Atomredmetzoloto to purchase a uranium company for $1.2 billion

Atomredmetzoloto belonging to Rosatom is to purchase a second large foreign uranium company. After obtaining 51% in the Canadian Uranium One, ARMZ wants to obtain 100% in the Australian Mantra Resources for $1.2 billion. And belonging to it is the Mantra deposit Mkuzhu River in Tanzania and a number of other foreign assets that ARMZ is interested in, it will need extra investment.

Atomredmetzoloto (ARMZ, is a part of Rosatom) keeps purchasing the uranium producing assets overseas. Yesterday the company announced that it had agreed on the purchase of the Australian Mantra Resources Ltd that holds the rights for the Tanzanian deposit Mkuzhu River. ARMZ plans to pay for this asset 1.2 billion Australian dollars (its current rate almost equals to USD). The company didn’t explain if it would be the company’s own funds or using loans. The shareholders of Mantra receive $8 per share. It is 15.5% more than the weighted average price of the company’s shares for the latest 20 days and by 21.2% more than the weighted average price for a month, Mantra reports. The planned date of the deal’s completion is April 29th, 2011.

Mkuzhu River is a deposit in the South of Tanzania. The proved reserves are about 40 thousand tons of uranium. The average depth is about 60 meters, content of uranium in ore is up to 0.044%, the prime cost of production is less than $80 per kg. After development of the deposit the annual production should equal up to 2,500 thousand tons. Mantra planned to invest in Mkuzhu River $298 million (including $140 million in the plant's on ore processing). Now the final technical and economic assessment is not completed. Mantra planned to put into operation the 1st stage of the project by the beginning of 2013.

It is already the 2nd large deal of ARMZ this year. Earlier the company purchased 51% of the Canadian Uranium One (the deal is planned to be completed by the end of the year) for stakes in the Kazakh uranium producing assets (50% of Akbastau and 19.7% of Zarechnoe) and $610 million. Moreover, on Tuesday the documents on forming of a JV were signed with Mongolia on the work at the deposit Dornod (ARMZ is to receive 49%). The amount to be invested hasn’t yet been announced. ARMZ is interested in other assets overseas, in particular, the company negotiated on the deposits in Namibia.

Uranium One will also participate in the purchase of Mantra: after completion of the deal it will be the operator on the project Mkuzhu River. Moreover, the Canadian company signed an optional agreement on the possible purchase within a year from ARMZ of the whole stake of Mantra. In the case of the execution of the optional agreement, ARMZ should receive the same amount as it will spend on the purchase of Mantra. U1 will also cover the extra expenditures of the Russian company and the extra payment of 2.65% per annum. This purchase should be approved by the shareholders of U1.

To complete the deal on purchase of Mantra ARMZ should receive a number of permissions from the Government and the Courts of Australia and also approval of the meeting of shareholders of the Australian company. One of the largest shareholders of Mantra – the company Highland Park (according to Mantra it holds 12.4%, according to U1 – more than 13%) – has already told the Board of Directors on its plan to vote for the deal. The capital stock of the company is divided. There are 20 holders of the largest stakes who control in total 89%. Among the other shareholders with significant stakes in Mantra are Deans Knight Capital Management Ltd (8.8%), Haywood Securities (6.15%), JP Morgan Asset Management UK Ltd (5.15%).

ARMZ purchases a middle size asset but of high quality, M. Stiskin from Troiki Dialog says. According to him, the price for Mantra is quite high but it should be taken into account that there are not many potential projects to purchase in the uranium market. The main technical risk if the deal is the fact there is not any technical and economic assessment on theMkuzhu River, Mr. Stiskin thinks. M. Alexeenkova from Renaissance Capital thinks that in this case ARMZ invests in significant reserves of uranium raw materials for it is only planned to develop the deposit.

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Translated by Galiya Davletgareeva