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Mining is
a risky business and accidents happen. But when your mine is the
world’s largest uranium deposit, fourth largest copper deposit, and
fifth largest gold deposit, an accident can cost a little bit more than the
average. Something BHP Billiton found out after the shaft accident at its
flagship Olympic Dam mine
located 560 kilometers north of Adelaide, South Australia.
In October of last year, a breakdown of one of two haulage systems saw a
loaded iron skip plummeting to the bottom of the 800-meter-deep main shaft.
It caused enough damage to the inside of the shaft, and to the gears and the
wheels that bring the ore to the surface, that it took nine months to repair.
So much does it actually cost when production is halted at a mine
that’s clearly won the geological lottery?
BHP Billiton revealed on July 21 that annual copper production was down 11%
in 2010, uranium production off by 43%, and gold production was 19% below the
normal. The amount of material mined in fiscal 2010 was 5.3 million tonnes, down 9.8 million tonnes
from last year.
The mine has, according to the company, returned to full production now.
There is however, the small problem of contracts.
One of BHP’s largest clients is China, the country whose energy
appetite just can’t get enough. The country that will be buying up to 5,000 metric tonnes of
uranium this year.
The Olympic Dam mine produces 7% of the world’s uranium, production
that was affected by the shutdown. While production is getting back on track
today, the feeling in the BHP boardroom is one of unease.
The reason: the rise in the number of new nuclear power stations coming
online in the next few years, along with all the contracts that need to be
fulfilled. Expansion plans are in the works already. BHP is looking to
massively increase the size of the mine and has handed in a 4,000-page
environmental impact statement (EIS) draft to the Australian government.
The sticking point is, they’re going to have to go deeper, and
it’s going to get a lot more expensive. The Australian government
isn’t going to turn away from the opportunity to tax this goldmine
either. And if the problems of additional cost aren’t enough, the rail
system in Australia can’t handle moving that much ore at all times, so
tack on some more delays.
Unsurprisingly, BHP is out scouting the market for some good deals on
uranium. Top on their list is Saskatchewan, Canada.
Why Canada Is 45 Times Better Than the U.S.
The uranium deposits in Saskatchewan aren’t just significantly large; they’re
also the highest-quality uranium known on the planet. The ore mined at
MacArthur River has an average ore grade of 21% – average ore grades
are given as a percentage of uranium oxide in the ore.
Just to compare, the uranium found in the U.S. is usually around 0.4 - 0.5%.
That makes the Athabasca Basin uranium 45 times higher-grade.
The uranium deposit at MacArthur River can be visualized as a few school
busses parked within a school football field. It might sound small, but in
uranium-speak, that deposit’s big! It’s big because the grades
are incredible in the Athabasca Basin. And that makes it huge financially.
Canada also ensures that the uranium it sells is used solely for electricity
generation at nuclear power plants. The end use is very strictly enforced
through an assortment of international non-proliferation treaties and
Canadian export restrictions.
In fact, uranium on a per-tonne basis is worth more
than gold if you’re in the Athabasca Basin. Given current uranium spot
prices, it can fetch a staggering US$13,500 per tonne.
That’s unheard of!
BHP Takes a Whole Building in Saskatoon
After meeting with many uranium executives, one can’t help but notice
the large BHP building off 3rd Avenue while walking around Saskatoon.
It’s not just the potash and diamonds that BHP cares about in
Saskatchewan. The quantity of uranium underneath the Athabasca Basin is
almost beyond reckoning. It can provide substantial wealth to the right
company and the right investor.
If BHP decides to enter the uranium sector in Saskatchewan, which companies
are on their short list?
That’s exactly what I was finding out while wandering the prairies.
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If you want to know which juniors are the most likely to be taken over by
uranium-hungry BHP, you’ll find out soon in Casey’s Energy
Report. After Marin has done his due diligence, he’ll emerge with a
few hand-picked small-cap companies that show the greatest potential to
provide investors with handsome returns. Take your 3-month risk-free trial
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Marin Katusa
Casey’s Energy Report
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