Australia, China Discuss Nuclear-Trade Deal
Canberra Wants Assurance Exports Go to Peaceful Use;
Pact Possible Within a Year
By STEPHEN BELL in Perth and VERONICA BROOKS in Canberra
DOW JONES NEWSWIRES
March 21, 2005; Page A15
In a development that could provide energy-hungry China with access to the world's biggest uranium reserves, Australian and Chinese diplomats are trying to hammer out a nuclear-trade agreement.
Officials in Canberra, Australia, believe a deal could be reached within the next 12 months, allowing Australian uranium exports to Asia's biggest consumer of energy to start much sooner than previously expected.
Uranium mining is a politically sensitive issue in Australia, where governments have restricted output and offshore sales to ensure the uranium is used for peaceful purposes and not to develop nuclear weapons.
Australian Foreign Minister Alexander Downer said late last week that he is confident his government can strike a China pact with satisfactory safeguards, throwing open a potentially huge market to the likes of Rio Tinto PLC and WMC Resources Ltd. The latter is currently the target of a friendly $7.3 billion takeover by Anglo-Australian miner BHP Billiton PLC.
"The government wants to take full advantage of Australia's competitive position in the uranium industry," Mr. Downer said, noting that China is the world's second-largest energy consumer behind the U.S. "As long as the safeguards agreement can be concluded," he added, "we wouldn't see any further obstacles to exporting uranium to China." Mr. Downer said Chinese officials raised the possibility of buying Australian uranium with him during a trip to China last August.
China aims to boost nuclear-power development to meet its surging demand for electricity. The issue has become more urgent as the energy-hungry eastern provinces suffer increasingly severe power shortages.
There are nine nuclear-power plants in operation in China with a total rating of 7,000 megawatts, or about 1.8% of the country's total power-generating capacity.
Two other plants are under construction, which will boost that figure to 9,000 megawatts later this year. Beijing wants to increase capacity to 36,000 megawatts by 2020, which a top Chinese atomic-energy official has said will require 27 new 1,000-megawatt reactors.
Uranium would diversify Australia's energy exports to China, which consist mostly of thermal coal used in power stations. From late next year China also will begin importing Australian liquefied natural gas as an alternative fuel.
An Australian Department of Foreign Affairs spokesman said a bilateral-safeguards agreement with China could be finalized in three to five months, but that realistically it will probably take about a year. He noted there is no urgency on China's part because Beijing is looking to secure long-term supplies of uranium, a fuel that has doubled in price over the past year.
Although second to Canada in production, Australia has the world's biggest uranium reserves and is close to the rapidly expanding Asian market. But because of Canberra's tight control over the supply chain, export earnings from uranium are a fairly modest 360 million Australian dollars (US$286 million) a year. That is dwarfed by the billions of dollars the economy draws from gas and coal customers abroad.
Ian Hore-Lacy, manager of the Melbourne-based Uranium Information Center, said it "makes sense" for uranium-rich Australia to pursue a trade deal with China, where nuclear power is growing. "There is no reason that a bilateral agreement with China can't proceed, though Australia needs to have the ability to audit where the uranium goes -- to see that it isn't used for military purposes," he said.
There already is a "broad" international framework in place, Mr. Hore-Lacy said, in that Australia and China are both members of the nuclear-nonproliferation treaty that came into force in 1970. And Australia currently has bilateral uranium export deals with more than 20 countries, including France, the U.K. and the U.S., he noted.
(Australia, which doesn't recognize Taiwan as a state, struck an agreement in 2001 to export uranium to Taiwan via the U.S., where it is enriched and subject to the safeguards agreement between Australia and the U.S.)
Nuclear power produces no greenhouse gases, which has prompted some countries to consider uranium as an alternative to fossil fuels such as coal and oil. The renewed demand, along with falling stockpiles of former weapons material, has caused a shortage of supplies.
WMC Chief Executive Andrew Michelmore told a recent seminar that current global uranium production meets only 58% of demand, with the shortfall made up largely from shrinking stockpiles. That shortfall is expected to run at 23 million kilograms a year on average from next year to 2020. Uranium prices have doubled during the past year to more than US$20 a pound and are forecast to settle at US$25 a pound to US$30 a pound in the longer term, he said.
"A uranium supply squeeze is looming and the market is set to remain tight as nuclear-power programs expand," Mr. Michelmore said.
The resultant uranium price boom has fired up the share price of several Australian companies, including WMC. Potential acquirer BHP Billiton's timing could be perfect as WMC -- which holds 38% of the world's known uranium resources at its Olympic Dam mine -- plans to triple uranium production just as a China export deal beckons. Currently, uranium from Olympic Dam is exported to the U.S., Canada, Sweden, the U.K., Belgium, France, Finland, South Korea and Japan.
Olympic Dam is Australia's second-largest uranium producer, behind Ranger, which is owned by Energy Resources of Australia Ltd., a unit of Rio Tinto. ERA declined to comment on whether it is looking at exporting uranium to China, once the way is cleared.
But Ranger's production, which is due to run out around 2012, is mostly tied up in long-term contracts with customers in Japan, South Korea, the U.S. and Europe, a person familiar with the situation said.
Any future sales to China would likely come from ERA's Jabiluka deposit, 22 kilometers north of Ranger in northern Australia, which began development in 1998 but stalled because of disputes with traditional aboriginal owners.
Following a deal unveiled last month, ERA needs to secure the consent of the Mirra Gundjeihmi Aboriginal people before Jabiluka -- regarded as one of the world's richest uranium deposits -- can be developed. The next official talks between ERA and the traditional owners aren't due until mid-2006.
Australia's third and smallest uranium mine is Beverley, owned by Heathgate Resources Pty. Ltd., a unit of closely held U.S. company General Atomics.
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