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C A B I N E T

M I N U T E

Expenditure Review Committee

Canberra, 28 March 1989

No. 12380 (ER)

Submission No. 6187

Sale of the Commonwealth Uranium

Stockpile

The Committee agreed that:(a)

discussions on the possible sale of the uranium

stockpile to Queensland Mines Ltd (QML)
continue;

(b)

the discussions be conducted by the Department

of Primary Industries and Energy with the
Department of the Prime Minister and Cabinet,
the Department of Finance and the
Attorney-General's Department consulted as
necessary; and

(c)

the Minister for Primary Industries and

Energy bring forward a Submission for
consideration in the 1989-90 Budget context
following the discussions referred to above.

Committee Secretary

This document is the property of the Australian Government and is not to be copied or reproduced

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6187
4_3
Copy No.

..
N
Subm1ss1on o

FOR CABINET
SALE OF THE COMMONWEALTH URANIUM STOCKPILE

Title

The Hon John Kerin MP, Minister for Primary

Industries and Energy & Senator the Hon Peter Walsh,
Minister for Finance

Minister

Purpose/Issues

Minute 12030 required the lodgement of a Submission

addressing the possible sale of the Commonwealth
uranium stockpile

Government policy prohibiting the establishment in

Australia of nuclear power plants and all other
stages of the nuclear fuel cycle except mining,
together with our abundant ore reserves, negates any
requirement to maintain a uranium stockpile in
Australia
Sensitivity /Criticism

Could be some criticism of any Government initiative

to market uranium from the stockpile
No

Legislation
involved

) ency:
critical/significant
dates

The stockpile is a valuable asset for which the

Government has no further use.
Its sale would make a
significant revenue contribution and 'improve the
Balance of Payments position.

1sultation:
M inisters/Depts
consulted

Prime Minister & Cabinet & The Treasury

Is there
agreement?

No. The Minister for Primary Industries and Energy &

Prime Minister & Cabinet support Option <A>. The
Minister for Finance & The Treasury support Option <B>
Consultation cowments Attachment <A> page 7

Timing/handling of
announcement

Cost

N/A
Opportunity costs of maintaining the stockpile in
terms o ~ 0 ~n t- erest fo 7 gone .' S,r ~ore _:!;_han )$9 miAJ1,.qn per
annum ( a'n d could be consi era:Oly higher> . There will
also be maintenance costs (estimated at $0.1 million>
in the medium term. Sale of the stockpile should
result in revenue of at least $70 million over the
next 2-4 years.

This document is the property of the Australian Government and is not to be copied or reproduced

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BACKGROUND
The stockpile contains 2262 short tons of uranium oxide
accumulated from the Commonwealth's 1960's mining operation at
Rum Jungle.

Stockpile borrowing by Ranger and Nabarlek in the

early 1980's and subsequent repayment has resulted in the

stockpile now largely being made up of Ranger and Nabarlek
material.
2. The stockpile value is around SA70m at current spot prices
<about SA15.50/lb> or some SA160m based on the current floor
price <about SA36/lb, but in the depressed uranium market
Australian producers cannot secure new long term contracts at
the floor price and it is unlikely the Commonwealth would
achieve this price in any sale of the stockpile>.
3. Attempts to sell the stockpile over a number of years via
existing producers have proved unsuccessful, because the price
the Commonwealth has been seeking <comparable with long term
contracts> has not been attractive given the producers' low
production costs, their desire to dispose of their own
production first and their ability to buy any additional
material they require on the spot market at lower prices.
4. Factors influencing the decision to sell through existing
producers included:
<a>

the higher price obtainable for a long term supplier,

as opposed to a one-off sale;

(b)

the possibility of assisting producers in obtaining

contracts <Olympic Dam Marketing was interested in some
stockpile material in order to tender for deliveries
commencing before Olympic Dam came on stream>;

<c>

the producers' concern that the Commonwealth should not

compete against them or undercut them by selling at a
price below the floor price; and

<d>

consistency with the existing three mines policy.

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5. The Commonwealth informally invited further offers for the
stockpile from existing producers in 1987.

Queensland Mines

Ltd <QML> was the only company to submit a proposal, based at

near spot prices at that time, and for delivery over a number
of years.

QML's interest flows from its desire to be seen as a

continuing long term supplier of uranium.

Treatment at its

Nabarlek plant has ceased and access to the stockpile <together

with some material of its own> would allow QML to continue to
operate in the market until it discovered other deposits which
i t envisages would allow it to keep the Nabarlek mill in
operation <were further development approved by the Government>.
6. The Minister for Primary Industries and Energy authorised
his Department to have discussions with QML to confirm that
under existing policy the Government's floor price would apply
to any exports of stockpile material, and to seek to narrow the
gap between QML's purchase offer and current export prices.
OPTIONS
7. There are three basic options for disposal of the stockpile:
<a>

continue discussions with QML with a view to concluding

a sale;
call for expressions of interest, both in Australia and

<b>

from overseas, for purchase of the stockpile; or

<c>

maintain the stockpile for later sale in the

expectation that prices generally will improve over the
next 4-5 years .

-----CONSIDERATION OF THE OPTIONS

Option A
8. Option A is favoured by the Minister for Primary Industries
and Energy because it would avoid:
<a>

conflict with Government policy <floor price and three

named mines>; and

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<b>

depressing an already depressed uranium market <the

stockpile would equal about half the annual spot market
turnover>, resulting in a poor return to the
Commonwealth and an adverse impact on the forthcoming
ERA contract renewal negotiations covering over half
Australia's annual uranium exports.

9. There is an incentive for QML to acquire the stockpile in

order for it to be seen to remain in the market as a long term
supplier, and therefore, in concluding any sale the
Commonwealth would expect to better QML's present offer <at
around spot price> thereby maximising overall returns to the
Commonwealth.

The only disadvantage of option A is that

returns to the Commonwealth would be spread over a number of

years.

On the other hand, QML would assume immediate

responsibility for maintenance costs.

10. If option A is accepted, following on from earlier
discussions, the next step would be the commencement of
detailed negotiations between QML and the Department of Primary
Industries and Energy (DPIE> with officers from the Prime
Minister's Department, Attorney-General's and the Department of
Finance also being consulted as necessary.

Cabinet approval

would be sought for any deal which might be negotiated with QML.
Option B
11. Option B is favoured by the Minister for Finance, who
considers that the Commonwealth should not restrict itself to
one potential buyer in seeking to dispose of the stockpile.
Unless and until market reactions to the proposed sale are
seriously tested, there can be no certainty that any deal which
might be negotiated with QML is the most satisfactory to the
Government - either in terms of price or wider uranium policy
considerations.

The proposal to invite expressions of interest

in purchasing the stockpile, both in Australia and from

overseas, would not necessarily rule out the eventual sale of

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the stockpile to QML should the Government consider that to be
the most appropriate course to follow after expressions of
interest have been received and evaluated.
12. The Minister for Finance notes this was the procedure
followed by the ptevious Government when it decided to sell the
Ranger uranium mine in 1979.
13. The Minister for Finance further believes that having
regard to previous unsuccessful attempts to sell the stockpile
and consistent with CM 12030, this sale is sufficiently out of
the ordinary to benefit from the expertise of the Task Force on
Asset Sales <TFAS> which should be given primary responsibility
for disposing of the stockpile.

A representative of DPIE

should be seconded to work full-time with the Task Force to

provide any necessary expertise

requ~red

with regard to uranium

markets generally and the Government's uranium policy in

particular.
Option C
14. Prices for uranium both for long-term contracts and spot
sales are at their lowest levels for many years, reflecting the
continued availability of low priced supplies from a variety of
sources.

Prices are expected to firm in the early/mid 1990's

as current high inventory levels of uranium are run down and

demand increases, giving the prospect of a better return to the
Commonwealth if the stockpile were to be retained until that
time.

However, this possibility has to be balanced against the

certain costs involved in keeping the stockpile.

These include

the opportunity costs of at least $9 million per annum <and

possibly considerably more, depending on the sale price
achievable> as well as maintenance costs <nil at present but
expected to increase to $0.1 million in the medium term>.

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RECOMMENDATIONS
15. The Minister for Primary Industries and Energy recommends
that Cabinet agree that:
<a>

discussions on the possible sale of the uranium

stockpile to Queensland Mines Ltd <QML> be continued;

<b>

these discussions be conducted by DPIE, with officers

from the Departments of Prime Minister and Cabinet, the
Attorney-General and Finance being consulted, as
necessary; and

(c)

the matter be referred back to Cabinet for decision in

the light of the outcome of discussions with QML.

l6. The Minister for Finance recommends that Cabinet agree that:
<a>

responsibility for handling the proposed sale of the

uranium stockpile be transferred to TFAS, with an
officer from DPIE being seconded to assist the Task
Force in the sale process, if this is desired;

<b>

the TFAS be authorised to invite expressions of

interest, both within Australia and from overseas, in
the possible purchase of the uranium stockpile; and

<c>

the matter be referred back to Cabinet for decision in

the light of the expressions of interest received.

JOHN KERIN
8 December 1988

PETER WALSH

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ATTACHMENT A
CONSULTATION

The Treasury
The Treasury Department supports the recommendations by the
Minister for Finance.
Prime Minister and Cabinet
2. The Department of Prime Minister and Cabinet supports the
continuation of discussions between Department of Primary
Industries and Energy and QML on the possible sale of the
uranium stockpile, with consultation with relevant departments
as outlined in recommendations lS<a> and <b>. The Department
notes that the Minister will refer the matter back to Cabinet
for a final decision in the light of the outcome of those
discussions.

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