Tuesday, March 30, 2010 at 05:43AM
The Wall Street Journal carried this article on uranium that focuses on China's future requirements and which uranium stocks may benefit from it, a number of Aussie stocks get a mention.
MELBOURNE, Australia—Surging Chinese demand for uranium looks set to drive a fresh wave of Chinese investment in Australia-listed miners as nuclear power generators seek supply for dozens of planned reactors.
Chinese state-owned enterprises have been active in Australia's mining sector for years, largely focusing on iron ore and coal used in steelmaking.
Now, with an unprecedented nuclear reactor project under way, China is turning its sights to Australian yellowcake stocks. Many miners see the country as a cheap funding source, and analysts expect deals to flow this year.
China Guangdong Nuclear Power Holdings Corp.'s purchase last year of a controlling stake in Energy Metals Ltd., for $83.6 million Australian dollars, highlighted both China's interest and the Australian government's willingness to approve Chinese investment in uranium projects.
China currently has 11 nuclear reactors in operation with 20 under construction. Another 36 are on the drawing board, and there are proposals for another 157 plants.
Nuclear-power-generation capacity in China is set to increase sixfold by 2020 to 60 gigawatts with a further increase of up to 160 gigawatts expected by 2030, according to the World Nuclear Association.
China is already ramping up uranium imports, recognizing that domestic supplies are insufficient to meet its needs.
In January, China shipped in around 3,337 metric tons of uranium, with 57% coming from Kazakhstan and smaller volumes from Russia, Namibia and Uzbekistan. Import volumes were up more than 10 times year-to-year.
Comments from Chinese executives suggest this may be the tip of the iceberg. Guangdong Nuclear Power's annual uranium needs will jump to 10,000 tons in 2020 from 2,000 tons in 2009, Zhou Zhenxing, chairman of the company's uranium-supply unit, said in November.
No surprise then that Australian uranium miners, some of which have projects in resource-rich Africa and Canada, have received informal approaches from Chinese entities.
"Certainly last year everybody had been speaking to the Chinese—there were lots of conversations, and there's still a lot of interest," said John Wilson, an analyst at Resource Capital Research.
China isn't the only Asian buyer vying for new sources of uranium—Japan, India and South Korea are also keen to lock in supply. But China's access to cheap capital gives it a competitive advantage.
Mr. Wilson believes the Chinese focus more on securing supply rather than price, and this means they are willing to pay for companies which have defined a resource or are producing.
Analysts say Australia's biggest independent producer, Paladin Energy Ltd., ticks many boxes. It has expanded annual output at its Langer Heinrich mine in Namibia to 3.7 million pounds of uranium, while ramping up its Kayelekera mine in Malawi to 3.3 million pounds a year.
With uranium resources of more than 335 million pounds, Perth-based Paladin wouldn't come cheap. Its market capitalization is $2.8 billion Australian dollars, and buyers would likely need to pay a premium.
Chinese buyers are likely among those looking at Extract Resources Ltd., which has resources of nearly 300 million pounds and is focused on developing the Rossing South discovery in Namibia.
But Extract's cluttered share register means a full takeover looks unlikely, unless the Chinese can reach an agreement with Rio Tinto Ltd., which has a 15% stake and an adjacent mine.
BBY Ltd. analyst Gavin van der Wath said there are few uranium resources on Australian soil not controlled by major miners, but there are many Australian-listed companies with projects overseas, which offer access to future production.
Bannerman Resources Ltd., A-Cap Resources Ltd. and Berkeley Resources Ltd. are junior miners with projects that would be of interest, he said.
This article was written by Alec Wilson
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