Tuesday, January 31, 2006

Jan 31 Uranium Stocks Update: Urasia Energy (CVE:UUU)

Uranium Blockbuster

Jason Kirby, Financial Post. Published: Tuesday, January 31, 2006

What's it take to bring a uranium producer to market these days? Some highly sought-after mines in Central Asia, half-a-billion dollars and a Rolodex that stretches from Kazakhstan and Russia to London and Vancouver.

Oh, and enough adrenalin and sweat to fuel a nuclear reactor.

Until last November, there were just three publicly traded companies focused on producing uranium in the world, even as demand from energy-starved nations such as India and China has driven the price for a pound of uranium to US$37 from US$10 in early 2003.

Note: yesterday on Jan. 30th, the Ux Consulting Company, the leading source of uranium market news, announced that the month-end price of uranium oxide has risen to US$37.50.

But in early November, UrAsia Energy Ltd. debuted on the TSX Venture Exchange through a private placement and reverse takeover. In what was one of the most overlooked stock offerings of the year, UrAsia added its name to that short list of uranium producers.

The $504-million deal was not a conventional initial public offering and wasn't included in the Dealmakers rankings by FP DataGroup because the company isn't incorporated in Canada.
But it is a notable deal because it was among the largest ones on record brokered on Canada's junior bourse. It was also the biggest financing ever led by Vancouver-based Canaccord Capital Inc., which has rebranded its capital markets business as Canaccord Adams after the purchase of Boston-based investment bank Adams Harkness Financial Group last September.

Canaccord Adams was joined by BMO Nesbitt Burns Inc. and GMP Securities Ltd. The trio pocketed US$25-million in fees, with 40% of that going to Canaccord Adams.

Yet it was a financing that tested the mettle of everyone involved, from the global capital markets group at Canaccord Adams, lead by Paul Reynolds, to Vancouver financier Frank Giustra and his team at Endeavour Capital, a mining investment bank. Mr. Giustra is the former chairman of Yorkton Securities (now Orion Securities) and founder and former CEO of Lions Gate Entertainment.

Note: must be talented to jump from financial to film. And now he is at EDV. Makes me wonder if that past ROBTv segment of Stars and Dogs highlighting both EDV and UUU at the same time was a coincidence..don't think so. For fun, try reading two of Mr. Giustra's past articles in 2002 and 2003. Does his arguments hold up in 2006? You decide!

"In the end we had six weeks to do a deal that should have taken 14 weeks," said Gordon Keep, the acting chief financial officer of UrAsia and managing director of corporate finance at Endeavour.

The world of uranium mining has come a long way in the last few years. While Three Mile Island, and especially Chernobyl, made nuclear power all but verboten in the West through the 1990s, rising oil prices coupled with fast-growing economies in Asia have forced many countries to return to power by atom. By some accounts there are plans to build 130 new nuclear reactors by 2020, with China and India alone erecting 40 of them.

Note: I would really love to get a hold of a graph showing updated listings of every country building or planning to build nuclear reactors over what period of time. Wonder if there are any out there currently?

According to a report by Duncan McKeen, a mining analyst with GMP, global demand for uranium sits at 175 million pounds per year, while just 100 million pounds are produced annually. Demand is set to rise to 185 million pounds per year by 2010 and as to as much as 200 million pounds by 2018.

Money manager Eric Sprott, who has cheered uranium as an alternative to petroleum, has estimated demand could reach 300 million pounds in 20 years, and after factoring in inflation, drive prices to US$100 per pound.

UrAsia got its start when Mr. Giustra and Ian Telfer, CEO of Goldcorp Inc., approached Canaccord Adams last spring. They proposed putting together a new uranium producer and were looking for available assets. The three largest sources of uranium are Canada, Australia and Kazakhstan, and through its past exposure to the former Soviet state, Canaccord Adams' London office knew some of the largest available properties were to be found there.

"We've worked in Kazakhstan since the early days," said Canaccord Adams' Mr. Reynolds, in an interview from London. Canaccord Adams' London operation has emerged as the company's gem thanks to its involvement with the growing Alternative Investment Market, the junior arm of the London Stock Exchange. Canaccord Adams is the nominated advisor to 51 AIM-listed companies, many of them in the resource sector, and the business generated more than one-quarter of Canaccord Adams' $433-million in revenue last year. In Kazakhstan-based dealings, Canaccord first raised capital for Hurricane Hydrocarbons, the Calgary oil firm that eventually became Petrokazakhstan and operated in that country.

Note: never knew that. it makes sense, however, becaues I had been holding shares of an oil junior called Arawak which has operations in Kazakhstan as well and Canaccord is an firm that actively trades in the company.

"Today there are lots of investment banks pitching in Kazakhstan but I'd say our contacts are the best," Mr. Reynolds said.

Canaccord Adams put Mr. Giustra in touch with Sergey Kurzin, a Russian-born engineer and CEO of Oriel Resources, a chrome and nickel miner in Kazakhstan, and the group met with representatives of Kazatomprom, the state-owned uranium miner.

Through a complicated series of arrangements, UrAsia negotiated to buy a trio of uranium properties in the country. It raised roughly $60-million through a non-brokered private placement in early September and used the funds to buy a 30% stake in the North Kharasan project, which has the potential to produce a total of 3,000 tonnes of uranium. Kazatomprom would own the rest.

Then, in exchange for $5-million, UrAsia earned the right to buy into two even larger mining projects, the Akdala mine and the South Inkai project. Again, the state-owned company would retain a stake, this time 30%.

Throughout the negotiations, Mr. Giustra made repeated trips to meet with Kazakh officials. Meanwhile, the company relied heavily on Canaccord's mining analyst, Jim Taylor, who had visited the mines, for valuations and to aid its engineers.

But to seal the deal with Kazatomprom for the mines, UrAsia had to raise an additional US$345-million through a brokered private placement, and that's when the pressure really hit.
For one thing, UrAsia wasn't the only company in the running for the uranium mines, so time was of the essence. Rather than undergo the lengthy process of filing regulatory documents for an initial public offering, the company chose to do a reverse takeover of Signature Resources Ltd., a gold miner trading for 10 cents that four months earlier had hired Endeavour to help it find assets to buy. "They had an opportunity to buy those assets but they had to act quick and this enabled them to do it in a timely fashion," said Mr. Reynolds. "If they hadn't done the reverse takeover, they couldn't have raised such a substantial amount of money."

Given the rising demand for uranium as well as the strong performance of markets over the summer, the syndicate of investment banks believed UrAsia could fetch between $2 and $2.50 per share. That was in September.

But starting in October, equity markets tumbled, and demand from institutional investors for UrAsia's offering began to dry up. "We were originally going after it at $2.25 and then the market softened right in the middle," said Urasia's Mr. Keep. "It went from hugely oversold to not oversold."

Things only got worse in mid-October. That's when the Kazakstan government responded to China National Petroleum Corp.'s US$4.2-billion takeover of PetroKazakhstan by altering its laws to intervene and limit property rights over its strategic resources. "They changed their laws and it captured our acquisition without any indication of how to apply those laws," said Mr. Keep. "We had to make it up as we went along."

Meanwhile, Canaccord Adams, along with Nesbitt Burns and GMP, were busy drumming up interest among their key institutional clients. As it turned out, they were able to place $504-million with investors, with about 60% of the issue sold in the U.K. and Europe. Of the balance in North America, much of the demand came from the United States.

Note: that means a significant part of UUU is owned not by Canadians, but by foreigners. UUU is trade in the Berlin Stock Exchange. You can check it out here:

"The syndicate partners were very strong and the combined syndicate did a good job to ensure the deal was a success," said Mr. Reynolds. "It's been proven by the market that it was a big success."

On Nov. 7, UrAsia shares began trading at $1.80. The shares closed yesterday at $2.88.
The company is run by CEO Philip Shirvington, former head of uranium miner Energy Resources of Australia, while Mr. Telfer was named non-executive chairman. Mr. Giustra and Robert Cross, executive chairman of Northern Orion Resources, are also on the board.
UrAsia is expected to begin trading on the LSE's AIM exchange within the next two months. "It was your standard deal," Mr. Keep said. "Except everything was done with language barriers and time frames that were unrealistic but met. You had people all over the world trying to talk to each other with a 14-hour time change between them and you had the 10 worst days in the junior market. It was a huge push on everyone's time, energy and abilities to keep it all together."

Note: An AIM listing cannot hurt, and I'm pulling for UUU to have a TSE listing as well. ERA was previously mentioned in my article about Australian uranium.



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