controversial valuation, page-10

Hi jfc,

Several good points, but note also the following:
1)
Last year, UEC wanted to go external for finance, and at a cheaper rate. They didn't. Not because UEL, their major shareholder said no, but because financiers either required a higher interest rate than what either UEC wanted, or was being charged by UEL /now ALN (ie: 8%), or wanted UEL to guarantee UEC's banking facilities.

2)
For a small organisation, UEC has spent >$200m in CAPEX in the last 4 years, and if 2003 is added in, will be spending ~$250m by year's end.

That's:
*
$15m in 1999;
*
$75m in 2000 (ASX/R-0602-1), or $56m in 2000 (ASX/R-0502-2), depending on which one you believe;
*
$92m in 2001 (ASX/R-0502-2);
*
$22m in 2002 (ASX/R-0502-3).

In fy2003, forecast CAPEX is >$40m.

3)
Risk is a relative thing. Unless an acquirer is prepared to use equity (ie: shares) to acquire UEC, then the rest of it will have to be done by way of debt (ie: cash component), etc. Financiers are an interesting bunch. What they lend out, they want to be repaid. If the risk is there, then they want to be repaid at a higher rate of interest, or to have their facilities guaranteed. UEC's risk profile warranted an 8% charging rate by its parent on an internally generated facility. Now, what would the externals charge?

4)
The UEL facility was first put in place on 29 June 2000. The facility restricts UEC's ability to incur any financial indebtedness above the $80m mark, and prohibits the payment of any dividends, any capital distributions, any share buybacks, etc, whilst the facility remains outstanding and /or unpaid (or re-paid, in part). Refer 2000 Disclosure document @p99 for more details.

With yesterday's facility extension to 2006, and repayment, to 2007, it seems that:
*
UEC will not be paying any dividends until 2007, or later; and
*
UEC does not believe that it will be in a position to undertake any capital management initiatives until 2007, or later.

5)
The question that needs to be asked is whether you yourself would be prepared to pay 25c or 50c, for that matter, for a share which is still 4 years away from paying out any dividends, 4 years away from generating FCF sufficient in amount to satisfy both forward CAPEX requirements, repayment of the existing debt facility, and increasing OPEX. If you are, then well and good. But, if not, then you are likely to fall into the same category of people as potential predators out there.

6)
No business is ever acquired by anyone without factoring for risk. If your assumption of zero risk is appropriate, then why is it that UEC is paying 8% on a facility where the riskfree rate of return is currently 5.1%?

Also, why is it that from one's own parent, the interest charge is 8% even where the parent controls 2/3's of the shares and the Board but where, for comparative purposes, home loans can be readily acquired for under 6% (and initial rates @4.99%)?

The risk is there, but granted, some out there just do not want to acknowledge it.