Feature Stories | Aug 14 2006
By Greg Peel
Mt Isa is a town of about 25,000 located 1,820km north-west of Brisbane in the state of Queensland, and in the middle of what most Australians would agree could readily be described as "the outback". (The outback, by definition, is always further out than where you are now).
Mt Isa is most famous as the birthplace of US Open tennis champion Pat Rafter, and for being the rodeo capital of Australia. It is also a big hole – or at least if you fly over Mt Isa you can stare in wonder at a very big hole. Mt Isa is arguably Australia’s premier mining town.
The big hole is the location of an enormous copper-silver-lead-zinc mine which has been in operation for over eighty years, originally owned by iconic Aussie company Mt Isa Mines, or MIM. When the resource industry was in a lull, and MIM was in trouble, it sold out to Swiss-based mining giant Xstrata – a decision the board members will rue to the end of their days.
As well as Xstrata, Mt Isa’s vast mineral deposits are currently exploited by the likes of BHP Billiton (BHP), Rio Tinto (RIO) and Placer Dome (yes, there is gold too). But while the city may have been undergoing a new boom of late due to skyrocketing commodity prices, the latest focus is on another resource – uranium – and Mt Isa boasts one of the world’s potentially largest deposits.
In 1954, a small syndicate of miners first discovered uranium near Mt Isa. The next day, MIM sent out every available man and vehicle to peg out adjoining leases. (Source: Courier Mail). That’s about where the excitement ended. Before a uranium industry could get started in Queensland in any meaningful fashion, opposition to uranium and nuclear energy in Australia resulted in the country’s industry being restricted to three mines, in South Australia and the Northern Territory. In The 1980s, the then federal Labor government introduced laws to prevent any further mines from opening.
The present Liberal-National coalition government has since rescinded those laws, but Australia is a federation of states and the states have their own powers to restrict uranium mining. Queensland is currently governed by the state Labor party, and as such the same bans on uranium mining have been in place for the past thirty years. It is presently illegal to mine uranium in Queensland.
It is a quirk of the current Australian political landscape that while the Coalition is in power federally, every single state is governed by the Labor party.
Australia boasts something like 40% of the world’s uranium, or 28% of recoverable reserves, depending whose statistics you read. 72% of those reserves are in South Australia, home of two of the three operating mines – BHP’s Olympic Dam and (US) General Atomics’ Beverley mine. 18% is in the federal government-controlled Northern Territory, home of the third operating mine – Energy Resources Australia’s (ERA) Ranger, and another vast reserve – Jabiluka. ERA is majority-owned by Rio Tinto. The remaining 7% and 3% of reserves are found in Western Australia and Queensland respectively.
Of the three Labor party controlled states, only South Australia has given approval for the expansion of uranium mining, with Beverley ramping up and Olympic Dam set to quadruple in size. Western Australia and Queensland are both opposed.
If you think that would quell any mining company and investor interest in those two states as far as uranium is concerned then you would be very wrong. Since the price of uranium took off in the last couple of years, so too have the prices of mining companies laying claim to uranium deposits in those states. Blind ignorance? Well, perhaps in some cases, but the upshot is that most investors are hoping that one day political views will change and the bans will be lifted.
One man who is betting a lot on this outcome is Alan Eggars. Eggars is a mining geologist of over thirty years experience who almost solely drives New Zealand and Australian-listed mining company Summit Resources (SMM).
In 1990, Eggars pegged out a plot 40km from Mt Isa. Today, Summit Resources is sitting on a 50% stake in the Valhalla and Skal uranium deposits – together, one of the biggest untapped deposits in the country, with a total resource of over 30,000 tonnes of contained uranium oxide.
The other 50% in the joint venture is owned by Valhalla Uranium (VUL) which is an 83% subsidiary of Resolute Mining (RSG).
In 1997, Summit announced "spectacular grades" of uranium at its Mt Isa sites, and before a 1997-98 drilling program had been completed, Summit and Resolute were talking of an orebody that had the potential to be Australia’s "next major uranium mine". (Source: SEA-US)
Summit’s Eggars has been lobbying the Queensland government ever since to lift the uranium ban. He even tried to appeal to the Australian Stock Exchange on the basis of "unfair politics". So far, his cries have fallen on deaf ears.
The reason why Queensland’s incumbent premier Peter Beattie is opposed to uranium mine is somewhat spurious. It is not simply because of federal Labor party policy, because otherwise South Australia would have to ban expanded mining and that is not the case.
Is it because he personally, and the majority of Queenslanders he represents, are ideologically opposed to uranium mining? That’s unclear, as the reason Beattie puts forward for his uranium ban is that it will harm the Queensland coal industry – a sillier argument you’ve never heard.
Obviously Beattie does not harbour environmental concerns about uranium mining, as coal mining and coal-fired power generation are the most environmentally destructive of all. It’s probably more to do with the $1.1 billion of coal industry royalties.
Just how Beattie considers a uranium industry will detract from the coal industry is unclear. It is certainly unclear to Coalition federal resources minister Ian Macfarlane, who has said:
"A potential $3 billion and hundreds in new Queensland jobs is not an opportunity I thought Mr Beattie could afford to turn his back on. He should drop the political pretence and make the effort to learn something about this industry before dismissing it because of some ideological objection.
"To say greater uranium exports would encroach on Australian coal export markets is the usual cocktail of Beattie spin and ill-informed comment. He’s dismissing job and export opportunities on the basis of a completely false view that uranium exports will hurt our coal exports. It’s absurd." (Source: The Australian)
Of course, Macfarlane is from the opposing political camp, and such an outburst is to be expected, but then Beattie has also drawn criticism from federal Labor resources spokesman Martin Ferguson.
"In the minds of the resources industry, they cannot see why uranium mining is acceptable in South Australia but not in Queensland."
Ferguson also said it was "hard to accept that in a resources state" coal stocks could be exploited to take advantage of the resources boom, but uranium deposits had to be left undeveloped. (Source: The Australian)
It may not be that Beattie himself fully believes his own argument. He may be the premier, but as a Labor politician he is beholden to his power-base – the trade unions. It is the nature of trade unions in this country that executives are often more concerned with their subscription incomes than with protecting workers’ rights. In Queensland the Australian Workers Union is dominant but it competes with the Construction, Forestry, Mining and Energy Union for coverage at mineral and coal mines.
It is also the nature of trade unions that they often join in support of environmental causes, but these do only afford second place to workers’ jobs. No doubt a burgeoning uranium industry would be seen by unionists as a threat to the coal industry, ergo lost jobs.
The fact that even if uranium bans were lifted today it would be years before any meaningful production was up and running in the state seems lost on unionists and politicians. The fact that the coal industry is only likely to get bigger – uranium or no uranium – as the developing world cries out for more power and oil stocks dwindle, also seems lost. The fact that any displaced coal worker – were that bizarrely to happen – could probably get a job in the uranium industry the next day is also beyond these people’s narrow agenda.
Opposition spokesman Ferguson is on to it, having recently courted the Australian Workers Union to support overturning the Labor party restriction on uranium mining in exchange for a hint of dominant coverage of the uranium industry and its workers.
If ever Premier Beattie is to change his mind, it might come about next April at the annual Labor Party National Conference. This particular conference will draw the attention of not only the country but also the world, as Labor leader Kim Beazley has proposed a relaxation of the long-standing party policy of restricting uranium mining.
This little piece of news rocked the Australian uranium investment world back in July, and sent prices of hopeful mining stocks running hard once more. If both sides of federal politics end up pro-uranium, surely the states will soon have to fall into line?
Beattie has so far only commented that he would "look forward to the debate at the national conference which will determine the party’s position".
As to whether Beazley will actually be able to sway the majority of his party members to a pro-uranium stance is not clear either. There are many within the party vehemently opposed. Opposition is based on environmental factors (and although nuclear energy might be clean by comparison to fossil fuels the whole process of uranium mining and power plant construction is little cleaner than the coal equivalent), on geopolitical factors (how do we know our uranium won’t end up in weapons?), and the controversial question of waste.
The federal government has already signed uranium export agreements with China. With these agreements come a strict caveat of only using Australian uranium for peaceful purposes, but Australian people have taken that with a cynical grain of salt.
The next stop is probably India, although under strict policy India, as a non-signatory to the Nuclear Non-Proliferation Treaty, and one of few nuclear weapons-capable nations, is not permitted to receive Australian uranium. Again, the Australian people do not expect a prime minister who is long on "resource provider to the world" rhetoric, and short on keeping promises, to actually stick to policy on this one.
But all in all it is probably the waste question which causes the most concern. Australians as a whole wouldn’t know a lot about nuclear physics, but they do know that nuclear waste takes thousands of years to break down and in the meantime can cause cancer, and two-headed fish.
One of the government’s proposals, and indeed one the federal opposition is seriously considering, is a "cradle-to-the-grave" uranium export policy. In order to ensure Australian uranium is not used to make weapons, exporters would be required to return their once-used uranium for safe disposal back in Australia.
The idea of becoming the world’s nuclear waste depot is something politicians will find difficult to sell to the Australian people. It is certainly one area influencing the premier of Western Australia, Alan Carpenter, in his unequivocal stance on the uranium mining issue.
"We do not support uranium mining because we believe it will inevitably lead to Western Australia becoming a dumping ground for the world’s nuclear waste. We believe the majority of Western Australians support this position." (Source: Sydney Morning Herald)
Unlike Queensland’s position, Western Australia’s position is straightforward and, according to Carpenter, "crystal clear". It is on that basis investors are hitching their wagons to the Queensland story, believing Beattie can be swayed and a national Labor party endorsement would be just the ticket. While slightly more promising, Beazley would still need to win over the caucus, or otherwise someone would have to alert Beattie to the fact the coal industry is pretty safe from any uranium industry.
Either way, Summit Resources would have been thinking there might finally be some light at the end of the tunnel. Summit’s exploration manager has explained that it made sense to keep plugging away despite a "no uranium mines" policy because "Beattie hasn’t always been in power" and that Beazley had been hinting about a policy change for a while (Source: Courier Mail).
And Eggars believes there will simply be too much pressure brought to bear.
"With increasing pressure from green groups, and with global warming and the looming energy crises, everybody is now looking at uranium and nuclear power as a logical energy alternative. Australia will soon have a tremendous amount of pressure put on it – particularly from China and the US – to open up its uranium resources. Australia has now commenced negotiating a free trade agreement with China and Australian sales of uranium to China will be part of those negotiations". (Source: Minews)
But just when Eggars was enjoying the possibilities, along came Paladin Resources (PDN) to spoil the party somewhat. Paladin has just announced a $167m takeover bid for Valhalla Uranium, and Resolute Mining is ready to sell.
Paladin has been a star of Australia’s minor miners, rising from a share price of next to nothing in early 2004 to trade over $5.00 in early 2006, all on the back of the rise in the uranium price.
Paladin’s primary local uranium assets, Manyingee and Oobagooma, are located in Western Australia, so Paladin, too, is playing the waiting game. The company hasn’t been twiddling its thumbs, however, as it has looked further a-field to Africa to exploit uranium mining opportunities. The result is that Paladin’s Langer Heinrich mine in Namibia is 70% complete with commissioning targeted for September. It is also advancing the Kayelekera project in Malawi, the most recent resource statement from which indicated uranium reserves of 15,670 tonnes.
So having satisfied itself with promising African projects, Paladin’s focus has once again turned back to Australia. And given Western Australia’s premier is proving a rock, Queensland looks like the best place to be.
It surprised no one in the industry that Resolute Mining would be prepared to sell Valhalla, given Resolute has flagged its intention to develop its US$120m Syama gold project in Mali. It needs to raise the funds from somewhere.
What has made Summit rather upset is that under the joint venture agreement between Summit and Valhalla, Summit has a pre-emptive right to Valhalla’s stake were it to be put on the market. Summit claims that Valhalla is in breach of the agreement, not only by considering selling the stake directly to Paladin, but by even providing Paladin with commercially confidential information that would have been required for Paladin’s due diligence.
None of this bothers Paladin, Resolute or Valhalla. Valhalla claims it is not in breach of its joint venture agreement for the simple reason that it is not specifically Valhalla’s stake that is on the market, it is the company that is on the market – a subtle difference.
Suffice to say, the whole thing has now gone to the Western Australian Supreme Court (Summit is actually based in Perth). We will have to now await the outcome, and no one is prepared to talk. According to an ASX announcement released by Summit, if Valhalla is found in breach then Summit has the right to buy out Valhalla’s stake for an agreed price or, failing agreement, 85% of the market value as determined by an independent expert.
If Paladin wins the day, and Queensland’s uranium ban is lifted, it will become the world’s third biggest uranium producer.
Summit may well be rolling its sleeves up for a battle, and with reason, but the reality is that it, too, will by now have become a takeover target. Some in the industry can’t understand why it hasn’t been taken over already. The industry is going through a period of consolidation, and there are mining companies clammering to buy each other out all over the world.
And China is lurking.
Whatever the outcome, the reality is that investment in Australian uranium is at least a five to ten year proposition at this stage. Deals with China may have excited the investment community, but even China is going to have to wait. Olympic and Ranger have long term sales contracts with the likes of the US, Japan and Korea. Olympic’s expansion will take several years. Beverley is just ramping up now. Ranger is on the wane, and mining at Jabiluka is still uncertain (and unlikely to commence before 2014 either way).
Australian uranium investors have pinned their hopes on a change in heart from two state governments. Of the two, Queensland’s is tipped as the likely capitulator. But even if those investors get what they’re hoping for, it’s still going to be a long road to production.
Paladin’s managing director John Borshoff has warned that few uranium mines would be opened in the immediate future. (Source: Sydney Morning Herald)
"There’s a hell of a lot of work to do," he said. "It’s not going to be an immediate process by a long shot".
