Uranium Juniors - Mergers & Acquisition Inevitable In 2011

Published on Friday December 10 2010

Merger and acquisition activity involving Canadian Uranium Exploration companies is likely to pick up in the coming year, as nuclear firms around the world jostle to ensure access to future supplies of the fuel, said Emil Fung, the vice-president for corporate development at Vancouver-based CanAlaska Uranium.

CanAlaska, which has amassed a sizeable property portfolio and identified a number of early-stage prospects in the uranium-rich Athabasca Basin, has seen a step-change this year in the level of interest in the company and its assets, he said in an interview during a recent visit to Toronto.

The company already has agreements with Japan's Mitsubishi Corporation, a Korean uranium consortium and China's East Resources, and is in “active discussions with several very large parties” on further transactions.

“I think what we see now is a genuine push to actually enter into exploration in Canada. And that's very, very positive for us,” he said.

China alone has 26 reactors under construction, representing a third of the global total and India is also expected to add 12 new facilities by 2020, while other countries including Japan, Korea, Russia and Egypt are also building and planning new reactors, an executive from Cameco said earlier this week.

At the same time, the highly-enriched uranium deal between the US and Russia is widely expected to end when it expires in 2013 – taking a big chunk of secondary supply out of the market.

“There is going to pressure on the uranium price, and there is going to be pressure on who controls uranium, and therefore from the perspective of junior exploration companies you are going to see a lot of M&A activity,” Fung commented.

“I think if you are an executive in the uranium exploration business today and you are not aware of the M&A situation around you, then you are not doing your job.

“It's inevitable, consolidation is inevitable in this game.”

It is possible that the increased uranium prices and interest in the sector could result in more M&A for Canadian junior companies, GMP Securities analyst David Wargo agreed on Thursday.

URANIUM ADDS EDGE FOR REACTOR BUILDERS

The groups that build and market nuclear reactors realise that they can compete much more effectively for contracts if can offer customers uranium supplies to fuel the plants, especially as concern over future supplies of uranium heightens, Fung said.

“If you can sell a reactor, that's a huge GDP builder, and with the world's economy as depressed as it is today, you can't get better bang for the buck than selling a nuclear reactor, in terms of job creation and contribution to GDP

“And the ability to sell the fuel with the reactor is important, so companies that have uranium will be more aggressive in leveraging that in the sale of reactors.”

Countries like China with big nuclear build programmes and plans are looking at the supply picture, and realising the benefits of having a foot in uranium exploration, rather than just looking for available production, he said.

Fung, who began his career as a design engineer on Canada's Candu reactor in the mid-1980s, travels regularly to Asia for discussions with groups there.

“In the old model, buyers just wanted to know if you had uranium to sell,” he said.

“Now we are seeing a lot of interest, not only in China but from other countries as well, specifically in exploration.”

CanAlaska has always had some talks going on in the background for potential joint ventures on its prospects, but the negotiations are clearly now “more commercial”, he commented.

Also, while the firm's existing Japanese and Korean partners approached the investment more from a financial standpoint, the new group are much more operationally capable in terms of uranium exploration and mining.

The company would expect to sign joint ventures that included “heavy operational contributions” from its new partners, including by bringing in skilled people – a resource that is in short supply after several decades of almost no uranium exploration around the world.

Investors easily forget that uranium is a strategic commodity, for which buyers must plan some 20 or 30 years in advance to fuel nuclear reactors, Fung said.

“People are often hung up on what is the spot price today, what is the long-term price?

“If you have got a nuclear reactor, you don't mind paying whatever price it is to keep it running. Because whatever price you pay is a pittance compared with the cost of actually stopping that reactor and not having enough fuel to generate the electricity.”

P.S. Australian Exploration Company's will also, with little doubt become to some Major M&A activity in 2011

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