U.S.REPORT Uranium Resources benefits from veto of Navajo taxation

Uranium reserves outside of the Navajo reservation in New Mexico will be free from Navajo taxing and regulation, according to a ruling by the United States Court of Appeal. The court has denied the Navajo’s claim to authority over various lands outside of the reservation, including Uranium Resources’ (TSE) properties at Churchrock and Crownpoint, N.M. Uranium Resources says the Navajo litigation, with its potential effect on Uranium’s reserves, was one of the major reasons why Rio Algom (TSE) withdrew its takeover bid for the company last year. Now, Uranium Resources hopes the court ruling against the Navajo will clear the way for renewed investment interest.

“We are extremely pleased that this perceived cloud has been lifted from the valuation of these reserves so that the value of our company can be established on a purely economic basis,” said Raymond Larson, president of Uranium Resources. Larson added that the company expects to produce about three million pounds of uranium annually from the New Mexico properties within the next 3-4 years.

Uranium Resources also recently confirmed that a wholly owned subsidiary of Rio Algom has acquired an 8% stake in its shares previously held by Elders Resources Finance.

Uranium Resources currently produces uranium in south Texas, using low-cost in-situ solution mining techniques.

The interest was acquired by Rio Algom Mining for US$5.6 million and also includes a warrant to acquire another 7.1 million of Uranium Resources. If exercised, the additional purchase would increase Rio’s total ownership interest to 25% on a fully diluted basis. Rio also acquired Elders’ 10.5% interest in Belt Line Resources whose main asset is 750,000 shares of Uranium Resources.

Rio said the warrant and shares were acquired “as an investment with a view to the possibility that Rio or an affiliate may ultimately be able to acquire all the outstanding shares of URI.”

In October, 1989, Rio and Uranium Resources entered into a non- binding letter of intent which contemplated the acquisition by Rio of all of the outstanding shares of Uranium Resources at a price of US$2.55 per share. That deal would have seen a merger take place between an affiliate of Rio and Uranium Resources. However, negotiations between the two companies were terminated without an agreement last November.

Last month, Rio began more discussions with the management of Uranium Resources to determine if there was a basis for Rio making another offer to acquire all of the common shares held by Uranium Resources’ management. That deal also envisaged a possible merger between Rio and Uranium Resources at a share price in the range of US$1.50-2.55 per share. Those discussions were terminated without resolution.

Raymond Larson, chairman of Uranium Resources said, “We have elected not to pursue further discussions with Rio because of the apparently wide discrepancy in values placed on the company by Uranium Resources and Rio.”

But, he added that Rio’s recent acquisition of a stake in Uranium Resources is an endorsement of the progress his company has made over the past few years. “Development of our Rosita property is on schedule and we expect to be in production by the fourth quarter of this year,” Larson said. “(Rosita) will effectively double our production capacity in south Texas to over two million pounds per year.”

The company recently completed an equity financing and US$23- million credit facility with Citibank to pay down debt and help finance the development of its New Mexico properties over the next two to three years.

“We think that the value of URI is substantially greater than the price range discussed by Rio,” said Larson.