-- Toronto-based uranium miner Uranium One Inc. has agreed to be acquired
by its majority shareholder, JSC Atomredmetzoloto, for C$1.3 billion.
-- As a result, we are revising our outlook on Uranium One to developing
from stable and affirming our 'BB-' long-term corporate credit rating on the
-- The elimination of Uranium One's minority shareholders and associated
Toronto Stock Exchange listing could portend some changes to the company's
strategic direction and financial policies.
-- The developing outlook reflects our view that we could raise or lower
the rating on Uranium One depending on the potential changes to the company's
strategic direction and financial policies.
On Jan. 16, 2013, Standard & Poor's Ratings Services revised its outlook on
Uranium One Inc. to developing from stable. At the same time, Standard &
Poor's affirmed its 'BB-' long-term corporate credit rating on the company.
We base the outlook revision on Uranium One's agreement to be acquired by its
majority shareholder, JSC Atomredmetzoloto (ARMZ), for C$1.3 billion
The developing outlook is partially based on the potential for an improvement
in the company's credit quality related to possible enhancements, in our view,
of parental or government-related support due to the prospect of greater
integration between Uranium One and ARMZ. Conversely, the outlook also
reflects several downside risks associated with the proposed deal including
potential changes to the company's asset profile, financial policies and
financial flexibility, and uncertain regulatory responses in several
A developing outlook means that we could raise or lower the rating over a
period of about one year.
The rating on Uranium One reflects our view of the company's narrow operating
and geographic diversification, exposure to foundering uranium spot prices,
relatively short collective mine life, limited track record, and reliance on
residual cash flows from its joint venture mine operations. This is somewhat
offset, in our opinion, by Uranium One's attractive cost profile, increasing
production base, relatively low debt leverage, and a resilient long-term
demand outlook for uranium from a growing worldwide nuclear reactor fleet.
Standard & Poor's assesses Uranium One's stand-alone credit profile (SACP) at
Majority shareholder ARMZ is a wholly owned subsidiary of Atomic Energy Power
Corp. (BBB/Stable/A-2), which in turn is a wholly owned subsidiary of State
Atomic Energy Corp. Rosatom (not rated), a state-owned entity of the Russian
Federation (foreign currency: BBB/Stable/A-2).
We view the proposed acquisition as providing an opportunity to strengthen the
alignment of interests between Uranium One and majority shareholder ARMZ,
which could lead to stronger incentives for the majority holders to support
Uranium One's credit quality. We believe that the demonstration of stronger
alignment could manifest by ARMZ fully capturing Uranium One's output into the
group's operating profile, which would not only highlight the strategic
importance of Uranium One to ARMZ but also underscore the consequently
improved relative standing of ARMZ in the global nuclear industry. Moreover,
Uranium One could have broader access to the financial capacity of its
state-backed parents, particularly at a time when Uranium One's capital
requirements could rise substantially to fund the development of the Mkuju
River project in Tanzania.
In our opinion, the company's stand-alone financial risk profile could
deteriorate if Uranium One adopts a more aggressive financial policy leading
to higher debt levels in its capital structure or undertakes corporate
initiatives where the prospects for cash flow generation are unclear.
Moreover, the company's financial flexibility could tighten given funding
requirements that might include the redemption of its C$260 million
convertible debenture--via a change-of-control provision--in addition to its
existing growth capital spending plans (including Mantra Resources Ltd. and
its Mkuju River project).
We view Uranium One's business risk profile as weak, reflecting its high mine
and geographic concentration as well as its relatively short aggregate proven
and probable reserve mine life based on National Instrument 43-101, the
Canadian mineral resource classification system. The company's mine
concentration is underpinned by having nearly 45% of total production sourced
from two mines: South Inkai and Karatau. While near-term production is limited
by subsoil use agreements signed with Kazakhstan's Ministry of Industry and
New Technologies, we believe that Uranium One's production will be enhanced by
increased output from existing mines, as well as the continued production
ramp-up at its development projects: Kharasan and Akbastau in Kazakhstan;
Willow Creek in the U.S.; and Honeymoon in Australia.
We view Uranium One's liquidity as adequate, based on the following factors:
-- We expect that sources of liquidity in the next 12-18 months will
exceed uses by 1.2x or more.
-- Sources of cash would be greater than uses even if EBITDA were to
decline by 15%.
-- The company had about US$442.3 million in cash on hand as of Sept. 30,
2012. We estimate that funds from operations generation will likely be able to
cover nearly all of the company's share of capital expenditures through 2013.
-- Debt maturities are light and are primarily related to asset-level
debt facilities. This does not factor in the potential early redemption of its
C$260 million unsecured convertible debentures that contain a
change-of-control provision that is exercised within 30 days of the company's
acquisition by ARMZ.
-- Uranium One does not, nor do we expect it to, pay any common stock
dividends over our liquidity forecast horizon.
Not included within the liquidity calculation is the proposed A$1.0 billion
acquisition of Mantra Resources Ltd. that is 86.1% owned by ARMZ. Uranium One
has a call option to acquire Mantra Resources Ltd., which is set to expire on
June 7, 2013.
The developing outlook reflects our view that we could raise or lower the
rating or SACP on Uranium One depending on the potential changes to the
company's strategic direction and financial policies. That said, we expect
that Uranium One's low-cost production profile and long-term sale contracts
should help support the company's operating performance through this year with
an adjusted debt-to-EBITDA leverage ratio near 3x, on a proportionately
consolidated basis, with EBITDA generation of more than US$250 million.
We could raise the rating if the proposed acquisition leads us to improve our
view of potential support from the company's parent or via its status as a
government-related entity under our criteria.
Alternatively, we could lower the rating if we believe that the company's
asset quality could deteriorate or debt levels were to increase significantly
causing its adjusted debt-to-EBITDA leverage ratio to surpass 4.5x, a key
threshold for downward ratings pressure.
Related Criteria And Research
-- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18,
-- Methodology and Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Sept. 28, 2011
-- Rating Government-Related Entities: Methodology And Assumptions, Dec.
-- Key Credit Factors: Methodology And Assumptions On Risks In The Mining
Industry, June 23, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
-- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
-- Corporate Criteria--Parent/Subsidiary Links; General Principles;
Subsidiaries/Joint Ventures/Nonrecourse Projects; Finance Subsidiaries; Rating
Link to Parent, Oct. 28, 2004
Outlook Revised To Developing
Uranium One Inc.
Corporate credit rating BB-/Developing/-- BB-/Stable/--