Russia takes control of Uranium One

A Russian state-owned miner has acquired a majority stake in Uranium One (UUU-T) in exchange for its interest in two uranium mines in southern Kazakhstan and $610 million in cash.

Uranium One will issue 356 million shares to JSC Atomredmetzoloto (ARMZ). This will bring ARMZ’s interest in Uranium One from 23.1% to at least 51%.

Uranium One will acquire a 50% interest in the Akbastau mine and a 49.67% interest in the Zarechnoye mine from ARMZ, boosting its 2011 total production by about 30% to 10.5 million lbs. U3O8.

Uranium One chief executive Jean Nortier says the two new mines will make Uranium One a top five uranium producer next year.

“We’ve been looking for opportunities that would immediately add production to Uranium One, or, for assets that could be in production within the next few years,” Nortier said during a conference call today. “We’ve also been looking for opportunities with total costs – that’s operating plus capital requirements, of less than US$40 per tonne … Opportunities such as these are extremely scarce.”

Production at Akbastau began in 2009 and 2010 production is forecast to be 1.7 million lbs. U3O8 while steady state production will grow to 7.8 million lbs. per year by 2016.

The Zaraechnoye mine came into production in 2007. Production this year is forecast to be 1.6 million lbs. U3O8 growing to 2.6 million lbs. per year by 2012.

This isn’t the first deal Uranium One has done with ARMZ, which is a subsidiary of Rosatom, a state corporation that controls the Russia’s nuclear activities. Late last year ARMZ acquired a 19.9% interest in Uranium One in a deal that gave the Canadian miner a 50% interest in the Karatu mine, also in Kazakhstan.

During the conference call, Adam Schatzker, a mining analyst at RBC Capital Markets, asked ARMZ director general Vadim Zhivov why the the corporation didn’t go for total control.

“We would like to use Uranium One as global platform for future growth and all the future acquisitions and all the M&A activity we envision on the basis of Uranium One,” Zhivov said.

Zhivov also says that with Russia’s plan to build eight nuclear reactors between now and 2018 and commitments to other countries, it’s Rosatom’s plan to become fully diversified.

“Is it proper to say that Rosatom is using uranium as part of its sales strategy to link the two, to compete for instance, with the Koreans and Areva?” Schatzker asked.

“Yes that’s the strategy exactly,” Zhivov said.

Under the deal, Uranium One will issue a dividend of at least US$1.06 per share to its minority shareholders other than ARMZ. This transaction also assumes that Japan Uranium Management (JUMI) will exercise its right of repurchase under the terms of its convertible debenture which will be triggered by the transaction. Uranium One still hast o have meetings about this.

If the deal goes through as planned Uranium One will be left with US$331 million in cash and investments, down from US$458 million.

Shares outstanding will increase to 943.5 million from 587.5 million while the market capitalization will increase to US$2.5 billion from US$1.5 billion.

And Uranium One will have a total debt of US$460 million down from US$716 million.

Uranium One shares were down 9¢ in Toronto today to $2.53 on a trading volume of 10.2 million shares.