Tuesday 22nd September 2020

Resource Clips

Benefits of foreign ownership

Cameco and Denison support Canada’s Paladin decision

by Greg Klein

At least some Canadian uranium companies welcome a decision that they say will encourage greater investment and reciprocal deals overseas. In what Paladin Energy PDN called an historic announcement on June 22, Canada’s federal government approved the Australian’s ownership of its proposed Michelin uranium mine in Labrador. The decision comes under a 1987 policy that requires at least 51% Canadian ownership of uranium mines (although it doesn’t apply to exploration or development projects). Exceptions, however, may take place when no Canadian partners can be found.

The feds’ decision “overcomes a huge hurdle,” said John Borshoff, managing director/CEO of the ASX- and TSX-listed company, which holds 100% of Michelin and currently produces uranium in Namibia.

But the announcement benefits others besides Paladin, indicating “positive news for the space for sure,” Denison Mines TSX:DML president/CEO David Cates tells ResourceClips.com. “I think anything that’s opening up the country for business and investment from abroad is good for all uranium companies, whether it’s through partnership or an M&A deal.”

Cameco and Denison support Canada’s Paladin decision

The government decision also brings to mind an October 2013 agreement in principle between Canada and the EU to scrap the 49% limit on foreign ownership. Ratification of the accord, which reportedly followed intense lobbying from Rio Tinto NYE:RIO and French giant AREVA, could take two years following the initial agreement. AREVA, active in several Canadian joint ventures, holds a 64.8% stake in the advanced-stage Kiggavik project in Nunavut.

Cates doesn’t think the sector necessarily needs the restriction. “What would we be protecting against?” he asks, pointing out that Canada exports most of its uranium. “If we’re going to sell to the world anyway, why not let the world’s capital develop some of those resources and generate returns for Canadians through tax dollars and jobs?”

The feds’ announcement valued this country’s exports at more than $1 billion per year, making Canada the world’s second-largest supplier. Canada’s nuclear industry employs over 30,000 workers, including 5,000 in uranium mining, according to the Ministry of Natural Resources. Citing Paladin estimates, the announcement said Michelin could “create up to 750 jobs during the construction phase and up to 350 jobs during the operational phase,” should the project make it into production.

“To me, this is just opening up the capital market to other companies,” Cates adds. “It doesn’t have to start with a takeout. It could start with a strategic investment that turns into an acquisition of control down the road. Either way, Canadian companies and Canadian shareholders are going to benefit.”

Cameco Corp TSX:CCO actually backed Paladin’s application with a letter of support, senior communications specialist Carey Hyndman tells ResourceClips.com. “We take no issue with the government liberalizing those restrictions, when it comes to countries that offer that reciprocal access. Australia of course has those policies that allow us to do the same.”

But might there be a downside for Cameco? By far Canada’s largest uranium company, it has long dominated Saskatchewan’s Athabasca Basin, home of the world’s highest grades. Even so, the company was accused of complacency in 2012, when Rio grabbed the Roughrider deposit from under Cameco’s nose, with the Anglo-Australian’s $654-million buyout of Hathor Exploration. Any relaxation of foreign ownership restrictions might bring more competition.

It doesn’t have to start with a takeout. It could start with a strategic investment that turns into an acquisition of control down the road. Either way, Canadian companies and Canadian shareholders are going to benefit.—David Cates,
president/CEO of Denison Mines

“As long as we’ve got that reciprocal possibility in the other country, then we think it’s fair to liberalize that restriction,” responds Hyndman.

The governments of Newfoundland and Labrador, Saskatchewan and Australia support the Michelin decision, according to Canada’s Natural Resources ministry.

Cameco owns 100% of Yeelirrie, which the company calls “one of Australia’s largest undeveloped uranium deposits.” Additionally Cameco holds 70% of the Kintyre project, also in Western Australia, which won conditional environmental approval last summer. A decision to begin mining would depend on an improvement in either production potential or uranium’s price, the company said at the time.

While Cameco has been ramping up Canadian production with Cigar Lake, low prices last year forced Paladin to suspend operations at its Kayelekera mine in Malawi and sell 25% of its Namibian Langer Heinrich operation to China National Nuclear Corp.

The Canadian government’s announcement comes as three directors of ASX-listed Energy Resources of Australia resigned, the latest fallout from another casualty of uranium prices. This month Rio abandoned plans to expand the two companies’ Ranger 3 mine in Northern Territory. Majority-owner Rio faces a possible US$300-million impairment.

But Paladin’s June 22 statement quotes the ever-positive Borshoff talking of “the inevitable market improvement ahead.” His company hopes to begin Michelin production “when the uranium price is at an appropriate level and after obtaining all necessary approvals and consents.” More immediate plans call for a summer exploration program beginning in July, followed by about 6,000 metres of winter drilling.

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