In a historic decision, the Canadian government has approved Australia’s Paladin Energy (TSX: PDN) as the majority owner of a uranium mine in Newfoundland and Labrador.
Until now, the government’s Non-Resident Ownership Policy (NROP) has barred most non-Canadian companies from owning more than 49% of a producing uranium mine in the country.
In 2011 Paladin acquired its 100%-owned Michelin uranium project, 140 km northeast of the town of Happy Valley-Goose Bay, and the company said receiving the waiver “became vital in forwarding progress” on the project.
A key component of winning approval was showing that no Canadian company wanted to take the lead on the project. “There was no one else who was found that was ready, willing and able to jump in and take on the majority of the project,” Greg Taylor, the company’s Toronto-based spokesman, tells The Northern Miner. “We received letters of support for our application from Cameco and Denison.”
Taylor adds that there was nothing unusual about the decision’s timing, and that Paladin had worked with government officials, local communities and a number of associated parties for well over a year. Although there were informal discussions beforehand, president and chief executive John Borshoff sent the company’s first letter to Natural Resources Canada on Jan. 21, 2015.
“This is going to be a billion-dollar-plus capital project requiring extensive technical knowledge of uranium and uranium production and processing, and all of the other issues related to uranium,” Taylor says. “It’s not something that just any Canadian miner could do, because uranium is special. It’s different. One of the challenges that we at Paladin have been talking about for a decade is that there is not a tremendous amount of active uranium experience out there, and certainly not the level that would be required.”
In a brief research note, Raymond Goldie of Salman Partners in Toronto commented that while he does not know what the government needs for the company to show the absence of interested Canadian partners, he interprets the “historic precedent” as “an equivalent of the right of first refusal, which Canadian companies like Cameco (TSX: CCO) and Denison Mines (TSX: DML; NYSE-MKT: DNN) retain for building and operating Canadian uranium mines and mills.”
Goldie, along with a number of other mining analysts, heralded the decision as a step forward in the uranium industry.
“While the government has dropped hints of this move in the past, the announcement significantly lowers the perception of Canada’s risk profile for foreign suitors [e.g., Chinese nuclear utilities] and ramps up takeout potential for the few high-quality uranium projects in the country,” Raymond James analyst David Sadowski writes in a research note.
“Canada is likely to continue to review major takeouts on a case-by-case basis, but this precedent should go a long way to eliminating the hurdle of geopolitical uncertainty by showing NROP is not a ‘hard and fast’ rule, when no other Canadian partners can be found to lead development.”
David Talbot of Dundee Capital Markets agrees that the move “has positive implications for take-over potential in the Athabasca basin and elsewhere in Canada,” and will likely increase competition for projects and de-risk development.
But he is skeptical that majority foreign ownership would be allowed for companies from some jurisdictions.
“We believe that Areva is an acceptable 100% owner of the Kiggavik project in Nunavut,” Talbot writes, “but would not expect Chinese utilities or Russian nuclear entities to qualify for majority ownership of uranium projects in Canada.”
Paladin’s Taylor confirms that Canadian authorities conducted rigorous due diligence on the Australian uranium miner to ensure that it was up to the task of developing Michelin. “We were questioned in detail and had a lot of meetings with senior government officials,” he says. “Not only were our credentials assessed, but also our environmental record, our record with local communities, our technical expertise, safety record — all of those things had to be taken into account.”
The approval is timely, Taylor adds, given what he describes as a looming “uranium crunch.” Paladin estimates there will be a 35 million lb. shortfall in annual uranium production by 2020. “If you look around the world, there are not a lot of deposits that are likely to go into production in the next ten years,” he says. “There are lots of companies that have uranium, but there are questions of grade, questions of permitting, questions about the environment, water and power, and all of those things.”
As for the Michelin project, Paladin doesn’t expect it will move into production any time soon, given that current spot prices hover around US$36.75 per lb. uranium oxide (U3O8).
“We will not spend significant effort and money in that direction until we see US$70 per lb. uranium prices,” he says. “Once we’re comfortable that we’re going to see longer-term stability in the uranium market, based on those kinds of numbers, we look forward to developing Michelin in 2021.”
Whether the federal government will authorize other non-Canadian companies to own majority stakes in uranium mines, Taylor says, is open for debate.
“Canadian companies have gone to Australia and gained permission to take over uranium projects in Australia, so perhaps there was a little bit of tit for tat there,” he says. “But whether this is a signal that the Canadian government is going to change the law, or this is a one-off or whether there will be more exemptions, I have no idea.”
In the meantime, Paladin plans to start exploration in July, followed by a late-year drill program of 6,000 metres.
Michelin has a measured resource of 15.6 million tonnes grading 0.1% U3O8 for 34.08 million lb. U3O8; an indicated resource of 21.9 million tonnes grading 0.1% U3O8 for 50.04 million lb. U3O8; and an inferred resource of 8.8 million tonnes grading 0.1% U3O8 for 22.87 million lb. U3O8.
At press time, Paladin’s shares were trading at 27¢ per share, within a 52-week range of 26.5¢ to 45.5¢ per share.
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