urg::: The Times - Focus: Nuclear bonanza

Sun Aug 14 21:40:44 EST 2005

The Sunday Times - Business

August 14, 2005

Focus: Nuclear bonanza
By Dan Box in Kalgoorlie, David Smith and Dominic O'Connell

Atomic power is back in fashion, boosting mining firms as the price 
of uranium soars

Upstairs at the Exchange Hotel in Kalgoorlie, Kirsty-Lee is showing 
guests her nude photo shoot in Platinum magazine. The model, flown 
out to this dusty mining town in Western Australia by the pub's 
management, works as a "skimpy" - a topless barmaid. She makes A$25 
(£10.65) an hour, but after tips can rake in A$900 a night.

Tonight Kirsty-Lee is entertaining guests at a private party hosted 
by Patersons, one of Australia's biggest and oldest stockbrokers. 
Downstairs, other skimpys are serving drinks to a packed crowd of 
mining executives, brokers and bankers. Across the street in another 
bar, Macquarie Bank, one of Australia's largest financial 
institutions, is hosting its own function for private clients, sadly 
a more sedate affair.

Last week Kalgoorlie was, briefly, the rip-roaring centre of the 
world's mining industry. All the big names were in town for Diggers 
and Dealers, an annual conference (and extended party) for mining 
executives and the industry's money men.

The conference was first held in 1992, when 250 people turned up. Now 
it is so big that Qantas, Australia's national airline, has to lay on 
special charter flights to handle the flood of delegates.

The billionaire chairman of Ivanhoe Mines, Robert Friedland, flew in 
from Mongolia on his private jet. Another mining group, Kingsgate 
Consolidated, arrived in a vintage 1955 Lockheed Super Constellation 
airliner. On Tuesday night, guests were treated to a private party on 
board, while the hoi-polloi spilled out of the pubs to gawp from 
below.

Diggers and Dealers used to be all about gold, which is why it came 
to Kalgoorlie. The town was at the heart of the 1890s Australian gold 
rush, and has since produced about a fifth of the country's total 
gold output.

But now there is a new rush in progress - not for gold, but for a 
rarer, less obviously precious metal: uranium. All the talk in the 
bars of Kalgoorlie last week was about the uranium boom, and how 
mining companies and banks can jump on the bandwagon. Uranium has 
already proved a good investment in recent years, with a shortfall in 
supply sending prices on the Nuexco exchange from a plateau of $10 a 
pound in 2002 and 2003 to nearly $30.

The miners hope that this tripling of prices is just a taste of 
things to come. They believe that a surge of interest in nuclear 
power in America, Britain and China, as well as a host of other 
countries, could send prices much higher.

It is a simple argument. Uranium is the fuel for nuclear power 
stations, and if the host of new reactors planned comes to fruition, 
then those companies with access to uranium supplies will be sitting 
pretty.

The big winners are likely to be the global mining giants, BHP 
Billiton and Rio Tinto, which between them already control about 25% 
of the world uranium market. Rio Tinto owns Energy Resources of 
Australia, which operates the Ranger mine in Northern Territory but 
has, to date, been hamstrung in its bid to develop its vast Jabiluka 
uranium deposit in the state.

Leigh Clifford, chief executive of Rio Tinto, said: "Uranium is very 
much back on the agenda. You are seeing a number of countries looking 
at quite substantial increases in nuclear-power generation."

The bankers who will back the new mines are also excited. "Uranium is 
the metal of the moment," said Neil Johnson, managing director of 
CIBC World Markets Australia, a Canadian bank that specialises in 
natural-resources investments.

THE uranium fever in Kalgoorlie is not difficult to explain. Analysts 
said demand for the metal could double within the next 15 years, 
largely because of plans for new nuclear reactors. There are 440 
nuclear reactors in operation around the globe, with 35 new ones 
under construction and plans in place for another 25.

But the growing demand for energy, and the need to curb 
greenhouse-gas emissions, means construction of nuclear stations 
could be about to boom - even in Britain, where there has long been 
emotional opposition to atomic power.

Tony Blair signalled in the recent election campaign that the 
government would take a decision on new nuclear power stations early 
in this parliament.

The government's climate-change review, led by Margaret Beckett's 
Department of Environment, Food and Rural Affairs, will mark the 
first stage in that review later this year. It is expected to 
conclude that Britain will be unable to meet its targets for reducing 
carbon emissions unless it cuts its dependence on fossil fuels.

That is set to be followed by another independent review, looking at 
the nuclear question on its own. The fear in business, worried about 
both high energy prices and security of supply, is that a firm 
decision on new nuclear capacity will be too slow in coming. This is 
despite assurances from Alan Johnson, trade and industry secretary, 
who insists that the government will come to a conclusion "in plenty 
of time".

Sir Digby Jones, director-general of the CBI employers' group, said 
security of energy supplies had emerged as the No1 issue for business 
after a 60% rise in the price of commercial gas and electricity in 
the past year. "I call on the government to open the nuclear debate," 
he said. "What are we going to do as a country if we don't have 
nuclear power? How are we going to have a low-carbon world in 50 
years' time if we don't have nuclear."

Geraint Day, energy expert at the Institute of Directors' policy 
unit, said: "A decision is needed pretty quickly because the lead 
times are so long.

"There are going to be new energy technologies for renewables in the 
future, some of which we don't yet know about. But we can't rely on 
that. Continuity is needed to stop the lights going out."

The Institute of Directors points out that by 2020 Britain could be 
dependent on imports for 75% of primary energy needs. Some of this 
could be supplied by politically unstable countries.

The Engineering Employers' Federation (EEF) is also pressing for an 
early decision by the government. "Our policy is that there should be 
a balanced energy strategy that clearly features all the options," 
said Stephen Radley, the EEF's chief economist. "Business is 
concerned about security and stability of energy supply.

"The government clearly shouldn't give a blank cheque to nuclear, but 
there are plenty of things it can do. One big issue, particularly for 
industry, is the question of future liabilities." (See below.)

If the nuclear industry does not get a positive decision, it is 
likely to be the death knell for the industry in this country. The 
recent leak at the Thorp fuel- reprocessing plant at Sellafield in 
Cumbria was regarded as a body blow by many.

One industry insider said: "The leak at Thorp showed that there is 
still a cultural problem among some in the industry. What happened 
there, as the reports into the leak show, is that the instruments 
were telling them that something was wrong but they just did not 
believe it. What weird culture lets that happen?"

Politically, the nuclear industry is relying on Blair, in his last 
few years in Downing Street, to have the courage to take bold 
decisions. One precedent could be Finland, which has just 
commissioned a 1,600-megawatt nuclear power station. It was initially 
rejected by politicians until a solution was found to the waste 
problem, in the form of a new repository. Blair could also cite 
China, where the regime has said it will build 10 stations by 2014.

One decision has already been taken. If new nuclear stations are 
commissioned then, to reflect political sensitivities, they will be 
described as "replacement build" rather than "new build".

OTHER factors are driving up the price of uranium. As well as freshly 
mined uranium ore, nuclear agencies have traditionally been able to 
call on other sources - usually government stockpiles that had been 
assembled for now-defunct nuclear-weapons programmes. These 
stockpiles are being used up. Analysts expect the supply of fuel from 
weapons decommissioning, which has made up as much as 45% of the 
market in recent years, to decline within the next few years.

Buoyed by the burgeoning demand, a host of new exploration companies 
are touting licences to explore for the metal. One, Drake Resources, 
used the Kalgoorlie conference to announce that it had applied for 
two uranium-exploration licences in Western Australia - its share 
price jumped 20% in a day.

Another struggling Australian gold explorer, Deep Yellow, made the 
switch to uranium last December, buying the rights to two deposits in 
Northern Territory. Since then its share price has increased almost 
five-fold, to 13.5 cents. Shares in Paladin Resources, which plans to 
begin production in Namibia within the next few years, have risen 
more than 1,000%, to A$1.60, over the past two years.

The Australian government is aware of the riches that could be around 
the corner and is quietly helping the industry. It has begun to ease 
restrictions on new mines and exports. Earlier this month, it 
overrode a 20- year moratorium on new mines in Northern Territory. 
More than a dozen companies already have exploration agreements in 
Northern Territory, which contains about A$12 billion of known 
uranium reserves.

The federal resources minister is now pushing Australia's other 
states to drop their "nonsensical" and "outdated" opposition to the 
industry.

Until now, Australia has restricted uranium exports to 36 countries 
that have signed bilateral agreements not to use it to build nuclear 
weapons. Last week, the government confirmed it was talking to 
Chinese officials to find some way of adding China to that list.

The high prices are already attracting the big boys of the mining 
world. In June, BHP Billiton bought Australia's Western Mining 
Corporation for A$9.2 billion. Western Mining owns the Olympic Dam 
mine in South Australia, which contains more than a third of the 
world's known reserves of uranium. The company recently announced a 
A$5 billion expansion at the mine, which aims to be producing as much 
as a fifth of world output within the next 10 years.

Smaller players are also making waves on the London markets. 
Yellowcake, a company that invests in uranium-related assets, listed 
on Ofex in July. Uranium Mining Corporation floated on the 
Alternative Investment Market on August 2. It listed at 25p and 
closed the day at 311Ž2p. Shares in the company closed on Friday at 
401Ž2p.

Already, some analysts are talking about over-excitement. On the 
Alternative Investment Market, Galahad Gold recently announced a big 
investment in uranium development in Africa, Vane Minerals said it 
had acquired uranium assets in Arizona, and Frontier Mining is 
working on a large uranium deal in Kazakhstan.

Alan Heap, a veteran commodity analyst with Citigroup, said that much 
of the recent uranium boom was already priced into company shares, 
but that the price of the commodity itself would remain high.

For the next few years, Heap expects prices to remain between $20 and 
$30 a pound. "What's more important is that the long-term price that 
we are looking at is above $20, whereas previously we were working 
with a figure of $11. We now see that price continuing in 
perpetuity," he said.