[miningmx.com] — CORPORATE activity in the uranium space is picking up speed with the scramble for prime mining assets continuing to belie the negative sentiment towards the metal in the wake of Japan’s Fukushima disaster.
Rio Tinto announced on Thursday its C$654m bid for Canada’s Hathorn Exploration successful after securing acceptances from more than 70% of shareholders. It has extended its offer to December 12 to mop up the remaining stake.
The diversified miner is eyeing Hathor’s Roughrider deposit in Saskatchewan, poised to be one of the lowest cost uranium projects in the world with projected cash costs of C$14.44 per pound.
Rio Tinto swooped on Hathorn following a bidding war with Canada’s Cameco, which first made an offer for the exploration group in August. The big winners have to be Hathor’s shareholders, who were paid C$4.7/share – a 76% premium on the firm’s share price prior to Cameco’s initial bid.
Meanwhile, Namibia-based Extract Resources remains the key target for China Guangdong Nuclear Power Corporation (CGNPC), which has renewed its interest in Extract’s biggest shareholder (43%) – Kalahari Minerals.
Extract on Thursday said it has received its mining licence from Namibian authorities, a development which is likely to add to the valuation of the company. It aims to build the world’s 3rd biggest uranium mine, producing 15 million pounds per year for an initial 16 years.
A definitive feasibility study completed in April showed a project cost of $1.65bn for the first stage, with operating costs projected to be $28.5/lb. Extract said it would now start to look at finance options, with a source close to project saying the company would carry on business as usual despite the overtures made to its largest shareholder by CGNPC. Rio Tinto also owns 14% in Extract.
In another development this week, the South Australian government ratified legislation to provide greater certainty for BHP Billiton’s Olympic Dam expansion. The project is the world’s fourth largest copper and gold deposit and the largest known uranium deposit. It is expected to yield about 19,000 tonnes of uranium per year.
SUPPLY SHORTFALL
The dash for prime uranium assets take place as producers try to position themselves for a significant expected supply shortfall from 2015. Speaking on the outlook for uranium in September, Cameco CEO Tim Gitzel said this year’s mining supply of 140 million lbs would be 35 million lbs short of expected demand – to be made up with secondary sources.
The company’s initial interest in Hathorn was sparked by its strategy to double annual production to 40 million pounds by 2018.
“We see a very strong market going forward; the fundamentals of the market are very strong,’ Gitzel said. “What we’re are doing is we’re getting our production ready for the future.’
According to a company presentation, Extract CEO Jonathan Leslie saw demand outstripping total supply by around 30 million lbs from 2015, with the deficit expected to increase.
Spot uranium is currently trading around $51/lb, still more than 30% down following Japan’s Fukushima nuclear disaster in March.
Resource Capital Research (RCR) said in its September-quarter uranium review the spot market would come under renewed pressure in coming months.
“The dynamics driving the near term sector outlook remain dominated by the aftermath of Fukushima, including Germany’s decision to close reactors,’ read the research report.
However, long term fundamentals are considered sound, with expected strong and increasing demand for new nuclear power reactors, especially from China, USA, Russia, Ukraine and India. Fukushima’s impact on the long-term market was less severe, now around $63/lb compared to $71.50 in February.
“While Germany has announced it will close all 17 of its nuclear power reactors by 2022, many countries have publically stated their strong continued commitment to nuclear energy, most notable, and arguably of greatest influence, the US,’ said RCR.
“Over 84 new nuclear power reactors are expected to be commissioned globally by 2017, with 63 currently under construction. There are 496 new reactors planned or proposed as at 1 September.’
A London-based analyst told Miningmx there existed a strong disconnect between uranium fundamentals and sentiment. Referring to Rio Tinto’s takeover of Hathorn, he said it showed the extent of the diversified miner’s belief in the metal.
“Rio’s buy of Hathorn speaks of uranium the same way which Anglo (American’s) takeout of De Beers (from the Oppenheimer family) speaks of diamonds,’ he said.
