A new trade deal allowing Canadian uranium exports to China is eliciting cheers from uranium companies across the country. The deal was one of several agreements signed during a visit to China in early February by Canadian Prime Minister Stephen Harper.
Graham Thody, president and chief executive of UEX (UEX-T), describes the agreement as “probably the most significant advancement to have occurred in the Canadian uranium industry since the beginning of the exploration boom almost a decade ago.”
China is poised to become the largest uranium consumer to meet the electrical needs of its growing population, Thody adds, noting that China has 15 operating reactors, 25 under construction, 52 more planned and 150 others proposed.
“We expect this development to crystallize in upward pressure in the market over the medium term or the next three to ten years,” says Bahi Sivalingam, a London-based uranium analyst for Trade-Tech, an industry consultant and uranium price publisher headquartered in Denver, Colo. “China has a significant appetite for uranium, and the more Western supply that is absorbed by the country, the tighter the open market will become.”
Canada’s largest uranium producer says it can move ahead with two contracts signed in 2010 to deliver 52 million lbs. of yellowcake to China by 2025. Cameco’s (cco-t, ccj-n) sales contracts are thought to be worth $2.5 billion to $3 billion. News of the trade agreement on Feb. 9 sent the company’s shares up 1%, or 28¢, to close at $23.36 per share.
Richard Spencer, president and chief executive of U3O8 (UWE-V), says the deal “recognizes Canada and Canadian companies as among the top ‘go-to’ entities for uranium.”
Others describe the deal as a big move forward. “Prime Minister Stephen Harper has just sent a huge message to China that we are eager to work with them, and that is very helpful to our cause,” says Chris Frostad, president and chief executive of Purepoint Uranium (PTU-V).
But Frostad hopes the next step will be amending ownership rules in Canada that prohibit foreign companies from owning more than 49% of Canadian uranium mines.
“The deal Harper has signed in Beijing is huge news for a Canadian producer, who has to fill orders for China from other countries. But in terms of exploration or the development of resources in Canada, there has been a huge reluctance from China and Japan and others until the ownership rules have changed.”
Frostad cites Mitsubishi of Japan as an example. The Japanese company acquired a uranium asset in the Athabasca basin many years ago but has shelved it until the rules on foreign ownership change. The ownership rules also impeded Purepoint Uranium from nailing down a strategic investor in China several years ago. The Chinese entity later invested in an Australian competitor.
In Frostad’s opinion it’s only a matter of time before Canada changes these foreign ownership laws. “The prime minister made specific mention that the rule needs to change in his throne speech in 2009,” he reasons, adding it is widely held that Rio Tinto (RIO-N) would not have acquired Hathor Exploration (HAT-T) and its Roughrider deposit last year if it had felt the law would not be amended. “I don’t think they would have paid six hundred fifty million dollars for it if they thought they’d have to divest half of it,” he says.
The Chinese market has been closed to Canadian uranium producers for decades, and Canada sends most of its uranium exports to the U.S., Europe and Japan.