very interesting article

From Highgrade online magazine back in February ... but still very pertinent!

Strategic attraction still evident
Michael Quinn,
9 February 2009

URANIUM companies such as Bannerman Resources have been given another sign that they’re in demand if they have the right projects with a Japanese consortium paying $C270 million for a 20% stake in Toronto-listed Uranium One.

The deal, which also includes a right for the consortium to buy up to 20% of Uranium One’s output from 2014, was said by RBC Capital Markets to highlight the importance placed upon future uranium production by some utilities. It was also seen as a positive deal for the junior.

“The consortium comprises companies with extensive uranium experience and market intelligence that should benefit Uranium One as it continues to develop its portfolio in the coming years,” an RBC note said this week.

“Beyond the dollars and cents analysis, we think this transaction is very important strategically. The Japanese consortium comprises companies that are tightly involved in the nuclear industry both within and outside of Kazakhstan. Historically, Japanese utilities have taken direct ownership interests in mines (eg. Overseas Uranium Resource Development [OURD] has 7.5% of McClean Lake, TEPCO has 5% of Cigar Lake and Idemitsu has 7.9% of Cigar Lake). More recently, we have witnessed Japanese companies investing directly in uranium mines (eg. Mitsui owns 49% of Honeymoon, Marubeni owns 24% of Kharasan, Sumitomo owns 25% of West Mynkuduk).”

The deal may also signal the adoption of new strategies by those that build reactors.

“There’s a new game in reactor sales and not all reactor vendors are playing by the same rules,” RBC said. “In the past few years, companies such as AREVA and Rosatom (the Russian nuclear holding company) have begun offering uranium supplies with their reactor bids. We think the uranium supplies are being offered to help entice prospective buyers. With Toshiba’s 40% interest in the consortium, we think it is perhaps signalling its intent to play by these new rules.”

Bannerman, which this week was capitalised at a little over $A100 million, released a new indicated resource for its Etango project in Namibia of 195.5 million tonnes grading 207ppm U3O8 for 89 million pounds of U3O8. Bannerman said it was the “largest uranium resource owned outside the major uranium companies”.

Despite the claim, the market sold the stock down nearly 13% immediately following the news, though there has been a strong run up in the company’s share price in recent weeks.

Still, the analyst at Salman Partners, Patrick Donnelly was impressed enough to do some comparative modelling.

“If we were to incorporate Bannerman’s latest resource estimate into our in-situ value for Bannerman, using the George Forrest International Afrique SPRL’s takeover of Forsys Metals Corp [see HighGrade, Nov 17-23 2008 edition] in which George Forrest is offering to pay approximately $US7.72 per lb of U3O8 resources for Forsys, we estimate that Bannerman’s shares would be worth approximately $C5.42 per share,” Donnelly said. [For the record, Bannerman was trading at A71c late this week]. “We believe that the Etango deposit has the potential to get substantially larger and that Bannerman, once it has secured its mining license and completed its feasibility study, may be the next uranium takeover target.”

Late last month Canadian brokerage Haywood Securities was modelling Etango as a 9Mtpa, $US270 million development producing 1.8Mlbs of U3O8 in 2012 and ramping up to 3.5Mlbpa.

A bankable feasibility for Etango is due late 2009.

While Bannerman managing director Len Jubber had yet to study the Uranium One transaction in detail, he saw it as clearly a positive for the sector.

“The deal is obviously favourable in the context of confirming that opportunities such as these continue to exist/grow outside of the typical debt/equity capital markets,” he told HighGrade. “The transactions are, however, likely to be tailored to the respective circumstances of each of the parties concerned.”