ARMZ/Uranium One offer USD 1.2bn cash for Mantra Resources which controls a significant uranium resource in Tanzania. Author: Barry Sergeant Posted: Wednesday , 15 Dec 2010
JOHANNESBURG -
Rosatom's mining arm, JSC Atomredmetzoloto - better known as ARMZ Uranium Holding Co. - has announced a USD 1.2bn friendly bid for Australia-listed Mantra Resources. The offer equates to USD 10.26/lb of uranium resource (described by Mantra as "significantly higher than other substantial uranium developers"), for the deposit at the Mkuju River Project in Tanzania.
In a related transaction, Toronto- and Johannesburg-listed Uranium One has announced that it has signed a definitive put/call option agreement with AMRZ. Uranium One has the right to acquire from ARMZ, and ARMZ has the right to sell to Uranium One, all of the Mantra shares for consideration equal to ARMZ's acquisition cost, plus certain additional expenditures.
Meanwhile, AMRZ is busy taking a 51% stake in Uranium One; Uranium One is separately completing transactions with ARMZ. On closing, Uranium One will issue 178m new shares to ARMZ for USD 610m in cash, after which a special dividend of USD 1.06 per share will be declared and paid to all shareholders other than ARMZ. Uranium One will issue a further and separate 178m shares to ARMZ in exchange for its joint venture interests in Akbastau and Zarechnoye, both in Kazakhstan.
The ARMZ offer for Mantra may reignite long-dormant interest in the listed uranium sector. An industry CEO offers an "interesting side thought", in that "this is the Russians doing a cash deal". From this, it is seen as reasonable to infer that the Russians "have no intention of prolonging the HEU [highly enriched uranium] contract post its demise in 2013.
"Common sense would indicate that if a state sponsored body like ARMZ is spending cash on basic, risky, uranium-in-the-ground assets in a new uranium mining country like Tanzania, there is very little likelihood that the same Russian State will be selling off existing highly enriched uranium to the US.
"There might also be a rationale for Russians to ?overpay' if they knew what the likely trajectory of the uranium price was going to be over the next five to 10 years due to the HEU contract ending. It seems smart for them to get in early, and snap up whatever they can, even if the market gets surprised. There are not that many decent companies out there to buy, so I'd expect 2011 to be a very interesting year if the uranium price keeps rising and there is significant consolidation M&A activity going on at the same time".
The ARMZ offer for Mantra comes at a time when the spot uranium price continues to recover, after months, if not years, in the doldrums. After peaking out above USD 130/lb in mid-2007 following a speculative bubble, spot uranium prices hit USD 40/lb during mid-2010, but have since recovered sharply to just over USD 60/lb.
In line with blighted spot prices for so long, mergers and acquisition in the uranium field have been comparatively rare. Some explorers have quit altogether. The AMRZ bid for Mantra, however, recalls the August 2007 deal, when French transnational Areva paid USD 2.5bn for Uramin, formed just two years previously to acquire and develop mineral properties, predominantly uranium, in Namibia, the Central African Republic and South Africa. Uramin made a big hit in Namibia.
There have been more hits there, where for decades Rio Tinto's R?ssing uranium mine has set the standard. The biggest claimed new find, put among the world's top ten, is at R?ssing South, in the hands of Australia-listed Extract Resources. This was a hugely popular stock in 2008 and 2009, and has come back to life in the past few months.
Rio Tinto owns 69% of the R?ssing mine, known to uranium specialists as the "grand old lady" of the Namibian uranium industry, with a claim of 140m pounds of historical production over 30 years. Rio Tinto also holds a majority stake in ERA, and ranks overall as No 2 uranium miner in the world, after, of course, Cameco. ARMZ ranks in the top five.
The Namibian scene has been a hotbed of cross-activity: Rio Tinto has taken a stake in Extract; Kalahari Minerals holds a big chunk of Extract, while Rio also has a significant stake in Kalahari; other names involved from time to time include NWT Uranium, Niger Uranium, Polo Resources.
Paladin (which holds close to 20% of Deep Yellow, another Namibian success) delivered first production from its key asset, Namibia's Langer Heinrich, which lies north of the Deep Yellow projects area, in 2007 on time and on budget. Paladin's Kayelekera, a second low risk open pit operation, located in Malawi, started commercial production during the first half of 2010.
Paladin is seen by a number of specialist investors as offering among the most viable growth profiles in the industry, one of the best cost structures (with all-in costs second only to the ISL (in situ leaching) projects of Kazakhstan (where Uranium One reigns supreme), and is an easily traded stock in both Canada and Australia.
Mantra Resources, which has often featured among the top performing uranium developers, holds a NI 43-101 compliant resource base of 65.5m pounds of measured and indicated resource and 35.9 million pounds of inferred resources at Mjuku River, in southern Tanzania, across the border from Kayelekera.
Attention to Mantra was assisted by the endorsement and shareholding of Highland Park, an investment vehicle representing the ex LionOre team which picked the top of the nickel market to sell LionOre to Russia's Norilsk for USD 5.5bn in 2007. The Russians are back, this time in uranium; Mantra's stock price has expanded ten fold since the beginning of 2009.
Further names to watch in Namibia include Bannerman, Xemplar, and Forsys, which was subject to a potential takeover in 2009. Other stocks active in Namibia include Marenica, Pitchstone Exploration, and Toro Energy.
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$8.75 Sentiment: Buy Disclosure: Held
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