JOHANNESBURG (miningweekly.com) – TSX- and JSE-listed uranium-miner Uranium One on Monday announced that it would buy a 50% stake in another operation in Kazakhstan, boosting its 2010 production forecast by about one-third.

Uranium One has signed a definitive agreement to buy 50% of the Karatau mine, which is part of the Budenovskoye complex, from Russian State-owned mining company Atomredmetzoloto (ARMZ).

The parties have also entered into an offtake agreement which will allow the Russian miner to buy, on an annual basis, the greater amount of 50% of the Karatau mine’s yearly production and 20% of Uranium One’s available attributable production from assets in which it holds the marketing rights.

The Canadian firm will issue 117-million Uranium One shares to ARMZ and make a cash payment of $90-million, and the agreement also provides for a contingency payment of up to $60-million, payable to ARMZ in three tranches between 2010 and 2012, subject to certain postclosing tax-related adjustments.

“The acquisition adds another long-life, large-scale and high-margin asset to our portfolio and will significantly enhance Uranium One’s production profile and cement its position of leadership in the Kazakh uranium mining industry,” Uranium One CEO Jean Nortier said on Monday.

As a result of the ARMZ deal, Uranium One has adjusted its production guidance for 2010 upwards to 7,5-million pounds of uranium oxide (U₃0₈), compared with previous guidance of 5,6-million pounds.

Commercial production at the Karatau mine started in 2008, and it is expected to produce 3,3-million pounds of U₃0₈ in 2009, at a total cash cost of about C$15/lb.

The costs are low, "even by Kazakh standards", and will improve Uranium One's already-healthy operating group operating margin, Nortier commented on Monday.

The group now expects to report average costs of $18/lb this year, compared with previous forecasts of $19/lb.

The Karatau mine is expected to reach steady state production of 5,2-million pounds a year by 2011.

Nortier said that the ARMZ deal, along with Uranium One's C$270-million private placement transaction with a Japanese consortium, would provide it with long-term partnerships with the governments of Russia, Japan and Kazakhstan, “as well as some of the most influential customers and suppliers in the global nuclear industry”.

Power utilities, especially in Asia, are looking to lock in future supplies of uranium to fuel nuclear reactors currently under construction.

The Japanese consortium - comprising Tokyo Electric Power Company, Toshiba Corporation and the Japan Bank for International Cooperation - agreed earlier this year to buy a 19,95% stake in Uranium One, although its stake will be diluted to around 17% after the ARMZ transaction closes, and the agreement includes an offtake option on up to 20% of Uranium One’s available production from assets where it has the right to market output.

As part of the new partnership, ARMZ has also agreed to assist Uranium One in the opening of accounts with Russian uranium converters and to use Russian uranium conversion and enrichment facilities.

Because Uranium One currently receives payment for its production at conversion facilities located in North America and Europe, access to Russian facilities could significantly shorten the time between production of uranium and when the company receives payment for the material.

At the moment, converting production into cash takes four to six months, and this could be shortened to as little as six to eight weeks by making use of Russian facilities, Nortier said on a conference call on Monday.

Uranium One has also been given an exclusive right to negotiate the acquisition of the Russian firm's 50% stake in the Akbastau uranium project, located adjacent to the Karatau mine. The project is currently in pilot production.

Further, the Vancouver-based producer also has the right of a first offer on ARMZ’s assets outside the Russian Federation, should it decide to sell any of these assets in future.

The ARMZ announcement comes not long after Uranium One’s stock took a beating over reports out of Kazakhstan that a government agency was investigating irregularities over the sale of uranium assets to foreign companies.

In fact, the transaction will mean that Uranium One finds itself in another partnership with Kazakhstan State-owned mining company Kazatomprom, which owns the other 50% of the Karatau mine, and is under investigation for fraudulent activities.

On May 25, the Kazakhstan National Security Committee (KNB) arrested Mukhtar Dzhakishev, CEO of Kazatomprom, saying that it was investigating deals made by the CEO, who allegedly illegally sold stakes in uranium assets to foreign countries.

Uranium One owns 30% of the Kharasan mine, as well as a 70% stake in the Betpak Dala JV, in which Kazatomprom holds the remaining 30% stake. The JV owns the Akdala and South Inkai uranium mines.

On Friday, Kazatomprom reported in a statement that it had held talks with foreign companies, including Uranium One, adding that it would honour all existing agreements.

It added that none of its existing agreements would be changed and that all production plans and export supplies would continue according to plan.

Nortier said on Monday that he had been told the same thing, and that Uranium One was cooperating and assisting with the KNB investigations.

Shares in the company gained 3,9% on Monday, to C$2,94 apiece by 16:10 in Toronto.

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