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ARMZ Strategic Investment in Uranium One Inc.
Citation preview
July 2010
ARMZ Strategic Investment in
Uranium One Inc.
2
Cautionary Statement
No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained in this Presentation.
Readers of this Presentation are advised to refer to independent technical reports containing detailed information with respect to the material properties of Uranium One. These technical
reports are available under the profiles of Uranium One Inc., UrAsia Energy Ltd., and Energy Metals Corporation at www.sedar.com. Those technical reports provide the date of each
resource or reserve estimate, details of the key assumptions, methods and parameters used in the estimates, details of quality and grade or quality of each resource or reserve and a
general discussion of the extent to which the estimate may be materially affected by any known environmental, permitting, legal, taxation, socio-political, marketing, or other relevant
issues. The technical reports also provide information with respect to data verification in the estimation. Readers are also cautioned to review the information circular of Uranium One that
will be produced in connection with the transaction for full details of the terms and conditions of the transaction between Uranium One and ARMZ.
This document may use the terms "measured", "indicated" and "inferred" resources as defined in accordance with National Instrument 43-101 - Standards of Disclosure for Mineral
Projects. United States persons are advised that while these terms are recognized and required by Canadian regulations, the SEC does not recognize them. Readers are cautioned not to
assume that all or any part of the mineral deposits in these categories will ever be converted into reserves. In addition, "inferred resources" have a great amount of uncertainty as to their
existence and economic and legal feasibility and it cannot be assumed that all or any part of an inferred mineral resource will be ever be upgraded to a higher category. Readers are
cautioned not to assume that all or any part of an inferred resource exists or is economically or legally mineable. Mineral resources are not mineral reserves and do not have demonstrated
economic viability.
Scientific and technical information contained herein regarding Uranium One has been reviewed on behalf of Uranium One by Mr. M.H.G. Heyns, Pr.Sci.Nat. (SACNASP), MSAIMM,
MGSSA, Senior Vice President of Uranium One Inc., a Qualified Person for the purposes of NI 43-101.
Scientific and technical information contained herein has been reviewed on behalf of ARMZ, Rosatom or Effective Energy N.V. (a wholly owned subsidiary of ARMZ) by Wayne W. Valliant,
P.Geo. and John I. Kyle, P.E. of Scott Wilson RPA Inc. – both Qualified Persons for the purpose of NI 43-101.
Certain statements in this Presentation have been derived from third party sources, and are used by consent or are otherwise publicly available. None or ARMZ, Rosatom or Uranium One
take responsibility for such statements.
Forward-Looking Statements
This Presentation contains certain forward-looking statements. Forward-looking statements include but are not limited to those with respect to the future price of uranium, the estimation of
mineral resources and reserves, future development and merger & acquisition activities of ARMZ and Rosatom, the realization of mineral reserve estimates, the timing and amount of
estimated future production, costs of production, capital expenditures, costs and timing of the development of new deposits, future supply and demand differentials for uranium, success of
exploration activities, permitting time lines, currency fluctuations, requirements for additional capital, government regulation of mining operations, environmental risks, unanticipated
reclamation expenses, title disputes or claims and limitations on insurance coverage and the timing and possible outcome of pending litigation. Forward-looking statements also include
statements with respect to the completion of the sale of the Akbastau and Zarechnoye interests to Uranium One. In certain cases, forward-looking statements can be identified by the use
of words such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes” or
variations of such words and phrases, or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of ARMZ, Rosatom, or Uranium One to be materially
different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such risks and uncertainties include, among others, the completion
of the transaction described in this Presentation, the actual results of current exploration activities, conclusions of economic evaluations, inability to obtain required governmental approvals
for future merger & acquisition activities, changes in project parameters as plans continue to be refined, possible variations in grade and ore densities or recovery rates, failure of plant,
equipment or processes to operate as anticipated, accidents, labour disputes or other risks of the mining industry, delays in obtaining government approvals or financing or in completion
of development or construction activities, risks relating to the integration of acquisitions, the risk of operating in foreign jurisdictions, as well as those factors referred to in the section
entitled “Risk Factors” in Uranium One’s Annual Information Form for the year ended December 31, 2009, which is available on SEDAR at www.sedar.com, and which should be reviewed
in conjunction with this document. Although this Presentation has attempted to identify important factors that could cause actual actions, events or results to differ materially from those
described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that
forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not
place undue reliance on forward-looking statements. ARMZ, Rosatam and Uranium One expressly disclaims any intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, except in accordance with applicable securities laws.
2
Important information
2
333
Uranium conversion and enrichment
• 40% of world’s uranium enrichment
capacity
• Enrichment and supply of uranium to the
US, Europe, Asia, and other countries
NPP construction
• Holds 16% market share in terms of
nuclear power plant construction
worldwide
RosatomRosatom is a fully diversified corporation,
with operations ranging from uranium mining to NPP
construction, power generation, and sales
NPP’s Engineering and equipment supply
• Supplies equipment and services to the
power generation and Oil & Gas sectors
• Supplies equipment to over 20 countries
Electricity generation
• World’s #2 in installed capacity
(23.2GW)
• Operates 32 reactor cores across 10
power stations
• Further 7 power stations in construction
Nuclear fuel fabrication and supply
• Supplies NPPs in Russia and 76 other NPPs
across 14 countries (17% market share)
• Annual export volume in excess of $1bn
ARMZ, Uranium mining
• Uranium mining and supply
• World’s #5 in uranium production
Rosatom - global leader in nuclear industry
2001The first post-Soviet power unit brought into operation
Rosatom - innovative producer and most reliable
supplier
41950s1940s 1960s 1990s 2000s
1945 Russian nuclear industry creation
World’s first NPP put into operation in USSR
1959World’s first nuclear powered icebreaker launched
1968 StartingUranium enrichment export sales
2007The Ministry transformed into ROSATOM corporation
• No disruption in supply since exports began in 1968
• 300 M lbs U3O8 equivalent delivered to the USA to date under HEU-
LEU contract since 1995
• As of 1995, around 50% of nuclear energy in the USA has been
generated using LEU produced from HEU
• 10% of US electricity is generated using fuel supplied by Rosatom
• US$18 bn worth of orders on hand in 17 countries
1973World’s first NPP with fast neutron reactor
1993US and Russia signed Megatons to Megawatts Deal
1954-55Soviet Nuclear Power Program established
1989 Start of EUP supply to the US market
Global nuclear power reactor new builds
fuel growth in demand for uranium
5
439 reactors in operation and 55 under construction worldwide
Global Nuclear Power Reactor New Builds
Nu
mb
er
of
Nu
cle
ar
Po
we
r R
ea
cto
rs
Source: WNA, June 2010
Nuclear Reactor New Build by country (top eight countries)
Source: WNA, June 2010
Under Construction
Ordered or Planned
Proposed
Jan-2007 Jan-2008 Jan-2009 Jan-2010 June-2010
Philippines
Brunei
Taiwan
Malaysia
Vietnam
Sri Lanka
Dschibuti
Qatar
JordanIsrael
Georgia
Cyprus
Togo
Serbia
Guinea-BissauGambia
Belgium
Portugal
Kuwait
Croatia
Albania Armenia
NPP Constructed – 31 units
Under construction – 5 units
Decision’s been made – 29 units
GermanyUkraineCzech Republic
SloveniaHungary
Bulgaria
Turkey
Kazakhstan
Byelorussia
Negotiations – 16 units
Armenia
China
India
Vietnam
EgyptLibya
IranJordan
Nuclear power plants
Rosatom
Rosatom’s strategy and primary focus -
NPP construction abroad
6
ROSATOM
Active units worldwide
units
Rosatom holds 16% current
market share in NPP
construction worldwide
3rd worldwide
by active units
Source: Company reports
Philippines
Brunei
Taiwan
Malaysia
Vietnam
Sri Lanka
Dschibuti
Qatar
JordanIsrael
Georgia
Cyprus
Togo
Serbia
Guinea-BissauGambia
Belgium
Portugal
Kuwait
Croatia
Albania Armenia
French-Guayana
HaitiBelize
Uranium mines
ARMZ’s uranium mines
…and an opportunity for ARMZ to capitalize on
7
Rosatom’s NPP construction
customer
• Guarantee of long-term stable uranium delivery over nuclear reactor life
• Globally diversified U3O8 sources
• Market-related pricing• Decreasing operational risks• Effective logistics
Rosatom
Global partners
ARMZ
ALSTOM TOSHIBA SIEMENS
ARMZ’s strategy – diversify portfolio by low risk and long-term uranium projects
U3O8
Rosatom’s domestic uranium requirements met by ARMZ mines in Russia with total capacity of over 5 thou tU
(13 M lb U3O8) p.a.
8
Positioning ARMZ plus U1 relative to
peers by YE2010 (est.)
2009 Uranium Production, M lbs U3O2 (on attributable basis)
2015 Uranium Production, M lbs U3O2 (on attributable basis)
Sources: Company reports, Ux ConsultingSources: Company reports, Ux Consulting
ARMZ - Uranium One strategic alliance will be one of the leading global uranium producers
It ranks second in production volume by 2015 (32.3 M lbs U3O2 – 12.4 thou tU)
33,832,3
29,9
25,0
22,1
9,0
0
5
10
15
20
25
30
35
40
Kazatomprom ARMZ plus Uranium One
Areva Cameco Rio Tinto Paladin
21,420,8
16,715,7
14,1
3,1
0
5
10
15
20
25
Kazatomprom Cameco Areva ARMZ plus Uranium One
Rio Tinto Paladin
Uranium One is best positioned to serve as cornerstone of
ARMZ diversification strategy:
• Best in class assets with lowest cash cost
• Significant growth prospects
• Increased diversification (assets on 3 continents: America, Asia, and Australia)
• High standards of corporate governance
• Best in class management team (bringing mines into operation, significant
experience in M&A)
• Track record and high profile among the sector’s public companies
Uranium One - the Best Opportunity for ARMZ
9
A win-win
Start of negotiations
Jun 14, 2009
First U1 deal announced
Second U1 deal announced
ARMZ & Uranium One: established and reputable
partnership
Synergy and value creation through organic growth and
further M&A deals
First U1 Deal Closed
Dec 15, 2009
• ARMZ already an existing shareholder
• U1 and ARMZ agreed 6-month exclusivity arrangements re.
negotiations in connection with the sale of the Akbastau Assets
to U1
• Established and trusted Board level relationships
• Similar strategy, vision, and investment philosophies
• Significant implementation experience from the previous deal
(structuring, regulatory approvals, etc.)
• Uranium One is ARMZ’s international growth platform
ARMZ’s existing stake highlights itscommitment to Uranium One as along-term strategic partner.
Jun 08, 2010
Q4, 2010
Second U1 deal expected
to close
10
Jul, 2008
ARMZ interests in accretive M&A deals and
Uranium One market capitalization growth
•Management team and Board with extensive
public company experience
•Uranium One is a public platform for the mutual
growth strategy through M&A
•Position as public company means Uranium One
share price performance is a direct indicator of
appreciation by the market of the company’s
management efficiency and M&A effectiveness
•ARMZ vested financial and strategic interest in
Uranium One places great importance on selection
criteria for potential M&A activity – leading to the
execution solely of accretive transactions that
would be regarded favorably by the market
TS
Xsh
are
price
of
U1
ARMZ investment
Accretive deals
Dilutive deals
11
Long-standing friendly historical and political ties between
Russia (Rosatom) and Kazakhstan (Kazatomprom)
12
1. Government to Government Relations
- Russia and Kazakhstan share 6,846 km of land border
- Russia and Kazakhstan are currently parties to a customs
union to be transformed into a common economic space in
the near future
- Russia and Kazakhstan hold membership in a number of
international organizations including the Organization for
Security and Co-operation in Europe (OSCE),
Commonwealth of Independent States (CIS), and the
Shanghai Cooperation Organization (SCO).
- Russia’s and Kazakhstan’s leaders meet each other on a
regular basis.
2. Relations in Nuclear Sphere
- Comprehensive Program of Russia-Kazakhstan Cooperation in
the field of peaceful use of atomic energy signed 07-Dec-2006
and successfully implemented
- Roadmap of Additional Measures pursuing the implementation
of the Comprehensive Program signed 20-Nov-2009
- Memorandum on integration and cooperation in the field of
peaceful use of atomic energy signed 05-Jul-2010Joint ventures for uranium mining
Joint venture for NPP engineering
Joint venture for uranium enrichment
Kazatomprom buying a stake in UEIP (Russia’s largest uranium enrichment plant)
Rosatom Kazatomprom
Uranium One minority protection
U1 minority shareholders
13
Uranium One minority shareholders have several strong levels of protection
Current western style management
Independent Board of Directors
18 months standstill, coat-tail
Canadian law,
inc. NI62-101, 62-102, 62-103
1414
... and multiple sources of potential upside
Company re-rating
• Remove market discount caused by perceived Kazakhstan political risk
• Increase awareness of UK, Europe-based investors familiar with the CIS region
• Potential for London listing
Improve understanding of
important value drivers
• Benefits from Kazakhstan’s EPT (Extra Profit Tax) payments exemption
• Higher factual U1 resource base than reflected in NI43-101 reports given
different resource classification system in Russia
• Dynamic mine development and production growth
U3O8 price upside
• Strong expected uranium price growth in mid- and long-term
• U1 maintains full exposure to uranium prices as 70-80% of the contract base is
priced at spot on delivery
Synergy effects
•Synergies through shared infrastructure and refining capacity, as well as savings
from CAPEX and accelerated ramp-up to stable state production
• Convenient location of the Akbastau and Zarechnoye mines makes them highly
complementary with existing Uranium One assets
• Know-how and technology sharing
Summary transaction structure
1. In case JUMI debentures remain outstanding or is converted into shares, payment per share will reach US$1.43/share
• 50% of Akbastau mine (Kazakhstan)
• 49.67% of Zarechnoe mine (Kazakhstan)
• US$610 M
Current
shareholders
$1.06 /share1
• 356 M shares
Uranium One
shareholders get:
• ~57% premium to share
price of C$2.53, paid in
cash dividend
• Increased enterprise value
through interest in two high
quality assets in
Kazakhstan
• Strong corporate
governance, with majority
independent Board
1515
Rosatom gets:
• Uranium One re-rating
prospects and significant
growth in it’s market
capitalization
• Public company with TSX
and JSE listings and high
standards of corporate
governance
ARMZ is market orientated as value-creation
is critical to Rosatom
ARMZ strategy is focused on market-driven growth• Global mining company centered on uranium as strategically attractive market• Focused on shareholder value creation• Disciplined approach to M&A and investment, embedded long-term optionally in
greenfield and brownfield projects portfolio• Better service for clients
ARMZ is aware of importance of its long-term market position • Controlling a share of reserves sufficient to secure optimal cost-curve position• Applying cost-managing technologies and operational excellence • Providing value-adding solutions to our clients• Ensuring long-term security of supplies
Availability of capital to finance growth and investment• Rosatom has invested over US$2bn in ARMZ as it believes uranium mining to be one
of the key value growth platforms within the nuclear industry
1Corporate governance is key to ARMZ
• Initiative driven by Rosatom• ARMZ aspires to be a global company - as such, it is committed to compliance with the
best business practices
2
3
4
16
ARMZ Strategy in Diversification
• ARMZ is a sophisticated financial investor with access to stable government sources of financing forits development and diversification strategy
• Potential investment projects must meet certain criteria for ARMZ to get access to financing, whichinclude, inter alia:
- Near-term production (non-greenfield)
- Low cash cost of production relative to industry
- DCF-based valuation and acquisition structure
• Uranium One is ARMZ’s important partner in M&A activity and its global growth platform. ARMZ willpropose to allow U1’s participation in a transaction involving investment in uranium exploration assetsor any form of joint ventures to develop or operate uranium exploration assets outside of the RussianFederation
ARMZU1
Minorities Rosatom
$
Russian assets
Intergovernmental programs
(i.e. Armenia, Mongolia)
$
ARMZ criteria for M&A
- Near-Term Production
- Low Cash Cost
- DCF-based valuation
All opportunities outside of
Russia
17
ARMZ is led by a strong and experienced
management team
Mr. Sergei Kirienko, Chairman of Rosatom
• Graduated from the Institute of Naval Engineers in Gorky and the Academy of National Economy of
the Government of the Russian Federation majoring in Finance and Banking
• 2007 – Present, Chairman of Rosatom State Corporation
• 2005 – 2007, Head of the Federal Atomic Energy Agency
• 2001 – Present, Chairman of the State Committee for Chemical Disarmament
• 1998, Served as Prime Minister of the Russian Federation
• 1997, Appointed Minister for Fuel and Power Industry
• 1996-1997, President of NorSea Oil Company
• 1994-Present, Member of President’s Council on Industrial policy and entrepreneurial business
• 1993-1996, Chairman of the Board, Garantiya Bank
Mr. Vadim Zhivov, Director General, CEO
• Graduated from the Moscow Power Institute (College of Physics Engineers)
• 1985 to 2003 - held various positions in government bodies and business entities
• 2003 - appointed Deputy Director General for Corporate Development of GaspromMedia.
• 2004 to 2006 - Vice President, Capitel Corporation
• 2006 to August 2007 - Deputy Director General of TENEX
• August 2007 - First Deputy Director General, ARMZ Uranium Holding Co.
• November 2007 - Director General, ARMZ Uranium Holding Co.
• Development, structuring, and management of Russian and international projects in energy and
nuclear machine-building, natural uranium production, mass communications, development and
structuring of international corporations are among Vadim Zhivov’s core competencies.
18
Strong operating and financial performance
ARMZ 2009 IFRS statements
• Revenues increased by 49% against 2008
• Operating profit increased by 115%
• Net income increased by 1,306%
• Over US$1.5bn additional cash on balance
• Total Assets increased by 2.7x with only an 8% rise in total liabilities, giving rise to a 5.0x increase in total equity
Note: Average USD/RUB exchange rate of 0.0313 and 0.04034 for 2009 and 2008 respectively.
Balance Sheet
US$m
Assets 31-Dec-2009 31-Dec-2008
Cash and Equivalents 1,619.7 98.2
Debtors 279.7 127.1
Reserves and Other 237.5 333.2
Total ST Assets 2,136.9 558.6
PP&E 557.4 564.6
Other LT Assets 641.7 106.0
Total LT Assets 1,199.1 670.5
Total Assets 3,336.0 1,229.1
Liabilities
Short Term Debt 234.1 421.8
Creditors 94.5 61.4
Other 77.9 22.4
Total ST Liabilities 406.5 505.6
Long Term Debt 295.0 121.5
Other 63.6 84.2
Total LT Liabilities 358.5 205.8
Total Liabilities 765.0 711.4
Equity
Shareholders Equity 630.8 159.6
Additional Paid in Capital 1,505.1 0.0
Retained Earnings 200.7 22.4
Other 176.3 272.2
Minorities 58.1 63.6
Total Equity 2,570.9 517.8
Total Liabilities and Equity 3,336.0 1,229.1
Income Statement
US$m
31-Dec-2009 31-Dec-2008
Sales 916.1 613.1
Cost of Sales (520.1) (405.6)
SG&A (122.2) (101.4)
Operating Profit 273.9 106.1
Financial Expenses (80.4) (37.4)
Gain from sale of invesments 84.4 0.0
FX and other income / (loss) 42.8 (56.8)
Profit before Tax 320.7 11.9
Tax expense (109.8) (0.2)
Net Profit 210.8 11.7
Attributable to ARMZ Shareholders 211.3 11.2
Minorities (0.5) 0.4
FX adjustments (34.1) 0.9
Net Income 176.8 12.6
19
Reasons for significant growth:
• 40% growth in volume of sales caused by 25% uranium production growth and sale of uranium from the warehouse
• Growth of average uranium sales price
• Sales of uranium to foreign customers19
Transfer from Russian resource classification
system to NI43-101
20
In practice, exploration results at Akbastau show P1
resources transferred to Inferred and indicated resources
to NI 43-101 classification with minimal losses
(see graph “Akbastau, exploration results, tU”)
11 45325 100
24 547
55 769 43 965
0
20 000
40 000
60 000
80 000
100 000
2004 2009
C1 Indicated C2 Inferred P1 prognosticated
Akbastau, Exploration results, tU
NI43-101
Measured
Indicated
Inferred
Prognosticated
C1
C2
P1
Russian system
Resource base presented in reportsNI43-101 includes indicated and Inferred resources and doesn’t take into account prognosticated resources.
Russian resource classification system takes into account all
resource types.
Uranium One’s Kazakhstan assets have potential to increase their production and resource base by
transferring P1 resources into indicated or inferred when company and broker’s reports are produced
Subsequently, U1 production and financial performance
improve causing the share price to increase once
forecasts are based on NI43-101 criteria
Russian systemC1 + C2
NI 43-101Measured &
Indicated
Difference
tU %
128 955 127 991 964 1
Comparison of Russian and NI43-101 Resource Base:Akbastau, Karatau, Akdala, S. Inkai, Kharasan, tU
Compliant resources
increased by 43%