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PP RUEHGA RUEHHA RUEHPA RUEHQU RUEHVC
DE RUEHNM #0641/01 1281633
ZNY CCCCC ZZH
P 081633Z MAY 07
FM AMEMBASSY NIAMEY
TO RUEHC/SECSTATE WASHDC PRIORITY 3455
INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE
RUEHZK/ECOWAS COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0167
RUEHMD/AMEMBASSY MADRID 0244
RUEHFR/AMEMBASSY PARIS 0524
RUEHIN/AIT TAIPEI 0050
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF INTERIOR WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHUNV/USMISSION UNVIE VIENNA 0015

C O N F I D E N T I A L SECTION 01 OF 05 NIAMEY 000641 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 05/04/2017 
TAGS: EINV EMIN ENRG ETRD PGOV PREL NG BBSR BTIO
ECON, EIND, ETTC 
SUBJECT: NIGER PROFITS FROM URANIUM IN REVITALIZED MARKET 
 
REF: A. NIAMEY 610 (NOTAL) 
     ¶B. 06 NIAMEY 303 (NOTAL) 
     ¶C. WINSTEAD-HARKENRIDER E-MAIL OF 4/27/07 
     ¶D. 06 NIAMEY 1055 (NOTAL) 
 
NIAMEY 00000641  001.2 OF 005 
 
 
Classified By: POLITICAL OFFICER ZACH HARKENRIDER FOR REASONS 1.4 (B&C) 
 
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SUMMARY 
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¶1. (C) For the first time since 1983, the Government of Niger 
(GON) will exercise its right to purchase and sell some of 
the country's uranium production this year. Moreover, it may 
sell its share (anticipated to be 300 tons this year and as 
much as 1,045 tons/year from 2008) to an American power 
generation firm - Excelon - which appears interested in 
buying as much as the GON has to sell. GON officials 
anticipate a ten-year contract with Excelon, and continued 
high market prices for uranium until 2015 or 2017. 
Thirty-year high prices and Excelon's expressed interest in 
purchasing ore have led the GON to take on a more active role 
in the sale of its most valuable export. It has also led it 
to trade some of the security offered by traditional price 
floor arrangements for more flexibility - as embodied in the 
GON's new contract clause that requires mining companies in 
all fields to sell for "the highest possible price." By 
seeking higher prices and awarding new exploration permits to 
Canadian and Chinese companies, the GON has to some extent 
sidelined the French company Areva, the major shareholder in 
Niger's uranium mining companies and the largest purchaser of 
Nigerien uranium.  China's CNUC (Chinese National Uranium 
Corporation) will begin mining uranium in Niger as early as 
2009, producing an estimated 700 tons/year.  END SUMMARY 
 
---------------------------- 
WHAT IS WHAT AND WHO IS WHO 
IN THE NIGER URANIUM SECTOR? 
---------------------------- 
 
 
¶2. (C) ONAREM - the "Office National des Ressources Minieres" 
- is the division of the Ministry of Mines and Energy 
responsible for managing the GON's shares in local extractive 
industries, regulating the mining industry, and negotiating 
with purchasers on behalf of the government. Its current goal 
is to ensure that the world's least developed country gets 
top dollar for its exploitable resources. Its Director 
General (DG), Illiassou Abdourhamane, is a former mining 
engineer who has run the office for the last nine years. His 
immediate superior is the Secretary General (SG) of the 
Ministry of Mines and Energy, another mining engineer named 
Amadou Abdoul Razack. Both men are "old uranium hands," and 
offered a combination of technical expertise and historical 
knowledge in meetings with Emboffs. Poloff interviewed the SG 
on April 23 and, (with ECONOFF), the DG on May 3. Both men 
gave frank, detailed assessments of the structure and future 
of Niger's uranium mining industry. 
 
¶3. (SBU) Currently, only two companies mine and process 
uranium in Niger: SOMAIR (Societe des Mines de l'Air) and 
COMINAK (Compagnie Miniere de l'Acouta). Both have always 
been joint ventures between the GON and several traditional 
purchasers of Nigerien uranium, a relationship reflected in 
their ownership structure: 
 
SOMAIR shareholders 
------------------- 
ONAREM (GON)   - 36.6 percent 
AREVA (France) - 63.4 percent 
 
COMINAK shareholders 
-------------------- 
ONAREM (GON)   - 31 percent 
AREVA (France) - 34 percent 
OURD (Japan)   - 25 percent 
ENUSA (Spain)  - 10 percent 
 
¶4. (SBU) Each shareholder has the right to purchase a 
percentage of production equal to its percentage of shares. 
 
NIAMEY 00000641  002.2 OF 005 
 
 
Thus, the GON has always had the right to purchase (and 
re-sell, as Niger produces no nuclear power) 36.6 percent of 
SOMAIR's and 31 percent of COMINAK's annual production. The 
GON did so from the 1970s until 1983, when a combination of 
low market prices and concerns about its international legal 
responsibilities prompted it to stop. During that period, the 
GON's customers included Dutch, Belgian, German, Libyan, 
Iraqi and Pakistani purchasers. With production declining 
from 4,000 tons in 1981 to just 700 tons in 1983, even the 
foreign shareholders failed to exploit their full quotas, 
although they purchased ore at above-market prices negotiated 
annually with SOMAIR and COMINAK in order to maintain the 
mining companies in which they had invested. NOTE: In the 
case of COMINAK, a more rigid contract compelled the French 
not only to set a price, but to purchase two-thirds of the 
company's annual production. END NOTE. 
 
¶5. (C) The security of the negotiated price-floor (which, in 
1981, was twenty percent higher than the global market 
price), kept SOMAIR and COMINAK afloat and the GON satisfied, 
even as the mining town of Arlit lost the expat community and 
facilities that made it a "little Paris" in the 1970s (reftel 
A). The payoff for consortium purchasers like Areva came when 
prices rose, and the GON agreed to prices below market 
levels. Today, the GON is on the verge of re-entering the 
market, and at least temporarily abandoning the security of 
negotiated price floors for the allure of short-term profit 
maximization. The days of trading profit on crests for 
security in troughs are over - at least for now. 
 
¶6. (C) COMINAK and SOMAIR are in the final year of a 
three-year contract (2005-7) that sets the price per kilo at 
27,300 CFA ($56.75), as compared to the current market price 
of about $275 per kilo. The DG noted that in the 2004 
negotiations the mining companies got a ten-percent price 
hike in exchange for the three year contract. He also told 
Emboffs that the GON (through ONAREM) would play a direct 
role in this year's negotiations for the first time since 
¶1983. Past practice had consisted of COMINAK and SOMAIR 
executives negotiating an annual price each December with the 
purchasers; those executives looked out for the GON/ONAREM's 
interests as a fiduciary would for a shareholder, and 
produced results that satisfied the GON during the period of 
low prices. Given that the GON had not been a purchaser since 
1983, it did not assume a large role in the negotiations. 
ONAREM will now deal directly with the consortium of 
traditional buyers. DG Abdourhamane, who will be the 
principal GON negotiator during this summer's contract 
renewal talks in Paris, is preparing for a tough slog. There 
is evidence that Areva (which traditionally also negotiates 
on behalf of Spanish shareholder ENUSA) is upset with Niger's 
more assertive policy. 
 
¶7. (C) Youssouf Mazou, head of the GON's Office of Geological 
and Mineral Research, runs the Ministry division that awards 
exploration permits. In conversations with Econ assistant, 
Mazou noted that Areva wanted to have at least fifty percent 
of the new uranium exploration licenses, but the GON refused. 
Areva was not made aware that the GON had signed the first 
new exploration license with a Canadian company until the 
deal was concluded. Mazou also claimed that Areva's 
resistance to the GON's demands for a higher price 
contributed to his office's decision to issue exploration 
permits to new Canadian and Chinese ventures. Thus hedged, 
Mazou indicated, the GON would be better positioned to 
negotiate with Areva. 
 
¶8. (C) DG Abdourhamane was unsure whether negotiations will 
yield a one-year contract or longer arrangement, but seemed 
indifferent. He stressed that the GON's recent shift from 
long term security to short term profit maximization was a 
function of higher prices. In 2004, ONAREM began to insert a 
profit maximizing clause into its agreements with mining 
companies, for the first time explicitly requiring them to 
sell their product at the highest possible price. 
 
¶9. (C) COMMENT: The insertion of the "highest possible price" 
clause into agreements with gold and uranium mining firms 
signals Niger's shift, in this era of high prices, from 
long-term security to short-term profit maximization, but not 
 
NIAMEY 00000641  003.2 OF 005 
 
 
all of the impulses behind this are economic. The shift in 
emphasis may have much to do with the current political mood 
in Niamey. Niger President Mamadou Tandja peppers his public 
remarks with claims that Niger is on the road to better days 
thanks to rising prices for its ores, and new discoveries 
thereof. The GON was embarrassed by the food crisis of 2005, 
and by its dead-last ranking on the UNDP Human Development 
Index in 2005 and 2006. Vocal optimism about the durability 
and transformational effect of high metal prices is a 
response to this, and that political position dictates 
actions and mood at the working level. While experienced 
technocrats like the DG and SG know that optimism about high 
long-term prices may prove ill-founded, the political class 
(which includes Minister of Mines and Energy Mohamed 
Abdoulayi, a political appointee thought to have little 
substantive knowledge of his portfolio (reftel B)) may have 
set a tone they are compelled to parrot. If so, DG 
Abdourhamane played the part convincingly. END COMMENT 
 
------------------------- 
HOW DOES NIGER PROFIT 
FROM THE SALE OF URANIUM? 
------------------------- 
 
¶10. (C) Whether viable in the long-term or not, Niger's move 
toward short-term profit maximization will focus on the 
principal streams of revenue by which the country profits 
from the sale of its most marketable commodity. Niger profits 
from uranium mining in four ways: The GON levies a per-ton 
tax on the quantity of uranium exported each year. As prices 
rise, so too will production and thus tax revenue. There 
appear to be no plans afoot to change this tax rate. The GON 
also levies a corporate income tax; again, revenue will rise 
even without a rate increase. Through ONAREM, the GON 
receives dividend payments on its stock and royalties on 
mined uranium, which derive from the sale price. After this 
year's negotiations with the consortium buyers produce a 
markedly higher sale price, royalties will rise and 
SOMAIR/COMINAK stock will yield higher dividends. Now, there 
is the added promise of the direct sale of thirty-some 
percent of mined ore to a new American buyer. 
 
------------- 
ENTER EXCELON 
------------- 
 
¶11. (C) For the first time since the early 1980s, Niger has a 
potential buyer outside of the traditional consortium (Areva, 
OURD, and ENUSA). In a March 26 letter to Emboffs, Excelon 
President and Chief Nuclear Officer Christopher M. Crane 
announced his company's "interest in entering into an 
agreement with the Republic of Niger to meet a portion of our 
uranium supply needs." Noting that Excelon "is the largest 
buyer of uranium in the United States," Crane looked forward 
to "working with our government and the government of Niger 
to obtain the necessary regulatory approvals and ensure that 
the agreement is consistent with all relevant domestic and 
international standards." 
 
¶12. (C) DG Abdourhamane stressed ONAREM's concern with 
legality and standards in his discussion with Emboffs. ONAREM 
hasn't sold ore since 1983, and wants to be sure that it does 
it right. He noted that ONAREM would require documentary 
proof from purchasers and their governments that uranium 
purchases will be for civil nuclear power generation only; 
that the ore will be used by the purchaser and not 
transferred to a third party; and, that the purchaser's 
country of origin is party to all relevant international 
treaties. 
 
¶13. (C) DG Abdourhamane discussed a meeting in Toronto with 
executives of Excelon and a subsequent phone conversation in 
which the principles of a purchasing agreement were laid out. 
According to Abdourhamane, Excelon is interested in entering 
into a long-term (i.e. 10 year) agreement to purchase "as 
much ore as Niger can sell" to them. Abdourhamane noted that 
an Excelon team would be in Niger from May 15 to continue 
discussions. 
 
-------------------------------- 
 
NIAMEY 00000641  004.3 OF 005 
 
 
RISING PRICES, RISING PRODUCTION 
-------------------------------- 
 
¶14. (C) Poloff asked DG Abdourhamane and SG Amadou about 
Niger's production. Both anticipated greater quantities for 
sale, for three reasons: the expiration and re-negotiation of 
COMINAK's quota system; expanded production at current mines; 
and, new Areva and Chinese-owned mines coming on line. 
 
¶15. (C) Speaking to aggregate production levels, Abdourhamane 
anticipated annual production of 4,860 tons by 2011, compared 
to just 3,750 tons today. 
 
          Current Production  Anticipated 2011 Production 
          ------------------  --------------------------- 
 
SOMAIR       1,800 tons               2,200 tons 
COMINAK      1,950 tons               1,960 tons 
Chinese        none                     700 tons 
 
¶16. (C) COMINAK would increase production, though marginally. 
It is limited by high capital costs for replacing old 
equipment and maintaining its underground mine, which is 
yielding less than it used to. In the 1970s, COMINAK could 
produce up to 2,000 tons per annum; now, 1,950 is considered 
a more reasonable maximum. SOMAIR's production will rise 
thanks to a new mine near Imourarene in northern Niger. 
China's CNUC will open its mine at Teguidda-n-Tessoumt by 
2010, adding another 700 tons to Niger's total. Neither DG 
nor SG mentioned the Canadian mining company Northwest 
Mineral Venture, which has prospecting rights near Ingal 
(reftel D). That company too may start to produce in the long 
term. Other companies with exploration rights in Niger are: 
SEMAFO, North Atlantic, Trendfield, Ura Mines, and Ira Mines 
(all apparently Canadian). 
 
¶17. (C) All of this amounts to added flexibility for ONAREM, 
which has a 30 percent option on the production of the new 
Imourarene mines. Noting that 2007 was too far along for 
ONAREM to obtain much more than 300 tons of an estimated 
1,800 tons of SOMAIR production, Abdourhamane argued that 
Niger would claim more of its quota next year, when it would 
purchase and re-sell 300 to 400 tons of COMINAK ore and 645 
tons of SOMAIR ore. He predicted that ONAREM would stick to 
that level for the near future, enabling it to sell between 
945 and 1,045 tons a year to interested buyers such as 
Excelon. In theory, by 2011, ONAREM would be able to sell 
another 120 tons - 30 percent of the anticipated Imourarene 
yield. 
 
----------------------------- 
POOR COUNTRY, RICH SECTOR: 
WHAT URANIUM CAN DO FOR NIGER 
----------------------------- 
 
¶18. (C) Uranium's promise has always been compelling in the 
world's least-developed country, and the past informs 
Nigeriens' reactions to today's rising prices. The uranium 
boom of 1975-1981 helped Niger to recover from a period of 
drought and famine (1968-73). GDP growth from 1975 to 1981 
averaged 12 percent a year, while per capita GDP rose from 
$120 in 1974 to $300 in 1980. Judicious use of uranium 
revenues by the military regime of General Seyni Kountche led 
to a building boom in Niamey, and road, school, irrigation 
project, and health clinic construction across the country. 
Nigeriens look on the Kountche period as one of 
good-governance, social stability, and uranium-based economic 
growth -- often contrasting it with today's reality. DG 
Abdourhamane noted that the Ministry of Mines and Energy, one 
of Niamey's most striking buildings, was built by ONAREM in 
1981 at a cost of over $4 million. The present dilapidated 
condition of GON office buildings is one visible index of how 
far the country has fallen since. Abdourhamane expressed hope 
that uranium revenues would again help Nigeriens reach their 
development goals. Coming after a food crisis in 2004-5 and 
two successive years of dead-last rankings on the UNDP Human 
Development index, today's "boom" inspires hope in many. 
 
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COMMENT 
 
NIAMEY 00000641  005.4 OF 005 
 
 
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¶19. (C) Popular excitement aside, the GON needs to balance 
the allure of higher short term profits with long term price 
stability. Unlike in the past, the GON now seeks to do that 
by diversifying production in the sector. Where "hedging" in 
the 1970s meant trading profit for price floors with a 
limited number of traditional buyers, in today's more 
flexible global market the GON is able to hedge by inviting a 
diverse array of investors into the sector. 
 
¶20. (C) The GON's profit maximizing behavior, the likelihood 
of sustained high prices over the next decade, and interest 
from new Canadian and Chinese investors augers well for the 
future. Providing revenue is well spent, Niger may again 
realize significant development gains. There are already 
ideas on the table. One new plan calls for sharing 15% of 
mining royalties (for all minerals) with the local 
communities of the mining zone. This would answer local 
commune governments' critical need for enhanced revenue, and 
Tuareg claims of unfair revenue sharing by southern-dominated 
GON. ONAREM anticipates negotiations yielding new contracts 
with purchasers by September. It remains to be seen how much 
more revenue Niger obtains, where, and with what degree of 
transparency and efficacy it uses it. 
 
¶21. (C) The prospect of purchasing by an American firm is 
significant. Bi-lateral trade is limited, and no major 
American companies do business with Niger. The "Nigerien 
street" would likely react positively to news of an American 
buyer. For a better informed audience within the GON, the 
prospect of a deal with Excelon - coming on the heals of new 
relationships with Canadian and Chinese exploration firms - 
confirms that Niger will profit from unprecedented 
flexibility and choice in a reinvigorated global market. END 
COMMENT 
ALLEN