Why Rio Tinto Must Go !

Why Rio Tinto must go!

It should be noted that in 2018 it was announced that the Rossing mine  will be sold to Chinese interests. 


Subsequent to the submission of this article to Rio Tinto and the Namibian newspaper  here in Namibia, Rio Tinto published its  annual returns which show that the company made a not insignificant profit in 2016 after two years of losses. The turnaround in Rio Tinto changes little in this argument as  both spot and contract prices of yellow cake are in decline.

As you stand at the edge of the tailing dam at Rossing uranium mine in Erongo, above the processing facility which  makes the yellow cake which is sold by Rio Tinto, the future of uranium becomes clear. When you peer into the distance you can see the giant Husab uranium mine which  the Chinese owners say will eventually be the world’s second largest uranium mine after the Mc Arthur river mine in Canada.

It is only when you look at the accounts of Rio Tinto that you begin to realize just how hard the times have been. In 2015 the Rossing  mine lost N$351 up from a loss of a mere N$91 million the previous year. When you start to look at the production. In 2015 Rossing produced 1,245 tonnesof uranium oxide (yellow cake). This is less than half the production coming out of the mine in 2012 when Rossing produced well over 2,600 tonnes of yellow cake. But that was ‘then’ ie  before the effects of the Fukushima ‘incident,  as Rio euphemistically calls the worst  nuclear disaster since Chernobyl, and what will almost certainly be a defining moment in the history of the nuclear and uranium industry.

Fukushima Daichi disaster has redefined the entire prospects of the nuclear industry and by extension uranium mining with much of the developed world  now highly skeptical about the future safety of the technology. It has a resulted in a sea change in thinking in the developed world. The argument in the public mind is simple enough- ‘if even the very technologically advanced Japanese could not control this technology then nuclear power must be inherently dangerous.’ It was this that lead to a mass desertion of nuclear power. First by Germany, under pressure from Angela’ Merkel’s Green Party coalition partners but then by other countries  such as Switzerland and Italy.

The nuclear industry and the uranium which feeds it have gone into secular decline in Europe and the US since Fukushima. But it was not just the Fukushima and the growing public perception of risk that is the only cause for the woes of the nuclear industry. Just twenty years ago nuclear power was amongst the cheapest ways to generate what engineers call ‘base load’ ie electricity that be cranked up and  decreased at will. Other sources such as geothermal power were always cheaper but less significant. But things have changed and a modern nuclear plant is now simply no longer a cheap option with the ever increasing costs of capital and de-commissioning costs after they have reached the end of their economic lives (usually about 40-60 years) has meant that the cost of electricity generated by nuclear power has increased drastically.

In its most recent annual 2016 ranking of which source of power is cheapest in the US,  the  authoritative US Energy Information Service findings are that nuclear power is horrendously expensive when compared to say gas powered plants.  This decrease in the cost of gas is because of the new and highly controversial fracking technology used in gas extractionthat  has lowered US prices substantially.  Generating electricity from nuclear power now costs are almost double that of gas.

The Rossing mine is simply experiencing the long term effect of what is certainly a dying industry. Rio sells most of its uranium from Rossing to the US and the EU and only a small portion to Asia.  In other words, Rio is selling uranium, a dying product into a dying market. Yet the Chinese market is different. China is bucking the global trend and is rapidly expanding its nuclear capacity and that is why the Husab mine is opening when others  appear to be on their last legs. The Chinese government has a problem; its citizens would like to breathe fresh air and not what passes for it in many of their hideously polluted cities. It now needs an energy source that does not create the level and type of  air pollution that its coal fired power plants have until now. As result China is  massively expanding the number of nuclear power plants to supply these needs. It is expected that China will more than double its nuclear capacity by 2020.

The Chinese owners of Husab mine are, unlike Rio Tinto,  not miners, they are owned by Taurus Minerals Limited of Hong Kong. Taurus is in turn a subsidiary of the China General Nuclear Power Company (CGNPC), Uranium Resources Co. Ltd. and the China-Africa Development Fund.ie the Chinese state power company. The difference between Rossing and Husab is the business model of their owners. The Chinese business model is vertically integrated and ultimately wants the uranium to assure security of supply for its expanding power industry. While the cost of uranium is a tiny portion of the total cost  of the electricity it generates  its regular supply is fundamentally important because you cannot just turn off a nuclear reactor for a week if you have no enriched uranium supply.  For Rio Tinto uranium is the only source of revenue from Rossing. On the other hand  uranium is a mere 10% of total cost of nuclear power for the Chinese. But it is an indispensable part of the electricity generating process and hence China must have  a reliable source of supply from a politically close source. Because the Chinese are in the electricity business the low price of uranium is a minor issue, for Rio it is a matter of life and death for its Rossing operations.

Rio Tinto is in the wrong business and must ultimately sell Rossing. Eventually, when it is even in a worse financial position than now  a willing buyer will scoop up the Rossing Mine at a low price and he will  very likely be Chinese. Namibia, Rossing and its employees will be better off when someone who owns the mine is in another business.

These are the views of Professor Roman Grynberg and not necessarily UNAM where he is employed.