June 9, 2010 / 6:40 PM / 9 years ago

UPDATE 1-Uranium One shares dive as Russia deal questioned

* Shares tumble 11 pct one day after Russian deal

* State-owned ARMZ to take controlling stake in company

* Analysts cite rising risk, wonder about approval

* Company says ARMZ’s goals aligned with shareholders (Adds Uranium One comment. In U.S. dollars unless noted)

By Cameron French

TORONTO, June 9 (Reuters) - Uranium One UUU.TO shares deepened their slide on Wednesday, a day after the company agreed to sell a controlling stake to Russia’s state-owned nuclear company, with some analysts cutting share-price targets and questioning whether the deal will be approved.

A company official, however, dismissed analysts’ concerns that Russia’s ARMZ would not act in the best interests of current shareholders.

The Toronto-based company’s shares were down 10.7 percent, following a 3.4 percent retreat on Tuesday.

Under the deal, ARMZ will boost its stake in Uranium One to at least 51 percent from 23 percent in exchange for $610 million and stakes in two uranium mines in Kazakhstan, the world’s largest uranium producing region.

The deal will give Uranium One a 50 percent interest in the Akbastau mine and a 49.67 percent stake in the Zarechnoye mine, boosting output from its Kazakh assets by 60 percent and vaulting it into the top five global uranium producers.

ARMZ will expand its existing offtake agreement — which gives its rights to Uranium One’s production — and said it will use the company as a platform for making acquisitions.[ID:nLDE6581KQ]

Analysts, while positive on the output growth the deal will provide, said giving up a majority stake removes the takeover premium that has helped bolster the stock in the past, and some wondered whether the deal would be approved by shareholders.

Simon Tonkin of Thomas Weisel Partners cut his rating to “market weight” from “overweight” and chopped his 12-month price target to C$3.00 from C$3.75, citing the loss of a takeover premium and risks attached to ARMZ’s plan for more acquisitions.

“Growing too quickly or paying too much for assets could result in a negative outcome for shareholders,” he said in a note.

RBC analyst Adam Schatzker left his “outperform” rating and C$4.25 price target untouched, but wondered whether the idea of Russia controlling the company could deter shareholders from approving the deal, as some might worry Russia’s goals might be at odds with those of minority shareholders.

“If the trading (Tuesday) is any indication of shareholder sentiment, we think that there is a chance that this deal does not receive shareholder approval,” he said.


Uranium One investor relations head Chris Sattler said he expected ARMZ to act with the company’s share price as its focus, so that it can use the stock as currency for future acquisitions that will increase its share of production.

“I don’t expect that they’ll be using Uranium One to acquire marginal assets for the sake of the energy security of Russia going forward... because they’ll destroy that currency,” he said.

The deal, which also includes a $1.06 special dividend to be paid to shareholders, requires the approval of a majority of Uranium One shareholders, excluding ARMZ, and by regulators.

UBS Investment Research raised concerns about potential delays or cancellation of the deal and lowered its target to C$3.60 from C$3.80 due to the increased risk.

The deal follows an agreement last year under which ARMZ acquired a 17 percent stake in Uranium One in exchange for half of the Karatau uranium mine in Kazakhstan.

The company’s shares were down 27 Canadian cents at C$2.27 on the Toronto Stock Exchange on Wednesday afternoon.

Uranium prices have been in decline since hitting a record high in 2007, and were at $40.75 a pound this week.

While spot market demand has been weak, companies and analysts project a rise in demand over the next decade, saying mined supply will fail to keep up with rising demand as new reactors come on line.

$1=$1.04 Canadian Reporting by Cameron French; editing by Peter Galloway

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