A strengthening uranium market has added a key element to the take-over battle for Australia's WMC Resources Ltd as it fights a A$7.4 billion ($5.8 billion) bid by Swiss-based Xstrata Plc., analysts said. WMC earns most of its revenues from nickel and copper but its Olympic Dam project in South Australia is the world's largest known uranium deposit and the company is considering an expansion that it says could make it the world's biggest producer.
Aegis Equities Research resources analyst Chris Sabin said the uranium would appeal to potential rival bidder Rio Tinto Ltd/Plc, one of the world's top three producers of uranium but it was not clear if it would want to bid.
"The chance to pick up what is the largest known uranium resource in the world has obvious attractions," he said. "It is a question of can Rio convince themselves that the numbers will work."
A Rio Tinto spokesman declined to comment on a London Sunday Times report that the company was talking to its advisers about a bid to top the A$6.35 offer from Xstrata. WMC shares closed steady at A$7.26 on Monday.
WMC's uranium is seen as a by-product of its copper mining but uranium spot prices have doubled in the past two years to more than $20 a pound driven by falling stockpiles and its role as greenhouse gas-free fuel, and WMC says they are going higher.
Opportunities for new Australian uranium mines are limited by opposition by two state governments, while aboriginal land owners have blocked development of the Northern Territory Jabiluka lease, held by Energy Resources of Australia Ltd, majority owned by Rio Tinto .
"It is difficult to see other uranium operations emerging here in Australia in the near future, so Western Mining (WMC) is certainly in the box seat," says Intersuisse analyst Gavin Wendt.
ERA's, Ranger mine is due to end production around the end of the decade, while Namibia's Rossing Uranium, in which Rio Tinto has a 68.6 percent stake is yet to decide on plans to extend its mine life.
WMC's Olympic Dam copper and uranium division comprised 57 percent of the company's assets in 2003, but about 24 percent of revenues. The company does not break out uranium sales.
But WMC is playing the uranium card as a key part of its defence arguing that its huge resource has improved the economics of a potential A$4 billion Olympic Dam expansion and urging shareholders to wait and reap the rewards rather than sell.
The stronger uranium market has rallied ERA shares by 85 percent this year, while Canada's Cameco Corp, the world's largest uranium miner, is up around 56 percent.
WMC Resources Chief Executive Andrew Michelmore said world nuclear power demand was on the rise and growth areas would include China, South Korea, Japan and India.
"There is a huge number of (nuclear) power stations on the books to be built over the next 15 years, with the projected demand to rise from around 60,000 tonnes to around 80,000 to 90,000 tonnes by 2020," Michelmore told reporters while touring the Olympic dam facilities last week.
Doubters point out that Germany is phasing out nuclear energy and a number of European plants are due to be retired.
A larger Olympic Dam could triple WMC's uranium output to 15,000 tonnes while doubling copper output to 500,000 tonnes.
However expansion study results are not due until 2006, financial returns from the project are unclear and political and environmental issues remain potential uranium obstacles.
"There are a huge string of ifs and buts," Sabin said.
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