The new policy is not binding on state governments, however. Control still lies at the state level. As Doug Casey stated in his "April 29 ó A Day to Watch for Uranium Investors" (The Gold Report 2/28/07), "Labor holds the balance of power in each and every one of Australiaís states and territories. Its regional governmentsí attitudes toward yellowcake vary. New South Wales and Victoria ban all uranium-related industrial activity, even exploration. Queensland and Western Australia straddle the fence, allowing uranium exploration but not uranium mining. Tasmania has no ban in place, but has never drawn interest from uranium explorers. Only South Australia and the Northern Territory (neighbors in the middle of the continent) have allowed uranium mining."
Since ,the Party handed down its decision to end the ban on uranium mining, Queensland Premier Peter Beattie has sent mixed messages. Queensland holds most of the untapped uranium reserves in Australia. Beattie has said he would continue to oppose new uranium mines, yet he also has said he will abide by the Federal Leader's policy wish.
As the Labor Party meeting was getting underway, The Gold Report caught up with analyst John Wilson of Resource Capital Research (RCR), based in Sydney, Australia. Wilson publishes the "Quarterly Uranium Sector Review," which provides an outlook on uranium and analytical coverage of more than 20 uranium companies.
The GOLD REPORT (TGR): Whatís your latest prediction on uranium pricing?
WILSON: We use the Uranium Participation Corp. share price and warrants as an indicator of what I call the forward curve for uranium, and itís been a pretty good indicator to date. Iíve been using it for the last 18 months or so. It doesnít necessarily fine-tune for weekly price events, but itís a good indicator of broad trends and directions. Itís a leading indicator of uranium price trends by six to nine months.
TGR: Now that the Labor Party has decided to end its long-standing ban on uranium mining in Australia, how will that affect the domestic mining industry?
WILSON: The Labor Party National Conference sets the policy for the Labor Party at all levels ó federal, state, and local. The Labor Partyís decision to end its ban on uranium mining is not a legislative act, but a change in its policy. Thereís no legislation banning uranium mining at the state level. As such, itís now up to each of the individual states to determine how they will act on the Partyís policy change. Each state can determine for itself whether it will allow or disallow new mining.
In South Australia, Premier Mike Rann is strongly in favor of overturning the ďthree-mineĒ policy. Thatís how the ban has been described over the years because it was put into place when there were three mines already operating, so it was effectively a cap at three mines for many years. The benefits of an end to the three-mine policy could flow through to South Australia very quickly because it has a supportive government and is strongly in favor of moving on new uranium mining in the state. South Australia already has the Olympic Dan and Beverly mines.
Western Australia has said theyíre not going to overturn the three-mine policy regardless of what happens at the National Conference, and that seems to be a fairly black-and-white position, so thatís unlikely to change until the next state government elections.
In Queensland, Premier Peter Beattie initially said he wouldnít overturn the Queensland state policy on uranium, regardless of what happened at the National Conference. Beattie said he didnít want to impact coal exports from the state. However, coal exports from Queensland supply the steel industry, not power generation, so it doesnít directly compete with uranium. Beattie then revised his original decision and for a period he was in favor of supporting policy set at the Labor Party National Conference. He has since reversed again, saying he will not support uranium mining in the state. The rationale behind his position has changed, so there is now some uncertainty in the market about Queenslandís resolve.
The overturn in policy could lead to a change in Western Australia and Queensland potentially in the mid-term. It at least lays the structural foundation for the states to get on board, and thatís significant. It takes three to five years to get uranium from advanced exploration into production. So even if the policy in a given state doesnít change immediately, potential for a policy change is still within the three-to-five year time frame that it takes a project to get up and running.
TGR: Do stock prices reflect investorsí expectations that this policy change may increase uranium mining in Australia?
WILSON: Yes, I would say so. In Australia there has been much anticipation that the three-mine policy would be overturned, and so investors have priced accordingly. Nonetheless, there will still be those who are surprised and I wonít be surprised to see a little price spike for some shares as a result of the news.
TGR: Youíve reported that some advanced Australian projects are likely to benefit in Queensland and Western Australia. What about South Australia?
WILSON: Queensland and Western Australia have many more projects that went through full feasibility in the last cycle and are therefore higher profile. In South Australia, Crocker Well, now owned by PepinNini (PNN: ASX), went through full feasibility in the last cycle, and this project should benefit from the positive sentiment. Curnamona Energy (ASX: CUY) has an earlier stage project at Oban with a pilot stage ISL plant planned for the second half of this year, so that would be an early beneficiary also. It is an earlier stage project and has exploration risk associated with it. Thereís also the Olympic Dam project expansion (BHP) and the advanced exploration project at Mt. Gee owned by Marathon (MTN: ASX).
Advanced Australian Project Likely to Benefit When Policy Changes
Valhalla ó Summit Resources/ Paladin Resources
Westmoreland ó Laramide Resources
Ben Lomond ó Mega Uranium
Yeelirrie ó BHP Billiton
Kintyre ó Rio Tinto
Lake Way and Centipede ó Nova Energy
Lake Maitland ó Mega Uranium
Manyingee ó Paladin Resources
Oobagooma ó Paladin Resources
Mulga Rocks ó Private
TGR: If a given state decides to follow the Labor Party policy and allow more mining, could it still reverse course at some point in the future?
WILSON: I guess thereís always that risk, but I think it unlikely. There would be a political backlash if a state were to flip-flop once companies had committed expenditure. I donít believe a politician would survive that kind of policy reversal.
TGR: Itís called a three-mine policy, but arenít there already more than three mines?
WILSON: The fourth, Honeymoon, is being developed but itís not in production yet. The state government in South Australia permitted the mine when the Liberal government was in office. As mentioned, the three-mine policy is not legislated and is only the policy of the Labor Party. Even within the Labor Party, thereís a bit of give-and-take in how party policies are implemented.
TGR: How is uranium, which is associated with nuclear energy, viewed from an environmental standpoint?
WILSON: Nuclear energy is low in greenhouse gas emissions, which is an important environmental concern today. So that tends to put it into an increasingly favorable position in a world concerned about carbon emissions.
TGR: Can you give us an update on Laramide (TSX: LAM)?
WILSON: Laramide has an advanced stage project at Westmoreland in Queensland, and itís got very good exploration upside. So if the Queensland government permits uranium mining, Laramideís Westmoreland project would be the first to benefit. Itís quite a substantial size at nearly 60 million pounds, and itís shallow with good grade. If Queensland doesnít allow mining immediately, I think the investment community will view the governmentís position as a temporary delay only. There will be pressure, in my view to change position again sooner rather than later, so itís just a matter of timing. Political delays may have some impact on the valuation. I assume Laramide will continue with its metallurgical studies and environmental baseline studies, and will continue exploring over the border in the Northern Territory.
TGR: Other than Laramide, what other Australian mining companies are positioned to benefit under the new national policy?
WILSON: In South Australia, PepinNini and Curnamona Energy will benefit, as will potentially Marathon with its Mt. Gee Project, but thatís at an earlier stage. The more advanced projects will benefit disproportionately. PepinNini should be the major beneficiary because it has the most advanced project. Curnamona Energy is an earlier stage project with additional exploration risks, but itís in a region where ISL projects are well established.
In Queensland, Laramideís Westmoreland project will benefit, as will Ben Lomond and Maureen. Thereís also the Valhalla advanced exploration project owned by Summit and Paladin.
In West Australia (see sidebar) I would add to the table Thatcher Soak, owned by Uranex (UNX: ASX), which went through extensive drilling in the last cycle. Uranex is only just getting onto the property now to do confirmatory and extension drilling with results expected in the second half of 2007.
In Northern Territory, the Australian Federal Government has jurisdiction and has previously indicated it will allow new uranium mines. Companies in the NT are therefore unaffected by the change in Labor Party policy. There are some advanced projects there, including Energy Resources of Australia's (ERA: ASX) Jabiluka Project. Compass (CNMR: ASX) has the Rum Jungle prospects, and Energy Metals Limited (EME: ASX) has the Bigrlyi deposit. (5/14/07)