China’s Global Investment in Uranium

China’sGlobal Investment in Uranium

China’sGlobal Investment in Uranium

Globalinvestment is one of the measures that determine the progress of thenational economy and competitiveness of an individual country at theinternational level. China’s economy has been recognized as amongeconomies that are growing at a high rate. The Chinese companies havebeen focusing their attention on foreign investment in assets, whichhave created a scenario in which China’s overseas investmentsurpasses direct investment that is made in China by foreigninvestors (Roberts, 2014). In most cases, the Chinese companiesinvest in the foreign market, with the objective of addressing thegrowing demand in the local market. For example, China has recordedthe highest rate of demand for uranium in the world. Currently, Chinais ranked the third in the global consumption of uranium after theUnited Stated and France with projections that it will surpass thetwo countries by the year 2020 (Statista, 2014). This paper willaddress China’s investment in the uranium sector in Namibia, SouthAfrica, Canada, Niger, and Kazakhstan.

Namibiaas the hosting country

Arapid decrease in the price of uranium starting from the year 2011provided China with an opportunity to invest in Namibia’s uraniummarket. Langer Heinrich Uranium sold 25 % of its shares to ChinaNuclear National Corporation in 2014 at a cost of U.S. dollars 190million after undergoing a significant financial crisis (Kochs,2014). However, there was no record of take-over premiums followingthis transaction. The 25 % proportion of the shareholding could notgive CNNC power to control operations of its new acquisition. Thistransaction benefitted the Chinese company, CNNC, in two ways. First,CNNC increased its revenue generating capacity by investing in LangerHeinrich Uranium. Secondly, CNNC gained access to uranium productsfor its domestic market. According to (Kochs, 2014). CNNC intended todeliver uranium oxide also referred to as the yellow cake to China inexchange for its investment in Langer Heinrich Uranium.

LangerHeinrich Uranium’s assets are located in the Namib Desert inNamibia. The mining sites are located in the protected national parkknown as Naukluft Park. The mines have a remaining useful life ofabout eight years, and they are expected to last until 2023 (Kochs,2014). The possible causes of termination of the rights of theagreement include the sale of CNNC shares to another investors andthe risk of criminals or terrorists hijacking supplies of uranium,which will sabotage uranium mining facilities (Choppin, 2014). CNNCtargeted Namibia following the huge losses that the local miners,Langer Heinrich Uranium, were incurring. This gave China anopportunity to supplement its uranium imports at a lower cost. Thereis a high probability that China will continue to invest in theuranium sector given the high rate of increase in demand for nuclearenergy in the domestic market.

Figure1: Location of uranium mines in Namib Desert

Source:Paladin Energy (2015)

SouthAfrican as the host country

TheChina Nuclear Power Group invested in South Africa’s uranium marketby buying a 35 % stake in Uramin, which is a Canadian mining companybased in South Africa at $ 2.5 billion (Anderlini, 2007). The amountof premium, if any, paid for this transaction was not disclosed. The35 % stake was substantial, but it was insufficient to give CGNPG thepower needed to control operations of Uramin. Apart from thefinancial gains associated with CGNPG’s investment in Uramin, theChinese investors were more interested in securing 35 % of alluranium that is mined by Uramin each year (Anderlini, 2007). Uraminassets are located in Sandton in South Africa. Uranium miningdeposits owned by Uramin have about 65,000 tones of uranium, whichmeans that the remaining useful life will depend on the rate at whichUramin with exploit these deposits. The rights of the agreement willbe terminated by the expiry of the agreement, which is the year 2022(Anderlini, 2007). However, this agreement is can be renewed by thetwo companies. In addition, the rights can be terminated in case thedeposit gets exhausted before the expected period. CGNPG invested inUramin with the view of increasing its uranium supplies.Consequently, there is a high probability that China will continueinvesting in the sector since its domestic demand for uranium is morelikely to increase than to reduce.

Figure1: Locations of uranium mines in South African

Source:Barker (2014)

Canadaas the hosting country

Apartfrom investing in the developing economies, Chinese companies havebeen eying uranium mining companies in the developed countries. Forexample, China Guangdong Nuclear Power Corporation acquired a stakeof 49 % in Macusani Yellowcake Incorporation, a Canadian uraniummining company, at a price of U.S. dollar 2.4 billion (Stewart,2014). However, but no take-over premium was recorded in relation tothat transaction. The acquired proportion could not give CGNPC powerto control the operations of Macusani. CGNPC invested in Macusaniwith the objective of increase its yellowcake in order to meet thegrowing demand in the domestic market. Macusani assets are located inOntario, Canada. The remaining life of uranium deposits owned byMacusani is not known. Termination of the rights of the agreementcould arise from different sources, including the fall of Macusani,which is a small company operating in a competitive market or theexhaustion of the few mines owned by Macusani. CGNPC chose to investin the Canadian uranium market in order to secure uranium supplies.This is one of the measures taken to meet uranium demand for thecurrent 15 reactors and prepare supplies for the projected ten morenuclear reactors in the next one decade (Stewart, 2014). Theprojected increase in the number of reactors suggests that China willcontinue investing in the uranium sector.

Nigeras the hosting country

CNNCInternational Ltd, which is one of the listed units of the largestChinese companies operating in the uranium sector bought 37.2 % ofstake in Ideal Mining Ltd at a price of U.S. dollar 53.3 million(Zhihong, 2014). There was no take-over premium reported in relationto this transaction. In addition, 37.2 % were less than thecontrolling shareholding of at least 50 %, which means that CNNC Ltdcould not control the operations of Ideal Mining in Niger. Thedecision of CNNC to invest in Ideal Mining was motivated by thedesire to acquire a portion of 11,227 tons of uranium found indeposits owned by Ideal Mining (Zhihong, 2014). Therefore, CNNC couldaccess uranium in addition to the financial benefits of investing inIdeal Mining. Assets of Ideal Mining are located in Azelik, Niger.The remaining useful life of Azelik mines is estimated to be 17years. The right of agreement at the risk of being terminatedfollowing the increase in cases of suicide bombers who are targetinguranium mines in Niger (World Nuclear Association, 2015). Inaddition, the exhaustion of Azelik mines before the projected periodof 17 years might result in the termination of rights of theagreement. The Chinese company invested in Niger with the objectiveof expanding uranium supplies for the domestic market. It is likelythat the Chinese companies will continue targeting this market sincethe demand for uranium is increasing exponentially.

Kazakhstanas the hosting country

CNNC,a Chinese company operating in the nuclear industry bought a 49 %stake in Kazatomprom in 2007, but the amount of the transaction andthe take-over premium were not disclosed (WNA, 2014). However, the 49% stake could not allow CNNC to control operations of Kazatomprombecause the Kazatomprom retained 51 % of the stake, which is thecontrolling shareholding. This transaction allowed NCCN to accessfinancial gains and a portion of uranium produced by Kazatompromevery year. Kazatomprom’s assets are located in Almaty,Kazakhstan. The remaining life of the mines owned by Kazatomprom wasnot disclosed. Termination of the rights of the agreement mightresult from collapsing of either of the company or decision of theCNNC to dispose of the stake to other investors. The Chinese companychose to invest in Kazakhstan in order to increase its uranium supplyfrom the country. It is likely that the Chinese companies willcontinue investing Kazakhstan’s uranium sector in the future, giventhat Kazakhstan is one of the largest producers of uranium in theworld.

Conclusion

Thehigh demand for uranium in China has forced the Chinese companies toinvest heavily in uranium assets in the oversea market. Although themain focus has been the developing economies (including Niger,Namibia, and South African), the high demand has forced the Chinesecompanies to consider developed economies, such as Canada. TheChinese companies are facing the difficulty of supplying the currentnumber (15) of reactors, which explains the reason for massiveinvestment in the foreign assets. In addition, the projected numberof 10 more reactors within a decade implies that the Chinesecompanies must apply adequate measures to meet the growing demand.

Summary

Hostcountry: Namibia

Transactioncost

TheChina Nuclear National Corporation bought a stake from LangerHeinrich Uranium in 2011 at a cost of $ 190 million.

Percentageinterest

CNNCbought a 25 % stake.

Take-overpremium

Thereis no record of the take-over premium for this transaction.

Operation

Thestake of 25 % could not allow CNNC to control operations of LHU.

Productionrights

Apartfrom financial gains, CNNC gained access to uranium supply, for itsdomestic demand.

Location

LHUassets are located in Naukluf Part, Namibia.

Remaininglife

LHUmines had a remaining life of 8 years at the time of the transaction.

Terminationof rights

Therights can be terminated by exhaustion of deposits and threats ofterrorist attacks.

Reasonfor China’s investment

Chinachose to invest in Namibia as an attempt to look for a cheaper sourceof uranium.

Interpretationof drivers behind an investment

TheChinese company invested in Namibia in order to expand its supply ofyellowcake for the domestic market, and there is likelihood thatChina will continue investing in the sector.

Hostcountry: South Africa

Transactioncost

CNPGinvested $ 2.5 million in Uramin.

Percentageinterest

Thistransaction helped CNPG get a stake of 35 % in Uramin.

Take-overpremium

Thereis no record of the take-over premium for this transaction.

Operation

Thestake obtained could not allow CNPG to control operations of Uramin.

Productionrights

Thistransaction gave CNPG an opportunity to increase its income and thesupply of uranium for a domestic market.

Location

Uraminassets are located in Santon, South Africa.

Remaininglife

Theremaining life of uranium deposits was not disclosed.

Terminationof rights

Therights of the agreement will be terminated by expiry of the agreementin 2022.

Reasonfor China’s investment

TheChinese company chose to invest in South Africa since the countrycould provide substantial quantities of uranium.

Interpretationof drivers behind an investment

Thehigh demand for uranium in the Chinese market was the major driver ofthis transaction.

HostCountry: Canada

Transactioncost

CGPCinvested 2.4 billion dollars in Macusani Yellowcake Incorporation.

Percentageinterest

Thistransaction helped CGPC get a stake of 49 % in Macusani.

Take-overpremium

Thereis no record of take-over premiums for this transaction.

Operation

Thestake of 49 % could not allow CGNPC to control operations ofMacusani.

Productionrights

Fromthis transaction, CGNPC increased its financial gains and got accessto uranium supply.

Location

Macusaniassets are located in Ontario, Canada.

Remaininglife

Theremaining life of resources was not reported at the time of thetransaction.

Terminationof rights

Therights of the agreement can be terminated by the fall of Macusani,which is a small company operating in a competitive market.

Reasonfor China’s investment

TheChinese company chose to invest in Canada out of excess pressure fromthe high demand for uranium in the domestic market.

Interpretationof drivers the behind investment

Themain driver of investing in Canada was the need to increase thesupply of uranium in the China nuclear energy sector.

Hostcountry: Niger

Transactioncost

CNNCinvested U.S. $ 53.3 million in Ideal Mining Ltd.

Percentageinterest

CNNCacquired a stake of 37.2 %.

Take-overpremium

Thereis no record of the take-over premium for this transaction.

Operation

Witha 37.2 % stake, CNNC could not control the operations of IdealMining.

Productionrights

Thistransaction gave CNNC financial gain and the supply of 37.2 % of alluranium produced by Ideal Mining annually.

Location

Assetsof Ideal Mining are located in Azelik, Niger.

Remaininglife

Theremaining life of resources was estimated to be 17 years.

Terminationof rights

Therights of the agreement might be terminated following the increase inincidents of suicide bombers in the mining sites.

Reasonfor China’s investment

TheChinese company chose to invest in Niger in an effort to acquirecheap uranium from the developing country.

Interpretationof drivers behind an investment

Investingin Niger was an opportunity to address the pressing demand foruranium in the Chinese market.

HostCountry: Kazakhstan

Transactioncost

Theamount that CNNC invested to get a stake in Kazatomprom was notdisclosed.

Percentageinterest

CNNCacquired a stake of 49 % in Kazatomprom.

Take-overpremium

Thereis no record of the take-over premium for this transaction.

Operation

Thestake of 49 % was reasonable, but inadequate to allow CNNC controloperations of Kazatomprom.

Productionrights

Thistransaction gave CNNC financial benefits and the supply ofyellowcake.

Location

Kazatompromassets are located in Almaty, Kazakhstan.

Theremaining life

Remaininglife Kazatomprom resources was not disclosed.

Terminationof rights

Therights of the agreement might be terminated in case CNNC disposes ofits shares to other investors.

Reasonfor China’s investment

TheChinese company chose to invest in Kazakhstan in order to acquire areliable supply of uranium since Kazakhstan is one of the majorproducers of uranium in the world.

Interpretationof drivers behind an investment

Theneed to supply the current 15 nuclear reactors and projected tenreactors in the next ten years was the major driving factors forChina’s investment in Kazakhstan.

References

Anderlini,J. (2007). China seals $ 12 billion deal for Areva uranium. Energy.Retrieved January 30, 2015, fromhttp://www.ft.com/intl/cms/s/c350d6c6-9c6f-11dc-bcd8

Barker,J. (2014). Uranium resource South Africa-NECSA. Environment.Retrieved January 30, 2015, fromhttp://www.environment.co.za/nuclear-energy-debate/uranium-resources-south-africa-necsa.html

Choppin,A. (2014). Uraniumis the resource boom in Africa, courtesy of the new cold war.Johannesburg: Consultancy Africa Intelligence.

Kochs,B. (2014). Langer Heinrich Uranium mine sold 25 % to Chinese Company.MappingEnvironment Justice.Retrieved January 30, 2015, fromhttp://www.ejolt.org/2014/03/langer-heinrich-uranium-mine-sold-25-to-a-chinese-company/

PaladinEnergy (2015). AboutNamibia.Subiaco: Paladin Energy.

Roberts,D. (2014). China buys foreign companies at a record pace. BloombergBusiness.Retrieved January 30, 2015, fromhttp://www.bloomberg.com/bw/articles/2014-10-30/asset-hungry-chinese-firms-to-spend-120-billion-in-overseas-purchases-this-year

Statista(2014). Top ten countries based on urani9um consumption in 2013.Statista.Retrieved January 30, 2015, fromhttp://www.statista.com/statistics/264796/uranium-consumption-leading-countries/

Stewart,S. (2014). Chinaeyes Canadian uranium mines.Toronto, ON: The Global and Mail Incorporation.

Zhihong,W. (2014). CNNC unit buying uranium mine stake. China-WireOrganization.Retrieved January 30, 2015, from http://china-wire.org/?p=4787

WNA(2014). Uraniumand Nuclear power in Kazakhstan.London: WNA.

WorldNuclear Association (2015). Terrorismtarget Areva site.London: WNA.

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