Soaring uranium prompts Rio Tinto to cancel sxr sale

Soaring uranium prompts Rio Tinto to cancel sxr sale

Rio Tinto PLC scrapped a deal with sxr Uranium One Inc., deciding instead to keep its U.S. uranium assets and signalling a significant shift in attitude toward the radioactive metal by one of the world’s largest mining companies.

London-based Rio Tinto entered into exclusive negotiations in July to sell its Sweetwater uranium mill and Green Mountain uranium properties in south-central Wyoming to sxr Uranium for $110-million (U.S.) in cash and stock.

Since then, spot uranium prices have exploded from around $45 a pound at the time of the deal to a record $72 a pound last week. The price surge came amid supply concerns after a major flood delayed production from Cameco Inc.’s mine in Cigar Lake, Sask., and financial players such as hedge funds became substantial buyers of the commodity.

Yesterday, Rio said it had decided to hang on to the assets in Wyoming, a decision that industry players and analysts interpreted as a bullish sign for the metal used to fuel nuclear reactors.

“Clearly the uranium market has changed quite significantly over the past few months and that’s prompted us to take another look at the Sweetwater operation,” said Rio Tinto spokesman Nick Cobban in a telephone interview from London.

The global mining giant said the properties are no longer for sale and the company will now decide whether or not to reopen the mill and develop the mines which haven’t been operated since 1983.

“Clearly we think it’s a good time to review our options and take a longer look,” Mr. Cobban said.

David Davidson, an analyst with Paradigm Capital in Toronto, said the move suggests that Rio’s “attitude has changed internally. Obviously uranium has become a strategic commodity to them,” he said in an interview.

With interests in uranium mines in Australia and Namibia, Rio is already the world’s second largest producer of nuclear fuel behind Saskatchewan’s Cameco Corp. The diversified miner acquired the Wyoming uranium assets in the early 1990s, but has never operated them.

The surge in uranium prices has renewed interest in long dormant properties built during the previous uranium boom of the 1960s and 70s. Rio also owns the undeveloped Kintyre uranium project in Western Australia.

“That’s another opportunity that we could have another look at if we wanted to,” Mr. Cobban said, adding “obviously there are assets, no doubt that would not have been viable some time ago, which may be now.”

Justin Reid, an analyst with Sprott Securities Inc. said Rio’s apparent ambition to expand its global presence in uranium could spark other large miners to enter the sector. “With the action of Rio Tinto it looks like the majors are ready to pounce. We suggest that all mid-tier producers and developers become instant targets,” Mr. Reid said in a note to clients.

Shares of sxr Uranium One, which is expected to begin producing uranium at its Dominion project in South Africa this quarter, plunged $1.13 (Canadian) or 7.8 per cent to $13.35 on the Toronto Stock Exchange on the news.

“It’s an unfortunate event for sxr. We wanted to close the transaction. On the other hand it shows the fundamentals for the market,” said sxr chief financial officer Jean Nortier in an interview from Johannesburg.

“It’s good to see large companies starting to look at the space. We believe there are is quite a lot more value to come in the uranium market,” he said.

Mr. Nortier said Rio’s decision hasn’t dampened the company’s plans to expand into the United States. The company will now concentrate on closing a $50-million (U.S.) deal to buy the Shootaring Canyon uranium mill and properties in Utah. “There are quite a number of other potential opportunities that we’re working on,” he said.

© The Globe and Mail

Share this post