BHP Billiton buys third-party uranium

The price of uranium has begun to bite BHP Billiton as customers exercise options to buy uranium for $50 less than the spot price.

The contracts were originally signed some years ago by WMC Resources, bought by BHP Billiton in 2005, for sales of uranium from the Olympic Dam mine in South Australia. At the time of negotiation, the price of uranium had been steady for years at around $10/lb U3O8. As a means of incentive, negotiators included clauses whereby buys could opt to increase the volumes of the uranium transaction at the negotiated rate, thought to be locked below $20/lb.

However, since mid-2003 the price of uranium has escalated at an increasing rate, and with one pound of U3O8 now selling on the spot market for $85, some customers are taking advantage of the option at considerable expense to BHP as it must buy supplies of uranium beyond its own production capacity.

Not all customers are exploiting the situation, many reportedly take the view that BHP will be valuable partner in future. Olympic Dam is one of the largest uranium deposits in the world, with one third of the world's known uranium resources. Capacity there is set to triple to 15,000 lb/y by 2013 under a plan worth some A$5 billion ($3.95 billion)."