Uranium Investing News

By Melissa Pistilli-Exclusive to Uranium Investing News

Over the next ten years, Japan, the world’s third-largest nuclear power generator, aims to build another 13 reactors.

In a bid to compete for uranium supplies with the world’s two fastest growing economies, China and India, Japanese energy companies are moving to acquire interests in uranium mines.

Depressed share prices in the uranium mining market make this the perfect time for energy companies to secure future supply lines at a bargain. Last year, Mitsubishi Corp. partnered with Cameco to purchase Rio Tinto’s Kintyre uranium deposit in Western Australia for $495 million and Mitsui & Co., one of the largest publicly traded companies in the world, bought a 49 per cent stake in Uranium One’s Honeymoon project in South Australia.

And just this week Uranium One [TSX: UUU] announced it has entered into a long-term agreement with a Japanese consortium, which includes Toshiba Corp., the Japan Bank for International Cooperation and the Tokyo Electric Power Company Inc., to purchase 117 million common shares of the uranium miner at $2.30 per share for a total of nearly $270 million.

The Canadian company currently has interests in uranium mines in Kazakhstan, including a 70 per cent stake in the producing Akdala mine and the South Inkai Uramium Project (pre-production stage), and a 30 per cent interest in the Kharasan Uranium project.

Along with ownership of 19.95 per cent of the second-largest Canadian uranium miner, the consortium will also hold the right to purchase up to 20 per cent of company’s total output beginning in 2014. The agreement stipulates that the group will not sell its stake in the company outside of a general market distribution and will not attempt to increase its stake without Uranium One’s approval.

Motohiro Tanaka, Vice-president of mergers and acquisitions at Credit Suisse is not surprised by this latest partnership. “Japanese companies’ appetite for high-quality investment opportunities in strategic sectors, particularly energy, remains strong,” he said. “This strategic relationship between the Japanese consortium and Uranium One should offer substantial long-term benefits in terms of energy supply security and future asset acquisition opportunities.”

Uranium One is gaining some high profile Japanese partners. The Japan Bank for International Cooperation is a key player in securing natural resources for Japan; the Tokyo Electric Power Company is Japan’s largest electric utility company; and Toshiba controls 67 per cent of Westinghouse Electric Company, which owns the technology used in 50 percent of world nuclear power plants.

Needless to say, the Canadian miner is “very pleased” with the alliance. “We will benefit from the consortium’s knowledge and expertise in the nuclear industry, from its high-level relationships in Kazakhstan and from its significant financial resources,” said Uranium One President Jean Nortier.

The miner has also reduced its overall risk and is now well-positioned with $406 million in cash, UBS analyst Brian MacArthur pointed out. “We believe the transaction is positive as it has lowered the company’s political risk (it now has a partner in Kazakhstan through the consortium) and financial risk (it has a greater ability to develop assets outside of Kazakhstan).”

MacArthur has given the company a “buy” rating. On Wednesday, shares of Uranium One were trading at $2.18 on the TSX, down from a 52-week high of $7.05.

Rio’s Ranger next?

There are rumours that a few Japanese companies have their eyes on Rio Tinto’s 68 per cent stake in Energy Resources Australia, which owns the Ranger mine in the Northern Territory. The mine is the second-largest uranium operation in Australia and is responsible for nearly 11 per cent of total global production. Possible suitors are Mitsui & Co. and Mitsubishi Corp.

It’s believed that Rio may put its ERA stake on the auction block as part of its current plan to wipe out its debts by selling its assets. However, a company spokeswoman said Rio would not comment on the rumour.