Uranium One

Uranium One (with Urasia (TSX:UUU)) (TSX:SXR) & (FSE:A9Y)
Share price: CAD 15,88 (mar 16, 2007)
Number of shares: 300 million
Market cap: CAD 4,764 million
Resources: 269 mio. lb (Indicated)
Price per pund U3O8: USD 15.08
Estimated production start: 2.8 mio. lb. in 2007
Estimated production output in 2010: 13 mio. Lb (19 mio. lb. in 2012)
Estimated revenue 2010 (U3O8 = $91) : USD 1,183 mio.
Estimated production costs per lb: $ 14.5
Estimated profit 2010: CAD 1,167 mio (USD 994.5 mio.)
Price target 2010 at p/e 10: CAD 35.37 (330 mio. shares)
12 month price target: CAD 22 (upside 38.5 %)

Resource Investor’s article on Uranium One bid on Urasia

The combined company, with a fully-diluted market capitalization of approximately $5 billion, will trail only Cameco [NYSE:CCJ; TSX:CCO] in production once all its mines are operating, and be the only producer in Kazakhstan, South Africa, Australia, the U.S. and Canada - the five largest holders of uranium deposits.

The company will have estimated combined attributable annual production in excess of 7 million pounds U3O8 from five operations in 2008 - Dominion, Akdala, South Inkai, Kharassan and Honeymoon - with an estimated cash cost of $10-$12 per pound. By 2012, the company could produce upwards of 19 million pounds a year. In comparison, Cameco produced 20.9 million pounds of uranium last year.

“With imminent production from Dominion in South Africa, combined with an established production profile from the Akdala ISL mine, the new Uranium One will be an exciting low-cost, growth-oriented uranium company, with five mines in operation by Q1 2008,” said Uranium One CEO Neal Froneman, who will continue as President and CEO of the new company, in a statement.

Uranium One’s Dominion mine in South Africa, scheduled to commence production this quarter, is forecast to produce 3.8 million pounds per year by 2011 at an operating cash cost of $14.50/lb. The company’s Honeymoon in Australia, which was awarded a permit to export uranium last month, is expected to begin in early 2008 at 880,000 pounds per annum at $14.13/lb.

As of April 2006, Urasia’s Akdala JV mine in Kazakhstan has been producing at an annualized rate of 2.6 million pounds at about $4.8/lb U308. The company’s South Inkai and Kharassan projects are both expected to begin production later this year. UrAsia holds a 70% interest in all properties while Kazakhstan’s national atomic company Kazatomprom holds the remaining 30%.

The deal comes just one month after Urasia concluded uranium sales for 2007, signing a five-year agreement with an unnamed North American nuclear utility to sell 4 million pounds of uranium from its operations in Kazakhstan. More than 50% of the company’s sales contracts include floor price protection.

Uranium One said un-hedged and un-capped sales contracts provide exposure to further uranium price increases on substantially all projected production.

“The new Uranium One will be the pre-eminent growth company in the sector, with an unrivalled production growth profile. The company is well positioned to gain maximum benefit from rising uranium prices,” said Phillip Shirvington, CEO of UrAsia.

The combined company will have Proven and Probable reserve base of 49 million pounds of U3O8, indicated resources of 102 million pounds of U3O8 and inferred resources of 269 million pounds of U3O8. It will also have substantial Russian P1 resources at South Inkai and Kharassan.

The company will also have a strong balance sheet with a pro forma cash balance of approximately $389 million at December 31, 2006, but a debt of $183 million after the transaction.

A meeting of UrAsia shareholders to approve the transaction will be held on or about May 15. If the deal is not completed, UrAsia has agreed to pay a break fee to Uranium One under certain circumstances of $90 million.

UrAsia's chairman Ian Telfer, former Goldcorp CEO, said UrAsia's Board has determined that the transaction is in the best interest of UrAsia and its shareholders and that the exchange ratio is fair to shareholders. Senior officers and directors of UrAsia have also agreed to vote in favour of the transaction.

“The Board unanimously recommends that holders of UrAsia shares vote in favour of the transaction,” he said.

In the conference call, the companies addressed many concerns about the stability of UrAsia's Kazakhstan operations in central Asia. But executives said Kazakhstan is a stable country looking to encourage foreign investment, and there is no sovereign risk.

"We think we're pretty safe in that respect," said Shriveton during the call.

Uranium prices have jumped more than 10-fold in five years as demand from nuclear utilities continues to surge. Spot prices doubled last year from $36 to $72 per pound, currently at $75/lb.

Resource Investor’s article on the merged Uranium One: