JVs most likely path for uranium

The Northern Territory Government in partnership with the Japan Oil, Gas and Metals National Corporation and Minter Ellison hosted the event in Fremantle, which was designed to give Japanese companies access to uranium opportunities in the NT.
Stephanie Rowland, senior associate in Minters’ energy and resources group spoke about the legal aspects of doing business in Australia.
“If there is one message I’d like to you take away from this presentation, is that an important aspect of doing business in Australia is to be prepared,” said Rowland, “obviously this is important from a commercial perspective, but also from being familiar with the legal framework in which your business venture operates.”
There is a raft of legislation which regulates the sector – including the transport and export of uranium (both within Australia and the non-proliferation governing who Australia may export uranium to) and radiation protection at a Federal level and Occupational Health and Safety regulations at a State and Territory level.
In addition, there are legal issues associated with the vehicle investors may choose to do business in Australia.
Joint Ventures have been very popular in Australia in the past three or four decades for the majority of both exploration and production resources projects, said Rowland.
JVs are particularly suited to the physical and commercial environment in which such projects operate - the cost of finding and exploiting natural resources is high in Australia and most resources are found in remote and inhospitable areas of the country where access is difficult and expensive.
Infrastructure and transportation costs are also high. Given the inherent risks involved in such resources projects, it makes sense to use a JV structure.
In addition, the joint venture structure may be appropriate as it allows investment from smaller companies into larger projects, or foreign investors interested in taking a minority stake in a project.
“This can be attractive as an investor may wish to take a minority stake while allowing another participant to assume the role of operator of the project,” said Rowland.
“Also, although foreign investment is currently being encouraged in Australia, a joint venture is an effective means of ensuring that foreign companies can invest in Australia whilst maintaining the requisite level of Australian investment.”
There are two main types of joint ventures in Australia - Incorporated (an incorporated company under the Corporations Act); Unincorporated (most common in the energy and resources sector).
“In an unincorporated joint venture, participants to the project use separate companies which jointly own the key assets. A separate management company may be established to operate the project,” explained Rowland.
“The legal rights and obligations of the parties are determined by the terms of the joint venture agreement - unlike incorporated joint ventures and Partnerships which will be governed by the Corporations Act and the Partnership Act.
“Several liability is attractive where costs and risks are high - this means that liability in the joint venture is limited to the percentage interest a party has - and is set out in the JVA.”
JVs may be attractive to foreign investment as JVs as a vehicle are not required to comply with the Corporations Act which may make it easier for foreign entities to make the transition to Australian projects. Each participant to the JV arranges their own finance and reporting requirements.
Rowland said that investors should also be aware of legalities around due diligence, Foreign Investment Review Board approval and director’s duties.
“While only a limited number of applications have been rejected, about 16 of approximately 500 since 1990, bear in mind that uranium is deemed to be a ‘prescribed sensitive sector’ under the Foreign Acquisitions and Takeovers Act.
“It can therefore be helpful to think about a strategy for FIRB approval that may enhance the chances of approval in Australian uranium.”
Rowland said that FIRB approval is less likely to be delayed or rejected for; minority stakes in Australian companies or projects; or acquisitions of smaller resource companies or projects.
For more information email: stephanie.rowland@minterellison.com

Mega Uranium makes deal with Japanese partners

Mega Uranium has officially signed a joint venture with its Japanese investors.

"Mega Uranium has reached a US$49 million agreement with Japanese Australian Uranium Resources Development Company (JAURD) and ITOCHU Minerals Energy Australia for a 35 per cent stake in its Lake Maitland project," said Norman Moore, WA Mines & Petroleum Minister.

Moore said Mega Uranium expected to have the State’s first operational uranium mine up and running by late 2011.

“This deal is a clear indication that WA’s uranium sector is highly valuable and has great potential to generate jobs and enhance the State’s economy.

“It is satisfying to see that in the nine months since the State Government lifted the uranium mining ban, foreign investors have recognised the enormous potential of WA’s uranium resources.

“The Lake Maitland development will further develop the resources sector and is a step forward in safeguarding the environment by providing an alternative energy source to the fossil fuels used by more traditional power-generating facilities.”

Moore said the State Government would use the world’s best practice to regulate the State’s uranium sector.

• Japanese Australian Uranium Resources Development (JAURD) is a collective of three Japanese utility companies:  Kansai Electric Power Company, Kyushu Electric Power Company and Shikoku electric Power Company.

• The companies produced an aggregate of 17,048 megawatts from six nuclear power plants in 2008.

• ITOCHU is the world’s second largest uranium trading house.  It has offices in 90 countries, including Australia, and is a shareholder in JAURD.