AUSTRALIAN URANIUM NEWS UPDATE - MAY 2010

India is the sixth largest energy consumer in the world, accounting for 3.4 per cent of the global energy consumption. The demand for energy has grown at an average of 3.6 per cent per annum over the past 30 years due to the fast economic growth of the country. In March 2009, the installed power generation capacity of India stood at 147,000 MW while the per capita power consumption stood at 612 kwh.

The country's annual power production increased from about 190 billion kwh in 1986 to more than 680 billion kwh in 2006. The UPA-II government has set an ambitious target to add approximately 78,000 MW of installed generation capacity by 2012. This is in view of an estimate that the total demand for electricity in India is expected to cross 950,000 MW by 2030.

About 75 per cent of the electricity consumed is generated by thermal power plants, 21 per cent by hydroelectric power plants and 4 per cent by nuclear power plants. More than 50 per cent of the commercial energy demand is met through the country's vast coal reserves. It has also invested heavily in recent years on renewable sources of energy such as wind and solar energy. As of 2008, India's installed wind power generation capacity stood at 9,655 MW. In July 2009, the country unveiled a $19 billion-plan to produce 20,000 MW of solar power by 2020. Additionally, it has committed massive amount of funds for the construction of various nuclear reactors, which would generate at least 30,000 MW.

Nuclear power is the fourth-largest source of electricity in India after thermal, hydro and renewable sources of energy. As of 2010, India has 19 nuclear power plants in operation generating 4,560 MW while four other are under construction and are expected to generate an additional 2,720 MW.

Following a waiver from the Nuclear Suppliers Group (NSG) in September 2008 which allowed it to commence international nuclear trade, India has signed nuclear deals with several other countries including France, the US, the UK, Canada, Namibia, Mongolia, Argentina, Kazakhstan, and Russia (2000 tonnes of nuclear fuel) except Australia, which has yet to agree for the sale of its rich and low cost Uranium to India.

New Delhi now envisages increasing the contribution of nuclear power to overall electricity generation capacity from 4.2 per cent to 9 per cent within 25 years. In 2010, India's installed nuclear power generation capacity will increase to 6,000 MW. As of 2009, India stands ninth in the world in terms of the number of operational nuclear power reactors.

The country has one of the lowest per capita consumption of energy and the highest economic growth next to China. It has an urgent requirement for additional sources of 'clean' energy in order to develop without contributing overly to global warming and this links up to the wider Australian mindset of reducing carbon emissions to save the planet.

Australia holds approximately 30 per cent of the worlds estimated low-cost uranium reserves at more than 50 known economic deposits and minor occurrences. Significantly sized deposits exist in the far north of the Northern Territory, northern and central Western Australia and north-western Queensland and in central South Australia. Exploration by both domestic and foreign companies is continuing to expand. India's needs of Uranium at the lowest cost from Australia could be a big boost for the much-needed nuclear energy.

Australia is likely to have a new Government in place after the next federal elections this year. What are the chances of the present Labour party leader Prime Minister Kevin Rudd winning the elections and getting re-elected? He is most likely to stick to his banal stand of refusing to sell the most-needed Uranium to India because he wants India to sign the Non Proliferation Treaty (NPT), which is irrelevant after the civil nuclear deal with the US in place and waiver from NSG.

The budget announced by the Labour party this year has brought down the image of Rudd by 11 per cent which indicates that the present government is not popular with the people. Hence the chances of the Liberal party coming to power are bright and so are the chances of the cheapest uranium sale to India.

The Labour party's refusal to sell uranium to India is more due to the pre-historic mindset of a few Labour party members and their dogmas which have less to do with their so-called commitment to NPT. Whatever paeans we may sing to each other the fact is the Rudd Government has failed on its commitment to take Australia-India relationship to the forefront of top 10 bilateral relationships.

When Foreign Affairs Minister Stephen Smith and Rudd told New Delhi that there was bipartisan support in Canberra for refusal to sell uranium to India they were not forthcoming and were obviously thinking that their Indian counterparts and the media are naïve. At that time, they were exposing their personal ideologies rather than presenting the majority view of their people. One of the reasons why Indian media is refusing to listen to the Australian establishment for students' racial issues is that the Rudd government has been consistently camouflaging facts.

In the last elections, the Liberal party managed to get 36.7 per cent of the votes while the Labour received 43.4 per cent. The suggestion that there was a bipartisan support for refusal to sell uranium to India was a 'blatant lie'. Unfortunately, the Liberal party under John Howard did change the policy to sell uranium to India only in the last phase of campaigning. However, the inputs from independent think tank and bureaucracy in Australia clearly show that they wanted to engage New Delhi as they had realized unlimited potential of uranium exports to overcome their dwindling economy due to the recession.

By refusing to sell uranium to India, the Labour has lost a big opportunity and failed to exploit advantage Australian companies had in this sector thus putting their exporters at a disadvantage. The Australian-Indian voters which are about one million need to keep in mind that Kevin Rudd has not yet personally appeared at any of the Indian community or business functions, even after four years in office. If he had any feelings for the Australian-Indian community, he would have certainly made attempts to at least attend one such function where he has been repeatedly invited.
With the elections due in Australia, let the Australian-Indian community vote for the right party that helps in maintaining good relations with New Delhi besides exporting uranium. So far, the Liberal party leaders have openly supported the sale of uranium to India and maintaining of good relations. The poll results will be keenly watched by New Delhi.

URANIUM SPOT PRICE HOLDS STEADY AS USEC SELLS DOE STOCK

The uranium oxide spot price remained steady this week, standing at US$41.50/lb on May 17, according to Ux Consulting Company. Three days earlier, TradeTech put the spot price for one pound of U₃O₈ at US$41.25.

It reported the sale by USEC of 226tU as UF₆ (equivalent to 590,000lb of U₃O₈) on behalf of the US Department of Energy (DOE) as the main focus of the market.

There was a strong response from traders, producers and utilities all submitting bids as USEC was prepared to consider bids on lots down to 50tU as UF₆. Winning bidders have been selected with their prices below TradeTech’s UF6 value of US$114.00/kgU as UF₆, reflecting the modest slip of uranium prices since April 30. In addition to the sale of the DOE material, three other transactions were reported.

After the sale of the DOE stock on offer, sellers are turning to unsuccessful bidders, hoping for price advances. Nevertheless, supply levels remain in line with market demand. “Utilities continue to command lower prices than those paid by non end-users as buyers strive to drive more demand into the market,” said TradeTech in its latest market report.

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THE AUSTRALIAN WORKERS UNION - AWU PUSHES FOR NEW WILDERNESS URANIUM MINE

This is Mt Gee on the Arkaroola Wilderness Sanctuary in the northern Flinders Ranges.

The AWU, Australian Workers Union is keen that Arkaroola Wilderness Sanctuary in the Flinders Ranges be opened up to mining.

The union has made one of about 450 submissions to the South Australian Government on a management plan for the area.

It was developed after exploration company Marathon Resources was caught out for illegally dumping exploration waste in the area in 2007.

In its submission, union official Paul Howes says Arkaroola has Australia's fifth-largest undeveloped uranium deposit.

He says companies that are able to mine responsibly and sustainably should be allowed to do so, as mining at Arkaroola would create more investment and jobs in South Australia.

SA Greens MP Mark Parnell wants the Government to opt for a complete mining ban.

"Really it is one of the jewels in our crown and mining companies have no place there," he said.

Conservation groups, tourism operators and local government have put submissions urging against mining in the wilderness zone.

SA Liberal Senator Nick Minchin has long been an opponent of any mining at Arkaroola, saying it would destroy the sanctuary.

"I think it'll actually do enormous damage to the reputation of the mining industry in South Australia if there is any attempt to create a mine at one of the most precious and natural and magnificent sites that we have in the whole of Australia," he said.

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URANIUM GIANT CAMECO STRIKES EXPLORATION DEAL WITH RED METALS LIMITED -RDM

Announcement 13 May 2010
Red Metal (ASX: RDM) has struck a farm-in and an agreement with Cameco, one of the world's largest uranium miners.

The deal, with Cameco Australia, is over Red Metal's Lakes uranium project in the highly prospective Frome Sub-Basin of South Australia.

Cameco will gain an exclusive right over a six-year period to explore for uranium and earn a 51% interest in any or all of the four Red Metal Lakes Project tenements.

Cameco is required to sole fund AUD$4 million of expenditure and should it elect to earn a 51% interest in all four tenements, it would be required to contribute AUD$16 million.

The joint venture ensures a work program with a minimum total project annual commitment of $700,000 on exploration in the first year and $500,000 in subsequent years.

Once Cameco has earned 51%, Red Metal can elect to contribute to further exploration and development at a 49% interest or reduce to a 30% interest free-carried to a decision to mine.

Exploration on the Lakes project targets giant sandstone-hosted, roll-front type uranium plays hosted in the same Tertiary sedimentary sequences that host the nearby Beverley and Four Mile uranium deposits.

An extensive regional drill program completed last field season identified previously unrecognised thick, oxidised sand sequences in the prospective Eyre and Namba Formations at several locations as well as some anomalous uranium in reduced channel sands.

The anomalous uranium and oxidised sequences are considered significant as they indicate oxidising and potential uranium-bearing fluids may have passed through the rocks and deposited uranium mineralisation further down flow.

Cameco brings significant uranium exploration and development experience to the project.

Red Metal’s strategy of targeting giant ore deposits in many of Australia’s fertile terrains continues to attract major mining companies like Cameco as partners on attractive joint venture terms.

KEPCO IN TALKS TO BUY AUSTRALIAN URANIUM ASSETTS THIS YEAR - 2010

Korea Electric Power Corp., South Korea’s biggest electricity provider, is in talks to buy Australian uranium assets this year to meet demand for the nuclear fuel, an executive said.

“We’re talking with some Australian companies, so I think we can get a result this year,” Chung Jae Wan, general manager of the energy resources team at the utility known as Kepco, said in an interview today. Kepco is open to buying a stake in a project or a company, he said.

South Korean uranium demand is expected to double to 8,000 metric tons a year by 2020 because of increased construction of nuclear power plants, Chung told a conference earlier in Perth. South Korea, which imports about 97 percent of its energy requirements, plans to add eight atomic plants by 2016.

Kepco wants to buy mines that are in the construction stage, and isn’t interested in companies that only have exploration projects, Chung said. The Seoul-based utility is now progressing toward its goal.

“Given the uranium price, operating costs need to be reasonable,” he said. “If they’re too high, it cannot be developed into a mine. We need to be very cautious. We need some projects with reasonable operating costs which can be developed into mines under the current uranium price.”

Spot-market uranium prices fell 6.7 percent between the start of this year and early May on reduced purchases from China and concerns about U.S. Department of Energy plans to cut uranium inventories.

Resources Tax

In remarks to the conference, Chung said Kepco is “taking steps” to increase its holdings in uranium resources. “We will need one or two investments in uranium mines every year,” he said. Kepco is keen to buy stakes in uranium mines in Africa, Mongolia, Australia and Europe, the company said in March.

South Korea currently operates 20 nuclear power plants and had imported its uranium mainly from Canada, Australia and Kazakhstan until Kepco invested in overseas mines last year.

Australia’s proposed tax on resource company earnings won’t have a bearing on the South Korean company’s potential investment because Kepco is focused on uranium security more than the profitability of any purchased asset, Chung said.

“Kepco is a very big company,” Chung said. “We don’t have any limits in our investments. It depends on how attractive the investment is to Kepco.”

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AUSTRALIA'S NEW 'REVENUE GRAB' RESOURCE TAX

Plans for a 40% tax on profits from mineral resources announced by the Australian government have been greeted with dismay by the mining industry.

According to the centre-left Labor government led by prime minister Kevin Rudd,
the 40% resource super profits tax, announced as part of long-term tax reforms, will ensure Australians get a "fair share" from the country's resources. Estimated to raise A$700 million ($630 million) in 2012-2013 and over A$5.6 billion ($5.0 billion) over the next decade, the government says that it will be a better way of taxing resources because it "only taxes profits and fully recognises the large investments made in resource projects."

The Australian mining industry begs to differ. Industry body the Minerals Council of Australia described the tax as a "revenue grab not taxation reform." Pointing to the A$25 billion ($22 billion) paid in tax by mineral companies and workers in 2008-2009, and the 18% of the country's corporate income tax paid by the sector, Minerals Council of Australia CEO Mitch Hooke said in a statement: "The minerals industry is not under-taxed ... We are already punching above our weight in terms of tax take."

Rio Tinto, owner of Energy Resources of Australia which operates the Ranger uranium mine, issued a statement voicing its concerns about the new tax, warning that it could erode Australia's competitiveness, severely curtail investment and limit jobs growth. Meanwhile, BHP Billiton, owner of the Olympic Dam uranium and copper mine, expressed its disappointment at the plan. According to BHP, the new tax would result in an increase in the total effective tax rate on the profits from its Australian operations from a current level of around 43% to around 57% from 2013.

BHP Billiton CEO Marius Kloppers warned that the reforms could pose a threat to future investments in the country. "The stability and competitiveness of the tax system have been central to the investment in resources in Australia. If implemented, these proposals seriously threaten Australia's competitiveness, jeopardise future investments and will adversely impact the future wealth and standard of living of all Australians," he said.

The government's proposals are as yet recommendations rather than policy, and the leader of Australia's opposition, Tony Abbot, has confirmed that the opposition will oppose it. A joint press release from the opposition, a coalition of centre-right parties, described the new tax as "an act of economic vandalism that will have dire consequences for Australia's most successful industry sector, with significant flow-on effects right across the economy."

The new super tax is currently scheduled to be introduced from 1 July 2012, and the government says it is providing "multiple opportunities for engagement and consultation with industry." After an initial public consultation process, an Issues Paper will be released for comment in late July 2010, and stakeholders will have until the end of August 2010 to make formal submissions to the government. A final design paper and draft legislation will then be released for further consultation before the final legislation is introduced to parliament.

HOW THE NEW AUSTRALIAN MINING TAX WORKS

HOW DOES IT WORK?

A mining company will need to calculate how much profit it makes from each of its Australian operations and declare that to the tax authorities. The profit is to be calculated as close to the ground as possible: that is, at the mine gate. But the details on this have yet to be hammered out, leaving wide scope for mining companies to agree on a more flexible approach.

For example, a miner with two adjacent operations may push for both mines to be included in one profit calculation for the tax authorities, if it felt this would lead to a lower tax bill.

These profit calculations are purely for the tax authorities and are not the group accounts drafted for investors, but they won't be entirely new arithmetic for global miners. South Africa and Canada and the U.S. mining state of Nevada already require them to produce accounts for profits-based taxes.




IS IT ALL PAIN & NO GAIN?

The Australian government knows there are very few votes to be lost from taxing rich miners that hire fewer workers per dollar of profit than many other sectors of the economy. But Canberra is still dangling some carrots for the mining industry in the form of a tax allowance and an exploration tax rebate.

The allowance represents an amount of profit that is exempt from the new tax. In principle, it is the government's estimate of a fair rate of return on mining assets.

Utilities world-wide understand this concept well because their returns on assets are routinely regulated in order to prevent them from unjustifiable increases in power bills.

For miners, there is a lot to play for here: the government wants untaxed returns on assets to be set at a rate equivalent to the 10-year government bond yield AU10YT=RR, now just 5.76 percent. But, if the miners lose their war against the tax, they could win a decisive battle by raising the tax-free return rate.


GIVE ME AN EXAMPLE

Say, a mine (not a miner) has assets worth A$100 million. Using the current bond yield, the company may deduct $5.76 million from its calculation of the mine's profit.

"Using a rate higher than the government bond rate would result in a significant subsidy to the resource sector...," the government said. Expect the miners to lobby for exactly that.


THE EXPLORATION FREEBIE

The government is also offering a tax rebate on exploration costs, which will be set initially at 30 percent. That means for every dollar spent on exploration, 30 cents will be available for miners as a tax credit. The industry spends hundreds of millions of dollars every year on exploration in Australia.

And when mines are wound up, the owners can crystallise any leftover tax credits accumulated during the mine's life.


OUTBACK ACCOUNTING

Mines can be an auditor's nightmare: in Australia, they are scattered over the desert, thousands of km (miles) from any place where people go to work in suits. So auditing of a mine's assets could be trickier to confirm than a utility's balance sheet.

The new tax calculations will be kinder to mines with lots of assets and conservative accounting for expenses, so tax officials will be on the lookout for any clever accounting. Armed with sophisticated data-matching systems, they will compare public accounts against the figures produced for tax purposes.

More than ever before, tax officials will keep an eagle eye on the outback.

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