UPDATE 3-Russia's ARMZ to buy Mantra for A$1.2 bln
* ARMZ to pay A$8.00/shr for Mantra in A$1.2 billion deal
* Option could boost Uranium One's resources by 68 pct
* Shares of Uranium One fall 3.41 pct to C$4.53 on TSX
* Shares of Mantra closed up 4.49 pct at A$7.92 on ASX (Adds CEO and analyst comments; in U.S. dollars unless noted)
By Julie Gordon and Alfred Kueppers
TORONTO/MOSCOW (Reuters) - Russia's ARMZ has offered to buy Mantra Resources MRU.AX for A$1.2 billion ($1.19 billion) in a cash deal that would expand the state-owned uranium miner's reach in Africa.
The deal gives Uranium One UUU.TO, a Canadian-based miner controlled by ARMZ, a one-year option to buy Mantra from the Russian company for the purchase price plus 2.65 percent interest.
With the addition of the Mantra assets, notably the Mkuju River project in Tanzania, Uranium One would boost its reserves by 68 percent, and production will increase by 30 percent to up to 26 million pounds a year.
"They're growing the company - it's great," said GMP Securities analyst David Wargo. "Uranium One has the option to acquire what we believe is the best emerging uranium producer in the space, period."
Even so, Uranium One's shares tumbled nearly 8 percent after it disclosed the arrangement in a press release on Wednesday.
Some analysts said Uranium One's shares may have dropped on fears of Russian influence over the Canadian mining company.
ARMZ agreed to buy all the issued shares of Mantra for A$8.00 per share. Mantra's Toronto-listed shares rose 3.69 percent to C$7.87 in early afternoon trade.
In a conference call, Uranium One Chief Executive Jean Nortier said the Uranium One board will seek shareholder approval to purchase Mantra from ARMZ.
"ARMZ does have the cash now; we don't," said Nortier. "So they've stepped up and they helped us."
Nortier said Uranium One would have about 18 months to put together the financing for the deal.
Mantra's board has approved the deal with ARMZ, and that transaction is expected to close in the second quarter of 2011.
At stake is the Tanzania project's measured and indicated resource of 65.5 million pounds of uranium, an inferred resource of 35.9 million pounds and exploration potential. ARMZ is also involved in an exploration joint venture in Namibia.
Uranium One will become the operator of the Mkuju River project as soon as the ARMZ deal closes.
Some analysts said ARMZ and Uranium One may have acted quickly to lock down Mantra before the competition could put together a rival bid.
In a note to clients, Octagon Capital analyst Robert Gibson said that Paladin Energy (PDN.AX) or Cameco (CCO.TO) might consider bids, and added "state owned organizations from India, China and Korea might also give Mantra a good look."
NUCLEAR FUEL DRIVE
With nuclear energy gaining in popularity, the demand for uranium is set to grow by 32 percent in the next four years, according to RBC Capital Markets.
China is expected to increase its nuclear capacity to 70-112 gigawatts of electricity by 2020, up from a current capacity of just 11 gigawatts.
The Asian nation alone will need an additional 82 million pounds of uranium to start and fuel those new reactors.
ARMZ, a division of Russian state-owned nuclear giant Rosatom, is in the midst of an aggressive expansion drive as it seeks to tap growing demand for the nuclear fuel.
Last month, the uranium miner gained final approval to take a 51 percent stake in Uranium One in exchange for $610 million in cash and stakes in two mines in Kazakhstan. [ID:nN24218636]
Shares of the Canadian uranium producer tumbled 7.61 percent on the news to C$4.33 on the Toronto Stock Exchange, but later parred losses to C$4.53.
(Editing by Frank McGurty)
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