Paladin buying Aurora’s assets

The current moratorium on uranium mining in Newfoundland and Labrador isn’t deterring Australia’s Paladin Energy (PDN-T, PDN-A) from buying the uranium assets of Aurora Energy Resources in the Canadian province in an all-share deal worth $260.9 million.

That’s because Paladin already has two producing uranium mines in Africa that will turn out 14 million lbs. uranium oxide a year combined by 2015, up from the current 7 million lbs., the company’s managing director and chief executive officer, John Borshoff, said in a telephone interview from his home in Perth.

“If we were a single project company and we bought this with the sole purpose of initiating our production presence on the planet, it would be a completely different story,” Borshoff explains. “We already have more than enough uranium out to 2015 and we’re just looking at growing our pipeline.”

Paladin also has projects in Australia that fill the pipeline from 2015 out until 2020 or 2022 and Aurora’s uranium assets in Canada just add to its growing portfolio. “We have essentially de-risked Aurora because time is on our side,” he says.

Aurora is a wholly owned subsidiary of Fronteer Gold (FRG-T, FRG-X) and has uranium properties in the Central Mineral Belt of Newfoundland and Labrador. Its Michelin deposit has measured and indicated resources of 67.12 million lbs. uranium oxide and an additional inferred resource of 36.08 million lbs. uranium oxide.

In addition to Michelin, the uranium explorer has five other deposits in the Central Mineral Belt. The company’s total National Instrument 43-101 measured and indicated resources add up to 40.2 million tonnes grading 0.09% U3O8 for 83.8 million lbs. of U3O8 and an additional 29 million tonnes of inferred grading 0.08% U308 for 53 million lbs. contained uranium.

Paladin will acquire 100% of the Aurora deposits by issuing 52.1 million of its shares to Fronteer, which will make Fronteer Paladin’s largest shareholder with a 6.7% stake.

The news sent Fronteer’s shares in Toronto up 92¢ to $12.06 apiece, a new 52-week high, on 2.5 million shares traded.

In April 2008, the Inuit Nunatsiavut government in Labrador passed a three-year moratorium on uranium production in its territory, which included all of Aurora’s projects.

The moratorium was to allow time for the government to come up with a land-use plan. The Nunatsiavut government said it needed more time to prepare for significant projects and to study the effects of uranium mining. Uranium exploration is permitted during the moratorium.

Paladin is optimistic that the moratorium will expire on schedule and noted in its press release that the government’s land-use plan and environmental protection legislation are both on track for completion by March 2011.

Borshoff says Paladin’s offer was competitive because, with Paladin being a large pure-play uranium producer, Fronteer shareholders will have leverage to a rising uranium price through a high-quality and diversified uranium producer.

He also notes a growing interest in uranium, adding that while prices have remained flat relative to most other metals, the uranium price is starting to move.

“There’s no one building mining projects around the world,” he says, apart from Paladin and Kazatomprom, Kazakhstan’s state- owned uranium company. “There’s a fundamental shortage of supply to service the whole growing nuclear business.” You can’t have nuclear demand doing what it’s doing with spectacular optimism in the Asian sector and the Middle East and then have the supply side like it is where people have essentially done bugger all.”

To illustrate rising demand for uranium, Borshoff points to ARMZ’s friendly all-cash takeover bid of Dec. 15 for Mantra Resources (MRU-A, MRL-T) and its Mkuju River uranium project in Tanzania.

The offer values Mantra at $1.15 billion. Shareholders would receive $7.93 per share, a 15.5% premium to Mantra’s 20-day volume- weighted average price, or US$10.26 per lb. U3O8 in the ground.

Paladin’s deal with Fronteer for Aurora values its resources at US$1.90 per lb. of U3O8 in the ground.

As for public reaction to the deal in Canada, Borshoff believes the news should be very well-received.

“Paladin has built the only two conventional uranium mines in the world in the last 20 years,” he says. “The only other company that has done this is Kazatomprom with in situ recovery operations, so I think our presence in Canada in terms of delivery and performance should be regarded with some interest and in a very positive way.”

The Langer Heinrich mine in Namibia is Paladin’s flagship project, reaching production in 2008. Its second mine, Kayelekera in Malawi, opened in April 2009.