Lotus Resources (ASX: LOT) is about to commence discussions with major global utilities covering offtake from its Kayelekera uranium mine in Malawi ahead of the mine’s reopening after being mothballed for six years.
The move comes at a time when nuclear energy generating companies face a tailing off of existing contracts for uranium supply and will need to sign new ones over the next few years.
Global utility contract deals reached their peak in 2005 with 250 million pounds of uranium bought that year under long-term arrangements.
In 2013, by contrast, new contracts covering only about 25Mlbs were signed, and new long-term contracts failed to reach 100Mlbs in the years between 2014 and 2019.
Contract terms range from three to 10 years duration, and typically utilities buy only about 10% of their needs on the spot market.
Given the length of these contracts, it is usual practice to engage in supply contracting discussions long before a mine begins uranium production.
Reliable producer for nuclear power utilities
Kayelekera was formerly owned by Paladin Energy (ASX: PDN) and it produced 10.19Mlbs of uranium between 2009 and 2014 when continuing low uranium prices forced the company to place the mine on care and maintenance. Paladin owns 13% of Lotus.
During that time, 4.5Mlbs was sold to utility customers and the remainder to nuclear fuel market intermediaries. In all, 63% of Kayelekera output was sold under multi-year contracts.
Lotus managing director Edward Smirnov will be leading the talks. He was formerly chief executive officer at Uranium One, the Canadian mining company owned by Russia’s nuclear corporation, Rosatom.
“We are positioning the Kayelekera project to the nuclear fuel market as a proven uranium product supplier,” he said.
Uranium produced by Kayelekera was supplied to conversion plants in the United States (Honeywell), Canada (Cameco) and France (Orano).
“This confirmed Kayelekera’s supply as a quality product, fully acceptable for conversion, enrichment and nuclear fuel fabrication,” Lotus stated.
Mine to produce 3Mlbs in operation
Lotus holds 65% of the Malawi mine, with a current resource of 376.5Mlbs of uranium oxide.
The existing infrastructure will allow for a quick, low-capital re-start.
Lotus is expecting annual production of 3Mlbs.
Kayelekera was discovered in 1982 by the Central Electricity Generating Board of Great Britain, but the project was abandoned in 1992 due to the then-poor uranium output.
In 1998, Paladin acquired control of Kayelekera and open pit development began in June 2008.