Kazakhstan and Global Uranium Supply

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"The most important thing that is controlling the uranium market are the secondary sources. . ."

By now, those interested in the uranium industry are familiar with reports that Uranium One [TSX: UUU] is caught up in a scandal involving the now former head of Kazakhstan's state uranium firm (Kazatomprom), Mukhtar Dzhakishev.

The KNB (successor to the Soviet-era KGB) has arrested Dzhakishev and accused him of using offshore firms to steal billions of dollars worth of uranium assets from the wealthiest nation in post-Soviet Central Asia.

Rumors are circulating that political motivations are behind Dzhakishev's arrest. Some question how Dzhakishev could have stolen "more than 60% of state uranium deposits worth tens of billions of dollars," as the KNB claims, out from under such a heavily monitored and audited industry as exists in Kazakhstan.

"Mukhtar Dzhakishev was the latest businessman detained in what some have called a crackdown on executives with ties to opponents of President Nursultan Nazarbayev," said an Associated Press report Tuesday. "The arrest follows a string of widely publicized corruption cases and arrests in Kazakhstan, which is firmly controlled by Nazarbayev, his family and his allies," the report continued.

Uranium demand is expected to surpass supply levels as demand for nuclear fuel rises and the impact of the financial crisis on mine development and production capacity becomes much clearer.

Further impacts on supply will come in 2013 when the megatons for megawatts program that converts Russian nuclear warheads into reactor fuel comes to an end. By 2015, secondary supply lines from Russian and U.S. uranium stocks, which currently supply 40% of world needs, may fall to as low as 5%.

"The most important thing that is controlling the uranium market are the secondary sources, the uranium that has been mined in the past and diverted mainly for weapons purposes," said Chaitanyamoy Ganguly, head of IAEA nuclear fuel forecasts. "Maybe by 2015 to 2020, the secondary-source contribution will dramatically fall to 5% to 10% and then you'll need a lot of uranium from the mines."

The uranium industry needs uranium-rich countries like Kazakhstan. And many are confident the Kazakh government understands the importance such an industry plays in the future success of their nation.

So, despite its obvious potential for political risk, it's likely Kazakhstan will continue to attract key players in the uranium industry.

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