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Uranium One approves Russian takeover in exchange for Kazakh mine interests

By Hal Foster
Uranium One shareholders have a approved a deal to allow Russia to gain stakes in two Kazakh uranium mines

ASTANA - Wednesday, September 01, 2010 - Shareholders of Canada’s Uranium One have agreed to give Russia’s state-owned nuclear company a controlling interest in exchange for Kazakh mining assets that will turn Uranium One into one of the world’s top five uranium producers.

Ninety-five percent of shareholders at a meeting in Vancouver, Canada approved Atomredmetzoloto, or ARMZ, obtaining a 51 percent stake in Uranium One.

The deal gives Uranium One stakes in two additional Kazakhstan mines, bringing its total to six. The company also got $610 million in cash.

The mine acquisitions will allow the company to increase its production by up to 60 percent to 8,000 tons a year.

From an operational perspective, the deal will change the uranium-mining landscape in Kazakhstan. Russians will now join Canadians at the joint-venture mines where Uranium One works with its Kazakh partners.

Kazakh officials appear to be satisfied with the deal. They have voiced no objections to it publicly, and the government officially signed off on it a few days before Uranium One shareholders gave their approval.

Kazakhstan became the largest uranium-producing country in the world in 2009, mining 14,000 tons to pass longtime leader Canada. This year Kazakhstan is expected to widen its gap, producing 17,000 to 18,000 tons, or a third of the world’s 50,000 tons of production.

Several international companies are involved in the record-breaking production in Kazakhstan, with the leaders being Canada’s Cameco, Kazakhstan’s state-owned nuclear-energy company KazAtomProm, ARMZ and Uranium One.

One of the beauties of focusing on Kazakhstan for production, international companies will tell you, is that its mines are some of the lowest-cost operations in the world.

Deal gives ARMZ valuable stakes in Kazakh mines

The ARMZ takeover gives Uranium One, the world’s seventh-largest uranium producer in 2009, stakes in Kazakhstan’s South Inkai, Karatau, Akdala, Kharasan, Akbastau and Zarechnoye mines.

Uranium One acquired stakes in three mines before the Russians came along. It owned 70 percent of South Inkai and Akdala and 30 percent of Kharasan.

The company obtained 50 percent of Karatau in a deal with ARMZ in 2009. The Russians gave Uranium One the stake in exchange for 17 percent of Uranium One stock. ARMZ would then increase its holdings through stock purchases and derivatives to 23 percent.

Uranium One obtained ARMZ’s 50 percent stake in Akbastau and 49.7 percent stake in Zarechnoye by virtue of the Russian company’s just-completed 51 percent takeover.

ARMZ is ecstatic about the Uranium One deal because it will allow the vertically integrated company to address its major shortcoming – lack of raw uranium production.

The company accounted for only 7 percent of global production before it took over Uranium One.

It hopes the acquisition, in addition to its mining ventures in Africa, will allow it produce between 25 and 30 percent of the world’s supply by 2030.

ARMZ ready to become major player in uranium market

ARMZ is already in the process of becoming a powerhouse, accounting for 40 percent of the world’s enriched uranium.

On the finished-product side, it controls 17 percent of the market for the fuel rods and assemblies that power reactors. And it builds 20 percent of those very reactors worldwide.

Chief Executive Sergei Kiriyenko has made no secret of ARMZ’s desire to become one of the driving forces on the international uranium market. The acquisition of Uranium One will help it move closer to that goal, he has said.

Kiriyenko probably felt relief as well as joy that Uranium One shareholders approved the Russian takeover.

That’s because it gives ARMZ a much larger share of world reserves at a time when the price of uranium is expected to soar due to the increasing demand for reactors. “We’re looking at a shortage-driven market, with an inflexible supply,” Kiriyenko said.

ARMZ Director General Vadim Zhivov said in June that the company’s joint ventures with KazAtomProm in the Akbastau and Zarechnoye mines accounted for a quarter of ARMZ’s uranium production.

The Russian company’s controlling stake in Uranium One will make the ARMZ-KazAtomProm alliance “even closer,” he said. The reason is that ARMZ staff will now be working with KazAtomProm not only at the Akbastau and Zarechnoye mines, but also at Uranium One’s Kazakhstan properties.

St. Petersburg, Russia-based analyst Alexandr Ignatyuk said the deal will mean “no core changes in the balance of power in the uranium market.”

Ignatyuk, who follows mining and metals for EnergoCapital, said Uranium One’s Kazakh partners may find it trickier to obtain investments from the reconstituted Uranium One, however.

Many observers believe a Western-controlled company – such as Uranium One before the ARMZ takeover – is a more reliable investment partner than a Russian-controlled company, Ignatyuk said.

Financing coming from a Russian company can be “more of a political issue than an economic one,” he said.

Kazakhstan wants its uranium industry to contribute even more to its gross domestic product in coming years.

At the current price of $46 a pound, the country would generate $1.66 billion in revenue from uranium sales this year if it produced 18,000 tons.

It certainly has the reserves to increase uranium’s share of the bottom line. Its deposits are the second-largest in the world -- 2.1 million tons or 16 percent of the total.

Only Australia’s reserves are larger – 3.15 million tons or 24 percent.

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