There's no commodity quite like uranium. After processing, it's used primarily as fuel in nuclear power reactors to generate electricity. But unlike other fuels, such as oil, coal, or natural gas, the cost of uranium doesn't really seem to affect the demand. That's because the price of uranium is just a small fraction of the cost of a multi-billion-dollar reactor. And lately, that price has been charging higher at a frantic rate.

Eldorado Nuclear closed its underground Fay mine in Uranium City, Sask., in 1982. (Source: Saskatchewan Mining Assn.)

It's no wonder, then, that Canada is in the midst of a surge of uranium exploration and mining. In this country, the industry is shifting from low-grade underground mines to spectacularly high-grade projects, where the raw ore is up to 24 per cent uranium oxide concentrate (known as U3O8). For Canada's uranium mining industry, the fundamentals have never been brighter.

A brief history of uranium mining

Canada's no rookie when it comes to uranium mining. The first uranium exploration in Canada began more than 60 years ago. Back then, there were no nuclear reactors. This mining was entirely for military purposes, as the Americans worked to develop atomic weapons. During the war, the federal government created a Crown corporation, which eventually became Eldorado Nuclear Limited. For a few years, it was the only company allowed to mine anything radioactive.

By the late 1940s, Eldorado's monopoly was over, and a decade later, almost two dozen uranium mines were operating in Canada, with the biggest near Elliot Lake, Ont., and Uranium City, Sask.. The uranium market ebbed and flowed in subsequent decades. The rise of nuclear power led to a new wave of exploration in the 1960s, 70s and 80s. Huge new deposits were discovered in northern Saskatchewan and lower grade mines in Elliot Lake and Uranium City closed down.

But now there's a boom in uranium exploration in Canada, with dozens of start-up companies trying to find the tell-tale radioactive signature of potential new sources. There's one main reason for the new-found clamour for uranium — the world is willing to pay handsomely for a commodity that has enjoyed one of the most spectacular price increases in the history of mining.

Uranium prices soar

Uranium prices in the last six years have gone only one way — straight up. In January 2007, the spot price of U3O8 (milled uranium oxide) was $72 US a pound. That's almost double where it started in 2006, and is a ten-fold increase since 2001. Forecasts of $85 US, $100 US, even $200 US a pound aren't too difficult to find. Prices of many Canadian-listed uranium miners have taken off.

Why the price jumps? Several reasons. And all of them affect the mineral's supply and demand fundamentals.

1. The resurgence of nuclear power. After years when nuclear reactor orders could best be described as anything but electric, the world has rediscovered nuclear power. Whether it's the perceived high cost of conventional energy sources or worries about greenhouse gas emissions (nuclear power doesn't produce any), many countries — Canada included — are opting for the nuclear option for a significant part of their future energy needs. Nuclear energy already provides 15 per cent of Canada's electricity (51 per cent of Ontario's). Globally, the World Nuclear Association says 30 reactors are now under construction, 64 more are planned, and another 158 are being proposed. China wants to quadruple its nuclear capacity by 2020.
2. Consumption outweighs production. The world currently produces barely half of the uranium it consumes. With the increasing demand for fuel for nuclear reactors, and the difficult and time-consuming process of finding and developing new mines, that shortfall is likely to linger for years to come.
3. The Cigar Lake flood. Cameco Corp. is the world's biggest uranium producer. Its mine at Cigar Lake, in northern Saskatchewan, is the biggest undeveloped high-grade uranium deposit in the world. It was to start producing in 2008. The market was counting on that one mine to supply as much as a sixth of the world's uranium. But in October 2006, a major flood hit the mine while it was being developed, delaying production by at least a year and sending spot uranium prices further into the stratosphere.

Canada is the biggest producer of uranium in the world, responsible for almost 28 per cent of the globe's production in 2005, followed by Australia, Kazakhstan, and Russia.

As well, some of the biggest uranium mines in the world are in Canada. All are in northern Saskatchewan.

Operating uranium mines

Cameco's Key Lake mine and Areva Resources' Cluff Lake mines — in the Athabasca Basin of northern Saskatchewan — are now both mined out. Currently, there are three operating mines in Canada. They, too, are in northern Saskatchewan.

1. The biggest uranium mine in Canada is the McArthur River underground project. It's majority-owned and operated by Cameco Corp., which was formed in 1988 by the merger of Saskatchewan Mining Development Corp. and Eldorado Nuclear. McArthur River produced more uranium in 2005 than any other mine in the world — more than a sixth of the world's total. Its reserves of very high-grade ore are described as "enormous." It began production in late 1999. Tailings are put in a mined-out pit. The ore is trucked to the mill at Key Lake, 80 kilometres south-west, where it is turned into uranium oxide.
2. The McLean Lake project, which is operated by Areva Resources (formerly Cogema Resources), is another. It began production in mid-1999. It's currently an open-pit project but will later become an underground operation. Tailings are put in the first, mined-out pit. Its ore is processed at an on-site mill that is being expanded to handle ore from the Cigar Lake mine, which won't begin production until at least 2009.
3. The Rabbit Lake mine, also operated by Cameco, is near the end of its productive life after more than three decades. Its open pits are now mined out but some reserves remain at its underground Eagle Point mine. Cameco wants to process about half of the ore from its Cigar Lake mine at the Rabbit Lake mill.

Future uranium mines

Several new mines are being developed in northern Saskatchewan. They're due to come on stream in the next few years.

1. 1. Construction on Cameco's Cigar Lake project began in early 2005. As mentioned above, it suffered a major setback in October 2006, when floodwaters inundated some of the underground project after a rock fall. Production, which was due to begin in 2008, has been delayed at least a year. The Cigar Lake mine's reserves are huge and high-grade. Utilities were counting on the product from Cigar Lake to keep uranium prices from hitting the roof.
2. 2. Areva Resources' Midwest open pit mine is scheduled for production later in the decade. Its ore will be shipped to nearby McLean Lake (which Areva also operates) for milling. The mine has an estimated 16,000 tonnes of proven and probable uranium reserves.

The controversies

Governments and the uranium industry say the mining and milling of uranium provides high-paying and much-needed jobs in some of the most remote areas of the country, with manageable environmental risks. But it's an industry that has long attracted its share of controversy.

Uranium mining produces tailings that must be carefully managed to avoid leakage into groundwater. Spent nuclear fuel is highly radioactive and long-term storage is a major issue. Anti-nuclear critics say there are cheaper and better ways of dealing with the world's growing power demands than building nuclear power plants (including conservation). But in the absence of any worldwide move away from nuclear energy, Canada's uranium mining industry is likely to keep growing. There's just too much money at stake. At current prices, Canada's known uranium resources are worth about $85 billion US.

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