China just went on a resource-buying spree of massive proportions.
I'm not talking about oil, natural gas, gold, copper, silver, or grain.
I'm talking about one of the world's most hated resources right now: uranium.
This time last year, nuclear energy was in the midst of a renaissance. Advocates were hailing it as a cheap, carbon-free source of energy. The entire sector soared.
Shares of major uranium miner Cameco doubled from June 2010 to February 2011. Uranium juniors like UEX Corp. performed even better. UEX's shares rose 298% from May 2010 to February 2011.
But in March 2011, an earthquake and tsunami struck Japan. They destroyed several nuclear reactors at the Fukushima Daiichi power complex. The resulting contamination was the second-worst nuclear disaster since Chernobyl.
Countries all over the world, including Germany and Japan, vowed to halt nuclear power production... Uranium mining and nuclear power became pariahs. The price of uranium fell about 45% from peak to trough. The sector wasn't just down... it was truly despised.
Here's the thing: China – one of the world's most important resource consumers – faces a severe shortage of electric power. It already consumes a huge amount of coal and natural gas to generate electric power. But it needs fuel from every source it can get, including uranium. It doesn't have the luxury of hysterical overreaction like Germany has.
And it's still scouring the earth for uranium.
Two Chinese national companies, China Guangdong Nuclear Power Holding Company and Hanlong Mining Investment, are trying to buy giant uranium deposits in Africa.
China Guangdong appears that it will succeed in buying Kalahari Minerals and Extract Resources, which co-own the fourth-largest uranium deposit in the world.
And Hanlong Mining Investment made a cash offer to take over Bannerman Resources in October 2011. The target of the deal is Bannerman's Etango project in Namibia. Etango is another of the world's largest undeveloped uranium deposits. The conditional offer was $144 million. Bannerman, which has a market value of around $62 million, turned it down.
These deals, along with a recent bidding war between Cameco and mining giant Rio Tinto, will "put a bid" beneath the world's best uranium deposits.
And that's not all the good news for the sector. Ten months after the Fukushima disaster, it looks like uranium prices might have finally bottomed.
Rapidly growing economies such as China and India are most focused on Nuclear Energy, as their need for electricity grows, Adnani said.
Supply of uranium to the world market has been supplemented with secondary sources of uranium, such as decommissioned Cold War nuclear warheads from Russia and the US, since the collapse of the Soviet Union, but this source is set to expire in 2013.
“That will be a real pinch in supply. The diminishing secondary supplies really drive supply and demand,” Adnani said.
There are around 60 reactors under construction around the world at the moment, with up to 300 planned over the next decade. At the moment, there are around 430 in total.
There is still a huge need for more electricity. Close to 20 percent of the world’s population – around 1.3 billion people - had no access to electricity in 2009, according to the International Energy Agency.
There has also been plenty of consolidation in the industry recently, as bigger players such as Rio Tinto, which completed the acquisition of Canadian uranium junior Hathor Exploration in January, looked for a presence in the nuclear space.
ENERGY Resources of Australia is negotiating a new uranium mining deal with traditional owners in Kakadu National Park, and has $80 million worth of tenders up for grabs for work at the Ranger site.
ERA chief executive Rob Atkinson said the new uranium discovery at Ranger 3 Deeps, next to the existing Ranger pit, was one of the biggest recent finds in the world.
"A lot of deposits were found in the last 30 years but this was only discovered in 2008," he said.
There is an estimated 34,000 tonnes of uranium in the resource with an expected purity level of 0.34 per cent.
That makes it twice as big as the estimated billion-dollar, 14,000 tonne Angela and Pamela deposit, 25km south of Alice Springs, which has less than half the ore purity at 0.13 per cent.
ERA has all permissions and approvals in place to build a $120 million exploratory tunnel and drill tests to accurately measure the size of the find.
Work will start on the exploration incline in May, and the company has $80 million worth of tenders out for the work, particularly for underground mining contractors experienced in building tunnels.
"It's open to NT contractors but we are also considering interstate tenders," Mr Atkinson said.
He warned it would be tough to win, because ERA rejects contractors that other mines hire if they don't have enough experience.
"We want highly skilled, experienced operators," he said.
Workers will need to dig a 2000m tunnel about 450m beneath the surface, next to or within the existing Ranger Pit 3.
Mr Atkinson said the project would create about 100 jobs and would take about two and a half years to build. Without the new project, Ranger will run out of uranium to mine later this year.
But Mr Atkinson said the resource would not be mined unless traditional owners supported the project.
"We are in negotiations for a new mining agreement with the Mirarr," he said. While talks have been on for years, Mr Atkinson said they had picked up speed. "We're hopeful for it to be concluded in the next few months," he said.
"It's in both our interests to conclude as soon as possible so any improvements in the agreement can flow on to Aboriginal people. "I want the agreement done and dusted - it's important in any relationship to know where you stand."
Analyst firm UBS recently put a "sell" rating on the uranium miner on fears that higher-than-average rain could delay the Ranger 3 Deeps project.
UBS has valued ERA at $2.87 per share if Ranger 3 Deeps goes ahead but only 67c per share if it doesn't.
The miner was trading around the $1.22 mark last week, having risen on optimism after it escaped any flooding caused by Cyclone Grant.