The effort by Paladin Energy to acquire Canadian-listed uranium explorer Fission Uranium TSX:FCU seems to have hit another speed bump, as the Canadian government has stepped in with a national security review of the deal. Per section 25.3 of the Investment Canada Act, the deal now requires further government approval.
The Canadian government is known to be increasingly sensitive about the acquisition of strategic resource companies by overseas shareholders. Paladin Energy [ASX:PDN] is listed in Australia, however, and counts several UK, Canadian and US fund managers among its biggest stockholders.
However, Paladin is working with the China National Nuclear Corp (CNNC), a state-owned entity, on the development of the Langer Heinrich uranium mine in Namibia. China Uranium Corp, a subsidiary of CNNC, acquired 25% of the mine in a 2014 deal. This is what could have raised Canadian government security concerns in the first place.
CNNC is one of the two big players in China’s nuclear sector and partly responsible for securing overseas uranium supplies for China’s nuclear reactors. It has been very active in Africa over the past decade. Ironically for Fission Uranium, China’s other uranium heavyweight, represented by CGN Mining, is a minority shareholder of Fission (11.26%) and has itself acted to block the Paladin deal in the Canadian courts.
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China General Nuclear Power Group (CGN) is a state-owned enterprise that operates a number of nuclear plants in China, among them Daya Bay and Ling Ao. It has another five nuclear power plants coming online at the moment. The company has been previously sanctioned by the US government for seeking to steal US nuclear secrets. CGN Mining is its mining arm, and has been focused on sourcing further uranium supplies from abroad, including countries like Kazakhstan and Canada.
Paladin deal approved by Fission shareholders
Fission Uranium managed to get the Paladin deal approved by its shareholders in September, partly by receiving court clearance for options owners to be able to vote on the deal as well.
The deal – if it goes through – would make Paladin Energy the 100% owner of the considerable Patterson Lake South uranium property, which would include a high grade uranium mine and a mill in the Athabasca Basin. The combined entities would constitute a uranium miner worth around US$3.5bn. It would be one of the biggest, pure play uranium companies in the world.
Structural deficit in uranium mining
Uranium mining is currently seeing a structural deficit with underinvestment in mines producing in turn a higher uranium price. There is anticipated to be a large gap between demand and supply next year, with yet more nuclear reactors coming online in China and the Middle East ramping up demand.
Uranium demand is at 197m lbs and growing at +5%-6% CAGR. Supply is only at 155m lbs and it is taking greenfield mines over 15 years to come on stream. This explains Paladin’s move, which is meant to help address a whopping annual uranium supply deficit of 42m lbs. The accumulated supply deficit will be 1.15bn lbs by 2040. China – and Canada – are acutely aware of this.
The world has committed to tripling nuclear power capacity by 2050. Small modular reactor development is happening fast, placing yet more pressure on uranium supplies.
Shares in Fission Uranium have rallied from 74 cents in early September to trade at over a dollar Canadian. Stock hit an ATH of C$1.34 in July.
