You don't want that. Something similar to UUU would happen.
TORONTO — As the uranium market fell into a rut following the 2011 Fukushima disaster, a landmark partnership between Canadian and Russian uranium firms fell off the radar for investors. Now it is nearing an end.
On Monday, JSC Atomredmetzoloto (ARMZ) announced a $1.3-billion deal to buy all the shares of Uranium One Inc. it does not own and take the company private.
This is not what the two sides had planned in 2010, when state-owned ARMZ acquired a majority 51.4% stake in the Canadian uranium producer. At the time, ARMZ wanted to use Uranium One as a public vehicle to attract investors and expand globally.
There was no need for such an entity after Fukushima. Investors have very little interest in the sector today, and it will be just as easy for ARMZ to grow as a private company without a public Canadian subsidiary.
“Things have fundamentally changed since Fukushima,” Uranium One chief executive Chris Sattler said in an interview. “Investor interest has changed and multiples have changed.”
The uranium spot price has dropped about 40% since Fukushima and now sits at US$42 a pound. By comparison, it topped US$130 a pound at its peak in 2007.
Mr. Sattler acknowledged that he is selling the company at what could be the bottom of the market. To make sure he got a fair price, his financial advisors assumed a long-term price of US$66 when they analyzed the takeover bid.
“The fact that [the offer] was based on a much higher uranium price than where we are today was a driving force in recommending it for shareholders,” Mr. Sattler said.
He now has the job of selling it to shareholders, which could be difficult. While the offer of $2.86 a share is well above Toronto-based Uranium One’s recent trading range, the stock was worth more than $6 before Fukushima.
“We think many shareholders will contemplate asking for a higher price from ARMZ,” RBC Capital Markets analyst Adam Schatzker wrote in a note. However, he thinks a rival bid for a minority block of shares is “highly unlikely.”
Robert Gill, a portfolio manager at Morrison Williams Investment Management, noted that positive sentiment is starting to trickle back into the uranium market and equity values have moved up. He speculated that ARMZ decided to make a move before a broader turnaround takes hold. “By doing this acquisition, they can continue to build the company they intended to build, but they can do so without the transparency required by the public markets,” he said.
According to sources, the messy saga of Mantra Resources Ltd. provides one example of why it makes sense for ARMZ to clean up its structure and take Uranium One private.
In late 2010, Uranium One wanted to acquire Mantra, a junior mining company with a project in Tanzania. It did not have enough cash, so it convinced ARMZ to acquire the project on its behalf for more than $1-billion. At the same time, the two sides signed an option agreement for Uranium One to buy the project from ARMZ in the future for the same price. But after Fukushima happened, Mantra’s value dropped significantly and Uranium One’s minority shareholders would not support paying such a high price.