rio continues to be buying on-market

http://www.iii.co.uk/investment/detail/?display=discussion&code=cotn%3AFTE.L&threshold=0&it=le&action=detail&id=4952663

i have pinched this from the share xxx bb. posted in regard to extract resources but some good relevant stuff with regard to arriva's and the world's uranium needs

Exter's,

On 21st of May, Ambrian have stated “There are two strategies at play: acquisition by Rio, and strategic buying by the Dattels group of companies. The Dattels group of companies have recognized the value in the assets and, we think, they will simply try to get the maximum value from the asset. Rio isn’t the only buyer though, with reactor companies in the mix also. At the very least Rio wants to retain the option to buy the asset given the synergies with Rossing. This can be seen in both its on-market buying as well as the recent AGM request that Kalahari does not use proceeds of a recent £18m raise to take its share in Extract over 40% (Kalahari can buy 3% of Extract every six months under ASX rules).”



There are three interesting statements made in this paragraph:

1. Rio continues to be buying on-market
2. Kalahari appears to be buying on market
3. In addition to RIO and Dattels Co’s, there are also number of reactor companies in the mix who are interested in buying out EXT



Well, the only reactor companies that I know off are Toshiba-Westinghouse, GE-Hitachi , Areva and the Russians. Out of these it is Westinghouse and Areva that are most fierce competitors. Both have new –generation reactors and try to corner Chinese, Indian and European nuclear power markets. The US market is likely to be dominated by GE and Russians have had some success in India.

Whilst, Areva is relatively new in construction of nuclear reactors (note that majority of European reactors were built by Westnghouse), its 1650MW EPR-type reactors design in particular appears to be more appealing to new customers (i.e. features enhanced safety, simplified operations and maintenance and has projected service life of 60 years compared with 40-year service life for other power reactors). Another stand-out difference that Areva keeps accentuating to potential customers is the long term guaranty supply of uranium for the newly built reactors. Clear evidence of how successful this strategy has been, is the new contracts signed recently by Areva in China and India. Additionally, number of European countries (including Great Britain with planned 12 reactors) has stated that they would use AREVA’s technology if it is supported by long term uranium supply. Areva’s current business plan is to build 60 reactors by 2020 out of which 21 are expected to be in China and 6 in India (where Areva will also supply uranium to run reactors for 60 years).



Another interesting strategy that AREVA has adopted in order to reduce the financing burden and to boost its strategic partnerships is to sell % of stake in its uranium mining unit. One example of this is their sale of 49% stake in Uramin to China (did not disclosed for how much).



Whilst Areva is currently producing about 7,000 tonnes of uranium per annum, majority of this is already committed to existing plants. Therefore if Areva were to guaranty long term supply for all the 60 new reactors they plan to build over the next 10 years it’s uranium production would need to increase by at least 15,000 tonnes (average reactor requires about 1000 tonnes for the first charge and thereafter about 250 – 300tonnes per annum). Out of all the projects/mines that Areva has significant ownership and are planned to come into production within the next few years is Cigar Lake (Areva ownership 37%). But as we all know this mine continues to encounter flooding problems and in my opinion it will never reach planned 8000 tonnes/annum production rates. The mine life is also expected to be only about 14.5 years. Clearly, it is evident that AREVA desperately needs to acquire large uranium deposits that can be mined for 40 – 60 years. EXT seems to fit this requirement perfectly. I would also would not be surprised when Ambrian are referring to “reactor companies in the mix”, what they really mean is combination of Areva and Chinese.



I also think that RIO are also talking with Chinese on possible JV. I don’t believe that recent Chinalco-RIO debacle will stand in the way of securing strategic resource. After all business is business.


Regards
Drag