Uranium One Announces Agreement to Acquire 50% Interest in Karatau Uranium Mine
Uranium One Inc. announced the signing of a definitive purchase agreement to acquire a 50% interest in the Karatau Uranium Mine in Kazakhstan from JSC Atomredmetzoloto (“ARMZ”), the Russian state-owned uranium mining company.
The purchase price will be paid by way of the issuance of 117 million common shares of Uranium One and a cash payment of US$ 90 million (or equivalent promissory note). The purchase agreement also provides for a contingent payment to ARMZ of up to US$ 60 million, payable in three equal tranches over the period between 2010 and 2012 subject to certain post-closing tax related adjustments.
The acquisition of a 50% interest in Karatau enhances Uranium One’s position as one of the world’s leading uranium suppliers. Following the acquisition, Uranium One is expected to have:
– attributable 2010 production guidance of 7.5 million pounds, an approximate 35% increase over the Company’s previous 2010 production guidance of 5.6 million pounds
– 2010 weighted average cash operating costs of less than US$20 per pound sold
The acquisition is also expected to be accretive to Uranium One’s net asset value, cash flow, earnings and production per share, based on the Company’s internal evaluations.
Jean Nortier, President and Chief Executive Officer of Uranium One said, “The acquisition of a 50% stake in Karatau adds another long-life, large scale and high margin asset to our portfolio and will significantly enhance Uranium One’s production profile and cement its position of leadership in the Kazakh uranium mining industry. The completion of this transaction, as well as our previously announced private placement with the TEPCO/Toshiba/JBIC consortium, will give us long-term partnerships with the governments of Russia, Japan and Kazakhstan, as well as some of the most influential customers and suppliers in the global nuclear industry.”
Vadim Zhivov, Director General of ARMZ commented, “I am delighted to announce our agreement with Uranium One to become a significant shareholder and to enter into a long-term relationship. This transaction meets all the strategic objectives of ARMZ, including increasing our access to uranium reserves and resources, diversifying our ownership interests in production assets and increasing our ability to supply uranium to the Russian nuclear industry. I have just returned from a business trip to Kazakhstan to discuss this transaction where I am pleased to say that this agreement with Uranium One is viewed positively.”
Concurrently with the purchase agreement, Uranium One has also entered into a long-term offtake agreement and a framework agreement with ARMZ, both of which will become effective upon closing of the Karatau acquisition.
Under the offtake agreement, so long as the framework agreement remains in effect, ARMZ has an option to purchase on an annual basis, on industry-standard terms, the greater of 50% of Karatau’s annual production and 20% of Uranium One’s available attributable production from assets in respect of which it has the marketing rights.
The framework agreement provides Uranium One with an exclusive right to negotiate the acquisition of ARMZ’s 50% interest in the Akbastau Uranium Project, which is currently in pilot production and is located adjacent to the Karatau Uranium Mine. In addition, Uranium One has been granted a right of first offer on ARMZ’s assets outside the Russian Federation in the event ARMZ determines to offer any of these for sale in the future.
ARMZ has also agreed to assist Uranium One in the opening of accounts with Russian uranium converters and to use Russian uranium conversion and enrichment facilities for the benefit of Uranium One’s customers. Since Uranium One currently receives payment for its production at conversion facilities located in North America and Europe, access to Russian facilities will potentially significantly shorten the time period required for the Company to turn production into sale proceeds, and assist utility customers with access to enrichment services, particularly those customers located in Europe and Asia.
Upon closing of the Karatau acquisition (after giving effect to the C$270 million investment of the Japanese consortium), ARMZ will hold an indirect 16.6% interest in Uranium One. ARMZ has agreed to a standstill covenant under which it may not (subject to certain exceptions), without Uranium One’s prior consent, for a period of at least five years from closing acquire more than 19.95% of Uranium One’s outstanding common shares.
Uranium One has agreed to appoint Vadim Zhivov, Director General of ARMZ, to its board of directors effective on closing and subject to regulatory approval. Uranium One has agreed to appoint a second representative of ARMZ to its board in May 2010 subject to receipt of shareholder approval to increase the size of its board by one additional director.
The acquisition is subject to completion of a legal due diligence review by ARMZ. The acquisition is not subject to technical or financial due diligence conditions. Closing is also subject to the approval of the Kazakh regulatory authorities and to certain other regulatory and stock exchange regulatory approvals, as well as other usual and customary closing conditions. Uranium One expects to close the acquisition on or before December 15, 2009.
The Karatau Uranium Mine
Karatau is part of the Budenovskoye complex and is located in close proximity to the Akdala and South Inkai Mines of Uranium One’s 70% owned Betpak Dala joint venture. Karatau commenced commercial production in 2008 and produced 1.7 million pounds U(3)O(8) in that year. For 2009, Uranium One expects Karatau to produce approximately 3.3 million pounds U(3)O(8), at a total cash cost per pound sold of approximately $15 per pound. Karatau is expected to reach steady state production of 5.2 million pounds of U(3)O(8) per year by 2011.
The other 50% interest in Karatau is held by JSC Kazatomprom, the Kazakh-stated owned uranium mining company which also holds joint venture interests in Uranium One’s other Kazakh mines and projects.
According to an Independent Technical Report dated December 20, 2007 prepared by Scott Wilson Roscoe Postle Associates Inc. for a wholly owned subsidiary of ARMZ, as at November 2007 Karatau had indicated resources totalling 9.8 million tonnes, at a grade of 0.115% uranium, containing 11,273 tonnes of uranium (29.3 million pounds U(3)O(8)), and inferred resources totalling 0.9 million tonnes, at a grade of 0.088% uranium containing 771 tonnes of uranium (2.0 million pounds U(3)O(8)). The resource estimates were prepared in accordance with the CIM Definition Standards on Mineral Resources and Mineral Reserves adopted by the Canadian Institute of Mining, Metallurgy and Petroleum and National Instrument 43-101 – Standards of Disclosure for Mineral Projects.
The resource estimate is based on parameters (e.g. cut-off grade, grade-thickness, internal waste, mineralization to waste ratio, block size, permeability and density) used for the South Inkai deposit and originally approved by the Ministry of Geology and the Ministry of Atomic Energy and Industry of the USSR. The modelling methodology applied considered similar structural and tectonic characteristics, lithological and facies types and hydrogeological and geotechnical features. The 2007 resource estimate is based on information from approximately 59,000 metres of drilling. The indicated resources have been drilled on fences 200 metres apart, with holes spaced at 50 metres. The inferred resources have been drilled on fences 400 metres apart, with holes spaced at 50 to 200 metres apart. Gamma ray logging is used in conjunction with the geological interpretations to determine the uranium content.
The mineral resource estimate for the Karatau Uranium Mine is updated each year and certified by JSC Volkovgeologia on behalf of the Kazakhstan State Committee on Reserves. The most recent update made as of November 1, 2008 has not yet been converted to the CIM standards prescribed by the Canadian Institute of Mining, Metallurgy and Petroleum.
