Any hopes for the development of a thriving uranium sector in Western Australia were seemingly dashed in 2017 when the newly elected McGowan government imposed a ban on future mining leases.
That followed a period of low prices for the raw material, particularly in the wake of the Fukushima disaster in Japan in 2011.
Just four deposits in WA had received approval from Colin Barnett’s Liberal-Nationals government by 2016: Toro Energy’s Wiluna project, Cameco’s Kintyre and Yeelirrie projects, and Vimy Resources’ Mulga Rock project.
Each was given five years by the McGowan government to demonstrate ‘substantial commencement’ at their respective projects to maintain ministerial approval.
Five years on and only Vimy Resources has managed to meet the required criteria, receiving formal confirmation from the Department of Water and Environmental Regulation in December 2021.
Located in the Great Victoria Desert about 250 kilometres north-east of Kalgoorlie, Mulga Rock is believed to be the largest undeveloped uranium project in Australia and is the first and only in WA likely to reach production stage in the foreseeable future.
Approvals have expired for the other four deposits. However, the difficulties Vimy Resources has faced in the past six months are typical of those for uranium juniors in the current climate.
Much of the insecurity is of a political nature, given the opposing views of the major parties on uranium mining in WA. Given this, aspirants can only wait for a more favourable policy agenda to emerge.
Then there’s funding – $393 million needed by Vimy for Mulga Rock – as well as sluggishly low uranium prices and environmental opposition.
Vimy put its leading asset on the table to potential buyers in November 2021 as an alternative to fronting the costs of running a mine alone, with approaches received from several parties.
Among these were long-term player and former Paladin Energy boss, John Borshoff, and his uranium aspirant Deep Yellow, offering an all-scrip deal for Vimy implying a combined market cap of $687 million.
Like many other ASX-listed uranium companies, Deep Yellow is focused on cultivating a uranium industry in less stringent mining jurisdictions overseas.
Vimy rejected the offer, however, opting to continue with its strategic review.
For its part, Deep Yellow claims there was no meaningful engagement from Vimy regarding the deal, while Vimy claims the low premium offer was “unconventionally structured”.
Whether a union between the two is fully off the table remains to be seen.
Meanwhile, Vimy still needs cash until it finds a partner, with investors expecting a final investment decision on the project by the latter half of this year.
With barely sufficient funds to make three quarters, Vimy launched a $20 million capital raising, which was then put on pause after Russian forces attacked a nuclear power plant in Ukraine.
Vimy shares were locked in a trading halt on that day and able to avoid any collateral damage from the incident, but the same couldn’t be said for other ASX-listed uranium companies.
It has since announced a $17 million raise after revising offer terms.
While the share price drop might be temporary, it’s a reminder of how uranium’s prospects are linked to environmental concerns over nuclear power.
Demand landscape
Bell Potter equity research analyst Regan Burrows described the uranium market as “opaque”.
“What’s happened in Ukraine or what happened in Kazakhstan a month ago that caused blips in the spot market, those things are very short-term focused,” Mr Burrows told Business News.
“The important thing is the long-term demand and whether the story stacks up.”
Pricing is a crucial consideration for junior uranium companies that rely on steady uranium prices and realistic demand prospects before committing to a new project or reviving a dormant one.
“The incentive price for production to come online is north of $US60 From page 29 Continued on page 32 a pound, that’s for exploration projects,” Mr Burrows said.
“We’re currently sitting around mid-$US40s and for the last decade or so that’s hovered around $US20 to $US30 … that’s too low to be bringing on new supply.”
In a move some interpret as an impending turning point in the uranium market, global player Cameco announced in February it would gradually restart production from the McArthur River-Key Lake project in Canada, which has been on care and maintenance since 2018.
Perth broker Argonaut has previously indicated a steady rise for uranium prices as new nuclear reactors scheduled for China, India and South Korea reinvigorate demand.
“The main driver from that aspect is China,” Mr Burrows said.
“They’ve got 53 reactors operating, constructing 18 and over 150 planned and proposed, so that’s going to be the main driver over the longer term on uranium demand.”
Following Russia’s invasion of Ukraine, the hesitancy of banks and commodity traders to fund forward contracts for Russian gas and crude oil, and the potential for further sanctions, have created opportunities for other sources of energy.
Mr Borshoff believes uranium and nuclear power have a role to play in the provision of this need for energy security.
“Energy security is actually, in the last two weeks, overriding climate change completely,” Mr Borshoff told Business News.
Amid global efforts to decarbonise and shift the reliance from coal and oil, Mr Borshoff said nuclear power’s low-carbon credentials, combined with renewables, were the way forward.
“When you understand the dynamics of energy … and which technologies are going to deliver on this energy supply, you start realising it’s an energy mix that’s necessary,” he said.
“Nuclear can deploy and satisfy different markets and different regimes.”
Mr Borshoff said current moves to reduce oil and gas exploration were premature.
“This is going to leave a huge vacuum; what happens in the next 40 years?” he said.
“You still have to invest and develop new fields because then all of a sudden you have oil crunches like you have today.
“And this is not a short-term issue, this is not a ‘winter this year in Europe’ issue, this is a fundamental shift in how freely companies can invest in products that are not politically acceptable.”
Domestic
Australia’s role as a uranium exporter is also changing. Behind Canada and Kazakhstan, Australia was the third biggest global producer in 2018-19, with uranium exports valued at $734 million (about 10 per cent of global requirements).
These numbers are before the closure of Rio Tinto’s Ranger mine in the Northern Territory earlier this year, the longest-running uranium operation in Australia. Its closure leaves just two producers in operation: BHP’s Olympic Dam and Quasar Resources’ Beverley Four Mile in South Australia.
Mr Borshoff said the closure of these older projects, coupled with a lack of expertise to develop new ones, would create a supply issue.
“It hit me that in the next cycle it would be supply that would be the problem,” he said.
“Pounds in the ground do not mean pounds in a drum.
“What’s really lacking is teams that have actually delivered and credibly delivered.”
Reputation
Uranium mining and nuclear power remain controversial in Australia, but Mr Borshoff believes its low-emissions credentials are helping develop what he sees as a less-reactionary approach to the sector.
Still, fears of a plant meltdown don’t help the case for building nuclear reactors in WA.
“The issues and the risks that are so clearly emotive, more than scientific, are the fear of what nuclear out of control could do, compared to the risk that climate change could do,” Mr Borshoff said.
Ever bullish on the prospects for uranium, he believes that perception is starting to slowly wane.
“In that way now, you’ve got Australia thinking about nuclear, you’ve got Australia at least talking about it; they have no option,” Mr Borshoff said.
