Cameco and Mitsubishi buy Kintyre project from Rio Tinto

Cameco (CCO-T, CCJ-N) is teaming up with a subsidiary of Mitsubishi Corporation to buy Rio Tinto‘s (RTP-N, RIO-L) Kintyre project in western Australia for US$495 million.

Of that amount, the Canadian uranium giant is contributing US$346.5 million for a 70% stake in the joint venture, while Mitsubishi Development of Sydney is spending US$148.5 million for the remaining 30% stake.

Kintyre is an advanced exploration project about 1,250 km northeast of Perth, which Cameco believes could host potential mineral deposits ranging from 62-80 million lbs of U308, with an average grade of 0.3-0.4% U308.

Those estimates are based on 70,279 metres of historical drilling in 355 diamond drill holes. The project was put on care and maintenance in 1988 when uranium prices dropped below US$12 per lb and the project became uneconomic.

Cameco believes the site has the potential to become a low-cost open-pit operation and adds to Cameco’s diverse asset base.

But the project does not come without some political risk. In a prepared statement announcing the deal, Cameco conceded that the Labor governmet in Western Australia permits uranium exploration but opposes the development of new uranium mines.

At the same time, however, “Australian governments and political parties generally are becoming more supportive of uranium development.”

The Saskatoon-based company also notes that the federal Labor party “abandoned a long-standing policy opposing development of new uranium mines” last year and since forming the national government, “the party has become supportive of uranium mining generally in Australia.”

Mitsubishi Development is a subsidiary of Mitsubishi Corporation and owns coal and iron ore properties in Australia. These include a 50% ownership stake in BHP Billiton Mitsubishi Alliance, reportedly the largest metallurgical coal producer in the world.

Cameco has been active in Australia since 1997 with exploration licences in western, southern and northern Australia. In February it picked up rights to the AngelaPamela deposits, 25 km south of Alice Springs in the Northern Territory through a joint-venture with Paladin Energy (PDN-T, PDN-A).

Cameco is trading at about $42.08 per share, and over the last year has ranged from $31.39-$55.26 per share.