Uranium, a Raging Bull

[YOUNG_TRADER]

Another take over, US $1.75Billion = $2.2 Billion AUD for 61m lb's Uranium = SXR paid $35 AUD for each pound of Uranium!


Uranium just got hotter
Merger capitalizes on a metal that has soared 500% since 2003
ANDY HOFFMAN

From Tuesday's Globe and Mail

June 5, 2007 at 4:11 AM EDT

In the rapidly shifting uranium sector, where the price of the metal used to make nuclear fuel has soared more than 500 per cent since 2003, the aggressive deal maker has prospered.

Few have been more willing to pull the trigger on a takeover than Toronto's sxr Uranium One Inc. [SXR-T] , which yesterday unfurled its latest purchase, a $1.75-billion, all-stock offer for Vancouver's Energy Metals Corp. [EMC-T] , which owns a slew of uranium projects in the United States and a processing facility.

If successful, the deal will create an $8.2-billion entity, amalgamating two of the most active players in the industry, which through a series of rapid-fire acquisitions, have each capitalized on the surge of interest in all things radioactive.

"We believe in our product more so than some people who have been in this business for a long time," Neal Froneman, Uranium One's president and chief executive officer, said in an interview.

Energy Metals


SXR Uranium One


A nearly bankrupt South African gold company with no production to speak of three years ago, deal making has vaulted Uranium One to its position as the second largest publicly traded uranium producer, behind industry stalwart Cameco Corp. of Saskatoon.

A $3.8-billion merger with UrAsia Energy Ltd. last year gave Uranium One much-needed production assets in Kazakhstan to complement its Dominion mine in South Africa and Honeymoon project in Australia.

Investment bankers at BMO Nesbitt Burns Inc. have guided the company's transformation, facilitating transactions, a Toronto Stock Exchange listing and a move of its headquarters from Johannesburg to Toronto.

Energy Metals or EMC has also been a keen consolidator.

Amid the rocketing price of uranium concentrate, or yellowcake, EMC snapped up several U.S. uranium properties in 2005 and in 2006 pulled off three acquisitions; Standard Uranium, Quincy Energy and High Plains Uranium.

The spot price of uranium has more than doubled over the past year to an all-time high of $138 (U.S.) a pound.

"It's really a race to production," Paul Matysek, EMC's president and CEO, said in an interview.

For Uranium One, EMC offers the potential for a major presence in the United States, where demand for yellowcake from U.S. utilities is about 50 million pounds a year, outstripping the annual domestic production of approximately four million pounds by roughly 11 times. Nuclear-generated electricity has returned to favour amid concerns about emissions from coal-fired plants and worries about dependence on energy from foreign sources.

EMC is developing uranium projects in Texas, Wyoming, New Mexico and Utah, among other states, and is expected to begin a modest level of production in Texas next year, followed by a mine startup in Wyoming in 2009 or 2010. The company, which was advised on the deal by GMP Securities LP, has roughly 61 million pounds of measured and indicated resources.
"This transaction results in the creation of a powerhouse in the U.S. uranium sector and goes a long way towards reaching our goal of releasing uranium to U.S. utilities," Mr. Matysek, who will stay with the combined company to lead operations in the Americas, said on a conference call.

Mr. Froneman expects U.S. uranium demand to increase and predicts between six and 10 new reactors will be approved for construction in the next few years.

"I do believe we are seeing a U.S. nuclear renaissance," he said.

The bulk of EMC's assets will use "in-situ recovery" or ISR -- a process that uses ground water to leach uranium from deposits. Uranium One's operations in Kazakhstan also use ISR.

Despite Uranium One's rapid growth, Cameco remains the industry giant, with a market value more than double Uranium One's and 10 times its 2007 production.

Cameco has ignored the flurry of sector takeovers, concentrating instead on its own development projects, including the troubled Cigar Lake mine.

"This transaction results in a larger, higher-growth alternative to Cameco," Mr. Froneman said.

SXR URANIUM ONE:

Close: $16.10, down 53 cents

ENERGY METALS:

Close: $18.44, up 15 cents.

*****

The Deal

sxr Uranium One is offering 1.15 of its shares for each Energy Metals Corp. share or $18.51 based on yesterday's closing price. EMC shareholders will own 21 per cent of the new company.

The Deal Makers: sxr Uranium One

December, 2005: Neal Froneman's Aflese Gold and Uranium Resources completes a reverse takeover of Southern Cross Resources.

July, 2006: Uranium One starts negotiating purchase of U.S. Energy Corp.'s uranium assets.

February, 2007: Announces $3.8-billion stock-swap takeover of uranium producer UrAsia Energy Ltd.

Energy Metals Corp.

December, 2004: TSX Venture-listed Clan Resources Ltd. changes name to Energy Metals Corp.

January-November, 2005: EMC stakes or acquires dozens of U.S. uranium properties in Utah, Wyoming, South Dakota and Oregon.

Nov. 10, 2005: Announces stock deal to buy Standard Uranium Inc., giving it Hobson Plant uranium facility in Texas.

Nov. 16, 2005: Announces all-stock deal for Quincy Energy Corp.

August, 2006: All-stock deal for High Plains Uranium.

The Result

Valued at roughly $8.2-billion, the new company will be the second-largest publicly traded pure-play uranium producer, but still a distant second to Cameco's $19.9-billion market capitalization.

 

[Go Nuke]

Thought I would post this link to the "Australian" newspaper from today.

Its just talking up South Australia and all the mining thats happening there.

It gives a small mention to Heathgate,and the expansion of Roxby Downs etc etc.
I thought the article was interesting over all.

http://www.theaustralian.news.com.au/story/0,20867,21999951-5005200,00.html

And thois story on Uranium from the same paper today!

http://www.theaustralian.news.com.au/story/0,20867,21999893-5005200,00.html

 

[powerkoala]

hmm.. nice article.
would this helping to boost uranium stocks that got hammered (20-30%) since june?
we will see whether the market will make another uranium hype.

 

[borat]

Uranium has just had a small dip, think it may spark a small sell off or negative sentiment for the short term?

http://energy.seekingalpha.com/article/40012

 

[Sean K]

Uranium has hardly been the raging bull lately (for months) but perhaps a bit of M&A action could get the ball rolling again.

Australian uranium explorers under a microscope from Haywood's Mustard

One of North America’s high profile mining stock analysts, Jim Mustard, showed Australian companies and investors the enormous variance in value of Australian gold and uranium stocks in comparison to their counterparts on the Toronto Exchange. This, he said, was a climate ripe for takeovers and mergers.

Author: Ross Louthean
Posted: Thursday , 26 Jul 2007

PERTH -

Haywood Securities senior mining analyst Jim Mustard told delegates at the Australian Uranium Conference in the Perth port city of Fremantle that any Australian companies with only domestic uranium projects could be prime takeover targets, with North American companies the likely bidders.

Mustard said where some state governments maintained a ban on uranium projects the stymied companies were vulnerable to acquisitions by groups with longer term views of the Australian market, or where their investors had near-term views. (The indirect reference was to Western Australia and Queensland).

Australian companies tended to lag behind their peers in countries such as Canada, United States and Africa.

"Australian exploration companies focused on domestic projects where opposition to uranium mining and processing remained strong will continue to lag their North American peers in both market value and ability to raise new equity and project debt financing," Mustard said.

The market value issues he illustrated by showing that Australian projects had a market rating of only $US7.42/lb of U308 held compared to North American listed projects having a rated value of $US12.64/lb.

In all mineral equity financing, the value from 2002-06 on Western bourses was $US64.9 billion with the TSX and its Venture exchange dominating with 40%, with the London Stock Exchange-AIM second with 26% and the Australian Stock Exchange third with 10%. The gap was even wider over the same five years in terms of the number of equity raisings, with the linked Canadian bourses representing 81%.

He reminded the Australian audience that "overseas uranium projects in locations such as Namibia and Niger in Africa which -- along with US and Canada -- were more attractive for investors as they have a favourable regulatory environment where new mining projects could be placed into production with fewer roadblocks."

"The US is very attractive for uranium mining development simply because one in five light bulbs there are powered by nuclear energy (compared to one in three in Europe), but only one-tenth of the fuel is domestically produced. So, against this backdrop, security of supply is a looming issue, and a big positive for new uranium mine developments supported by favourable federal legislation supporting new reactors.

"Uranium companies with development stage projects, especially those with a visible production timeline, will command greater market value and a more favourable debt financing arena," he said.

Canadian company Mega Uranium Limited is one such North American company that has proactively pursued Australian uranium companies as take-over targets. The company has acquired Hindmarsh Resources Ltd and Redport Ltd and more recently put capital into Scimitar Resources.

Mustard also cited one reverse situation, where Perth-based Uranium King Ltd, moved into the North American market.

During the two day conference other examples were given of Australian explorers venturing into North American uranium exploration, including Wildhorse Energy, with a management laced with ex Rio Tinto executives, which holds former mining and resource assets in Wyoming in the US and in Hungary - countries chosen as they are in the heartland of nuclear energy demand.

 

[Gurgler]

Uranium has hardly been the raging bull lately (for months) but perhaps a bit of M&A action could get the ball rolling again.

Interesting read, Kennas. Wonder which fertile cows are being stalked by the now quietened bull? (apologies for the mixed metaphoric pictures this throws up!)

And on top of this, a quote from FN Arena article entitled Australia Leads The Bounce, this morning:

The bulls are back feeling smug again of course while the bears are not surprised and point to more pain to come. Is this the eye of the storm? There is a raft of economic data set to hit the US market this week which will no doubt fuel volatility and be seized upon by either camp. The consumption numbers tonight will be particularly scrutinised, although the bears maintain their mantra that any data is rear-view mirror stuff. It will be next month's, and the month after's data that will provide greater clarity. It's not over yet, they warn.

What are the longer term implications (if any) for the U sector - both here and abroad?

 

[TheAbyss]

Interesting article in the Australian today. Thought provoking if nothing else. Could be something to formulate a strategy around? Thoughts?

Uranium fell again for the fourth consecutive week and now sits at $US120/lb. But that is still a great price.

And the other phenomenon is the haircut being taken by shares in some of the high-value players. Paladin Resources, Alliance Resources, Energy Metals, PepinNini Minerals and,

particularly, Marathon Resources have all been given a good thrashing by the market. If you were going to pick the bluebloods among the 140 or so uranium stocks, they would be the names that would be among the first to come to mind. And they all have access to the funds necessary to see their projects through.

Now Pure Speculation has been wagging its finger for some months about all the uranium frenzy, but we have no doubt about the huge future for the metal as the world faces the energy (and greenhouse) crunch. So we would stick with companies that look as if they can actually produce U308.

As to many of the rest, Fat Prophets' Gavin Wendt makes an interesting point. He believes that many of the smaller uranium floats -- the $3 million or so crowd -- are soon going to face a cash crunch. He argues that, if you raised $3 million or $4 million a while ago, and then deducted costs of the float, and then spent money on administration and then -- perhaps -- even done a touch of exploring, there will soon not be much left of that original grubstake.

Companies in that situation are soon going to have to come back to the market, and Wendt doubts whether too many of them will find it easy raising cash on the secondary market unless they have something to show for their efforts. And, remember, many of the punters who helped put up those dobs of $3 million did so in the expectation of a quick turn when the price spiked on listing. They're not interested in having the money tied up by the tiresome and frequently unsuccessful business of exploration.

It will be the companies with attractive projects that will be able to raise new cash. Scimitar Resources did just that, pocketing another $5.1 million last week (and getting Canadian predator Mega Uranium on its register).

 

[Sean K]

Interesting article in the Australian today. Thought provoking if nothing else. Could be something to formulate a strategy around? Thoughts.

I don't think there's any doubt that B4M will be a mine, but AGS still looks expensive. It has since it broke through 20 cents! LOL That is unless Arkaroola produces a few more U mines, or something IOCGU which has been mooted.

There are still doubts on whether Mt Gee can be mined. The company keeps on coming out with the same blurb that it's in a Class A area and if it's in the 'National interest' it'll get passed. Too vague, but a terrific deposit. My most probable guess is that it will eventually get through after bribing PG the Greens. Although Rann might be investing in it as we speak, so it might not go to Fed level.

PDN has been seriously garotted, and looks like a tasty bite for a BHP, or a big Canadian....If their sp doesn't stand up, then watch out.

BMN is a lame duck at the moment. YT could almost buy them out.

PNN will probably dig some yellow stuff up.

Doubts on CUY. Grades and thicknesses are unexciting.

 

[Sean K]

Those that think my comment about YT being able to buy out BMN was serious, can pick up their sence of humour at the door. Being a 'lame duck' infers they are a TO target. Cheers.

 

[YOUNG_TRADER]

BMN is a lame duck at the moment. YT could almost buy them out.

Those that think my comment about YT being able to buy out BMN was serious, can pick up their sence of humour at the door. Being a 'lame duck' infers they are a TO target. Cheers.

You just had to go and make my secret takeover public didn't you Kennariso?

Sighhhh, now I'll probably have to pay more for the takeover, let me check my car's ashtray,

How much was it again $300m $400m,

umm... will a chq do? :

ON A SERIOUS NOTE, its amazing how the Uranium price has fallen from $130+ a lb to $120 lb ie $10 drop and some are thinking correction, crash the end of the U bubble etc,

The truth is fundamentally nothing has changed,

Peak Oil is still upon us, as evidenced by a lack of gigantic new finds, old elephant fields are bieng depleted and the POO is skyrocketing

Global warming and Greenhouse gases is also taking centre stage and while most can't agree on where to go next, everyone agrees, coal has got to go!

This Nuclear Industry was not a swith that was just turned on, but rather a giant ball of uranium rolling down a hill, sure its lost a bit of momentum but its still rolling down that hill,

The only thing that could seriously de-rail the Global Nuclear shift is a Chernobyl or something similar

 

[dj_420]

You just had to go and make my secret takeover public didn't you Kennariso?

i thought you were making moves on CTS yt?

anyways i see the uranium bull returning, with a vengeance! BUT only producers or near term producers will benefit

PDN, AGS, PNN, CUY?, CTS?, EME?, MTN?

 

[nomore4s]

I knew you'd upset the BMN boys over that comment.

IMO to u sector has cooled off due to the fact some reality is probably setting in re actually digging the stuff out of the ground. If companies like RIO and BHP are having trouble keeping costs down and finding labour, where does that put smaller companies trying to become producers? Let alone the problems with approvals etc.

The high price of U won't mean a thing unless you can get it out of the ground and sell it.

The other thing is the market tends to over do things when it gets excited over something, whether that is prices going up or prices going down it tends to go too far then come back to a more sensible "value", maybe this is now happening in the U sector.

Have some of them now gone too far the other way? Not sure only time will tell.

 

[Sean K]

i thought you were making moves on CTS yt?

anyways i see the uranium bull returning, with a vengeance! BUT only producers or near term producers will benefit

PDN, AGS, PNN, CUY?, CTS?, EME?, MTN?

Yep, I think BMN will be a mine as well.

Not sure of any others that have real solid fundamentals right now that will survive a credit crunch.

DYL might be taken by PDN, depending on what they shore up in Namibia.....but that doesn't make them a miner.

 

[samtomo]

Hi, just my .

From what i see this morning, looks like the U sector is trying to recover? Maybe they're bottiming out? Guess we'll just have to see how the day goes.

When do you think the U sector will recover, if it hasn't so? Should we start thinking about getting back in?... Maybe with all the hype about the market overall, trying to make some ground, everyone's jumping in, and thus the price has still room for downtrend?

Just wondering what you experienced investors/punters think.

 

[eMark]

PDN has been seriously garotted, and looks like a tasty bite for a BHP, or a big Canadian....If their sp doesn't stand up, then watch out.

Kennas. Re your comment on PDN's share price standing up, or failing to do so. Do you mean "watch out" as in the sp will fall significantly further, or be circled for a takeover.

 

[Sean K]

Kennas. Re your comment on PDN's share price standing up, or failing to do so. Do you mean "watch out" as in the sp will fall significantly further, or be circled for a takeover.

Takeover. An opportunist could come in. PDN has been mentioned continuously in the press as a takeover target by one of the larger U groups but I think the sp running away how it did would have put anyone off. It would be opportunistic now for anyone to start raiding their register. As far as dropping any further, depends on the general market I think. These guys won't have much of a cash flow for some time while their ramping up, and it's going take some time before they turn a profit. Not sure what the BFS said about that. So, limited cash flow linked to tighter credit market = potential difficulties. Certainly one of the hardest hit the past 4 months and particularly the last week. $6.50 looks like developing into short term support but you'd be a brave person to be catching all these falling knives right now. Lots of uncertainty still about.

 

[shag]

Takeover. An opportunist could come in. PDN has been mentioned continuously in the press as a takeover target by one of the larger U groups but I think the sp running away how it did would have put anyone off. It would be opportunistic now for anyone to start raiding their register. As far as dropping any further, depends on the general market I think. These guys won't have much of a cash flow for some time while their ramping up, and it's going take some time before they turn a profit. Not sure what the BFS said about that. So, limited cash flow linked to tighter credit market = potential difficulties. Certainly one of the hardest hit the past 4 months and particularly the last week. $6.50 looks like developing into short term support but you'd be a brave person to be catching all these falling knives right now. Lots of uncertainty still about.

kennas don't you think with the speed that pdn dives and shoots up that picking the bottom and getting a good return will be difficult?
i guess i'm also saying is how much is it likely to be worth as a takeover play ie how much fat once the word is out.

 

[Sean K]

kennas don't you think with the speed that pdn dives and shoots up that picking the bottom and getting a good return will be difficult?
i guess i'm also saying is how much is it likely to be worth as a takeover play ie how much fat once the word is out.

Shag, I'm going to ramble a bit here so be prepared. It depends to some extent on your time horizon for your investment and your capital base. Lets assume that PDN will recover at some stage and go back to previous highs. How long this takes however, is unknown. 3 months, 2 years? Let's also assume that it hasn't hit the bottom yet. Investing in it now, is not drama if you have the long term view and can cope with having capital tied up in something that may go down in the near future. I've assumed here that PDN will rise again, because on the balance of probabilities I think it will, but it's no sure thing either. Nothing like this is, IMO. We're also talking about it going down, and up. The possibility of it tracking sideways for some time and not giving you any capital growth is a possibility too, and you're probably not going to get dividends for some time...I suppose you need to sum up all the available information and make an investment decision on it. Ramble over.

 

[Sean K]

RIO CEO Tom Albanese as quoted this weekend:

Mr Albanese also reiterated his bullish outlook for China and uranium, saying 2007 promised to be "an exceptional year for China".

"I very much like the uranium business and we are certainly investing in growing it. In fact, we've flagged opportunities to potentially double it over the next decade.

I thought Ranger was winding down over the next few years. Rossing can't be expanded that much I think. Jabiluka may not even be mined. Where's the doubling going to come from? Acquisition? Interesting.

Would be nice to know which 'opportunities' have been flagged.

 

[56gsa]

I thought Ranger was winding down over the next few years. Rossing can't be expanded that much I think. Jabiluka may not even be mined. Where's the doubling going to come from? Acquisition? Interesting. Would be nice to know which 'opportunities' have been flagged.

As well as increasing out year production figures, ERA is putting a lot more effort into exploration and trying to expand Ranger - this is from ABN report:

Development pipeline is beefing up... moving from zero to hero
The feasibility for the pit 3 expansion is expected to be complete in the second half of 2007 (we believe a two-year mine life extension is likely). However, the company is also investigating several other options to increase production including: 1) a further expansion of the Ranger pit; 2) increased processing plant capacity; 3) installation of heap leach technology; and 4) the possibility of going underground. Overall, the outlook for production over the medium term is solid and there is still lots of work to be done to investigate options - maybe even expanding the surface plant to take
advantage of the high prices.

No idea about the plans at Rossing.... but BMN is always a potential target given their proximity? Don't forgot they have Kyntyre too in WA if we see a change in govt there

When do you think the U sector will recover, if it hasn't so? Should we start thinking about getting back in?... Maybe with all the hype about the market overall, trying to make some ground, everyone's jumping in, and thus the price has still room for downtrend?

I think when we start seeing some big players moving in to pick over the pieces we'll start seeing a revival - the NEL / TOE merger announced today is more opportunistic rather than a strategic buy at the bottom, but it may send a message of support for those U companies with good deposits