ECON 309 Canada Role in A Uranium Cartel Questions

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Canada’s role in the
international uranium cartel
Larry R. Stewart
The 1973 Arab oil embargo and the unilateral raising of oil prices by the
Organization of Petroleum-Exporting Countries (OPEC) radically altered the
nature of international economic relations. Both the striking success achieved
by OPEC in exercising monopoly power in a major international market and
the rapid increases in commodity prices between 1972 and 1974 spawned hopes
and fears of the cartelization of other commodities. In the Third World, this
possibility of attaining economic and political equality with the developed
world meant a renewed interest in the formation of producer associations and
cartels.’ In most of the industrialized world, especially the United States,
western Europe, and Japan, increased cartelization of raw materials created
concern over trade-induced shortages.
International trade in fuel and nonfuel minerals has become “high
politics” in foreign policy, placing resource-rich countries in a prominent
I would like to thank Professor David Cox of the Department of Politics at Queen’s University,
Kingston, Ontario for his helpful advice. An earlier version of this paper was presented at the 1980
annual meeting of the Canadian Political Science Association in Montreal, P. Q.
1
An international producer cartel is an agreement among raw materials suppliers located in different countries to raise the price of a specific commodity by restricting exports and fixing prices.
In a producer association, producer-exporters of the same commodity formally cooperate to
achieve common objectives. Producer associations have been formed to stabilize production or
eliminate excessive price fluctuations, or both, hold market prices above production costs,
counterbalance the power of private multinational corporations, secure a strong bargaining position from which to negotiate with consumers, and disseminate information among members in
political, economic, and technical matters. In striving for these objectives a producer association
stops short of price-fixing.
International Organization, 35,4, Autumn 1981
0020-8183/81 /0004-0657 $01.00
© 1981 by the Board of Regents of the University of Wisconsin System
657
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658
International Organization
world position. Indeed, the greatest potential for the successful creation of
mineral cartels lies not with the countries of the developing world but rather
with mineral-rich countries such as Canada. Yet the increased importance of
these resources holds both beneficial and harmful elements for Canada’s
foreign policy. If Canada pursues a policy of self-interest by supporting producer associations and cartels, it may have to oppose the policies of its closest
allies—the industrialized countries. In stark contrast, if Canada supports the
industrialized countries, which are near-unanimously opposed to producer
associations and cartels, it must forego some of the domestic economic benefits it would have received had it supported these organizations.
One of the tenets of Canadian foreign economic policy since Canada
joined the first International Tin Agreement in 1956 has been to avoid membership in international cartels. Official policy restricts national participation
to international marketing arrangements that represent the interests of both
consumers and producers, because Canada is both a major exporter and importer of raw materials.
Canada has consistently rejected membership in Third World producer
associations; but to this pattern there is one glaring exception. In early 1972,
prior to the creation of many of these producer associations, Australia,
France, South Africa, Canada, and Rio Tinto Zinc of Britain formed an international cartel to control the world price and supply of uranium through a
complex scheme of price-fixing, bid-rigging, and the allocation of markets.
The cartel operated effectively in secrecy until the summer of 1976 when hundreds of pages of documents detailing its activities were covertly removed from
the files of Mary Kathleen Uranium Ltd., an Australian-based uranium producer, and publicly exposed by the Australian Friends of the Earth, an internationally-affiliated conservationist group.2
By revealing the existence of the international uranium cartel, the Friends
of the Earth had hoped to embarrass Australian uranium producers, depress
export revenues from uranium, and thereby reduce the chances of further uranium mining in Australia. Yet the disclosure generated international implications stretching far beyond their national objectives. Nowhere did the release
of this information and subsequent governmental responses have a greater impact than in Canada. Canada’s participation had broken with its traditional
foreign policy and exemplified the high level of dependence of Canada’s
uranium industry on American government decisions.
!
Shortly thereafter Jim Harding, special advisor to the California Energy Resources Conservation and Developing Commission, received copies of the documents from his former colleagues at
Friends of the Earth in Australia. Harding then released copies to the United States Justice
Department and Congress. In November 1976 a House of Representatives subcommittee held
hearings on the subject: United States, Congress, House, International Uranium Supply and Demand, Hearing before the Subcommittee on Oversight and Investigations of the Committee on
Interstate and Foreign Commerce, 94th Congress, 2nd sess., 4 November 1976 (Washington,
D.C.: Government Printing Office, 1977). Hereinafter referred to as Hearing 1976.
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https://doi.org/10.1017/S0020818300034275
Canada in the uranium cartel
659
In a world where uranium has become a strategic resource important in
the energy, defense, and nonproliferation policies of many nations, the role of
the Canadian government in the international uranium cartel and related
events raises many questions, several of which this essay will address. What
were the various factors that led Canada to break with established foreign
policy and participate in the cartel? Which factors influenced Canada’s actual
role in the cartel? Why did the government attempt to keep its participation
secret? What were the domestic and international implications for Canada of
this action? What does this case-study reveal about the formulation and implementation of Canadian foreign policy with respect to cartels?
The uranium cartel and Canada
Prior to the discovery of nuclear fission, uranium had little market
value. As a result of the development of atomic energy, the administration of
Franklin Roosevelt began a uranium purchasing program in 1942 in order to
satisfy the needs of the Manhattan Project for the construction of nuclear
weapons and to provide fuel for government-owned experimental reactors.
Early American uranium demand was filled primarily by sources in Canada
and the Belgian Congo. With the intensification of the Cold War the market
for uranium grew, as both the United States and the United Kingdom increased their production of nuclear weapons. Accordingly, the United States
Atomic Energy Commission (AEC), which was established to assume management of the government’s program, accelerated its purchasing of uranium and
encouraged the growth of an American uranium industry.
Yet by 1959, due to the rapid increase in American uranium reserves and
the constant inflow of foreign supplies, supply began to exceed demand and
the AEC announced purchasing cutbacks. This collapse in demand for uranium led to serious problems for foreign producers. In many cases producers
withdrew completely from the market, while others simply cut back production. In this buyer’s market price-cutting became common practice, while
those industries that managed to survive tended to mine only high-grade
deposits requiring smaller capital investments. During this period no major
AEC contracts were let and expiring procurement contracts were not renewed.
In 1964 the AEC issued a regulation banning the use of Americanenriched foreign uranium in domestic reactors,3 thereby eliminating access for
foreign producers to 70 percent of the world market. The AEC had imposed
this restriction to protect the domestic market from foreign competition during the transition from a government to a commercial market after the passage
‘ Uranium from foreign sources could still be enriched in the United States and American
utilities could buy and stockpile uranium, but it could not be used in domestic reactors.
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of the Private Ownership Act of 1964, and to promote energy self-sufficiency
for strategic reasons under a plan known as Project Independence. Three years
later, the AEC further antagonized international uranium producers when it
began to compete aggressively for the remaining 30 percent of the world
market by offering enriched uranium for $8.00 per pound. Intense price competition and a persistent slippage in demand, as reactor construction in the
United States was unexpectedly delayed, resulted in a further decline in
uranium prices. The world price for uranium was approximately $1.00 lower
than in the American market; and the oversupply problem was aggravated in
the late 1960s by large discoveries in Australia.4 The competitive threat posed
by abundant, low-cost, foreign uranium supplies to the American domestic
market strengthened the resolution of American domestic producers and the
AEC not to allow the use of foreign uranium in American reactors.
The AEC had enacted the foreign uranium embargo unilaterally to solve a
domestic problem with apparently little or no consideration of possible foreign
policy implications. At the time, Canada and South Africa were the only major producers of uranium outside the United States. South African companies
were not severely affected: their total annual production of uranium was less
than Canada’s, and uranium was mined as a by-product of gold-mining operations, requiring little capital investment and no increase in the labor force.
On the other hand, the Canadian uranium industry was seriously affected
by the changes in American policy; for it had been created by, and therefore
was (and is) dependent upon, the demand generated for uranium within the
United States. Canada had no comparable market in which to sell its uranium
and government officials were faced with the problem of supporting the
populations of numerous mining communities, which were solely dependent
on the export of uranium for revenue, employment, and survival.
In an attempt to soften the immediate negative effects on these communities and the uranium industry as a whole, the Canadian government negotiated stretchouts with the AEC on deliveries of existing contracts until 1966.
In addition, uranium stockpiling programs were initiated by Prime Minister
Pearson in 1965 to ensure the continued existence of the mining communities.3
During the implementation of these stockpiling plans it was widely believed
that it would only be a matter of time before uranium would again be in strong
demand.
Throughout the late 1960s and early 1970s the Canadian federal govern4
Letter dated 8 September 1972, from Roy D. Jackson Jr., former Gulf Oil Corporation
counsel, to N. M. Ediger, general manager of Gulf Minerals Canada Ltd., quoted in United
States, Congress, House, International Uranium Cartel, volume 2, Hearing before the Subcommittee on Oversight and Investigations of the Committee on Interstate and Foreign Commerce,
95th Congress, 1st sess., 8 December 1977 (Washington, D.C.: Government Printing Office,
1978), p. 195. Hereinafter referred to as Hearings 2.
1
Canada, House of Commons, Debates volume 11, 3rd sess., 26th Parliament, 3 June 1965
(Ottawa: Queen’s Printer, 1965), pp. 1948-1949.
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Canada in the uranium cartel
661
ment persistently expressed its continued displeasure and urged the removal of
the American importation ban. Canadian officials considered the ban to contravene the General Agreement on Tariffs and Trade and to be the equivalent
of price-rigging.6 All attempts to have the embargo repealed ended in failure.
By late 1971 the government had spent over $100 million on the industry,
had formed Uranium Canada, a Crown Corporation, and had entered into a
joint venture with Denison Mines Ltd. to maintain stockpiles, a move aimed at
guaranteeing a minimum production level over the 1971 to 1974 period.
Twenty-two mines had been closed,7 the market was suffering from oversupply, price competition was intense, and it appeared unlikely that the
American borders would be reopened to foreign uranium. The number of exploration permits issued by Canada’s Atomic Energy Control Board reveals
the drastic decline in the search for uranium: in 1969, seventy had been
granted; in 1970, fifteen were issued; and in 1971, only two companies were involved in exploration.’
At this time, three additional events helped to push Canada toward international action. The first was the so-called German “offset agreement,”
whereby the United States sold a large quantity of uranium to West
Germany.’ The second was the AEC’s decision to dump ten thousand tons of
its uranium stockpile in foreign markets. The third event, which preceded by
two months Canada’s decision to explore a cartel, was President Nixon’s 15
August 1971 “New Economic Policy” measures, which ended dollar-gold convertibility and levied a 10 percent import surcharge. Unquestionably, this last
event vividly demonstrated to Canadian government officials Canada’s increasing vulnerability to changes in American domestic policies. Yet the second event was probably more significant in triggering the decision to form a
* Canada, Department of Energy, Mines and Resources, Press Release (14 October 1977), p. 2.
Further, a Canadian delegation expressed its concern over the American policy in June 1969 to the
GATT Committee on Trade in Industrial Products: “Canadians Accuse U.S. of Doing the PriceFixing in Uranium,” Nuclear Fuel, 15 November 1976, p. 12. A similar representation was made
at the thirteenth meeting of the Joint Canada-United States Committee on Trade and Economic
Affairs held on 23-24 November 1970. See International Canada 1,1 (November 1970), p. 229.
‘ Memorandum dated 1 May 1972 from O. J. C. Runnalls re meeting of international uranium
producers in Paris, 20-21 April 1972; quoted in United States, Congress, House, International
Uranium Cartel, volume 1, Hearings before the Subcommittee on Oversight and Investigations of
the Committee on Interstate and Foreign Commerce, 95th Congress, 1st sess., 2 May; 10, 16, and
17 June; and 15 August (Washington, D.C.: Government Printing Office, 1977), p. 476. Hereinafter referred to as Hearings I.
‘ Gulf File Note—Canadian uranium producers’ meeting, Ottawa, 15 February 1972. Written
by N. M. Ediger, manager of Gulf Minerals Canada Ltd., quoted in Hearings I, p. 458. The
reduction in exploration activity in Canada may be explained not only by the low price for
uranium but also by ownership restrictions in the uranium industry proposed by the federal
government, and the prevalent climate of economic nationalism.
* 2/9/72 memo, M. C. Compton to F. C. Love re “Foreign Uranium Market Discussions Held
in Paris,” quoted in volume 2, Attachment to Westinghouse Electric Corporation’s Request for
Admissions to the Defaulting Defendants (MDL 342), U.S. District Court, Chicago, Illinois. This
arrangement was intended to reduce pressure on the American balance of payments caused by the
stationing of its NATO troops in West Germany.
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uranium cartel, as it became obvious that demand and supply pressures for
uranium would not balance before 1980. In a period of strong economic nationalism characterized by proposals for tough foreign investment laws and
the need to protect its large investment in stockpiling programs, the government seemed open to new foreign policy options.
Confronted with damaging American policies and bleak prospects for
uranium, the Canadian government initiated bilateral negotiations with consumers and producers of uranium in an attempt to improve the market situation.10 All efforts failed. It was then that Canada and other major uranium
producers of the world, excluding the United States, turned to the covert manipulation of the world market to solve their problems.
The original meetings to explore the possibility of creating an international cartel to control uranium prices were held in Paris on 1-4 and 7-8
February 1972, under the pretense of forming a “joint market research
organization.” In attendance were representatives from Canada, Australia,
France, South Africa, and Rio Tinto Zinc Ltd. (RTZ), a multinational corporation based in London.”
The exact origin of these meetings is unknown, although numerous explanations have been offered. One possibility is that the initial Paris meetings
were the direct result of bilateral discussions during 1971 between Canada and
France, Japan, South Africa, and West Germany, concerned with the creation
of a stable uranium market.12 A Gulf Oil Corporation official has contended
that the initial discussions were held between Canada and Australia.13 Ac10
In 1970, Mr. Green, minister of Energy, Mines and Resources, visited Japan and asked for a
consumer-producer arrangement that would help the deteriorating situation in Canada. This appeal was repeated in 1971 but the Japanese were not responsive in either case. In October 1971
Jack Austin of Energy, Mines and Resources visited France to discuss the problem, while a Canadian delegation approached the West German government at approximately the same time. See
“Summary of Testimony of O. J. C. Runnalls,” CluffLake Board of Inquiry, Phase V of Formal
Hearings Summary no. 5 (26 August 1977), pp. 4-5. This sequence of events is supported by G. M.
MacNabb, Department of Energy, Mines and Resources and president, Uranium Canada Ltd. in
“Nuclear and Uranium Policies,” address to the Canadian Nuclear Association annual convention, Ottawa, June 1975, p. 24.
” Specifically, the corporations from Canada were Rio Algom Ltd.; Gulf Minerals Canada Ltd.
(GMCL), the Canadian subsidiary of the Gulf Oil Corporation; Uranerz Canada Ltd. (UCL), a
West German company involved in a joint venture development with GMCL at Rabbit Lake,
Saskatchewan; Denison Mines Ltd.; and Eldorado Nuclear and Uranium Canada, both Crown
Corporations. France was represented by Uranex, which acts as a marketing agency for French
uranium companies, while South Africa voiced its opinions through the Nuclear Fuels Corporation, its marketing body. While not present at the initial Paris meetings, companies from Australia
would later include Queensland Mines Ltd., Pancontinental Mining Ltd., Peko-Wallsend Ltd.,
Electrolytic Zinc, and Ranger Mining Ltd. Government officials from Britain and West Germany
did not attend these exploratory meetings but were kept informed of developments.
12
Gulf Oil Corporation File Note—Canadian uranium producers’ meeting, Ottawa, 15
February 1972. Written by N. M. Ediger, manager of GMCL, quoted in Hearings 1, p. 459. This
opinion was given as a statement of fact by Deputy Minister of Energy, Mines and Resources and
President of Uranium Canada Jack Austin. These discussions were initiated by the Canadian
government.
13
Draft report dated 10 July 1972 re Uranium Research Organization, prepared by Mr. O’Hara
of Gulf Oil Company, quoted in Hearings 2, p. 73.
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Canada in the uranium cartel
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cording to yet another theory, representatives of RTZ approached the French
government, which in turn contacted Canadian officials.” A variant of this explanation suggests that in early 1971 representatives of RTZ, through its Canadian subsidiary Rio Algom Ltd., directly approached Canadian officials in the
Department of Energy, Mines and Resources, who then relayed the scheme to
and gained the approval of the Canadian cabinet.” The belief that RTZ was
the driving force behind the Paris meetings was also expressed by unnamed
Australian government officials who maintain that RTZ had sought to push
world uranium prices high enough to develop its Rossing uranium project in
Namibia.” Even though the details remain unclear, it is obvious that all of the
participants were motivated sufficiently to cooperate, and that Canadian officials played a key role.
The initial meetings were held on two levels—private producer and
government. (Surprisingly RTZ, perhaps because of its large uranium property
assets, was treated as an equal partner by the other members during the
negotiations.) Nevertheless, differences among producers were many and
agreements on market allocations, prices, and terms of sale were frequently
difficult and often impossible to achieve. The participants concentrated on
methods to ensure a satisfactory price for uranium, to stabilize prices, and to
eliminate “cut-throat” competitive practices, especially by the Nuclear Fuels
Corporation of South Africa (NUFCOR), which had forced uranium prices to
a very low level.
The French were the most difficult group to accommodate at these early
talks. They were eager to develop a relationship with the Canadians closer than
would have been allowed by the others in the projected organization.” The
French were also opposed to the presence of Australian representatives. In addition to the fact that Australia was not an existing producer, the French felt
14
“Basic Chronology and Document Summary,” Hearings 1, p. 176. A similar theory suggests
that the French Atomic Energy Commission under pressure from RTZ invited the world uranium
producers to Paris. See Confidential Report of Irwin J. Landes, chairman, Corporations,
Authorities and Commissions Committee, from William F. Haddad, director of the Office of
Legislative Oversight and Analysis, quoted in Hearings 1, p. 654.
15
Hearings 2, p. 1.
” Bruce Stannard, “How the Uranium Club Began,” National Times, 16-21 August 1976,
quoted in Hearing 1976, p. 340. The theory that RTZ instigated the cartel is more credible in light
of the fact that it was believed that NUFCOR, Rio Tinto Zinc, and Uranex had their own
organization prior to the government initiatives to meet in Paris. See OLA No. 58a Draft Report
dated 10 July 1972 re Uranium Marketing Research Organization, prepared by Mr. O’Hara of
Gulf Oil Company, Hearings 2, p. 73.
” 2/29/72 memo, N. E. Carey to D. Hunter regarding “South African/Canadian/French/
Australian Uranium Discussion, Internal Gulf Memo,” quoted in volume 2, Attachment A to
Westinghouse Electric Corporation’s Request for Admissions to the Defaulting Defendants (MDL
342), Chicago. The exact details of the agreement the French were searching for are unknown,
although they may have related to the French desire to build an enrichment plant based on gaseous
diffusion technology, which requires large amounts of electricity to operate. Presumably the
French were interested in exchanging capital and technology for an assured long-term supply of
uranium from Canada and the right to build an enrichment plant near cheap sources of Canadian
hydroelectricity. See Mason Willrich and Philip M. Marston, “Prospects for A Uranium Cartel,”
Orbis 19, 1 (Spring 1975), p. 180.
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that as a newcomer to the uranium industry Australia had not experienced the
economic suffering that the others had and therefore should not benefit from
the cartel’s future actions.
After the initial Paris meetings, producers met as national groups in their
home countries to discuss the proposals and conclusions of the exploratory
talks, to select representatives for future meetings, and to formulate national
strategies. On 16 February 1972 Canadian uranium producers assembled in the
boardroom of the Department of Energy, Mines and Resources in Ottawa at
the request of Jack Austin, the deputy minister.” At this meeting Austin
revealed that the Canadian cabinet had given its full support to the participation of officials from the Department of Energy, Mines and Resources,
Eldorado Nuclear, and Uranium Canada in discussions aimed at establishing a
floor price for uranium between 1972 and 1977. Additionally, the cabinet was
not opposed to discussions by Canadian producers with regard to export
markets. This revelation was opposed on legal grounds by an attending
member of the Department of Consumer and Corporate Affairs, but his opposition was ignored. Significantly, the cabinet had rejected a commodity agreement or a uranium marketing board to solve the problem. It was not eager to
legislate means of controlling the producers’ marketing ability outside
Canada. Similarly, the uranium companies were opposed to the creation of a
marketing board, as it would have meant greater governmental control over
the industry. It is also likely that the government did not want to be further
regulating the uranium industry in an election year.
Over the next four-month period private Canadian producers met frequently with officials from the Department of Energy, Mines and Resources as
a national group, and on the international level with representatives of other
member nations. These discussions tended to focus on a few major issues such
as the establishment of a price schedule, the allocation of market quotas
among the member nations as well as among the producers within Canada, the
legality of the cartel under the Combines Investigation Act and American antitrust laws, and the role of the Canadian government in the proposed arrangement.
In order to encourage exploration that would meet forecast demand in the
early 1980s and to provide a “fair” rate of return, the cartel members proposed for discussion a floor price of $6.25 per pound of U3O8 in 1972 with an
annual escalation of twenty-five cents for the European markets, and $6.55 for
the Japanese market with a similar escalator.” While higher floor prices had
” In addition to the presidents of the major uranium companies involved in the cartel, two
representatives of the Department of Industry, Trade and Commerce and one from the Department of Consumer and Corporate Affairs were present. Notably, the Department of External Affairs did not have a representative present at this, nor any subsequent, meeting. Gulf File N o t e Canadian uranium producers’ meeting, Ottawa; 15 February 1972, written by N. M. Ediger,
manager of GMCL, quoted in Hearings 1, p. 455.
” In discussions with Australian representatives in December 1971 to agree on a world floor
price decided upon by both consumers and producers of uranium, Canadian officials indicated
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Canada in the uranium cartel
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been considered, it was feared that too great a price increase would encourage
extracartel production. The domestic markets of Australia, France, Canada,
South Africa, and the United States were specifically excluded from the terms
of the arrangement to avoid possible violations of antitrust laws in their national markets and to protect companies such as Gulf Minerals Canada Ltd.
(GMCL), a Canadian subsidiary of the Gulf Oil Corporation, from contravening American antitrust laws.
Limited world demand for, and an oversupply of, uranium in the world
market convinced producers of the need for a market-sharing formula to ensure that each member of the cartel received a set proportion of the market and
to prevent cheating. It was proposed that each nation receive a specific percentage of the uncommitted world market according to its total uranium production; simply stated, the higher a country’s total uranium production, the larger
its share of the uncommitted world market allocation formula. The Canadian
producers, however, wanted a larger share, arguing that even though the joint
uranium-mining venture at Rabbit Lake, Saskatchewan, between GMCL and
the West German company Uranerz (UCL) was not producing, it should be included when quotas were allocated. Unable to agree among themselves or with
the other national producers, the Canadians were instructed to “get their
house in order” or further discussion concerning the creation of a cartel
“would serve no useful purpose.”20
Of the estimated 26,000 tons of uncommitted world demand to 1977,
Canada had been offered 31 percent or approximately 8,100 tons. The problem was that once the previously committed uranium sales totals of Uranium
Canada and the Rabbit Lake producers were subtracted from Canada’s allocation, only 1,300 tons were left to be shared by Rio Algom, Denison Mines, and
Eldorado Nuclear. These companies refused to join the cartel unless their
share was increased. In an attempt to resolve this problem GMCL and UCL,
because their production figures were only “on the drawing board,” were
asked to slow or cut back the pace of development in order for the others to
obtain a larger market allocation. Despite concessions by GMCL and UCL,
there remained a 5 percent difference between the allocation Canadian producers had been offered and the allocation that they sought.
On 20-21 April 1972 the international uranium producers held a meeting
in Paris at the headquarters of the French Commissariat a l’Energie Atomique
(CEA) to resolve the problem of market allocation. At the meeting the Canadian and particularly the Australian producers sought a larger portion of the
world market than the other members were willing or indeed able to grant.
that operating costs, a reasonable rate of return, and incentive to exploration would necessitate a
price of a least $6.00 per pound of U3O,. Memorandum (draft) dated 17 February 1972 from L. T.
Gregg to H. E. Hoffman re summary of developments in international uranium meetings, quoted
in Hearings 1, p. 462.
20
Gulf Minerals Canada Ltd., File Note—Canadian uranium producers’ meeting, Ottawa, 10
April 1972, quoted in Hearings I, p. 469.
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With the real threat of a price war, all of the producers indicated their willingness, if necessary, to compete ruthlessly against one another in a free
market if the negotiations failed. Not surprisingly, concessions w