03/14/2013
This is an insightful perspective into the uranium speculation game from an industry flack. Just a few tweaks and it would read like satire.
Uranium One left a lot of fingerprints in our neighborhood.
Obituary of a Public Company vs the Birth Announcement of a Private Company: Uranium One
Posted on March 11, 2013 by Canon Bryan
Uranium One is a company that has had a number of twists and turns in its 10-year arc as a public company – from near-bankrupt gold exploration company listed on the Johannesburg Stock Exchange, to $8 billion market darling on the Toronto Stock Exchange, to a wholly-owned subsidiary of the Russian government. On March 6, the shareholders agreed to be privatized by Atomredmetzoloto, the Russian state uranium mining company.
The story begins in early 2003 when New Kleinfontein Mining Company Limited, led by South African mining engineer Neal Froneman, was acquired by Afrikander Lease, or Aflease, in a reverse merger, and was listed on the Johannesburg Stock Exchange. The small company had a tiny gold mining operation, had little cash left, but had the Dominion Reefs, which had been mined for over a century for gold, but was also known to contain a vast reserve of uranium. No one much cared for uranium at that time, and Mr. Froneman rolled the dice on promoting Dominion Reefs as a new uranium mine. With the gold operations closing down, he racked his credit cards to do one last international roadshow, hoping that he could drum up investment for uranium. The gamble paid off, he raised money, and the company was on its way. That’s how it started.
Canadian junior Southern Cross Resources listed in 1997, having acquired the dormant Honeymoon uranium processing plant in 1997. The plan was to refurbish and expand the operation, and mine the 15-million-pound Goulds Dam deposit. Commercial production of 250,000 pounds per year was projected to begin in 1998, but only started in 2011. Aflease was on the hunt for more uranium assets, while also looking for exposure to a wider investor base. In July 2005, Aflease and Southern Cross announced their merger, with the new company getting the quirky moniker “sxr Uranium One,” and Neal Froneman taking the helm. The acquisition spree was underway, and accelerated wildly over the next two years.
In Vancouver, Canada, billionaire financier Frank Giustra was planning to stake his claim in the increasingly popular uranium game. He found out that Kazakhstan had a huge reserve of uranium, and decided to get it. With ex-President Bill Clinton negotiating on his behalf, Giustra grabbed stakes in huge Kazakh state-owned deposits, and put them into his new company, UrAsia Energy. In exchange, Giustra “contributed” $30 million to the William Jefferson Clinton Foundation, and later another $100 million. UrAsia listed on the Toronto Stock Exchange in September 2005, with a $300 million financing. Only 16 months later, UrAsia and sxr Uranium One were merged in a blockbuster deal.
In the summer of 2004 in America, a team of geologists who anticipated that the uranium boom was coming started acquiring a massive number of uranium properties all over the western states of Wyoming, New Mexico, Colorado, Utah, South Dakota, Arizona and Oregon. The company changed its name to Energy Metals Corp, and was led by geologists Paul Matysek and Bill Sheriff. Their acquisition spree was prolific. In less than three years, the company amassed a portfolio with dozens of properties in seven states, and over 250 million pounds of estimated uranium resources. This package proved too tempting for SXR’s insatiable appetite for growth. After having their deal to purchase Rio Tinto’s US uranium portfolio unceremoniously cancelled, SXR went after Energy Metals Corp in June 2007 for $1.9 billion (Canadian dollars). The company changed its name to Uranium One.
In whirlwind four years, Aflease had gone from an obscure gold exploration company to one of the ten largest uranium mining companies in the world. After the summer of 2007, the acquisition spree slowed right down, and the uranium price, which had skyrocketed from less than $20 per pound in 2004 to over $135 in 2007, was correcting swiftly. Problems began to emerge in this huge collection of uranium assets. Perhaps most problematic was the operating trouble at Dominion Reefs in South Africa. Delays and cost overruns hurt the company’s image. Uranium One’s stock price suffered badly, falling from over $18 per share in May to below $9 per share before the end of 2007, and Neal Froneman was the scapegoat. (The price went as low as $0.60 per share in 2008.) The original gold assets were spun off into a new company called Gold One, and Mr. Froneman went back to South Africa to run his gold company. Dominion Reefs was eventually sold off to a private Indian company for $30 million, after hundreds of millions in writedowns.
Since that time, the Russian government has taken an increasing interest in Uranium One, acquiring a 17% stake in June 2009, another 3% later that year, and increasing its stake to 51% in June 2010, while contributing its ownership in more Kazakh uranium mines into Uranium One. The following year, the Russian government helped Uranium One get the large Mkuju River deposit, located in the Selous Game Reserve in Tanzania, for over $1 billion. Even better, the Russians managed to get the UN to change the boundary of the World Heritage Site so that uranium could be mined there. Last week, the Russians finally claimed the complete prize by privatizing the entire company at a valuation of $2.9 billion. ARMZ’s long range strategy is to mine uranium outside of Russia so that it can supply customers of its reactor export program. The uranium for Russia’s own domestic reactors will be mined within Russia. This transaction also, incidentally, makes the Russian government the owner of the majority of US uranium production.
After a 10-year roller coaster ride, riddled with spectacular mergers, hundreds of millions in financing, international political scandals, Uranium One ended up being the fourth largest uranium mining company in the world, and ultimately did achieve its original objective. Uranium One will be missed.
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