Uranium One (UUU-T) has its eyes on Mantra Resources’ (MRL-T, MRU-A) Mkuju River uranium project in Tanzania, but doesn’t yet have the cash to acquire it.
Other miners in such a situation may simply throw up their hands and carry on, but not Uranium One. Thanks to having Russian uranium miner Atomredmetzoloto (ARMZ) in its corner, the Vancouver- based junior is forging ahead with a bid for Mantra.
ARMZ announced a friendly, all-cash offer for Mantra Resources that values the Australian company at $1.15 billion.
The deal would pay Mantra shareholders $7.93 per share, which represents a 15.5% premium to the 20-day volume-weighted average price of Mantra and means that ARMZ is paying US$10.26 per lb. U3O8.
The offer, which has the support of Mantra’s board and its largest shareholder, Highland Park, is set to go before shareholders in April 2011, and it is from that point on that Uranium One gets involved.
The company has a call option to buy Mantra from ARMZ within a 12-month period from the closing of the initial deal. Uranium One will pay back ARMZ’s cost of acquisition plus some additional fees.
There is also a put option built into the deal as ARMZ can put Mantra to Uranium One at the end of the 12-month period if Uranium One fails to exercise its call.
“It’s incredible to have a major shareholder put up $1.2 billion in cash to make it happen,” Uranium One’s chairman Ian Telfer said in a recent conference call. “This is all happening in a rising market for uranium and looking out 18 months when we have to finance (the acquisition), we’ll have many alternatives.”
Telfer added that such alternatives will rise out of the strong demand for nuclear power.
Uranium One’s chief executive Jean Nortier elaborated on that point, and said he didn’t believe the company would have to issue any additional equity to raise the required funds.
“ARMZ has the cash now and we don’t, so they stepped up and helped us,” Nortier explained. “We’ve been speaking to both government and private equity players and there are opportunities available on the financing side that will make the acquisition at the very least neutral or possibly even accretive from the onset.”
Based on Mantra’s prefeasibility study, the project does look to add significantly to Uranium One’s production pipeline.
By bringing Mkuju River into the fold, the company’s measured and indicated resources are set to climb by 68% while its inferred resources would grow by 34%.
Using the metrics in the study, the project would also increase Uranium One’s annual production range to between 22 million and 26 million lbs. U3O8 from the previously announced guidance of 18 million to 20 million lbs. by 2016. And that extra production would come while maintaining the company’s low cash cost average of US$20 per lb. U3O8.
Nortier also pointed out that the project’s location in southern Tanzania will further diversify the company’s portfolio as it will complement its existing projects in Kazakhstan, the United States and Australia.
Beyond its deep pockets, Nortier outlined another key advantage to having ARMZ as a key shareholder. He said that given the strong ties between the Tanzanian and Russian governments he didn’t expect any hiccups on the licensing side of the project, which sits near a wildlife reserve.
ARMZ currently has a 30% stake in Uranium One, whose shares were off 19¢ to $4.50 on 18.9 million shares traded on Dec. 15. Mantra shares gained 29¢ to $7.88 on 1.07 million shares traded.
Peter Breese, chief executive of Mantra, said the offer “reflects both the strategic significance of this asset as well as the current status of the project against the backdrop of a recent spike in the uranium price.”
The deal between ARMZ and Mantra comes with a break fee of A$11.6 million, which is to be paid by ARMZ if it fails to make good on its terms.
Mantra pays the fee if any directors make any public statement against the transaction or publicly withdraws or qualifies their favour-able recommendation.
ARMZ is the world’s fifth largest uranium producer with operating mines in Russia. The company is wholly owned by the state-run nuclear holding company Rosatom.
My take is buy. Clearly the best value, I will double my shares with in 2010