30/03/2015 - 10:14

Demand, price point key for uranium - SPECIAL REPORT

30/03/2015 - 10:14

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Amid the gloom, WA has some positive resources stories to tell,with uranium developers buoyed by improving news, investment certainty guaranteed around royalties rates - for now - and nickel reappearing as a sturdy performer.

Demand, price point key for uranium - SPECIAL REPORT
CHARGING ON: Vanessa Guthrie and Toro are bullish about uranium. Photo: Attila Csaszar

Amid the gloom, WA has some positive resources stories to tell,with uranium developers buoyed by improving news, investment certainty guaranteed around royalties rates - for now - and nickel reappearing as a sturdy performer.

The outlook for companies seeking to build WA’s first uranium mine is increasingly positive, but they still have some sizeable hurdles to overcome.

Three of the state’s uranium hopefuls are pressing ahead with their projects as political change on the east coast enhances the prospects for miners in Western Australia.

With the recently elected Labor government in Queensland unlikely to shift ground on its anti-uranium stance, Mines and Petroleum Minister Bill Marmion said WA projects could secure a slice of the market, which offered potential exports of $1 billion annually by 2020 if the price of the commodity recovered.

Toro Energy is considered to be the state’s most advanced player, having received state and federal environmental approval for mining and processing of two deposits at its Wiluna project in the Mid West.

In February, the state government also approved an environmental scoping document for the project to mine two further deposits, with a public environmental review slated for release in mid-2015. The two approved deposits are expected to produce 2 million pounds of uranium oxide a year for a decade, with a total mine life of 16 years.

Toro, headed by Vanessa Guthrie, is hunting for an equity partner and an off-take agreement, needing more than $300 million in capital expenditure, and a decent uptick in the uranium price to begin construction.

Wiluna has a C1 cash cost (mining, milling, concentrating) of about $US31 per pound ($40), and while Dr Guthrie believes a long-term contract price around $US70/lb is needed to incentivise new projects globally, Toro could be brought online above $US60 if the right equity partner came on board.

About 97 per cent of uranium contracts are traded in long-term contracts at a premium to the spot price; currently such contracts are just below $US50.

Dr Guthrie said structural changes, including an increase in power demand driven by the US-led economic recovery, could help support the uranium price.

A number of major utilities are also coming out of long-term contracts over the next two years, and would likely enter into negotiations in the near future.

“The third structural change we’re seeing in the market is this increased growth in China and in the next decade in India of nuclear power capacity,” Dr Guthrie told Business News.

Dr Guthrie, who has been appointed by Prime Minister Tony Abbott to the Australia-India CEO Forum, said India would be a potential export destination for the state’s uranium.

“For Australian uranium in particular, we’re well placed … because we have strong trade relationships. Australia has a very strong record as a reliable trading partner in all manner of commodities,” she said, with security and stability of supply a key concern for utilities.

Vimy Resources is another potential local producer.

Known as Energy and Minerals Australia until it undertook a restructure and rebranding last year, Vimy has high-profile backers, including Andrew Forrest, who injected $12 million into the company last year and holds a 28 per cent stake through Forrest Family Investments.

Acorn Capital and Macquarie also hold big stakes, while former state government minister Cheryl Edwardes serves as chairman.

The restructure has been well received, with the company achieving a 721 per cent total shareholder return in the 12 months to the end of February, according to BNiQ data.

Vimy recently announced positive metallurgical test results at its Mulga Rock deposit, which it said would cut the capital cost of the project and substantially simplify it.

Leading the restructured business are managing director and former BC Iron boss Mike Young, and executive director and economist Julian Tapp, who formerly had a high-profile role with Fortescue Metals Group.

Both are bullish on uranium’s long-term prospects.

“I’m forecasting 15 per cent compound growth (of nuclear-generated electricity in China) over the next 20 years,” Mr Tapp said.

He said Chinese electricity demand would more than double during that period as incomes rose, and an increasing focus on improved air quality was likely to reduce China’s reliance on coal.

A number of countries were now driving competition in the export of nuclear technology and construction of reactors, while supply stockpiles were unlikely to hit the market because they had specific processing requirements, he said.

Vimy’s modelling predicts a growing supply deficit in the years ahead, which is expected to lift prices and bring global supply online.

Mr Young said the company was focused on getting the Mulga Rock deposit, discovered in the 1980s, into production.

“The thing that stood out for me was that this was a big deposit, mineable in the middle of WA,” he said.

The mine would produce 3 million pounds of concentrate annually for more than a decade, Mr Young said.

International player Cameco, which has mines in Canada, the US and Kazakhstan and accounts for about one sixth of global uranium production, is WA’s third potential uranium exporter.

Its Kintyre joint venture with Mitsubishi Development, which holds a 30 per cent stake, is awaiting approval from federal Environment Minister Greg Hunt.

Cameco Australia managing director Brian Reilly said although current market conditions remained challenging, the company believed the long-term fundamentals for nuclear were strong and expected consumption of uranium to increase, particularly in developing countries.

“We believe the uranium market will remain in a ‘wait and see’ mode until stimulated by certain events such as reactor restarts in Japan, the return of long-term demand and as excess supply starts to clear the market,” Mr Reilly said.

With the world’s largest known reserves of uranium, there was tremendous potential for Australia in the industry, he said.

Yellowcake red tape

Surprisingly, given the stricter approvals process for uranium miners, the three companies had positive feedback for regulators.

Mr Young said recent changes to mining approvals under former minister Norman Moore had been beneficial, including streamlining and automation applications.

He said he worked closely with regulators to engage with them through the process, finding that collaboration delivered good results.

Companies in the industry generally worked collaboratively with each other, Mr Young said.

Dr Guthrie said both levels of government had been considered in their regulatory approach, but added that there was room for policy change.

“The aim of the uranium industry across Australia has been to normalise the regulatory process for uranium,” she said.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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