APRIL 1981 - VOLUME 2 - NUMBER 4
Uranium: The Most Strategic Mineral of All
by Steven A. Zorn
The winners in the international nuclear power game are the large corporations-such as Rio Tinto Zinc and Gulf Oil, which mine uranium; Westinghouse and Siemens, which manufacture reactors; and Commonwealth Edison and Pacific Gas and Electric, which sell nuclear power. The losers include workers in the industry _ who are exposed to continuing health hazards, consumers whose rising utility bills reflect the cost of plant failures and other company mistakes, and the general public, which is endangered by such events as the Three Mile Island near-melt-down, the unauthorized dumping of millions of gallons of radioactive water into New Mexico's Rio Puerco and other harbingers of environmental disaster.
To the list of losers must be added those Third World people and governments whose uranium resources are being mined. Under contracts reminiscent of the concession agreements of the colonial era, Third World countries receive little of the income generated by uranium mining, exercise virtually no control over the industry and see few multiplier effects or other social benefits.
Over the last two decades, Third World countries have made great efforts to achieve effective sovereignty over their natural resources, with uranium being a notable exception.
Gains have been made in achieving more equitable division of financial rewards, in government control, and in integrating the mining sector into the rest of the economy.
On fiscal issues, the old concession agreements' flat-rate royalties and low or nonexistent income taxes have been replaced by levies linked to the market price of the final product as with Jamaica's bauxite levy, and by income taxes that attempt to capture a large share of profits for the host country-Indonesia, Papua New Guinea and Tanzania all have excess-profits taxes.
On the question of state control, many countries have nationalized mines or purchased controlling interests in existing companies. For example, most new mining agreements are for relatively short periods-0-25 years, instead of the 80-100 year periods typical of old concessions. In some cases (Colombia, Papua New Guinea) the state holds only a minority equity interest in a mining project, but reserves a veto power over key management decisions of the foreign company.
On the issue of economic linkages between mining enclaves and the rest of the economy, most new mining investment agreements also provide, within the limits inherent in the capital -intensive nature of mining, for training and employment of host-country nationals, for local preference in the purchase of goods and supplies for the mining project, and in a few cases for local processing of minerals.
Most current world uranium production comes from a few industrialized countries; the U.S., Canada, South Africa and France together account for 77 percent of current production capacity (excluding the USSR, China, and Eastern Europe, for which accurate data are difficult to obtain ). The only significant uranium production in the Third World is in Niger, Gabon, and in Namibia which is under South African control. These three countries are major exporters, while Argentina, Brazil, India, Mexico and the Philippines produce small amounts for domestic use. Uranium exploration and production agreements have been signed with multinational companies, but mining has not begun in Bolivia, Chad, Colombia, Indonesia, Iraq, Tanzania and Zambia.
Significant proportions of uranium reserves and production in the U.S., Australia, and Canada are found on land belonging to indigenous peoples; the financial returns received and the amount of control exercised over uranium development by such peoples are frequently even less than in the case of Third World host countries.
The basic features of Third World uranium agreements, especially those in Niger, Gabon and Nambia, include:
In Gabon, the government of President Bongo signed an agreement in 1978 with a foreign consortium that included Union Carbide Corporation, Leon Tempelsman and Son, Inc. of the U.S: and the Compagnie Generale des Matieres Nucleaires (COGEMA), a subsidiary of the French atomic energy agency, CEA. The agreement, for evaluation and development of the Booue uranium deposit, has the following provisions:
These are, by current Third World mining industry standards, highly favorable conditions for the companies. The low royalty and tax holiday will mean little financial benefit will accrue to Gabon, and the agreement leaves effective control firmly in the hands of the foreign companies, provides little or no "spin-off" benefits for the rest of the economy, and neglects environmental and health issues.
A similar agreement is in effect in Gabon between the government and another foreign consortium, which includes the Rothschild group's Imetal, the French government agency CEA, and Minatome-itself a joint venture among two French state-controlled oil companies, Elf-Aquitaine and CFI--Total, and the aluminum-steel company Pechiney Ugine Kuhlmann.
In Niger, which has the potential for becoming the largest uranium exporter among Third World countries, several foreign consortia control uranium mining. One includes COGEMA of France, the Spanish state enterprise ENUSA, and the Overseas Uranium Resources Development Corp. of Japan, a group that links the major Japanese trading and industrial companies with their government through subsidies and tax concessions.
A second mining group in Niger includes the French companies COGEMA, Minatome, and the Rothschild group's Mokta, together with the West German and Italian state-controlled enterprises Urangesellschaft and Agip Nucleare.
A third agreement grants mining rights to a joint venture in which CEA of France and Conoco of the US are equal partners. Under the Conoco-CEA agreement of 1974, which is typical of Niger's uranium contracts, the two companies pay all exploration expenses, but the government must pay for its 30 percent share of development and operating expenses, either in cash or by borrowing from the companies, at an interest rate equal to half the US prime rate plus I percent.
Conoco will pay income tax at a rate of 40.5 percent (the US corporate tax rate is 46 percent), but the company receives a depletion allowance of up to 10 percent of capital investment or 33 percent of taxable income. A particularly unusual clause, which is normally strongly resisted by Third World mining contract negotiators, guarantees the companies that, if any other uranium mining firms receive more favorable terms in the future, those new terms will also apply to Conoco-CEA. Similar terms, including the "most favored company" clause, are found in Niger's earlier (1968) uranium agreement with the CEA of France.
Namibia, currently under illegal South African occupation, is the most significant Third World producer of uranium. The Rossing mine, operated by Rio Tinto Zinc Corporation (RTZ) of the UK, is the world's largest, with output approaching 5,000 tons of yellowcake (uranium ore) annually worth more than $300 million at the current price of $28 per pound. Under the South African-based legal system which has been applied to the Rossing mine however, no tax at all was payable from the mine's start-up in 1976 through 1980, as a result of very liberal investment write-off provisions. Beginning in 1981, the mine will pay tax at a rate of 40 percent, but it is likely that profits will be lower than they should be, since a considerable part of Rossing's output goes to the U.K., France and South Africa under long-term, low-price contracts. In addition to RTZ, Rossing's shareholders include the South African government's Industrial Development Corporation and the General Mining group of South Africa.
At hearings sponsored by the United Nations Council for Namibia last summer, investigators described in detail the way in which UK, French and West German multinationals and the governments of those countries have co-operated in evading international organizations' calls for a ban on trading in Namibia's resources. As a result of the mining of uranium at Rossing since 1976, a substantial part of Namibia's resources have been forever lost to the country's own people.
In a few developing countries none of which are major uranium producers-the terms of agreements are somewhat more favorable to the host government than in Gabon, Niger and Namibia. In Tanzania, for example, a uranium exploration contract with Urangesellschaft of West Germany includes provision for excess profits taxes, up to a rate of 75 percent when profits are greater than a 25 percent rate of return on the company's investment.
Why are the terms of these uranium agreements, in general, so much worse than in the case of other minerals? Five factors, all of which relate to uranium's unique nature as a nuclear fuel for weapons and power plants, are worthy of discussion: (1) the involvement of industrialized countries' governments in Third World projects; (2) the history of the world uranium market; (3) the relatively small share of Third World countries in total world uranium supply; (4) the high company concentration in the industry; and (5) the dependent status of all the major Third World producer countries.
Government involvement. Most foreign investment in Third World mining since World War II has been carried out by privately owned companies. In uranium, however, multinational enterprises owned by West European governments are major participants in worldwide exploration, development and production. COGEMA of France, as noted, is involved in Niger and Gabon, and has exploration projects in Bolivia, Indonesia, South Africa, Brazil, Iran and Iraq. Total, a subsidiary of the state-owned Compagnie Francaise des Petroles, has exploration agreements in Colombia and South Africa. Urangesellschaft is involved in Niger, Tanzania and Canada. And Agip of Italy has exploration rights in Bolivia and is involved in mining projects in Niger and the U.S.
While one might expect state-owned firms to be less insistent on high profits than private companies, and more concerned with political goals such as assuring the supply of critical raw materials, the available evidence in both uranium and oil suggests that the managers of state enterprises from the industrial countries are equally interested in profits, if only as a way of assuring their own independence from political control. This is particularly true for the French state enterprises. And government backed corporations seeking supplies of what is both a strategic mineral and a fuel are willing and able to drive extremely hard bargains.
The uranium market. Before 1970, uranium was primarily used for military purposes, the U.S. Atomic Energy Commission being the chief purchaser. Between the late 1940s and 1960, the AEC bought not only from U.S. mines, but also from the then Belgian Congo, Australia and South Africa. But as the AEC stockpile grew, foreign purchases were cut back, in order to keep U.S. producers in business. Similarly, when France became a major uranium user in the 1970s, it concentrated its activity at home and in those few uranium-rich ex-colonies that were firmly under French influence-particularly Niger and Gabon. Rather than a world market in which all producing countries compete, the uranium market is actually a series of contracted producers supplying government corporations or corporations acting as agents for their national governments.
The strategic nature of uranium also has concentrated Western exploration in. politically "safe" countries-the U.S., Canada and Australia. Partly as a result of this exploration bias, reported world reserves of uranium are concentrated in those countries as well.
Third World market share. Since uranium has always been dealt with as a security-related resource, with exploration and production concentrated in the industrialized nations or their client states, the total Third World share of the market has remained small. In 1980, the U.S., Canada, South Africa, France and Australia together accounted for 77 percent of production outside the USSR, China and Eastern Europe: with new projects currently underway in Australia, South Africa and Canada, this figure will rise to 78 percent in 1982. All Third World countries together account for only 21 percent of current production, and almost all of that is in politically dependent Namibia and economically dependent Gabon and Niger.
The uranium producers' and importers "club" is both powerful and exclusive. The minor share of the market held by Third World producers, and the currently low level of worldwide demand, leave Third World producers in an extremely poor bargaining position.
Company concentration. In such industries as iron ore, copper, and even bauxite/ aluminum, there has been an increase in worldwide competition over the past two decades, as new companies and Third World state enterprises have become important producers. In the uranium industry, however, the French, West German and Italian state enterprises, plus a few multinational companies-Rio Tinto Zinc, Gulf Oil, ARCO (through its Anaconda subsidiary), Kerr-McGee, Exxon, Mobile and the Rothschild Group of France - effectively control at least 80 percent of current production capacity.
The producers' cartel that formed in the 1970s, which was partially responsible for the increase in uranium's spot price from $6.50 a pound in 1973 to $43 in 1978, was principally an attempt by non-U.S. producers in the industrialized world to upgrade their income and their control within the industry relative to the U.S. Regardless of the immediate motives behind that cartelization, the mere fact of high concentration is a source of bargaining power for the companies in their dealings with any buyer.
Colonial dependence. Those Third World nations where uranium is being produced are among the least able to negotiate effective contracts. Namibia, of course, remains subject to South African control. The regimes which hold power in Niger and Gabon are heavily dependent on France for economic, technical, and military support. The situation is in sharp contrast to the cases of petroleum, bauxite, or copper, where major Third World producers have been willing and able to renegotiate unfair agreements or simply to act unilaterally to establish more reasonable terms. The success of Tanzania in negotiating an excess profits tax in its agreement with Urangesellschaft is an example of what a more politically and economically independent government might be able to achieve.
Behind all these considerations lies the fact that uranium is the most strategic mineral of them all, and one found in large quantities in the industrialized countries' own mines. With a powerful lobby now at work in the U.S. to get the Reagan administration behind a 'program to increase U.S. control of many other "strategic resources," wherever they may be found, the prospect looms that multinational mining companies could seek to use uranium agreement precedents to roll back gains made by host countries in other mining contracts. When multinationals team up with governments of industrialized nations, Third World authorities are exceptionally vulnerable at the negotiating table.
Stephen A. Zorn is a technical adviser to the United Nations Centre on Transnational Corporations. The views expressed are those of the author and do not necesarily represent the views of the United Nations.