The plans have become inextricably linked to China and its high-growth plans for its nuclear power industry.
The possibility of China taking Australian yellowcake has people in Roxby Downs talking about the "big expansion". Much rests on Olympic Dam, writes Barry FitzGerald.
When Chinese Premier Wen Jiabao touches down in Perth next Saturday at the start of his whirlwind tour of Australia, he will have the biggest fan of the local resources industry at his side, federal Resources Minister Ian Macfarlane.
Macfarlane's mission will be to brief Wen on the resources industry's ability to keep China's booming "Hungry Dragon" economy fully fed with a broad suite of commodities in a cost-effective, timely and environmentally safe manner.
That will be the sales pitch, anyway. The reality is that there won't be much Wen does not already know about the resources industry.
He was, after all, trained as a geologist.
Then there is China's longstanding direct interests in Pilbara iron ore mines, the North-West Shelf gas project, the Portland aluminium smelter and, more recently, the Arukun bauxite deposit in Queensland. And there is more to come, with Wen expected to give Central Party blessing to new iron ore joint ventures on the West Australian leg of his tour.
But as important as Wen's visit to WA will be in terms of cementing long-term relationships and securing future investments in the mining "boom" state, it won't be until he lands in Canberra on Monday, April 3, that the real game-changing impact of his rock-kicking tour will take hold.
That is because of the strong expectation that Wen and the Federal Government are ready to sign off on a bilateral agreement on nuclear safeguards, clearing the way for first Australian uranium sales to China. The agreement, first flagged by The Age in November 2004, has huge ramifications for the Australian industry, most notably for the new owner of the Olympic Dam mine in South Australia's outback, BHP Billiton.
Residents and would-be residents at Roxby Downs, the mining town of 4000 people nestled between red sand dunes and native pine trees about 16 kilometres south of Olympic Dam, know that all too well.
Expectations of the China deal and its role in underpinning a $5-$10 billion expansion of the operation have forced rents for family homes 20 per cent higher to an average of $420 a week in the past six months, and real estate agents report lists of 80-100 families waiting on accommodation.
For those locals not receiving company rent subsidies or who do not own their own home, Roxby Downs is an expensive place to live, and getting more so. But the promise of plenty of work and above-average pay for all when the "big expansion" kicks off means that retreating 570 kilometres south to the comparatively cheaper lifestyle on offer in Adelaide is not necessarily the best option.
The "big expansion" is local shorthand for the massive expansion plans for Olympic Dam. And because of the looming safeguards agreement that Premier Wen is here to sign, the expansion plans have become inextricably linked to China and its high-growth plans for its nuclear power industry.
While the agreement on nuclear safeguards - which seek to restrict uranium to peaceful uses through a monitoring and inspection regime - is now considered certain, the bells and whistles that could come with the deal remain open to speculation.
Some analysts are convinced that to cement the safeguards agreement, there will also be an announcement of an intention for China to buy the additional output from Olympic Dam that would come with its expansion, with first material available in about 2010-2011.
That could represent more than 10,000 tonnes a year of uranium, worth upwards of $A1.4 billion at current bumper spot prices for uranium of $US40.50 a pound.
There has also been speculation that China could become a direct partner in Olympic Dam, at least in the "expansion" component of the project in much the way Rio Tinto did with Freeport at the giant Grasberg mine in West Papua.
Before BHP's takeover of WMC last year, there was a plan to cut a deal with the French nuclear giant Cogema on future uranium sales that would have helped WMC finance Olympic Dam's expansion.
BHP does not need any financial support in the Olympic Dam expansion but, as China showed when it signed up for $25 billion of liquefied natural gas imports from the Woodside-managed North-West Shelf project, it prefers to do so holding a direct (5.3 per cent) stake in the underlying gas resource.
Olympic Dam is not the only source of Australian uranium, but it is uniquely placed to meet China's demands. The Rio Tinto-controlled Ranger mine in the Northern Territory has a limited life and the company will not develop the big Jabiluka deposit until it has the full agreement of the traditional owners of the land.
Australia's only other uranium mine, Heathgate's Beverley mine in South Australia, is a small operation, with its production capacity not warranting the effort that Australia and China have gone to, to put the safeguard agreement in place.
And with the known uranium deposits of Western Australia and Queensland locked up by entrenched Labor governments with no intention at present of allowing new mine developments, Olympic Dam again comes to the fore.
Apart from being the world's fourth-biggest copper and gold resource, Olympic Dam is also the world's biggest uranium resource. The resource estimate stands at 1.5 million tonnes of uranium oxide. But that is just a starting point. A frenetic exploration/infill drilling program, firstly by WMC and since then by BHP, is expected to lead to a massive upgrade.
More importantly will be the increase in the more certain proved and probable mining reserve, the base from which BHP will plan Olympic Dam's expansion. While WMC was looking at spending $5 billion-plus to expand Olympic Dam's annual output from 225,000 tonnes of copper and 5000 tonnes of uranium to 500,000 tonnes of copper and 15,000 tonnes of uranium, mining analysts now openly speculate that BHP has in mind 1 million tonnes of copper and 30,000 tonnes of uranium.
"We would expect Olympic Dam to be initially ramped up to 650,000 tonnes a year (copper) with a final design conceptually at 1 million tonnes a year," Goldman Sachs JBWere told clients earlier this month. "This could place the mine at a similar size to (BHP's) Escondida (in Chile and the world's biggest) by the middle of next decade," it said.
It is the nature of Olympic Dam - named after a water hole sunk on the Roxby Downs pastoral lease at the time of the 1956 Melbourne Olympics - that along with increased copper comes increased uranium output. But unlike copper, which is easily sold, uranium must find a government-approved home. To be government-approved, there must be a bilateral agreement on nuclear safeguards, as Australia already has with 25 countries and is now about to have with China.
China has earmarked nuclear power as a key growth area as it sets about meeting a surge in demand from a mix of low-greenhouse-impact energy sources, including LNG from the North-West Shelf project.
The matching of BHP's need to find a home for additional uranium production to China's need to source overseas supplies of the radioactive material looks to be a neat solution.
And because of surging copper and uranium prices, the solution could be a highly profitable one for BHP and Australia.
But the full exploitation of the massive Olympic Dam ore body is not without its challenges. Sourcing the huge water resources needed to support an expanded operation is one of the key challenges. Keeping and expanding a skilled workforce at Roxby Downs without them going broke to pay the rent is another.
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