Analysis: Rio Tinto faces new hurdles on Canadian uranium

Tue Nov 29, 2011 12:05pm EST
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By Julie Gordon

TORONTO (Reuters) - Rio Tinto's (RIO.AX: Quote) battle to secure its foothold in Canada's uranium-rich Athabasca region has only just begun now that it has apparently won a bidding war to gain control of Hathor Exploration HAT.TO.

While the path is now clear for Anglo-Australian giant to acquire the exploration-stage company, a whole new set of rules will apply to Rio once Hathor's flagship Roughrider project nears production.

Under current Canadian law, foreign companies are barred from owning more than 49 percent of an operating uranium mine. That could throw a wrench in Rio's (RIO.L: Quote) plans to turn Roughrider into a producing asset.

"They have two options," said Salman Partners analyst Raymond Goldie. "Either they hope that the law changes, or they hope that they will find a Canadian partner to own 51 percent."

If it is the latter, that would be good news for Cameco Corp (CCO.TO: Quote), Canada's top uranium producer. Even though it backed out of the bidding war for Hathor, the company could end up owning half of Roughrider, located just 25 kilometers (15 miles) from its Rabbit Lake mill in Saskatchewan.

In partnering with Cameco, Rio could comply with ownership restrictions, while gaining access to a mill with spare capacity to process ore from Roughrider, said Goldie.

"I would be willing to make the bet that when the mine comes into production, Cameco will own more than half of it," he said.

But others feel uranium's days as a protected resource in Canada are numbered. The ruling Conservatives have already said they are reviewing the restrictions, and policy experts say the government will likely push to relax the legislation.   Continued...