Areva looking ahead with UraMin deal

In its uranium report from earlier this year, Sprott Securities estimated that annual demand for U3O8 would nearly double to 350 million lbs. within the next 20 years.

The upside for uranium producers is that increasing demand should continue to exert upward pressure on the metal’s already record-breaking prices. But the forecast raises the question of how such robust demand will be met in a world still sensitive to the radioactivity associated with uranium mining.

The world’s biggest nuclear reactor manufacturer, Paris-based Areva (ARVCF-O) is tackling the demand problem by going after up-and-coming producer UraMin (UMN-T, UMN-L).

In mid-June, Areva announced a friendly, all-cash offer, which values UraMin at US$2.5 billion, or US$7.75 per share ($8.28) — a 21% premium over UraMin’s 20-day weighted-average trading price ending June 8.

Early indicators from the market, however, suggested such a premium might not be enough to secure the company as UraMin shares shot up over 10% or 85 to $8.79 on 27.3 million shares traded — a portent that investors expect a higher bid.

The board of directors at UraMin, however, found the deal favourable enough to give it their endorsement. Combined with other investors, the directors make up a block of 25% of all UraMin shareholders supporting the deal.

That support comes with an agreement giving Areva the right to match any superior offers and it includes a break fee of US$75 million.

If the deal does go through, it will give Areva a strong position in Africa, and represent a full circle of sorts. UraMin’s Bakouma project in the Central African Republic (CAR) was originally drilled by Cogema in the 1970s, now part of Areva.

UraMin’s two other priority projects are also situated in sub-Saharan Africa. Its Ryst Kuil project is in South Africa, and its Trekkopje project is in Namibia.

Trekkopje is scheduled to go into production by the end of 2008 with the other two projects expected to be producing by 2009.

Additionally, the South-African based company has exploration projects in Chad, Niger, Senegal, Mozambique and Canada. It estimates it will be producing 18 million lbs. of U3O8 annually by 2012. Areva currently produces 9.5 million lbs. of U3O8 per year.

Areva’s deep pockets — it is 96% owned by the government of France — and long experience with nuclear energy along every facet of the supply chain, should ensure that the UraMin projects get developed as quickly as possible.

But in its press release, UraMin’s founder and deputy chairman, Stephen Dattels, chose to emphasize the benefits that UraMin’s projects would bring to Areva.

“UraMin’s potential production capability gives Areva the opportunity to strengthen its position as one of the largest uranium producers in the world,” Dattels said. “Combined with the integrated business model of Areva all along the nuclear value chain, access to long-term sources of uranium will reinforce Areva’s ability to provide security of supply to its customers.”

News of the deal comes just a few weeks after UraMin announced it would joint venture its exploration projects in Niger with Northwestern Mineral Ventures (NWT-V, NWTMF-O).

News of the Areva offer had a positive spillover effect on Northwestern as its shares climbed 27% or 23 to $10.8 on 6.6 million shares traded.

UraMin shares trade in a 52-week range of $2.55 to $8.43 per share.