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Mixed reviews for Uranium One deal Posted: Mon, 19 Feb 2007 [miningmx.com] -- THE proposed R21bn ($2.9bn) merger of Neal Froneman’s sxr Uranium One with UrAsia Energy has engendered some mixed reviews. Supporters believed it to be bold, expansive and strategically in your face. Doubters say it’s dilutive to shareholders and they don’t buy the need for scale. The combined unit will produce nearly as much uranium in 2012 as the world’s largest publicly listed producer. But at a time when sxr Uranium One is about to press the button on production in South Africa, questions are being asked if the company has stretched its personnel and resources. There are also questions whether UrAsia’s uranium mines, which it has owned for a mere 14 months, can provide the value. According to Peter Major, who helps manage investment funds for Cadiz, UrAsia's uranium assets have so far booked a profit of $27m (R195m) on the mines, all of which are in central Asia’s Khazakstan, but only owing to an exchange gain. One other grumble is that Khazakstan carries with it political risk. However, sxr Uranium One argued that the political risk is only marginally greater than in South Africa. “I’ve gone cold on this,” said Major. “They’ve paid a massive premium (21% on 20-day value-weighted average price) and diluted the hell out of shareholders.” Still, catapulting sxr Uranium One in that way should come as no great surprise. Froneman has been thinking big since retrieving sxr Uranium One’s forerunner (Aflease Gold & Uranium) from the brink of bankruptcy three years ago. “He’s run the uranium trend aggressively. He picked it up very early,” said Major. Froneman is an aggressive businessman. After being excluded from Harmony Gold’s executive in 2001, he left to become Brett Kebble’s corporate frontman at JCI Gold. He left that after it became obvious that Kebble wasn’t going to brook challenge. After a stint at Gold Fields running its Kloof gold mine, Froneman eventually bought control of Afrikander Leases (Aflease) through the New Kleinfontein consortium, a transaction that attracted headline news as some minority shareholders claimed they’d been prejudiced. The claims were never proven, nor raised by the JSE. Shortly after, Froneman faced a slump in the rand gold price that almost ruined Aflease. He shut Aflease’s gold mine, hoping to contain the damage and turn to Aflease’s gold exploration prospects. But the market lost faith. Aflease’s price fell from R6.50 to R2.15/share by late 2003. Then, suddenly, came the lucky packet of all lucky packets: Aflease had uranium – lots of it. You could say that Froneman was due for some luck and it came by the bucketful. Last week’s deal was to increase sxr Uranium One’s project annual uranium output in 2008 to 19.4 million pounds in a company worth $5bn (R36bn). One concern among analysts is that Froneman is betting big on a share rerating solely on its market value without care for shareholder value. Chief financial officer Jean Nortier said the point of heft in the rising uranium market is to build a balance sheet that can bid for yet more assets. He speaks of consolidating the US market. “We see pieces of a puzzle and we want to put them together.” Click Here to subscribe to our daily newsletter
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