Uranium One (UUU-T) shareholders should “demand higher compensation” from its majority owner ARMZ which is offering $1.3-billion to take the company private, says one mining analyst.
Before market open Jan. 14, ARMZ, consisting of JSC Atomredmetzoloto and its affiliate Effective Energy N.V., agreed to buy all of the shares it doesn’t already own of Uranium One for $2.86 per share in cash. The Russian state-owned miner currently controls 51.4% of the Toronto-based firm.
The offer price reflects a 32% premium to the 20-day volume-weighted average price and a 19% premium over the Jan. 11 close of $2.41 per share and values the company, which has six uranium mines in Kazakhstan and one in United States and Australia, at $2.8 billion.
Pleased with the appraisal, Uranium One’s board has unanimously recommended the transaction, saying it is “fair” based upon the recommendation of its advisors, who have set a $2.62–$3.16 per share range as a reasonable market value for the company.
But, Raymond James analyst David Sadowski argues the $2.86 per share price for Uranium One should be higher, suggesting shareholders to vote against the proposal.
“Given our positive outlook on uranium prices, as well as Uranium One’s high exposure to spot prices and the quality of the company’s growing and low operating cost mines, we believe the price is too low for Uranium One,” he writes in a note.
Sadowski has a net asset value of $3.47 per share on the producer and believes a fair value should be within $3.20–$3.60 per share range or higher.
Rob Chang, an analyst at Cantor Fitzgerald Canada, takes a similar stance saying the market should call for a higher price for Uranium One given a predicted deficit in uranium supply and demand through 2025.
“Through this lens, the market may want a higher premium to take private one of only five publicly-listed, pure-play uranium producers (and one of only three that trade at a market capitalization north of $1 billion),” he says.
If the bid goes through, Chang notes only Cameco (CCO-T) and Paladin Energy (PDN-T) would be the other two public firms with a market cap of over $1 billion.
Both analysts note the transaction is timely as it comes before Uranium One shareholders have to vote on the costly acquisition of the remainder of Mantra Resources from ARMZ in June 2013. Uranium One currently owns 13.9% of Mantra and the Mkuju River project in Tanzania, where it’s the operator.
In an email Sadowski explains that Mantra is a put or call agreement, where if exercised Uranium One would have to buy the remainder of Mantra from ARMZ for roughly $1 billion, something he believes the company’s minority shareholders would have voted against.
“With an agreement now in place for ARMZ to buy-out the remainder of UUU, the Mantra put/call agreement would be rendered null (as ARMZ would be selling to itself). ARMZ would thus avoid a potential ‘no’ vote by UUU minority shareholders, which may have resulted in poor optics for the company (and a potential asset write-down),” he says.
Depending on shareholder and regulatory approval, the proposed Uranium One transaction should be completed in the second quarter of 2013.
The deal requires approval from a majority of Uranium One shareholders, excluding ARMZ, as well as the support from two-thirds of all its shareholders.
Uranium One will hold a special meeting for security holders to vote on the business combination in March, and prior to that will mail out a information circular containing terms of the transaction in February.
The deal contains a $45-million break fee and a non-solicitation clause on the part of Uranium One, with ARMZ being able to match superior bids.
While chances of a competing bid may be slim, Chang believes the offer provides enough “wiggle room” if Uranium One shareholders vote against the $2.86-per-share proposal for ARMZ to revise its offer.
On the news, Uranium One gained 14.2% or 35¢ to close at $2.76 on 59.2 million shares traded.
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