1988-89 cabinet paper 6187

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CABINET IN CONFIDENCE

43

Copy No

C 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 o f the Commonwealth Uranium

Stockpi le

The Committee agreed t ha t : -

(a) d iscuss ions on the poss ib le sa le o f the

uranium

s tockpi l e

to

Queensland

Mines Ltd

QML)

cont inue ;

b)

the

discuss ions be conducted by t he Department

o f

Primary

Indus t r i es

and

Energy

with

the

Department

of

the

Prime Minis te r

and Cabinet ,

the

Department

of

Finance and

t he

Attorney-Genera l s Department consul ted as

necessary; and

(c) the Minis ter for Primary

Indus t r i e s

and

Energy bring forward a Submission

for

considera t ion

in the

1989-90

Budget context

fol lowing the

d i scuss ions r e f e r r e d

to

above.

Committee Secre tary

This

document

is

the property

of

the Australian Government

and is

not

to be

copied or reproduced


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i - - .

CABI

NET I

CO F

IDENCE

N 6 87

Subm ss on o

FOR C BINET

Copy No .

4_3

Title

Minister

Purpose/Issues

Sensitivity Criticism

Legislation

involved

ency:

critical significant

dates

1sultation:

M inisters/Depts

consulted

Is there

agreement?

Timing handling

of

announcement

Cost

SALE

OF THE COMMONWEALTH

URANIUM STOCKPILE

The

Hon

John Kerin

MP,

Minis te r

fo r

Primary

Indus t r ie s

and Energy

Sena tor

t h e

Hon

Pete r

Walsh,

Minis te r fo r Finance

Minute 12030 r equ i red

the

lodgement o f

a

Submission

address ing

the

poss ib le

sa l e

of t h e Commonwealth

uranium

s tockpi le

Government po l i cy proh ib i t i ng the es tab l i shment n

A u s t r a l i a of nuc lea r

power plants and

a l l

othe r

s tages

o f

t he

nuc lea r

fue l cyc le except

mining,

t oge the r with our abundant ore

rese rves ,

nega tes

any

requ i rement

to mainta in a

uranium

s tockpi le

in

A u s t r a l i a

Could

be some c r i t i c i s m

o f any

Government i n i t i a t i v e

to

market uranium

from the s tockpi le

No

The

s tockpi le s

a va luab le

asse t for

which t he

Government

has no fu r the r use .

I t s sa l e

would

make

a

s i g n i f i c a n t

revenue con t r ibu t ion and ' improve

the

Balance o f Payments

pos i t i on .

Prime

Minis te r

Cabinet The

Treasury

No.

The

Minis te r

fo r

Primary

Indus t r i e s

and Energy

Prime

Minis te r

Cabinet suppor t Option . The

Minis te r

fo r

Finance

The Treasury suppor t Option

B>

Consu l ta t ion

cowments Attachment A>

page 7

N/A

Opportuni ty

cos t s of mainta in ing the s tockpi le n

terms

o ~ n

r s t

fo 7gone .

~

o r _ ;_han ) 9 miAJ1,.qn per

annum ( a'nd

could

be cons i

era:Oly higher>

.

There

wi l l

a l so be maintenance cos t s

es t imated

a t 0.1 mil l ion>

in the medium term. Sale of t he s tockp i l e should

r e s u l t

n

revenue

of a t l e a s t 70 mil l ion

over

the

next

2-4 years .

This document is

the

property o the

ustral ian Government

and is not to

be

copied or

reproduced


I

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C BINET

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ONFIDENCE

BACKGROUND

The

s tockpi le

con ta ins 2262

shor t tons

of uranium oxide

accumulated from t he

Commonwealth s

1960 s

mining

opera t ion

a t

Rum

Jungle .

Stockpi le

borrowing

by Ranger and

Nabar lek in the

e a r l y

1980 s and subsequent repayment has

r e su l t ed

in the

s toc kp i l e now

l a rge l y

being made up of Ranger

and

Nabar lek

mater i a l .

2. The s tockpi le value i s around SA7 m

a t

cur ren t spot pr ices

o r some SA16 m

based on t he

cur ren t f loor

p r i c e .

3 . Attempts to s e l l the s tockpi le over a

number

of

year s v ia

ex i s t i ng

producers have

proved

unsuccess fu l ,

because

t he

pr i c e

t h e Commonwealth has been seeking

has not been a t t r a c t i v e given t he producers low

product ion cos t s ,

t h e i r

des i re

to dispose

o f t h e i r

own

product ion

f i r s t

and

t he i r

a b i l i t y to

buy

any a dd i t i ona l

m a te r i a l they requi re

on t he spo t market

a t

lower

pr i ces .

4. Factors i n f luenc ing the dec i s ion

to

s e l l through

ex i s t i ng

producers inc luded:

a>

t he h igher

pr i c e obta inable for a long

te rm

suppl ie r ,

as opposed to

a

one-off sa le ;

(b)

t he

p o s s ib i l i t y

of as s i s t i ng producers

in obta in ing

cont rac t s ;

c> the producers concern t ha t the Commonwealth should

not

compete aga ins t them o r undercut them by

se l l i ng

a t a

pr i c e below

the

f loor pr ice ; and

d>

consis tency with the exi s t ing th ree mines

po l i cy .

C BINE

IN CONFIDENCE

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C BINET

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5.

The Commonwealth informal ly i nv i t ed fu r the r of fe r s fo r

the

s tockp i l e from ex i s t ing

producers

in 1987.

Queensland ines

Ltd QML> was t he only

company

to

submit a proposa l

based

a t

nea r spo t pr ices a t t ha t

t ime , and fo r

de l i ve r y

over a number

o f yea rs . QML s i n t e r e s t flows

from i t s

es ire to be seen as a

cont inuing long term

s upp l i e r of uranium. Treatment

a t i t s

Nabarlek plan t

has ceased and

access

to t he s t ockp i l e would al low QML to cont inue to

opera te in

the market un t i l t discovered o the r

depos i t s which

t

envisages would a l low

t

to

keep the Nabarlek m i l l in

opera t ion

.

6 .

The

Mini s t e r

fo r

Primary

Indus t r i es

and Energy

author i sed

h i s Department

to

have discuss ions

with

QML

to confi rm

t ha t

under ex i s t ing po l i cy

t he Government s

f loo r p r i ce

would apply

to

any expor ts

of s tockp i le m a t e r ia l and

to

seek

to

narrow

the

gap between QML s

purchase

o f f e r

and

cu r r en t expor t

pr i ce s .

OPTIONS

7 .

There

a re

th ree bas ic

opt ions

fo r d i sposa l

of

t he

s tockpi le :

cont inue di scuss ions with QML with a

view

to concluding

a

sa le ;

b> c a l l fo r

express ions of

i n t e r e s t both

in

Aus t ra l i a and

from overseas for purchase of the

s tockpi le ;

o r

c> mainta in t he s tockpi le

for l a t e r sa l e in the

expec ta t ion t ha t pr ices genera l ly w i l l improve over the

next

4-5 years

.

CONSIDERATION OF

THE

OPTIONS

Option A

8. Option A i s

favoured

by the Minis te r for

Primary

Indus t r i es

and Energy

because t

would

avoid:

a> con f l i c t with Government pol i cy

; and


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CABINET IN ONFIDENCE

depress ing an

a l ready

depressed

uranium market , r e su l t i ng i n

a

poor

r e tu rn

to

the

Commonwealth and an adverse

impact

on the for thcoming

ERA

cont rac t

renewal nego t i a t ions cover ing over ha l f

A u s t r a li a s annual uranium expor t s .

9.

There i s

an

i ncen t ive

for QML to

acqu i re

the s tockpi le in

orde r f o r t to be seen to remain in t he market

as

a long term

supp l i e r , and

t he r e fo r e ,

in

conc luding

any sa l e

the

Commonwealth would

expect

to b e t t e r QML s

presen t o f f e r

thereby maximising

overa l l re turns

to the

Commonwealth.

The only disadvantage of

op t ion A

i s

t h a t

r e t u rns

to

t he

Commonwealth

would

be

spread over a

number

of

ye a r s .

On t he

othe r

hand,

QML

would

assume immediate

r e s p o n s i b i l i t y

for

maintenance

cos t s .

10.

I f

op t ion A i s accepted , fo l lowing on

from

e a r l i e r

d i s c us s ions , t he next s tep would be t he commencement of

d e t a i l e d nego t i a t ions

between QML

and

the Department

of

Primary

Indus t r i e s and Energy

DPIE> with o f f i c e r s from t he

Prime

M i n i s te r s

Department ,

Attorney-G eneral s

and

the

Department

of

Finance a l s o being consul ted

as

necessary . Cabinet approval

would

be sought

for any deal which

might

be negot ia ted

with

QML

Opt ion

B

11. Option B

i s

favoured

by

t he

Min i s t e r for Finance,

who

cons ide rs t h a t t he

Commonwealth

should not r e s t r i c t i t s e l f to

one

po t en t i a l buyer in seeking to

dispose of

t he s toc kp i l e .

Unless

and

u n t i l

market

reac t ions to the

proposed

sa l e a re

se r i ous l y t e s t ed , the re

can be no ce r t a in ty tha t

any deal

which

might be nego t i a t ed with QML i s t he

most

sa t i s f ac to ry to the

Government - e i t h e r

in

terms of pr ice

o r wider

uranium po l i cy

cons ide ra t ions .

The proposal to i nv i t e express ions

of i n t e r e s t

in

purchas ing the s toc kp i l e , both in Aus t ra l ia

and

from

overseas ,

would

not necessa r i ly

ru l e

out the eventual

sa le

of


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RECOMMENDATIONS

15.

The

Minis t e r

for

Primary

Indus t r ie s

and Energy

recommends

t h a t Cabinet

agree tha t :

discuss ions

on t he poss ib le

sa l e

o f t he uranium

s tockpi le to Queensland

Mines

Ltd be continued;

t hese d i scuss ions be conducted by DPIE,

with

o f f i c e r s

from the

Departments

of Prime Minis t e r and Cabine t ,

the

Attorney-General and

Finance being

consu l ted

as

necessary ;

and

c) the mat te r

be

r e f e r r e d back to Cabinet for decis ion in

the

l i g h t of t he

outcome

o f discuss ions with QML

l6 . The Minis t e r for Finance

recommends

t h a t Cabinet agree t ha t :

r e spons ib i l i t y for handl ing the proposed sa l e of the

uranium s tockpi le be

t r ans fe r red

to TFAS with an

o f f i c e r from DPIE being

seconded

to a s s i s t

the

Task

Force in t he

sa l e

process i t h i s

i s des i red ;

the

TFAS be

author ised to

i nv i t e express ions

of

i n t e r e s t

both with in Aust ra l i a

and

from overseas in

t he poss ib le

purchase

of

the

uranium

s toc kp i l e ; and

t he ma t t e r be r e f e r r e d back to Cabinet for decis ion in

t he

l i g h t of the express ions

o f

i n t e r e s t rece ived .

8 December 1988

JOHN KERIN

PETER

WALSH

C BINET IN CONFIDENCE

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TT CHMENT

A

CONSULTATION

The

Treasury

The

Treasury Department suppor t s the

recommendations by

the

Minis t e r for Finance

Prime Minis ter and Cabinet

2 The Department of

Prime

Minis te r and Cabinet suppor ts the

con t inua t ion of discuss ions between Department of

Primary

Indus t r i e s

and Energy

and

QML

on

t he poss ib le

sa l e

of

the

uranium

s toc kp i l e with

consu l t a t ion with

re levant

depar tments

as

ou t l ined

in recommendations lS and

The

Department

notes

t h a t t he Minis te r wi l l r e f e r t he mat te r back to

Cabinet

fo r a f ina l dec i s ion

in

t he l i g h t of t he

outcome

of those

discuss ions .

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Documents

1988-89 cabinet paper 6187