www.unuudur.com » Tough road trip for state-owned ARMZ

Tough road trip for state-owned ARMZ

[Нийтэлсэн: 08:40 11.08.2010 ]

www.financialpost.com

Vadim Zhivov has a tough job to do: explaining to Uranium One Inc.’ s investors that a state-owned Russian company has exactly the same goals that they do.

Mr. Zhivov is general director of JSC Atomredmetzoloto (ARMZ), the Russian uranium giant acquiring a controlling stake in Uranium One in exchange for cash and prized assets. He is in the midst of a busy marketing campaign to explain the benefits of the deal, announced in early June, to uncertain shareholders, who are to vote on it at the end of this month.

“I strongly believe we will be able to build an even bigger company for the benefit of all shareholders,” he said in an interview in Toronto.

The transaction is highly complex and would be tricky to explain at the best of times. Throw in the word “Russia” and you’re working from an even bigger disadvantage. Some investors saw that and ran for cover.

But as the shareholder vote approaches, Mr. Zhivov is confident that shareholders are coming around to his vision. The stock jumped 30¢, or 9.5%, yesterday to close at $3.14 after the company reported a narrower quarterly loss and increased its 2010 production forecast; its shares are up 58% from their 52-week low.

“We’re more than one month on the road, and the [Uranium One] share price speaks for itself. Sophisticated investors are getting the picture and buying shares,” he said.

The relationship between ARMZ and Uranium One dates back to July 2008, when Mr. Zhivov and Uranium One chief executive Jean Nortier met in Namibia.

Both companies have assets in Kazakhstan (which Mr. Zhivov calls “The Saudi Arabia of uranium”) and found that they had similar strategies for growth and a common view of the industry. They kept in close contact before making their union official in 2009, when Uranium One bought 50% of the Karatau mine in Kazakhstan from ARMZ, while the Russian firm took a 19.9% stake in the Canadian company.

That proved to be a precursor to the much bigger agreement the companies unveiled in June. If it is approved by shareholders, ARMZ would take a 51% controlling interest in Uranium One in exchange for stakes in two more Kazakh mines. ARMZ also plans to give Uranium One US$610-million in cash, allowing it to pay out a special dividend and essentially give shareholders a “takeover premium” even though there is no takeover.

It is an arrangement that appears to be unprecedented.

“Goldman Sachs advised us that no such transaction was ever made before. That’s why it was a long discussion,” Mr. Zhivov said.

He said that the idea of taking Uranium One private was never considered, because ARMZ’s goal is not to secure uranium supply. Rather, he hopes to build value by using the capital markets to continue growing Uranium One, both through acquisitions and organic growth. This deal alone will make the Canadian company one of the world’s top five producers.

ARMZ is the mining arm of Rosatom, the world’s biggest integrated nuclear firm, and Mr. Zhivov said that Rosatom management is also eager to “look at the screen” every morning and see how its uranium investment is doing. Being a public company allows that.

For uncertain Uranium One shareholders, Mr. Zhivov pointed out that there are minority protections in the deal that go well beyond what is required by Canadian regulators. He also said that Uranium One can benefit from Rosatom’s business ties in Kazakhstan.

“We understand that because [ARMZ] is a government-controlled entity, we have to behave in a certain way and prove three times what other companies shouldn’t have to prove at all,” he said.

When it comes to Russia specifically, he pointed out that the country has not missed a single delivery since it began exporting uranium in 1968. He also noted that other nuclear companies, including Canada’s Cameco Corp., have benefited from their business dealings in Russia.

The rally in Uranium One shares, which fell sharply when the deal was announced, comes despite some loud criticism from Khan Resources Inc., a junior miner in Mongolia that ARMZ tried to buy last year. That offer was trumped by a Chinese bidder shortly before the entire arrangement fell apart, along with Khan’s share price. Former Khan CEO Martin Quick blamed Russia for scuttling the deal, and took some veiled shots at ARMZ.

Mr. Zhivov does not know what else he can say to dismiss the allegations.

“We initially offered them a 400% premium to the current price. All the valuations were done by Canadian investment banks. I think it was a fair price.”

Read more: http://www.financialpost.com/Tough+road+trip+state+owned+ARMZ/3379975/story.html#ixzz0wFlwB68r

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