Russia and the Kazakh Uranium Sector
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By Melissa Pistilli-Exclusive to Uranium Investing News
Last week, Uranium One Inc [TSX: UUU] announced it had acquired a 50 per cent share of the Karatau uranium project in Kazakhstan from Russian state-owned uranium miner ARMZ.
In return, Uranium One issued ARMZ 117 million common shares, which is a nearly 20 per cent stake in the Canadian-based producer, and a $90 million promissory note due within a year from closing. The transaction in total is valued at around $420 million.
Also, Uranium One will pay an additional three payments totaling $60 million between 2010 and 2012 subject to the Kazakh tax regime.
The agreement gives ARMZ the option to buy up to 20 per cent of Uranium One’s production if this amount totals more than its 50 per cent share from the Karatau mine. The deal grants Uranium One assistance in opening accounts for the use of Russian uranium conversion and enrichment facilities, as well as first offer on future sales of ARMZ’s foreign assets.
ARMZ director general Vadim Zhivov, along with another representative, will take a seat on Uranium One’s board.
Karatau lies on the Budenovskoye orebody in the Chu-Sarysu basin of southern Kazakhstan, and has NI 43-101 compliant indicated resources of 11,273 tonnes of uranium and inferred resources of 771 tonnes.
The mine entered production last year and produced 655 tonnes of U308 for 2008. This year, it is expected to produce around 1,300 tonnes. Uranium One’s share of output going forward is expected to reach 2.6 million pounds a year in 2010.
Besides its newly acquired stake in the Karatau project, Uranium One also holds a 30 to 70 per cent interest in three other projects in Kazakhstan in which KazAtomProm is a partner.
Kazakhstan Becoming Leading Producer
Kazakhstan is blessed with the largest economy in Central Asia and is the region’s biggest oil producer. The former Soviet republic is also home to one-fifth of the world’s uranium reserves and its intent on topping Canada as the world’s largest uranium producer this year.
In 2008, Canada was the global leader producing about 9,000 tonnes compared to 8,521 from Kazakhstan. Production in the Central Asian nation is expected to reach 13,500 tonnes this year, up about 58 per cent, making it the global uranium leader.
Trial Politically Motivated?
Political risk in the resource industry doesn’t only apply to foreign mining companies, as is evident by the prosecution of the man credited with turning Kazakhstan into a global uranium top dog.
The former head of Kazakh uranium producer KazAtomProm, Mukhtar Dzhakishev, faces the first day of trial today after his arrest earlier this year. Dzahakishev’s alleged crimes include the illegal selling of state-owned uranium deposits for his own personal benefit.
He has vehemently denied the chargers and his supporters claim he is the victim of the power struggle going on between political and business leaders in resource-rich Kazakhstan.
There has been a lot of dodgy mystery surrounding this case and the latest bit appeared on YouTube of all places in the form of a video in which Dzhakishev lays out his plans for Kazakhstan’s nuclear sector and his goal to turn the nation into a global leader.
How and why the video clips landed on YouTube are questions open for speculation, but the most interesting part involves Dzhakishev’s discussion of his attempts to prevent Russian investors from acquiring a stake in Uranium One, because he felt it would pose a serious threat to his nation’s nuclear industry.
Could this be why Dzhakishev, who in his decade long tenure at KazAtomProm steered the state-owned uranium producer towards world dominance, is now sitting in a National Security Committee (KNB) high security prison?
While government officials staunchly deny any political motivations, there are those who believe otherwise. “The KNB has today simply become a truncheon in the hands of the state to settle scores with inconvenient highly-placed officials and with business,” said co-leader of the opposition OSDP Azat party Bolat Abilov at a news conference last month.
Shortly after Dzhakishev’s arrest, ARMZ began outlining agreements with Uranium One, which Kazakhstan’s Energy and Mineral Resources Ministry approved of last month.
As Joanna Lillis of EurasiaNet points out in her interesting exposé, further controversy lies in the fact that the son of KazAtomProm’s new head, Vladimir Shkolnik, is the husband of ARMZ director Zhivov’s daughter.
Some in the Kazakhstan media, reports Lillis, are asking if Dshakishev’s case may be “linked to a re-division of assets in the uranium industry, highlighting suspicions that some corruption investigations are more about fighting for lucrative spoils than combating graft.”
“I started to analyze who this [investigation] was advantageous to, and I came to the conclusion that it is advantageous to the Russians,” said Dzhakishev in the leaked video.
Can you imagine Russian involvement in a Central Asian nation’s uranium industry fuelling speculation of untoward actions?
Update: ARMZ responds to Khan Management’s Call to Reject Bid
ARMZ issued a response yesterday to Khan Resources recommendation that shareholders reject the all-cash offer, which expires February 1.
“Khan has provided very little new information to support its recommendation to shareholders that they should reject our all-cash Offer,” said Director Zhivov. “Our offer represents full and fair value for the Khan Shares and fully considers the economics of the Dornod Uranium Property in Mongolia and the significant political and licensing risks inherent in its development. The offer provides Khan shareholders with an opportunity to receive certain value and liquidity at a significant premium.”
Tags: ARMZ, Kazakhstan, Khan Resournces, Russia, U#)*, Uranium, uranium deposit, uranium mine, uranium miner, Uranium One Inc., uranium producer, uranium reserves
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December 22nd, 2009 at 10:20 pm
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