CHAPTER 12 U.S. URANIUM MINE AND MILL FINANCING -- FINANCIAL AND LEGAL ADVISORS' PERSPECTIVE
| Jurisdiction | United States |
(Apr 2006)
U.S. URANIUM MINE AND MILL FINANCING -- FINANCIAL AND LEGAL ADVISORS' PERSPECTIVE
Managing Director, Head of Metals & Mining, Financing & Advisory -- West LB AG
New York, New York
RICARDO M. CAMPOY
Ricardo Campoy, as Managing Director, heads up WestLB's Mining & Metals Group in the Americas. Mr. Campoy has extensive experience in private placements of debt and equity securities, project finance, loan work-outs and debt renegotiations, as well as mergers and acquisitions in the natural resources sector. He has been responsible for merchant banking and project finance advisory services at McFarland Dewey & Co., LLC, ING Capital Corporation, Swiss Bank Corporation, European Banking Company, and Elders Resources Finance Inc., which he founded. Mr. Campoy's 26-year banking career began as an engineer/banker in the mining division of the Continental Illinois National Bank. Previously, he served in a variety of mine-planning and supervisory capacities in open pit and underground production with Inspiration Copper Co., Dravo Corporation and AMAX Inc. Notably in the mid-80s, he financed the development of Uranium Resources Inc.'s Kingsville Dome ISL property located in South Texas.
Mr. Campoy's international experience encompasses assignments in North and South America, Europe, Australia and Africa. He has lived and worked in Algeria, Botswana, the United States, the United Kingdom and Mexico. He is fluent in Spanish.
Mr. Campoy earned a Bachelor of Science degree at the Colorado School of Mines and a Master's of International Management (Finance) at the American Graduate School of International Management.
Historical Perspective
At its peak in 1980, the U.S. uranium mining industry could be described as relatively vibrant with over 250 mines producing 43.7 million pounds of uranium per annum. However, it was beginning to suffer the effects brought on by the accident at Three Mile Island. The decline of the industry accelerated, and by 1984 industry statistics had changed dramatically. The number of producing mines had dropped to 50 which were producing a total of 14.8 million pounds of uranium. This slide continued unabated, resulting in the rationalization, and near extinction, of the U.S. uranium industry. Today not even a full handful of U.S. producers survives. As this situation unfolded, or perhaps it was a contributing cause, the U.S. increasingly satisfied its uranium requirements through imports, releases from the government's strategic stockpiles, and other above ground inventories.
Periodic downturns in various commodities are not new to the mining industry and there is plenty of empirical evidence to suggest that they are a certainty. Their causes are as varied as the commodities involved and frequently include diminished global economic activity; supply and demand imbalances; substitution; uncompetitive economics; and, more recently, regulatory issues.
The protracted downturn in the U.S. uranium industry was occasionally punctuated by the opening of a new in-situ leach (ISL) mine - five to be precise. Uranium Resources Inc. developed three ISL mines in south Texas: Kingsville Dome (1988), Rosita (1990) and the Vasquez mine (2004). The KEPCO/Geomex/Uranertz joint venture opened the Crow Butte ISL mine (now owned by Cameco) in Nebraska in 1991; and Mestena Resources LLC opened the Alta Mesa ISL mine in south Texas in 2005. These uranium miners, in conjunction with Cameco at Smith Ranch-Highland, have installed annual capacity of 5.8 million pounds of uranium and represent the sum total of U.S. primary uranium mine production.
New Threshold
Now after 25 years, the U.S. industry is confronted with the prospect of a possible resurgence. This prospect raises interesting opportunities and important questions for all involved with this industry. If indeed resurgence is in the offing, where might the industry be headed in the medium to long term? What role will it play in the rapidly changing and more demanding global energy equation? What challenges will it pose for sponsors, capital providers, regulators, and financial and legal advisors?
As outlined above, how the U.S. industry ended up in its current state is a historical fact, but the more relevant question is what has changed to bring it to this threshold of renewed opportunity? The fact that the Rocky Mountain Mineral Law Foundation has decided to examine
[Page 12-2]
these developments speaks to the fundamental changes the U.S. uranium industry is undergoing.
The principal factors seem to be rooted in the conditions that resulted in a "perfect storm" of drivers beginning in 2003 as the world economies emerged from the very unusual synchronized recessions they experienced starting in 1999-2000. As these economies bounced back they created an unprecedented level of demand for hard and soft commodities to feed economic growth. This situation was further complicated by the new and more significant lead role the economies of India and China are now playing in the global economy. Their demands for commodities have strained the available supplies and they are likely to continue to do so for the foreseeable future. With existing mines and oil fields producing at or near capacity and a sparse portfolio of ready to develop mineral deposits, these supply and demand imbalances can not be rectified in the short to medium term.
Under these market conditions, the only variable is price. The graph below illustrates the price appreciation of a number of commodities for the period between 1999 and 2005.
Cumulative Price Appreciation Since 1999
A closer look at this graph shows that uranium has outperformed other commodities by a considerable margin, including those in its own class - energy fuels. It is worth noting that uranium's 280% price appreciation took place in the three year period between 2002 and 2005. In the post-9/11 environment, seemingly intractable high energy prices coupled with
[Page 12-3]
domestic and international factors listed below gave rise to the "perfect storm" driving an anticipated resurgence of the U.S. uranium mining industry.
A. Domestic
• Geopolitical considerations vis-a-vis U.S. dependence on foreign sources of energy fuels.
• U.S. electricity demand growing at 2-3% p.a.
• The shortage of ready to develop energy mineral deposits excluding coal.
...• Mounting public and governmental
To continue reading
Request your trial