Special Report: Australia soars on uranium bonanza - Sunday Times - Times Online


The prospectors of the outback are coining it as nuclear comes back into fashion. By Paul Ham in Sydney
AUSTRALIAN uranium miners come from tough stock. Bob Johnson’s great-great-great grandfather was a convict named Tom Askew, transported Down Under in 1819 for stealing 16 ducks to feed his starving family in Lincolnshire.
“He was a church warden, desperately poor. He got himself a 15-year-old wife, they had six kids, and he ended up becoming a gold prospector,” said Johnson, who looked up his ancestor’s records while working for British Coal in the 1980s.
NI_MPU('middle');
Almost 200 years later, Askew’s descendant is also a prospector. But Johnson has joined a very different gold rush: he is looking not for gold but for yellow cake — mining speak for uranium ore. Australia has the world’s largest reserves: 40% of known deposits.
And suddenly, the world desperately wants Australia’s yellowcake. China has just signed an agreement to buy thousands of tonnes, a deal said to be worth £40 billion. The metal will power the 28 new nuclear reactors it plans to build by 2020.
The Australian deal was very sensitive. China has not signed the nuclear non-proliferation treaty, and the green lobby fears that enriched uranium may be used to make nuclear weapons. But the Australian government has waved aside those concerns. China, it said, has undertaken to use the uranium exclusively for nuclear power.
China is in good company. India has announced a big investment in nuclear power, with plans to build 24 reactors. Europe, too, now sees it as a cleaner alternative to burning fossil fuels. Tony Blair’s scientific advisers have endorsed nuclear power. Sweden and France have used it for decades to electrify their countries, with no harmful results; and America has restarted its programme, with plans to build several reactors. Even some militant greens, horrified by the greenhouse gases produced by fossil fuels, have accepted the case for nuclear energy.
The biggest beneficiaries will be Australian uranium miners, who have been extraordinarily quick to grasp this immense opportunity. Dozens of tiny uranium prospectors with little more than a drill bit between their teeth have floated on the Australian stock exchange in recent months.
Their share prices have soared as “uranium-mania” has gripped local investors, amid analysts’ warnings of a bubble mentality. The believers point to the solid demand, chiefly Chinese, that underpins the industry — the price of uranium has risen from US$7 (£4) a pound two years ago to US$40 today. Some are steering clear, fearing a repeat of the dotcom fiasco: “The whole junior (explorer) situation has gone completely mad at the moment,” said Gavin Wendt, a resource analyst at Fat Prophets, an Australian share-tipping company.
But the case for uranium is also underwritten by the imminent exhaustion of supplies of enriched uranium taken from obsolete, chiefly Russian, nuclear weapons, which have until recently met demand in Europe and America.
The Australian federal government has stoked the euphoria, with explicit support from resources minister Ian Macfarlane, who said this month that local uranium miners could be shipping uranium to Asian countries within four years.
Two of the world’s biggest mining companies, Australia’s BHP Billiton and Britain’s Rio Tinto, are best placed to exploit this opportunity. BHP Billiton owns the vast Olympic Dam mine in South Australia, which has the world’s largest untapped reserves. Rio Tinto, through its subsidiary Energy Resources Australia (ERA), is Australia’s largest exporter of uranium. It owns the Ranger and Jabiluka mines in the Northern Territory. Both companies’ cashflow has surged in recent years due to the global commodities boom.
But investors are eyeing pure uranium stocks. They include smaller miners and explorers such as Marathon Resources, Summit Resources, Toro Energy, Paladin Resources and Alliance Resources, whose share prices have sizzled in recent weeks. Toro, which listed on March 23, has risen 504% to about $1.30. Paladin has soared 509% over the past year to about $5.40.
Pure miners have tended to outdo explorers, because the real money is in extracting and selling the ore. But that hasn’t stopped dozens of minnows lining up to entice investors: Giralia is floating two in coming months: U308 and Gladiator Resources. Investors are queuing up; anything with uranium attached to it tends to be heavily oversubscribed.
Uranium’s return to global favour has vindicated a few doughty Australian pioneers, mostly hard-bitten geologists, who for decades have stayed the course, dismissed the militant green hysteria about global irradiation, and are now set to become very rich indeed.
Johnson is one of the hardiest of Australia’s uranium barons. The son of an iron-foundry worker, he is a tough, 58-year-old with degrees in geology and computer science. He invented the Maptek three-dimensional mine-planning software used by mining companies around the world. He is a founding director of Curnamona Energy, which has exploration rights over 4,300 square kilometres of the best uranium “paleo-valley sands” of South Australia.
Curnamona has been a huge favourite with investors, partly because it uses new technology to detect uranium deposits. It was also well advanced. Floated in April 2005, money has since “just walked through the door”, said Johnson. “We saw this boom coming a couple of years ago. Everyone was negative. We realised there was a lot of uranium in the ground.”
Curnamona, like Toro Energy, is an explorer — it has no assets, as Johnson readily admits. “We’re a speculative company, but we have a very methodical approach.”
Like many uranium pioneers, he has little time for militant environmentalists. “The green movement has actually delayed the introduction of a safer alternative to coal. By stigmatising uranium, they have actually damaged the environment,” he said.
Kate Hobbs is the only woman to head an Australian uranium mining company, Hindmarsh Resources, which floated this year to a thunderous reception. Yet she, too, cheerfully admits that her firm is purely an explorer, with no assets.
Hindmarsh has a licence to explore 14,500 square kilometres in South Australia. The prospect has already attracted a buyer for the tiny company:
Canada’s Mega Uranium will take control of Hindmarsh in the coming weeks.
As a result, Hobbs, a 55-year-old mother of three, will be free to pursue her other mining interests. She has 1.5m share options in Hindmarsh, whose share price is at about $1.60 and rising. She speaks scornfully of the “great disservice” done to the environment by green groups that put the brakes on nuclear power.
Greg Hall, a mining engineer, is a veteran of the uranium sector, with 27 years’ experience of extracting yellow cake and other minerals from the Australian outback.
Hall, 47, has felt the sharp end of the environmental attack on uranium — he was mining manager of ERA’s Ranger and Jabiluka uranium mines in the Northern Territory at the height of the protests in the late 1990s and early 2000s. He now smiles at the idea of the green movement supporting nuclear power over fossil fuels.
Between 1987 and 1992 he was responsible for the development and management of underground operations at Olympic Dam, situated in one of the earth’s most inhospitable regions. “When I first went there I lived in a caravan with my wife,” he said. “It was a bit of a shock for her — she worked in the fashion industry.”
Last month Hall became managing director of the newly floated Toro Energy, an exploration spin-off from two mining companies, Oxiana Resources and Minotaur Exploration. Toro’s goal is to find uranium in an area covering 26,000 square kilometres in the centre of South Australia.
Alan Eggers, founding director of Summit Resources, is equally upbeat about the prospects for uranium. A hard man of the mining sector, Eggers has suffered two setbacks in the wake of the collapse of commodities prices — the second time he was halfway through building a new home, with a wife and children.
Summit is now largely seen as a “Queensland government play”, pinning its mining hopes in Mount Isa to the relaxation of the ban on uranium mining by the Australian Labor party. At present the Labor states of Western Australia and Queensland both ban uranium mining; but that is expected to change at the Labor party conference in April 2007. If so, Summit’s share price will hit the roof.
Eggers holds a master’s degree with first-class honours in geology, and has staked his career on finding substantial uranium deposits in Mount Isa. Like Kalgoorlie, in Western Australia, Mount Isa is the gritty heartland of Australian mining, where generations of prospectors have made and lost their fortunes.
In 1990 Eggers staked out an area near Mount Isa which he believed held substantial deposits of uranium; he invested A$5m in drilling. His persistence paid off: Summit announced in the mid-1990s the discovery of 35,000 tonnes of uranium, worth A$4 billion (£1.7 billion): “From my early days of pegging worthless ground we now have A$4 billion of metal,” he said.
The Summit share price soared on the back of the discovery. Then it came crashing down when, in 1998, the new Queensland Labor government slapped a ban on uranium mining. That wiped A$70m off the company’s value, and infuriated shareholders. “I had a personal stake of $5m that went to nothing.”
But in the past three years Summit’s price has clawed back, from 5c in 2003, to $1.65 this month, as investors cling to the hope that Summit will be given the green light.
Eggers is worth millions of dollars on paper but, like most of Australia’s uranium barons, past experience has made him philosophical about whether he will realise it.