Froneman in to ‘make benefit’
But creation of US$5bn company is seen as flashy
THE PROPOSED R21bn (US$2,9bn) merger of Neal Froneman’s sxr Uranium One with UrAsia Energy has engendered some mixed reviews. Supporters believe it to be bold, expansive and strategically in your face. Doubters say it’s dilutive to shareholders and they don’t buy the need for scale.
The combined unit will produce nearly as much uranium in 2012 as the world’s largest publicly listed producer. But at a time when sxr Uranium One is about to press the button on production in South Africa, questions are being asked if the company has stretched its personnel and resources.
There are also questions whether UrAsia’s uranium mines, which it has owned for a mere 14 months, can provide the value. The company has so far booked a profit of $27m (R195m) on the mines, all of which are in central Asia’s Khazakstan. One other grumble is that Khazakstan carries with it political risk.
“I’ve gone cold on this,” says Pete Major, who helps manage investment funds for Cadiz. “They’ve paid a massive premium (21% on 20-day value-weighted average price) and diluted the hell out of shareholders.”
Still, catapulting sxr Uranium One in that way should come as no great surprise.
Froneman is an aggressive businessman. After being excluded from Harmony Gold’s executive in 2001, he left to become Brett Kebble’s corporate frontman at JCI Gold. He left that after it became obvious that Kebble wasn’t going to brook challenge.
After a stint at Gold Fields running its Kloof gold mine, Froneman eventually bought control of Afrikander Lease (Aflease) through the New Kleinfontein consortium.
Shortly after, Froneman faced a slump in the rand gold price that almost ruined Aflease. He shut Aflease’s gold mine, hoping to contain the damage and turn to Aflease’s gold exploration prospects. But the market lost faith. Aflease’s price fell from R6,50 to R2,15/ share by late 2003.
Then, suddenly, came the lucky packet of all lucky packets: Aflease had uranium – lots of it.
Last week’s deal was to increase sxr Uranium One’s project annual uranium output in 2008 to 19,4m pounds in a company worth $5bn (R36bn). One concern among analysts is that Froneman is betting big on a share rerating solely on its market value without regard for shareholder value.
Nigel Suliaman, who helps manage the resources funds for Metropolitan Asset Managers, says that securing assets in a rising uranium market makes sense. As for the pro- fitability of the Khazakstan assets, he’s willing to give Froneman the benefit of the doubt.
Says Suliaman: “Froneman saw the uranium market very early. So for the time being I think we shouldn’t second-guess him. I’ll go with management on this one.”
Interestingly, there’s a slightly different view in Canada, which may be described as less risk averse than their counterparts in SA, according to a report by RBC Capital Markets on 13 February.
“Based on the price paid for ‘pounds in the ground’, sxr is paying a premium for UrAsia’s assets. However, we believe this may be justified by the advanced stage of the projects and the fact UrAsia plans to bring its pounds out of the ground faster than sxr.”
Can he “make
benefit” in the glorious
nation of Khazakstan?