Japanese consortium finances Canada’s Uranium One

Uranium One (UUU-T) will raise C$270 million through a private placement with a Japanese consortium made up of The Tokyo Electric Power Company, Toshiba Corporation, and The Japan Bank for International Cooperation.

The issue price of C$2.30 per share represents a 15% premium over the 20-day volume weighted average price of Uranium One’s shares and will give the consortium a 19.95% stake in the company. The placement involves an aggregate of 117 million shares of Uranium One.

The uranium producer has also entered into a long-tem off-take agreement and a strategic relationship with the consortium, which will become effective after the closure of the fund-raising exercise.

Markets applauded the deal. Uranium One’s share price advanced 7¢ or 5.5% on the news to close the day at $2.08 per share with 19.4 million shares changing hands.

Under the off-take agreement the Japanese consortium has the option of purchasing up to 20% of Uranium One’s available production from assets for which the uranium company has marketing rights.

Under the strategic relationship agreement, the consortium can appoint two directors to Uranium One’s board. The group of Japanese companies also has the right of first refusal to invest in any uranium mining asset or project that Uranium One may make available to third parties. The agreement includes a provision that the consortium agrees not to acquire more than 19.95% of Uranium One’s shares without the company’s approval.

The three Japanese companies are leaders in the global nuclear industry. Tokyo Electric Power is the largest electric utility in Japan; Toshiba Group has capabilities in both boiling water reactor (BWR) and pressurized water reactor (PWR) nuclear power plants; and The Japan Bank for International Corporation serves as the international arm of Japan’s Finance Corporation.

Jean Nortier, Uranium One’s president and chief executive, said the Canadian junior would benefit greatly from the consortium’s knowledge and expertise in the nuclear industry, as well as its “high-level relationships in Kazakhstan and from its significant financial resources.”

Coupled with Uranium One’s consolidated cash balance of about US$185 million at the end of January, the proceeds from the private placement would result in “a solid balance sheet to fund our growth and development plans,” Nortier said in a statement.

Despite the current economic crisis and uranium prices hovering at just under US$50 per lb., Uranium One seems to be doing quite well. In December the company completed its Australian joint-venture transaction with Japan’s Mitsui & Co.

Under the transaction Mitsui has acquired a 49% interest in the Honeymoon project in South Australia and Uranium One’s exploration portfolio in the country including the Goulds Dam and Billeroo projects, and other prospective tenements on the Stuart Shelf and Eyre Peninsula.

The total minimum cash commitment from Mitsui will be about A$104 million for its share of Uranium One’s Australia business. Most of the funds will be used to develop the Honeymoon project and move it into commercial production. The project has a design capacity of 880,000 lbs U3O8 per year with an expected mine life of six years and production is expected to start in 2010.

Honeymoon has an indicated resource of 6.5 million pounds U3O8 contained within 1.2 million tonnes at an average grade of 0.24%. Mineralization extends over an area of 900 x 450 metres at an average depth of 110 metres. The Honeymoon deposit is recognized as five discrete mineralized sand packages separated by laterally extensive clay seams.

“Mitsui has a long and successful investment history in various resource sectors in Australia,” Fuminobu Kawashima, executive general manager of Mitsui’s Energy Division, said in a prepared statement.

Also in December, Uranium One announced that it had received approvals from the Kazakh Ministry of Energy and Mineral Resources to start industrial production at its South Inkai uranium mine.

The approval allows Uranium One to ramp up production at its 70% owned Betpak Dala joint venture over the next three years to 5.2 million lbs uranium annually.

South Inkai is Uranium One’s second mine to move into commercial production and the company believes it will be twice as big as its Akdala uranium mine in Kazakhstan

The company expects its share of production from South Inkai this year will be about 1.5 million lbs of uranium and expects average cash costs of about US$28 per lb. Those costs are forecast to decline by the end of the year to about US$20 per lb. as the mine ramps up production.

Other good news last year included Citibank’s agreement to increase its loan facility to the Kyzylkum joint venture from US$30 million to US$90 million.

In November Uranium One, which has assets in Kazakhstan, the United States, South Africa and Australia, said it planned to weather the economic storm by concentrating on its low-cost assets in Kazakhstan while continuing to develop its key projects in other countries.

At the time, it revised its estimate for 2008 production down to 2.8 million lbs. uranium from 3.1 million lbs. due to the company’s decision in October to place its Dominion project in South Africa on care and maintenance, lower than expected production from South Inkai because of reduced sulphuric aid deliveries, and a later than expected start-up of its pilot production at Kharasan in Kazakhstan.

The company also estimated that its total attributable production for 2009 would come in at about 3.5 million lbs. uranium and in 2010, 5.6 million lbs.

Over the last year, Uranium One has traded in a range of 60¢-$7.05 per share. The company has 469.1 million shares outstanding.