG) was established to annually audit Canada's uranium

resources and provide the information base required to implement Canada's uranium export policy. As part of this annual

exercise, URAG calculates the average price of all export

deliveries made by Canadian producers in a given year. Table 3 presents the URAG price series from 1974 to 1985. URAG prices differ markedly from those of the NUEXCO EV series but are more representative of long-term Canadian marketing realities.

The price series presented here are only a general indication of price trends that have been a major factor in influencing the search for uranium deposits in Canada.

CANADIAN URANIUM DISCOVERIES AND RATES OF DISCOVERY (1930-1983)