ext takeover candidates

Thanks to Drag on SS


KEY OBSERVATIONS FOR POTENTIAL EXT TAKEOVER/JV CANDIDATES
RIO TINTO
1. Key drivers: The key driver is achievement of critical mass. This would provide the following benefits:
a) Substantial increase in the resource base and production rates (including scalability of mining operations). In 2008 Rio Tinto produced 7,989 tones of uranium. EXT takeover would ensure that RIO maintains its position as number 1 uranium producer in the world.
b) Control of world uranium supplies and prices (particularly if they were to work closely with BHP or Cameco)
c) Highly profitable operations due to low operating costs, significantly reduced development costs (i.e. by utilizing Rossing facilities), ability to deploy selective mining of the deposits, leveraging of knowledge from existing Rossing mining operations and utilization of existing skill base
d) Steady income from long term based supply contracts and preferred supplier status
e) Growth path to acquire smaller attractive deposits in Namibia/Africa
f) Increased political and strategic partnership influence

2. Key Data/Observations
a) Rio accounts for 13% of worldwide uranium production. Rio was ranked number one uranium producer in 2008 (at 14.2Mlbs)
b) Rio share of uranium resources from its key assets is 140Mlbs
c) Rio owns 68.6% of Rossing mine and 68.4% of ERA (third largest producer in the world). Exploration and orebody extension evaluation activities carried out over the last two years have increased the Ranger uranium resources from 111 Mlbs of contained uranium oxide to 254 Mlbs.
d) In August 2009 ERA have reported a net profit of $127.55 million for the first half of calendar 2009, up 228 per cent from $38.9 million in the prior corresponding period. A lift in the average realised uranium sales price to $US48.02 a pound, from $US35.69 per pound in the six months to June last year, helped boost the company's revenue from uranium sales to $336.1 million.
e) In addition to RIO 68.8% holding in Rossing venture other key stakeholders are Iranian Foreign Investment Company (15 percent), IDC of South Africa (10 percent), Namibian government (3 percent) and 13 local individual shareholders who own 3 percent.
f) In 2008, Rio decided to extend the life and expand the Rossing mine operations to well beyond 2021/2026 (mainly due to the operations returning to profit from $1.2 million in 2007 to $153 million in 2008 and exploration work discovering new mineralized areas). The mine is planning to increase its production from 4,100t/annum (in 2008) to 4,500t/annum by 2012. It is important to note that RIO has recently ditched construction of the sulphuric acid plant at Rossing mine due to falling prices for acid supply (is this is the real reason??).
g) By 2012, the Rossing mine aims to account for 10 percent of global uranium supply. Rössing is expected to be a big contributor to plans by Rio Tinto to double its total uranium production in the next five years. The open pit is being extended (i.e. the eastern wall for pushback) to mine additional ore. At the same time, processing capacity is to be lifted to 17 million tonnes per annum from 16 Mt/a by 2013. In a new development, Rössing commissioned a heap leach test project in 2008, to try out a low cost method of extracting uranium oxide from broken ore. Rössing has stated that they will work with Rio Tinto and Extract Resources to determine the benefits that might arise from a joint venture for development of Rössing South.
h) Rossing have also stated that their main focus in 2009 focus will be on Heap Leach programme, which forms the core of the company’s expansion programme. The plan is to conduct a feasibility study to support the construction of a new heap leach processing facility as a means of treating previously uneconomic ore and lowering acid to make the project more viable.
i) In March 2009, Mr. Albanese said that Rio is committed to uranium and has no interest in selling the Rossing mine in Namibia or its majority interest in Energy Resources of Australia Ltd. (ERA). Albanese also argued that Kintyre deposit was sold because it does not have the same scalability as Rossing or ERA.
j) Rio currently holds approximately 15% of EXT and about 13.5% in KAH. The company has stated that it intends to sell these interests to Rössing. Rössing will seek to negotiate a joint venture for the development of Rössing South with Extract Resources as this will provide optimal value to the shareholders of both Rössing and Extract Resources. This far, Rio has not transferred its interests in EXT and KAH to Rossing venture.
k) The company’s key customers include nuclear power utilities in North America (41%), Europe (10%), Asia (25%) and Japan (24%).
l) The company continues to be in debt reduction phase and may continue this for the next few years
m) Prior to Chinalco debacle Rio Tinto had strong aspirations on significant expansion of U supplies to China. Since then, the relationship between the company and China has soured and there is likely to be some distrust and suspicion for the next few years.
Concluding Comments:
a) Rio's strategic ambitions in uranium area are currently not clear. I’m not entirely convinced by T. Albanese’s comments earlier this year that the company will not be selling its key uranium assets. The reasons are:
- Rio has sold Kintyre uranium deposit last year to Cameco and Japanese Consortium. This deposit contains 36,000 tones of uranium and with further exploration its resources are expected to increase considerably (+50,000 tonnes). Compared to other U deposits this is quite a reasonable size asset and as a result has attracted Cameco (second major uranium producer in the world).
- It is also rather surprising that RIO has not sought to mop up minorities in its 68% ERA in spite of substantial increase in Ranger mine total uranium resources.
- If RIO thought that Rossing South was of strategic importance to the growth of their energy section, they would have already placed preemptive bid for the RS (i.e. an outright bid or in JV) particularly as they would have known the RS potential. Even in its current debt reduction phase it wouldn’t be too difficult for RIO to find US$2 – $3 Billion (i.e. by selling less attractive assets, or walking away from unpromising deals). Another alternative/option could have been the script offer (as mentioned by few posters in the past).
- According to some press reports, few Japanese companies have been canvassing their eyes on Rio Tinto’s stake in ERA late 2008/early 2009. The Japanese suitors apparently were Mitsui & Co. and Mitsubishi Corp. They would not have been doing this without RIO indicating that they are considering to sell ERA stake.
n) Another possible reason why Rio has not made bids for Extract is that they know that their bid will be trumped by others (see conclusions) to whom this deposit carries far greater strategic importance then to RIO (where uranium composes small % of company revenue)
o) I believe that RIO will not be bidding for Extract. However, they will want to ensure one way or another that they are part of the final deal in whatever form it is presented to Extract. One possibility is that Rio may put its RS and Rossing stakes on the auction block for Extract as part of its current plan to wipe out its debts by selling non-strategic assets.
p) Another possibility is that Rio could sell Rossing and RS stakes to BHP. It was reported in the press that BHP was likely to acquire more uranium assets in the near term to meet its obligation to supply strategic customers. BHP needs another mine to ensure it can meet supply agreements it has negotiated with clients. In the past BHP has had to buy uranium from other producers to fill gaps caused by inconsistent output at Olympic Dam. In terms of BHP's big ambitions, Extract large U resources would certainly have caught BHP’s management attention.


AREVA
1. Key Drivers – Achievement/assurance of vertical integration of their business areas creating a number of advantageous opportunities including:
a) Assurance that company remains largest nuclear power sector player in the world. Significant increase in size can add substantial weight in dealings with prospective customers, suppliers, potential lenders and investors.
b) Increased geographical and geopolitical diversification (i.e. providing increased security of supply in case of political instability in Niger and other African nations and in case the Cigar Lake mine is not able to be brought to full production due to technical and high mining cost issues)
c) Capturing value all along the fuel chain by investing in operation that would be profitable even as stand-alone businesses
d) One-stop-shop
e) Ability to establish more business linkages and to gain direct entry to key decision makers (i.e. politicians)
f) Leveraging of its knowledge base to gain access to what it wants and needs to prosper
g) Playing leading role in all aspects of its business across the world
Key Data/Observations:
a) Areva has manufacturing facilities in 40 countries and a sales network in more than 100. They are the world leader in nuclear power and the only company to cover all industrial activities in this field. It has 75,000 employees and has recently announced steps to increase this workforce by another 15,000 over the next few years with anticipation of significant take up of nuclear energy across the world.
b) The key offerings provided by Areva to their customers in the nuclear energy areas are:
- uranium ore exploration, mining, concentration, conversion and enrichment ; nuclear fuel design and fabrication
- design and construction of nuclear reactors; supply of products and services for nuclear power plant maintenance, upgrades and operations.
- treatment and recycling of used fuel ; cleanup of nuclear facilities ; nuclear logistics
c) Areva’s strategic priorities are:
- Increasing mineral resources and production (i.e. highest priority)
- Replacing and expanding enrichment and conversion plants
- Setting the standard for fuel assembly supply
- Multiplying internal synergies to compete more effectively
a) AREVA NC supplies uranium products, as well as conversion and enrichment services, to 80% of the nuclear power plants in the United States
b) AREVA NC is a leading producer of uranium, with approximately 7,000 metric tons per year.
c) The key uranium mining/deposits held by Areva are:
Deposit Size of U Resources
- McArthus River (30.195%) - 200,000 tonnes
- Cigar Lake (37.1%) - 135,000 tonnes
- McClean Lake (70%) - 18,000 tonnes
- Midwest (69.17%) - 18,500 tonnes
- Trekkopje (100%) - 42,000 tonnes
- Arlit (56.8%) - 33,000 tonnes
- Akouta (34%) - 50,500 tonnes
- Imouraren (66.6%) - 144,000 tonnes
- Tortkuduk (51%) - 25,000 tonnes
- Moynkum (51%) - 44,000 tonnes
Areva’s total attributable resources for above listed deposits are ~345,000 tonnes (~760Mlbs). As a comparison, Rossing South could potentially define resources equivalent of all of these mines put together. Imagine potential mine development and infrastructure savings that could be derived by having only one mine (not to mention operating costs).
d) Areva is expected to play significant role in construction of new reactors across the world using their third generation EPR reactors (second highest reactor type planned for deployment in the next few years). Areva has stated that it targets to capture > 30% of the total number of reactors planned to be built over the next 20 years.
e) One example of how Areva has used its industry leadership is its $12 billion strategic deal with the Chinese. This deal has lots of moving parts, it links up prospective production from the Trekkopje mine in Namibia with reactor sales, service and maintenance agreements and finished fuel from Ulba. There is also possible future deal in China for cooperation in spent fuel recycling and reprocessing. In return, Chinese (CGNPG) were guaranteed access to more than half of the production from Trekkopje mine (which Areva paid $2.5bn in 2007). Areva agreed to sell 49 percent of Trekkopje to CGNPG for $1.8 billion. According to recent press reports this deal however may not be completed as Chinese want to increase its ownership in Trekkopje mine now to 70%. However, Russians and India have expressed interest to acquire Chinese share of the uranium supply if the deal doesn’t go through.
f) It is worth noting that Koreans have also bid for the same deal against Areva but missed out because Areva could guarantee the supply (according to Mark Hohnen)
g) In October 2009, AREVA and KAZATOMPROM signed a Fuel marketing joint venture agreement. This agreement reinforces the partnership between both companies in the front-end cycle and aims to develop their positions as largest uranium producers in the world. Areva would provide front end segments and Kazatomprom uranium resources - mainly to electric utilities operating in Asia.
h) Whilst Areva is currently in the process of raising up to E11.billion (~US$18 Billion) to fund its expansion programs as a growing number of countries launch their nuclear programs, it also is reported that the firm needs at least E3 billion just in 2009 to meet all of its investment needs. Over the next four years, it will also, need more then 3 times that amount to fund its current commitments and expansion programs (which include acquisition of the U mines/deposits).
i) The key liability is the repayment of E2.4 billion to Siemens which pulled out of its JV with Areva to partner with Russian nuclear energy export programs. Also, Areva is building two of its 1,600MW EPR reactors in Europe. Unfortunately, both are running late and the one in Finland is now under arbitration with Finnish utility TVO for E1.7 billion in cost overruns tied to schedule delays of three years and additional costs for concrete and steel. Areva is also carrying debt of E 4.5 billion, (against a market cap of E12 billion) and is unlikely to take on any more.
j) On the positive side, Areva has sold two 1,600 MW EPR reactors to China two years ago along with a commitment to provide nuclear fuel for them for the next two decades. It also has an agreement with India to sell two EPR reactors in the near term and as many as six over the next two decades along with fuel to run them for up to 60 years. French President Nickolas Sarkozy has also committed to second EPR to be built in France. Areva is also pursuing a reactor deal with the UAE for two EPRs.
k) In the U.S. it has plans to build a fleet of nuclear reactors at Calvert Cliffs, MD, Callaway, MO, Nine Mile, NY, and Blue Bend, PA. The French government is trying to figure out how to fund the firm’s planned global expansion which includes the $2.4 billion Eagle Rock uranium enrichment plant scheduled to go into commercial operation by 2014.
l) Other undertaking by Areva to fund its investment programs include sale of Areva’s Transmission and Distribution Unit, reportedly worth +E5 billion. This would certainly help the firm’s financial outlook. It is worth noting that Areva executives told that they think that option is a bad idea because it is part of the firm’s vertically integrated structure that supplies nuclear energy across the entire nuclear fuel cycle. Areva is currently in final stages of negotiations with three bidders for sale of T&D unit. This shows that Areva is prepared to sacrifice some key/well performing assets in order to ensure achievement of their strategic objectives.
m) Runaway time to construct feasible bid for EXT (whether alone or in partnership). Delays and inadequate bids for its T&D group and sale of 15% stakeholding in the company may not be finalized by few more months. By that time EXT should define JORC complaint resources of at +500Mlbs. Also, they will conduct enough exploration to confidently show/argue with the potential bidders that the RS area contains >1Billion pounds of uranium and therefore the bidder would need to pay premium (I would think 30% – 50% of the expected resources above 500Mlbs may be reasonable).
n) In June2009, Kazatomprom reached a deal with Areva that will see the KATCO joint venture more than double uranium output to 4,000 tonnes per year, and set up a new joint venture to manufacture nuclear fuel assemblies at the Ulba Metallurgical Plant.

Concluding Comments:
I’m convinced that Areva will find funding solutions as assurance of long term supply of uranium and its integration into its businesses will pay big/huge dividends once the world economy turns around. By purchasing EXT, Areva will also ensure the long term survival of the company in an ever increasing competition in nuclear reactor construction and service industry (see below). Areva certainly wouldn’t want to miss the boat when it sails because it had missing pieces or it hasn’t taken steps to ensure that once in several decades opportunity to ensure the viability/success of its business model has slipped away. Therefore, I believe that Areva will be strong contender in the bidding phase.
With the sale of its T&D group, Areva should have sufficient capital to launch the bid for EXT on their own. The fact that Areva is prepared to sell profitable business in order to finance acquisition of uranium resources clearly indicates their commitment to achieving their number 1 strategic priority and to assure their business security/survival and growth. Based on the deal Areva has made with Chinese two years ago (i.e. U output from Trekkopje mine) their investment into EXT would be recouped many folds. By purchasing EXT, Areva would become the industry GIANT.
If Areva is unable to sell its T&D division, then they will find partners to support its bid. After all, they only need to find ~US$3 - $4 billion with say another $3 billion coming from a strategic partner – and I think there will be many that would be willing to put up this meager amount in a mutually advantageous agreement. It’s not surprising that Russians are in talks with Areva, as a JV between these two would ensure that France and Russia control the world’s nuclear energy industry.




3. CAMECO
Key Drivers: Achievement of critical mass (similarly as for RIO). This would bring the following advantages:
a) Assurance of dominant position (i.e. number one position) as U supplier. Cameco is currently in number 2 position after Rio Tinto. Its 2008 uranium production was 7191tonnes.
b) Assurance of easily reaching its production target of 40Mlbs/annum. The major projects in the pipeline are Inkay deposit with production rate of 3.1Mlbs/annum and 9Mlbs/annum from Cigar Lake. It is presently unknown where the outstanding production of ~10Mlbs/a will come from????
c) Leverage to higher prices
d) Floor price protection
e) Good and steady cash flow
f) Geographical diversification and assurance of the long term security of supply to their customers. The disruption of the Cigar Lake mega project has propelled both Cameco and Areva into re-doubling their commitments in Africa and Kazakhstan and motivated Cameco to spread its search for supplies to Australia, Kazakhstan, and African nations including Niger and Namibia. It is probably no accident that both Cameco and Areva are now actively looking toward production that poses a lot less technical risks than Cigar Lake, notably open cut and ISL techniques.
g) Vertical investment. Cameco, armed with both uranium and conversion, has explored getting into enrichment services for several years.

Key Data/Observations:
a) Cameco is the second largest uranium miner in the world (2008)
b) Cameco accounts for about 20% of world uranium production. It is involved in all stages of uranium mining process, which includes exploration, fuel fabrication and electricity generation.
c) Cameco controls about 40% of the western world’s capacity to produce uranium hexafluoride, a compound used in the uranium enrichment process that produceces fuel for nuclear reactors
d) Cameco’s key mining assets are:
Deposit Size of U Resources
- McArthur River (69.8%) - 200,000 tonnes
- Cigar Lake (50%) - 135,000 tonnes
- Rabbit lake ( 100 %) - 8,000 tonnes
- Millenium ( %) - 18,000 tonnes
- Dawn lake 6,000 tonnes
- Inkai (60%) - 86,000 tonnes
Cameco’s attributable share of resources from 11 mines is about 495Mlbs.
e) Whilst Cameco has set aside ~US$2.5 Billion for uranium mines acquisitions it also stated that it will not overpay as its current resources would be adequate to achieve company objectives.
f) Couple years ago, Cameco invested about $124 M for 24% share in the GE-Hitachi laser enrichment development program. The remainder of GLE is owned by General Electric Company (51%) and Hitachi Ltd. (25%). If the technology proves commercially viable, which we should know before the end of year, it could prove to be a game changer both in enrichment and in uranium supply. Cameco could potentially corner both markets and benefit as a supplier and possibly as an enrichment recipient.
g) The mine flooding at Cigar Lake remains unresolved and commencement of mining was pushed back to 2014. Technical challenges associated with mining this deposit are likely to remain even after the mine is brought into operation. As a result, the mining costs will be high and the mine viability will be seriously questioned.
h) The company growth strategy is to pursue assets in production or close to production
i) Cameco’s Uranium revenue in 2008 was C$2.86 billion (on average realized price of C$43.9/lb) with net income being C$450 million. The uranium revenue for 2009 was projected to be about 10% higher. Cameco's stock price appreciated nearly 13-fold between January 2003 and June 2007 due to combination of increase in uranium prices and increased production.
j) In August 2008, Cameco completed the acquisition of a 70% interest in the Kintyre uranium exploration project in Western Australia. A joint venture comprised of Cameco (70%) and Mitsubishi Development Pty Ltd (30%).
k) Cameco will set up a marketing office in India in October 2009 as it expects India's demand for uranium to triple in the next 15 years. Cameco expects that the sharp increase in the demand for uranium from India and China will continue to raise the price of uranium and increase the profitability of Cameco's uranium sales.
l) Kazatomprom and Canada's Cameco in June launched the Ulba Conversion joint venture. The plant is set to produce 12,000 tonnes per year of uranium hexafluoride, which is used in the uranium enrichment process.
Concluding Comments:
a) The Cameco’s key vulnerability is ability to resolve the flooding issues at Cigar Lake and bring the mine into production at acceptable costs. If they are not successful the shareholders/market will punish the company severely. To soften the potential reaction by the market, the company must have a fall back position. Securing large uranium deposit such as RS would certainly achieve this objective.
b) It is very unlikely that Cameco would be able to launch the takeover bid for Extract by them self. However, I expect Cameco to have worked very hard behind the scenes over the last 6 months to secure JV partner to bid for EXT. Cameco has set aside $2.5 billion for acquisition of uranium mines early this year yet all has gone quiet in the last few months.



4. CHINA
Key Drivers: The main driver is National Security of Supply. RS deposit would ensure that the national target of increasing nuclear capacity sixfold to 86GWe by 2020 and then further to 120 – 160 GWe can be achieved without any concerns regarding uranium supply. At present, the installed capacity of nuclear power is only about 9 million kilowatts.
Key Data/Observations
a) Conservative estimates expect China's nuclear energy capacity to grow at a compound annual rate of 8% over the next 15 years. China is racing to expand its nuclear capacity to 70-86 GW by 2020 -- equivalent of Britain’s entire capacity. Currently, the country derives only 4 percent of its electricity from nuclear power, compared with about 20 percent in the United States and nearly 80 percent in France. It is noteworthy that nine countries get 40 percent or more of their electricity from nuclear power.
b) China has 11 nuclear power reactors in commercial operation, 16 under construction, and at least eight more scheduled to start construction in 2009. China is expected to build between 40 - 50 nuclear plants over the next 20 years and will spend >$50 billion to build these plants. Some analysts say the country will build 300 more by the middle of the century. That's not much less than the generating power of all the nuclear plants in the world today.
c) China has located uranium deposits in more than 200 mining sites. It has an estimated 57,000 tons of uranium resources in the south and is exploring in the northwestern regions for further deposits. New uranium deposits have recently been discovered in Inner Mongolia and in Xinjiang Province. However, all its deposits are relatively small and costly to exploit.
d) China is estimated to mine 1,200 tons of uranium annually and is expected to stay at this level of production for the near future. China maintains that it will be self sufficient in uranium at least until 2020 ????????????
e) It is expected that uranium demand in China may outstrip local supply within the next few years, impelling the country to nail down any supply while it is still available.
f) The country aims to become self-sufficient in reactor design and construction, as well as other aspects of the fuel cycle. The state nuclear technology corp.(SNPTC) has been given responsibility for implementation of the nuclear program in China. It has been authorized by the State Council to sign contracts for the transfer of third-generation nuclear power technologies from other countries on behalf of China.
g) Among 11 reactors currently deployed by China three use domestic technologies, two are equipped with Russian technology and four with French technologies and two are Canadian designed. All the 11 reactors employ second-generation nuclear power technologies.
h) When China launched the bidding in 2003 for its third-generation nuclear power stations, foreign companies including Westinghouse, Areva and AtomStroyExport (Russia) were major contenders for the contract. Westinghouse came out ahead, after China signed a memo with the US on the introduction and transfer of 3rd generation nuclear power technologies in December 2006. The final agreement was signed between the SNPTC and Westinghouse in July 2007, and it stipulates that China will buy four third-generation pressurized water reactors from Westinghouse, including technology transfers to China (for $5 billion).
i) After importing the AP 1000 technology from Westinghouse, the SNPTC will try to replicate the experiences of the third-generation nuclear power technologies and build more such stations them self. According to SNPTC, China's first third-generation pressurized water reactors adopting Westinghouse technology will be put into commercial operation at the end of 2013. The CPR 1000 reactor developed with the French technology (made up from around 90% local component) is another example of how Chinese like the South Koreans previously, are learning from foreign reactors manufactures and use this to develop their own designs. China is setting out to export their reactor technologies in 10 – 15 years.
j) It has been reported that Chinese could build nuclear power plants for less than $2,000 per kilowatt, versus in the U.S.A of around $5,000 per kilowatt.
k) As in the US and other countries, engineers in China want to build nuclear plants whose fuel core cannot melt down and release radioactivity into the environment. Chinese scientists apparently have been successful in this undertaking and a groundbreaking $416 million experimental plant is scheduled to be commissioned at the end of 2009.
l) As there is still a large room for China to develop its nuclear power capacity, China remains open to nuclear power generation technologies from other countries including France and Russia.
m) As mentioned earlier (see AREVA section), Chinese have signed $12 billion strategic deal with AREVA. This deal links up prospective production from the Trekkopje mine in Namibia with reactor sales, service and maintenance agreements and finished fuel from Ulba. There is also possible future deal in China for cooperation in spent fuel recycling and reprocessing. In return, Chinese were guaranteed access to more than half of the production from Trekkopje mine (which Areva paid $2.5bn in 2007). Areva agreed to sell 49 percent of Trekkopje to CGNPG for $1.8 billion
n) Toshiba of Japan spent $5.4 billion last year to acquire Westinghouse. This was apparently done in expectations that China will buy into the company's nuclear technology in a big way over the next 20 to 30 years.
o) China sees development of nuclear power plants as way of increasing employment. Adding one plant could create 4,000-5,000 jobs for 50-60 years.
p) China recently signed a deal with French nuclear reactor supplier Areva to help it reprocess fuel. The timing of the plant construction and details for a final disposal site however are still unclear. While nuclear waste is not an issue at the moment, China has already adopted a reprocessing strategy based on France's recycling of uranium. As China does not have extensive uranium resources, the French approach will help it buy less natural uranium and expand nuclear power more cheaply
q) The 2007 agreement between China and Kazakhstan will tie closely China to Kazakhstan and vice versa. The deal involves several JV’s for uranium products as well as access for Kazakhstan to the developing Chinese nuclear sector. The prospect of 2000t/annum of supply from Kazakhstan could cover the bulk of Chinese requirements in the 2015 time frame and more then half of 2020 requirements.
r) Chinese companies are looking to acquire uranium interests in Niger, Zimbabwe and Australia, although these are not seen as hugely significant for Chinese future supplies demands.
s) China has entered into a "nuclear safeguards agreement" which will allow it to purchase uranium from Australia. China is very keen to lock-up Australian uranium.
t) One of the main issues facing Chinese enterprises in Africa is their poor reputation for human rights abuses (i.e. poor treatment of local population – apparently worse then in colonial times), breaking mining codes, huge corruption (i.e. Hu Jintao the son of Chinese president in Namibia is excellent example), poor environmental practices, preference to use imported Chinese workers etc.etc.

Concluding Comments:
u) China by 2030 will have more (about 1.5 times) nuclear reactors then Japan has today. Therefore, its uranium demand is likely to be about 12,000 – 14,000 tonnes/annum.
v) China is relatively late starter regarding its efforts to secure uranium supplies. Whilst the Kazakh deal will alleviate some of the pressures regarding U supplies in the short term, Chinese will need to find other secure sources of uranium supply of about 8,000 – 10,000 tonnes/annum in the medium term and probably triple that amount by 2050. Since Chinese are planning to build majority of nuclear plants by them self, it is of outmost importance that they start securing any large uranium deposits coming onto the market.
w) I expect Chinese to launch takeover bid for EXT by them self. However, it is possible that Namibian government may voice some reservations due to Chinese poor reputation as a corporate citizen. For that reason, Chinese may want to seek a JV partner. I expect this partner to be one of the major uranium mining houses (i.e. Cameco or RIO). JV with RIO could be a face saving and kiss and make-up type deal.




JAPAN
Key drivers: The key driver is National Security of Supply. Japan has no commercially producible uranium and nuclear energy has been a national strategic priority since 1973. The country's 53 reactors provide some 30% of the country's electricity and this is expected to increase to at least 40% by 2017.
Key Data/Observations:
a) Japan needs to import some 80% of its energy requirements.
b) The country's 55 reactors generate 29% of its electricity and consume about 8,900 tonnes of uranium each year, all of which must be imported. Over the next ten years, Japan, the world’s third-largest nuclear power generator, aims to build another 13 reactors.
c) With Japan depending on nuclear energy of up to 40% in the next few years, it’s unsurprising that Japanese trading companies, utilities and government are very concerned about uranium supply. The Japanese government had stated that securing long term supply of uranium is their highest national priority. They have urged in very strong terms for their utilities and reactor companies to secure uranium supplies whilst they are still available.
d) Nuclear power is set to play an even bigger role in Japan's strive to reduce carbon emissions up to 54% by 2050 and 90% reduction by 2100. This would lead to nuclear energy contributing about 60% of primary energy in 2100.
e) Japan has very strong nuclear reactor construction industry. The key companies are Toshiba/Hitachi and Mitsubishi (the former have pioneered modularized systems reducing the construction time and costs significantly). Toshiba just won contract to build two reactors in US. Security of uranium supply could be used by these companies to gain increased share of nuclear power construction industry. Note that Toshiba own 77% of US reactor company Westinghouse (see China section).
f) Access to adequate primary U supplies would allow Japan to establish a full fuel cycle set up, including enrichment and reprocessing of used fuel for recycle.
g) A major target of Japanese uranium investments this far has been Kazakhstan – mostly in arrangements where Japan is leveraging their internally developed knowledge and skills to help secure access to resources. However, one would expect that a multi-continent/country diversification would definitely be on Japanese agenda.
h) Beyond Kazakhstan, Japanese firms are involved in a variety of uranium exploration and development projects including, Canada, Uzbekistan and Australia (i.e. Kintyre project)
i) Last year, Mitsubishi Corp. partnered with Cameco to purchase Rio Tinto’s Kintyre uranium deposit in Western Australia for $495 million and Mitsui & Co., one of the largest publicly traded companies in the world, bought a 49 per cent stake in Uranium One’s Honeymoon project in South Australia.
j) Last year Uranium One announced that it has entered into a long-term agreement with a Japanese consortium, which includes Toshiba Corp., the Japan Bank for International Cooperation (key player) and the Tokyo Electric Power Company Inc., to purchase 117 million common shares of the uranium miner at $2.30 per share for a total of nearly $270 million. The Canadian company currently has interests in uranium mines in Kazakhstan, including a 70% stake in the producing Akdala mine and the South Inkai Uranium Project (pre-production stage), and a 30 per cent interest in the Kharasan Uranium project.
k) Along with ownership of 19.95 per cent of the second-largest Canadian uranium miner, the consortium will also hold the right to purchase up to 20 per cent of company’s total output beginning in 2014. The agreement stipulates that the group will not sell its stake in the company outside of a general market distribution and will not attempt to increase its stake without Uranium One’s approval. The Japan Bank for International Cooperation is a key player in securing natural resources for Japan. This strategic relationship between the Japanese consortium and Uranium One should offer substantial long-term benefits in terms of energy supply security and future asset acquisition opportunities including those outside of Kazakhstan.
l) In January 2006, Sumitomo Corp. bought a 25% stake in the West Mynkuduk uranium project in Kazakhstan. Kansai Electric Power Co. Japan's second largest utility by capacity, also bought a 10% stake in the West Mynkuduk project, while the remaining 65% is held by state-owned uranium company Kazatomprom. The project, expected to start test production in the next few months, is scheduled to reach full output of about 1,000 metric tons a year in 2010 and keep going for more than 20 years. All of the output will be sold to Japanese utilities.
m) Marubeni Corp. and other Japanese companies including Tokyo Electric Power Co. Japan's largest utility by capacity, have invested in another Kazakh uranium project, namely the Kharassan mine project, through a Japanese holding company since the start of last year.The holding company has indirect ownership interest in two affiliates, each of which operates one uranium block. Details of the stakes haven't been disclosed, but the Japanese side has the right to take 2,000 tons a year of uranium from the project, which is scheduled to reach full production in 2014, according to Marubeni.
n) Japan has secured (the equivalent of) 30%-40% of its annual uranium imports just from its Kazakh stake buys. Kazakhstan holds the world's second-largest reserves of uranium, a key fuel in the generation of nuclear power
Concluding Comments:
a) Japan has moved slightly ahead of its rivals in China and South Korea and secured decent chunk of uranium resources in Kazakhstan. Japanese companies’ appetite for high-quality investment opportunities in energy, remains strong and securing uranium supply is one of the highest national strategic priorities
b) Japan is definitely a factor in the nuclear industry market. Their growth might not be as rapid as it once was, or once was expected to be, but they really need to import uranium (+10,000 tonnes/annum by ~2015). To facilitate this growth and to secure future supplies, Japan has historically developed different supply relationships around the world, both by taking positions in uranium mines and by nurturing long-term relationships with producers.
c) Japanese have become heavily reliant on Kazakh uranium. With Kazakhstan being ruled by an autocratic government known for bribery, corruption and oppression I expect that Japanese will seek diversification in their uranium supplies.
d) I expect Consortium of Japanese companies to launch a bid for extract either by them self or in JV with one of the key uranium miners (Uranium One, Cameco, RIO). The Japanese consortium may include:
- Toshiba (i.e. access to large U resources would allow the company to compete for reactor business in China and US - they own 77% of Westinghouse)
- Mitsubishi (similarly as for Toshiba)
- Japanese utilities with Bank of Japan (i.e. to ensure the national security of uranium supply)

RUSSIA
Key drivers:
The key drivers are National Security of Supply and vertical integration of nuclear business areas. Russia is moving steadily forward with plans for much expanded role in nuclear energy. Their Federal Task Program (FTP) envisages a 25-30% nuclear share in electricity supply by 2030, 45%-50% in 2050 and 70%-80% by end of century. Currently nuclear energy accounts for about 16% of total electricity produced in Russia.
Key Data/Observations:
a) Russia is planning to bring on line 18 nuclear power stations by 2020 increasing its nuclear electricity supply from 23.2 GWe to 43.3 GWe (and potentially about 90GWe by 2050). They have also scheduled to extend the service life for number of existing plants.
b) Russia has very ambitious nuclear plant export program and plans to capture significant proportion of the projected 300GWe new nuclear power capacity by 2030.The FTP implementation is intended to result in a 70% growth in exports of high technology equipment and works and services including enrichment, processing spent fuel, nuclear waste disposal, plant decommissioning and new generation (IV generation) reactor technology by 2020. Rosatom has claimed to be able to undercut world prices for nuclear processed fuel and services by some 30%. The main export targets are China, India, Kazakhstan, and Europe (Finland, Belarus, Italy) deploying WER1200 type reactors/technology at least to about 2030. Government plays a major supportive role in developing the nuclear sector.
c) Russia's policy for building nuclear power plants in non-nuclear countries is to deliver on a turn-key basis including supply of all fuel and repatriation of used fuel for the life of the plant.
d) It is envisaged that by 2020 much generation will be privatized and competitive, while the state will control natural monopoly functions such as the grid. From mid 2009, half the capital for new nuclear plants will come from Rosatom budget and half from the state.
e) Russia has substantial economic resources of uranium, with about 10% of world reasonably assured resources plus inferred resources up to US$ 130/kg - 546,000 tonnes U. Exploration expenditure has nearly doubled in two years to about US$ 52 million in 2008. In 2007 it produced some 3,413 tonnes of uranium from their mines but this needs to increase substantially to match increased domestic demand. Estimate for 2008 is 3,880 tonnes. In 2006 there were three mining projects, in 2008 there are three more under construction and a further three projected. Cost of production in remote areas is said to be US$ 60-90/kg ($27 - $41/lb).
f) In 2008 ARMZ said that it intends to triple uranium production to 10,300 tU per year by 2015, with some help from Cameco, Mitsui and local investors. ARMZ plans to invest US$ 6.1billion in the development of uranium mining in Russia in the 2008-2015 timeframe. Its aim by 2024 is 20,000 tU per year. (With increasing use of fast reactors, this level of production could support a major expansion in nuclear power generation to the end of the century.)
g) The Elkon project is the most important deposit held by ARMZ (51%). The Development Corporation of South Yakutia and ARMZ aim to attract outside funding to develop infrastructure and mining in a public-private partnership. Foreign equity including from Japan, South Korea and India is envisaged. The Elkon MMC developments are to become “the locomotive of the economic development of the entire region”, building the infrastructure, electricity transmission lines, roads and railways, as well as industrial facilities, from 2010. There are eight deposits in the Elkon project with resources of 320,000 tU (RAR + IR) at average 0.146%U, with gold by-product. First production from Elkon is expected in 2015 ramping up to 1,000 tU/yr in 2018, 2,000 tU/yr in 2020 and 5,000 tU/yr by 2024, making it Russia's largest uranium mining complex. However, it is remote, and mining will be underground, incurring significant development costs. In September 2009, ARMZ made a statement that “We do not need uranium from that deposit for the time being but we must start it up. We are successfully negotiating this project with potential investors.”
h) Although Russia has vast geologic uranium resources, there are big technical challenges in extracting this uranium efficiently, which is why, in Soviet days, the focus was on developing the uranium resources of Kazakhstan, Uzbekistan and neighboring areas. A series of agreements in 2006 broke the dam as far as new Russian-Kazakh cooperation is concerned. Kazatomprom has agreed to a major long-term program of strategic cooperation with Russia in uranium and nuclear fuel supply, as well as development of small reactors, effectively reuniting the two countries' interests in future exports of nuclear fuel to China, Japan, Korea, the USA and Western Europe. In essence, Russians got access to vast (>30%) resources of Kazakh’s low cost production uranium whilst Kazatomprom has taken 49% interest in the uranium enrichment center in Angarsk.
i) Since 2006 Rosatom has also actively pursued cooperation deals (including new exploration leases, mining and nuclear power plant construction) in South Africa, Namibia, Chile and Morocco as well as with Egypt, Algeria, Vietnam and Bangladesh. ARMZ has also entered agreements to mine and explore for uranium in South Africa (with local companies) and Canada (with Cameco). In September 2008 ARMZ signed a MOU with a South Korean consortium headed by Kepco on strategic cooperation in developing uranium projects. This includes joint exploration, mining and sales of natural uranium in the Russian Federation and possibly beyond.
j) In October 2009, Rosatom has concluded long-term contracts for the supply of low enriched uranium to Japan and the EU (France) for a total sum of over $3bln. By the end of this year the Corporation may conclude more contracts worth up to $2bln.
k) In Mar 2009 Siemens and Rosatom signed a memorandum of intention to set up a joint production of equipment for nuclear power plants (after Siemens announced its secession from its JV with French Areva). There is also high possibility that Rosatom and Siemens will set up a joint nuclear development venture by the end of this year.
l) In September 2009, Rosatom have stated that they are ready to buy low-cost uranium deposits in case of favorable market conditions. “We believe that we must urgently buy deposits with uranium production cost less than $40 per 1 kg or a bit more,” and “today it is a good moment for the country to enlarge its influence on the uranium market. A number of foreign companies have fallen in price by 10 times. We want to buy these assets as long as we can do it,”
m) ARMZ and Cameco (Canada) are negotiating joint uranium prospecting projects in Australia and Africa. The companies have set up two prospecting JVs in Canada and Russia but the Russian JV (Karhu) has failed to start up because of licensing obstacles. “Now Cameco is offering joint projects in other countries. ARMZ have a uranium prospecting project in Namibia and the company was negotiating with local companies about other possibilities. They have stated “We are considering the possibility of participating in big companies (in Namibia) that are at stages close to mining: when there are four or less years left before the start of mining activities.”
n) Septemebr 2009 Last month, Russia and Mongolia agreed to form a joint venture to exploit the Dornod uranium deposit
o) Latest reports out of Africa are that Nigeria is working with Russia to establish uranium mining and nuclear power plants

Concluding Observations
p) Russia has an extremely ambitious reactor expansion program, as well as a desire to greatly increase its exports of reactors to countries like China and India. It’s aim is to become “Wal-Mart Super Center for the nuclear fuel cycle”. Overall there is increasing acceptance in Russia of the need to press ahead with nuclear energy while expanding the country's role internationally at both the front and the back end of the fuel cycle.
q) Russians are definitely looking at how they can shore up their supply through imports, in addition to investing a billion dollars in their own internal production. In this respect, they are trying to draw from their old supply chain arrangements. This is to meet their internal needs, as well as the needs of countries to which they have traditionally supplied reactors and the fuel to run these reactors. As Russia looks to expand its reactor sales to countries that don’t have established fuel cycles, they want to be able to supply them with fuel – possibly even lease them the fuel. This means that they have to be prepared to take back the spent fuel. This is due at least in some measure to nonproliferation concerns, in that you don’t want these new entrants building enrichment or reprocessing plants.
r) While Russia has enrichment capacity and the ability to expand this capacity, they also need uranium to be able to supply these countries with enriched uranium. This is why they’re currently focusing on the uranium supply side of the equation and in particular gaining access to low cost uranium deposits.
s) It would appear that Russians have now secured access to enough Kazakh uranium to handle their domestic needs for years. Kazakh uranium may be considered as the low-hanging uranium fruit from the Russian perspective.
t) Russia's future international role will be subject to the reputation it develops over the next decade as a reliable commercial provider of fuel-related services. Russian firms are now engaged with international markets and key champions in nuclear energy (i.e. Toshiba, Siemens, Areva, Mitsubishi etc.), well beyond its traditional eastern European client states. With the consolidation of western nuclear fuel cycle vendors, the competition provided by Russians may be interesting to watch over the next 10 – 20 years.
u) I believe that Russians will not be too hard pressed to launch takeover bid on their own for Extract. ARMZ is committed to large number of different projects and would not have sufficient capital left to take such bold move. However, Russians could launch bid in a JV with other parties for example:
· Areva, (as flagged in recent posts, also see section on Areva)
· Siemens (as they already have strategic partnership). Siemens also should receive E2.5 billion from Areva
· China/India??
INDIA
Key Drivers:
The key driver for India is achievement of National Security of Supply. India has a flourishing and largely indigenous nuclear power program and expects to have 20,000 MWe nuclear capacity on line by 2020 and 63,000 MWe by 2032. It aims to supply 25% of electricity from nuclear power by 2050. India’s Atomic Energy Commission has envisaged some 500 GWe nuclear on line by 2060, and has since speculated that the amount might be higher still: 600-700 GWe by 2050, providing half of all electricity.
Key Data/Observations:
a) Because India is outside the Nuclear Non-Proliferation Treaty due to its weapons program, it has been for 34 years largely excluded from trade in nuclear plant or materials, which has hampered its development of civil nuclear energy until 2009.
b) Electricity demand in India has been increasing rapidly, the per capita figure is expected to almost triple by 2020, with 6.3% annual growth. India also needs to spend US$120 – 150 billion on power infrastructure in the next five years including transmission and distribution
c) Nuclear power supplied 2.5% of India’s electricity in 2007 and it would appear that the 2020 target to provide 20GWe is not attainable, or at least not sustainable without uranium imports. India's uranium resources are modest, with 54,000 tonnes U as reasonably assured resources and 23,500 tonnes as estimated additional resources in situ.
d) In mid 2008 Indian nuclear power plants were running at about half of capacity due to a chronic shortage of fuel. This situation was expected to persist for several years if the civil nuclear agreement faltered, though some easing in 2008 was likely due to the new Turamdih mill in Jharkhand state coming on line (the mine there is already operating). Political opposition has delayed new mines in other states.
e) In December 2008 India signed a +$700 million contract with Rosatom for continued uranium supply. Russia will supply all the enriched fuel, though India will reprocess it and keep the plutonium. In September 2009 India also signed uranium supply and nuclear cooperation agreements with Namibia and Mongolia. Furthermore, in January 2009 NPCIL signed a memorandum of understanding with Kazatomprom for supply of uranium to India and a feasibility study on building Indian PHWR reactors in Kazakhstan.
f) India has a vision of becoming a world leader in nuclear technology. Whilst foreign technology and fuel are expected to boost India's nuclear power plans considerably over the next two decades all their plants will have high indigenous engineering content. India's nuclear energy self-sufficiency extends from uranium exploration and mining through fuel fabrication, heavy water production, reactor design and construction, to reprocessing and waste management. It has a small fast breeder reactor and is building a much larger one.
g) Russia is supplying the country's first large nuclear power plant, comprising two VVER-1000 (V-392) reactors, under a Russian-financed US$ 3 billion contract. In January 2007 a memorandum of understanding was signed for Russia to build four more reactors at Kundankulam site, as well as others elsewhere in India. It is noteworthy that most of India’s new reactors will be set up in "Nuclear Parks", each having 6 – 8 new-generation reactors.
h) Indian reactor demand for uranium estimated at about 1,400 tonnes this year is expected to rise to as much as 5,000 tonnes in 15 years. India has 17 reactors operating and six under construction, and another 23 reactors are expected to come on line in the next eight years
i) In 2008 NPCIL also had exploratory meetings and technical discussions with three major reactor suppliers - Areva, GE-Hitachi and Westinghouse for supply of reactors for their new nuclear power plant projects. These resulted in more formal agreements with each reactor supplier early in 2009. In August 2009 NPCIL had also signed agreements with Korea Electric Power Co (KEPCO) to study the prospects for building Korean APR-1400 reactors in India.
j) NPCIL said that "India is now focusing on capacity addition through indigenisation" with progressively higher local content for imported designs, up to 80%. Following the 2008 removal of trade restrictions, Indian companies said that they plan to invest over US$ 50 billion in the next five years to expand their manufacturing base in the nuclear energy sector. In January 2009, Areva signed an agreement with Bharat Forge to set up a joint venture in casting and forging nuclear components for both export and the domestic market, by 2012.
k) NTPC (National Thermal Power Corporation) is reported to be establishing a joint venture with NPCIL and BHEL to sell India's largely indigenous 220 MWe heavy water power reactor units abroad, possibly in contra deals involving uranium supply from countries such as Namibia and Mongolia.
l) Due to trade bans and lack of indigenous uranium, India has uniquely been developing a nuclear fuel cycle to exploit its abundant reserves of thorium.
m) September 2009 - India signed a uranium supply agreement with Mongolia,
Concluding Comments:
1) Similarly as China, India also has very ambitious nuclear power development program and will rely on imports to run their nuclear power plants
2) India is even more of the later starter in securing its uranium supply then China. Indian nuclear power plants are already running at about half of capacity due to a chronic shortage of fuel.
3) I expect India will try to gain access to smaller-medium size uranium resources in order to alleviate its short/immediate uranium supplies issue whilst insisting that any new plants build by contractors come with guaranteed uranium supplies and incorporate % of local content equipment/technology. For that reason I do not expect India to be bidding for Extract.





SOUTH KOREA
Key Drivers:
The main drivers are National Security of Supply and reducing dependency by enhancing supply diversification. South Korea needs to import some 97% of its energy requirements. Nuclear energy is a strategic priority and capacity is planned to increase by 56% to 27.3GWe by 2020. Today 20 reactors provide almost 40% of Korea’s electricity.
Key Data/Observations:
a) Power demand in the South Korea has increased by more than 9% per year since 1990. It is however expected to slow down to 2.8% pa between 2006-2010 period and 2.5% pa between 2010 - 2020 period.
b) At the end of 2006 nuclear capacity was 17.5 GWe net (28% of total), supplying 39% of demand (141 billion kWh net in 2006). In 2020 nuclear capacity of 27.3 GWe is expected to supply 226 billion kWh - 43.4% of electricity, rising to 48% in 2022, and by 2030 or 2035 the government expects nuclear to supply 60% of the power.
c) South Korean energy policy has been driven by considerations of energy security and the need to minimise dependence on current imports. Government policy is to continue to have nuclear power as a major element of electricity production
d) According to the Korea Atomic Energy Research Institute, South Korea uses 4,000 tons of uranium annually, supplied from overseas, producing about 700 tons of nuclear waste.
e) Under the 1992 Inter-Korean Declaration of Denuclearization of the Korean Peninsula, Sth. Korea is banned from reprocessing spent fuel and enrichment activities, including enriching uranium. Current agreement, which expires in 2014
f) Korea’s uranium suppliers are diverse, with the country importing mostly from Australia, Canada, Kazakhstan, the United States, and France.
g) Rio Tinto continues to enjoy a long-standing relationship with Korea in uranium. Energy Resources of Australia (ERA), has been supplying uranium to the Korean market since 1983. As one of ERA's first customers, Korea Electric Company (later known as Korea Electric Power Corporation or KEPCO) has long maintained a significant presence in ERA's contract portfolio (~800 tonnes in 2004).
h) Some of the more recent deals/agreements made by the Koreans to ensure safe supply of uranium include:
i) On April 22, 2005, South Korea and Kazakhstan agreed to establish a joint company to mine uranium in the west-central part of Kazakhstan. The mine was projected to go on line in 2008 and start full-blown production in 2010 with an annual output of 1,000 tons.
j) On March 19, 2009, KORES announced that it has signed a memorandum of understanding with African country Niger to import an annual 400 tons of uranium used for nuclear power. KORES also plans to buy a five-percent stake in another uranium mine being developed by Niger. This mine is operated by Trendfield, a Chinese-owned company. The mine has approximately 13,000 tonnes of reserves and is expected to have an initial output of 800 tonnes per year once production commences. KORES chief Kim Shin-jong said that the company would continue to look for uranium investments overseas in order to help strengthen Korea’s energy security
k) Agreement was signed with Uzbekistan in May 2008, for supplies to begin in 2010.
l) KORES, apparently was deep in negotiations to buy UraMin for about $1bn, but hesitated long enough for Areva to trump them with $2.5bn bid (proves that Areva does not stuff around when it comes to achieving its strategic objectives).
m) January of this year, Mark Hohnen, executive chairman of Kalahari Minerals, was asked to go to Korea to talk to KORES
n) Based on introduced technologies, a series of standardized reactor units have been developed and used successfully across Korea. The country has embarked on a road of independent design, construction and operation of nuclear power reactors. Several innovative reactor designs have been developed
o) Nuclear power costs are low in Korea: KHNP reports 39 won per kWh (about 3c/kWh), compared with coal 53.7 won, LNG 143.6 won and hydro 162 won. KHNP average cost is 68.3 won (about 5c) per kWh.
Concluding Comments:
1 Expansion of nuclear energy and assurance of secure and long term uranium supplies is national strategic priority (similarly as for China and Japan).
2 The long standing development of nuclear power generation allowed the country to establish diverse sources of uranium supplies
3 To secure its uranium supplies, Korea has historically developed supply relationships that are based on taking positions in uranium mines and by nurturing long-term relationships with major uranium producers (similarly as Japan)
4 Compared to China and India, the growth of nuclear energy in Korea over the next 10 years is relatively small.
5 I do not expect Korea to launch takeover bid for Ext by them self. However, it is possible that they could combine with a major uranium miner or will seek JV with EXT.



SUMMARY
1 As of January 2009, there were 436 nuclear reactors operating worldwide and a total of 115 reactors under construction or planned for completion by 2020.
2 As it stands now, most of the growth in nuclear power is expected to take place in China, India, Russia, as well as Korea and Japan to a certain extent. All these countries are really looking outside their borders for uranium supplies that are going to sustain them for quite a long period in the future. None of them are blessed with very rich and extensive uranium deposits
3 Kazakhstan, boasting one fifth of the world's uranium reserves, has seen kind of a gold rush with most of countries actively involved in development/expansion of their nuclear energy trying to secure uranium supplies deals. To date, Russians have been most successful in this race. Unfortunately Kazakhstan is ruled by an autocratic government known for bribery and ranked near the bottom of Transparency International's global corruption. The political situation in Kazakhstan poses risks for majority of companies that have entered into a joint venture with Kazatomprom, Kazakhstan's state-owned nuclear company. A sign of the risky political climate in Kazakhstan was the arrest of Mukhtar Dzhakishev, the head of Kazatomprom, in May 2009. He was accused by Kazakhstan's security service of illegally taking over state-owned uranium deposits and selling them to foreign companies (approximately $50 billion worth). Arrest of Dzhakishev created an environment of uncertainty in Kazakhstan which could be potentially worrisome to foreign investors. For this reason I expect many of these investors will be looking at alternative sources of uranium supply.
4 The nuclear reactors design and construction industry is becoming very crowded and competitive area. French (Areva), Koreans, Americans (Westinghouse), Japanese (Hitachi, Toshiba), Russians (ARMZ), Indians and Chinese all have developed nuclear reactor technologies. Whilst the former five had developed the most advanced technologies (i.e. third generation reactors) they have been forced to share these technologies and skills in order to gain access and business with nations that are expanding their nuclear power capacities – hence loosing competitive edge.
5 Securing adequate and low cost uranium resources is likely to be of greatest importance to the following:
- Areva
- China
- Japan
- Russia
I expect that all of these will be bidding either by them self or in partnership (most likely with either RIO or Camneco) for EXT.
6 I expect Chinese to go very hard to secure uranium supplies from Kazakhstan, Australia and Namibia (areas with potential for a lot of growth)
7 The following extract from a very recent press reports provides good perspective on uranium supply/demand situation.
“Every two years, the World Nuclear Association (WNA) issues its “state-of-the-union-address” on the uranium industry. The 2009 (late September) meeting just ended in London England, and several themes became very apparent:
§ a) Uranium production is not keeping with previous forecasts
§ b) Demand for uranium is increasing
§ c) There is enough uranium to meet demand, but getting it into production will be difficult.
§ For investors, this means that despite current low uranium prices, the market will only get better and companies with projects now in development can look forward to higher uranium prices at some time in the future.
§ The WNA has reduced its production estimates over the next few years by between 10 to 18%. Included in this number is reduced production from assets such as Cameco’s Cigar Lake (18 MM lbs pa), Midwest (8 MM lbs pa) and Uranium One’s Dominion (3 MM lbs pa).
§ On the demand side, the WNA said that installed nuclear generation capacity of 372 GWe provided about 15 percent of global electricity supply last year. The report forecasts a 12 percent increase in nuclear generation capacity to 415 GWe by 2014 and to 600 GWe by 2030.
§ (In a recent report, The International Atomic Energy Agency (IAEA) also increased its nuclear power projections for 2030 due to continued expansion plans for nuclear power in Asia, including China, Japan, and South Korea. The low projection foresees an installed global nuclear power capacity of about 510 GWe in 2030—a 40 percent increase over the currently installed 372 GWe. The high projection expects 810 GWe, which more than doubles today’s installed capacity. The IAEA notes these revised projections for 2030 are 8 percent higher than last year’s projections. )
§ To meet that demand, the WNA expects uranium requirements to rise by 65% by 2030. Reactors needed an estimated 168 MM lbs of U3O8 for 2008, and this is expected to rise to 200 MM lbs in 2015, 238 MM lbs in 2020 and 276 MM lbs in 2030 in the reference scenario. This is an annualized growth rate of 2.2%
§ Many uranium analysts have prepared summaries on the WNA report. And one common item that every single research report said that the WNA did not take into account the larger initial orders that the new reactors would be making. You don’t build a $6 billion reactor and watch it go idle because you didn’t order enough fuel. Initial orders are usually 6 months – 3 years worth. And it’s becoming obvious that the Asian utilities in particular are ordering a couple years worth of uranium at least.
§ So this initial stocking of new reactors has the ability to spike up demand even more than WNA reports. As do strategic stockpiles that nations like China may begin accumulating.
§ The big question is – how will the industry meet this increased demand with a uranium price at US$65 per pound?
§ At the WNA, a Cameco staffer presented a paper that showed most of the new uranium projects being discovered or developed from this metals cycle are typically lower grade, higher cost mines and will require higher uranium prices to get them into actual production.
§ And this is where the problem lies: there is LOTS of uranium around to meet demand. But exploration to find economic deposits is falling off a cliff. And with long lead times to get a uranium mine into production – up to 10 years – the industry is setting itself up for a shortfall in uranium in the medium term – and a big spike in the price of uranium.
§ Many of the development stage assets in the world right now are lower grade deposits (actually, they are NORMAL grade; it’s just that investors have got used to the Athabasca Basin as being the new normal – it’s not. It’s a geological freak of nature where the grade is 20-40 x everywhere else on earth) which are highly sensitive to the uranium price. And under $75 - $80 per pound uranium, they just don’t make money.
§ There is a tight bottleneck here for the industry. Right now the uranium price is being depressed because of an overhang that the US Department of Energy has – some 158 million pounds that could be put on the market to fund some uranium infrastructure in the U.S. - investors should remember that the uranium market is still in deficit some 60 million pounds a year.
§ But for patient investors, the junior uranium companies - those with an established asset that is gearing for production – represent value sitting under a coiled spring. The WNA report shows while there is enough uranium to meet supply, the uranium price has to move higher to make it all economic.”

Best regards,
Drag