By Dave Brown – Exclusive to Uranium Investing News
Last week Canadian Prime Minister Stephen Harper negotiated a new agreement that will allowed uranium mining companies to increase their uranium exports to China as part of a number of joint initiatives aimed at renewing existing bilateral trade in energy, resources, agriculture, technology, and education.
Although specifics of the new uranium trade agreement were not formally announced, a statement from Harper’s office said, “The Protocol is a legally binding instrument that will govern and facilitate the export of Canadian uranium to China, supporting China’s energy needs and Canada’s long-term economic interests. As the Protocol is in full accordance with Canada’s longstanding nuclear non-proliferation policies and obligations, it will ensure that Canadian supplied uranium is being used in China’s nuclear program strictly for peaceful, civilian purposes.”
The new deal will supplement a previous nuclear cooperation agreement between the Chinese and Canadian governments, which has existed since 1994. The final text is expected to be completed by the two countries’ representatives over the next few months, and will be followed by a timely adoption phase.
Implications for Canadian uranium producers and exploration companies
A statement from the Government of Saskatchewan welcomes the development: “the Athabasca Basin contains the world’s largest, high-grade uranium deposits. Uranium production in Saskatchewan is expected to nearly double by 2017.”
Although Canadian uranium producer Cameco (TSX:CCO,NYSE:CCJ) signed long-term uranium supply deals with China in the past, pre-existing trade restrictions have meant that it had to source uranium from non-Canadian operations. The company has major uranium projects in Canada, Australia, Kazakhstan, and the US. Cameco president and CEO Tim Gitzel offered his positive response stating, “once ratified this will help us build our position as a key uranium supplier to China and grow employment and investment in Canada’s uranium mining industry. We commend the governments of both countries for getting this done.” From its most recent quarterly results, Cameco indicated that it is on track with a strategy to increase annual production to 40 million pounds a year by 2018. This increase is expected to come from operating properties, development projects, and projects under evaluation.
Joe Oliver, Canadian Natural Resources Minister, was also involved in the discussion, explaining that “we did enter into an arrangement with China to be able to export raw uranium to that country, and that is a significant development for Saskatchewan and really for the whole country because it could result in some $3 billion in export sales for Cameco, and other companies as well.”
The news will be a tailwind for the Canadian junior uranium exploration sector, as the new market should mean additional interest. Junior exploration companies could benefit from immediate capital investments and the potential to stimulate more appetite for merger and acquisition activity.
Portfolio manager optimistic for uranium future
Earlier this month, Dan Miller, Portfolio Manager at Gabelli Investors Inc., disclosed his bullish optimism about the Cameco inclusion in his ultra-focused portfolio of five companies. “Most of our ideas will trade at big discounts to what we call Gabelli Private Market Value, or, what somebody would pay to buy an entire business in a private transaction.” The investment thesis is contingent on the concept that nuclear reactor construction in China is expected to offset any decommissioning of plants in Japan, or policy shifts away from nuclear power in certain countries. China is building 26 nuclear power plants with plans to construct another 51. 120 others are proposed.
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.