INVESTMENT REPORTER
Having the Russian government as your partner likely goes a long way toward solving whatever political problems you may have in Kazakhstan.
At least that's what Uranium One UUU-T and its investors are hoping, after reaching a deal Monday that would give Russia's state-owned nuclear company Atomredmetzoloto (ARMZ) a 17-per-cent stake in the Canadian miner in exchange for half of a Kazakh mine.
The company's shares were hammered in May after the head of Kazatomprom, Kazakhstan's state uranium mining agency and a joint venture partner with Uranium One, was arrested and accused of illegally selling uranium deposits to foreign firms.
Kazatomprom's new head has said Kazakhstan will honour its agreements with Uranium One. However, Kazakh police are still investigating.
"In our opinion, the Russian deal is an astute move by Uranium One that virtually assures ownership of all its assets in Kazakhstan. The Russians are a powerful ally, especially with the positive diplomatic ties with the Kazakhstan government," said Simon Tonkin, an analyst at Thomas Weisel Partners, who bumped his price target to $3.25 from $2.75 on Tuesday.
WHAT IT DOES
Uranium One has assets in the U.S., Australia and South Africa but only has production from its Kazakhstan operations. It doubled production in its most recent first quarter, producing 700,900 pounds of uranium. Its revenue hit $43-million and it posted an adjusted net loss of $5.5-million.
WHAT HAS ITS STOCK DONE?
While the risk of expropriation has faded, its stock hasn't recovered as quickly. Brian MacArthur, an analyst at UBS, raised his rating on the shares to "buy" Tuesday.
"We believe the transaction is positive as it has helped further mitigate the company's relatively high political risk as it now has another partner in Kazakhstan," he said.
According to Bloomberg, 14 analysts follow the company with nine "buy" ratings and five "holds." Their average price target is $3.58.
Its stock rose 13 cents to $2.96 after the deal, but slid to close at $2.72 yesterday.
Andrew Cook, who manages the Marquest Resource fund, unloaded his Uranium One shares in early May, before the investigation. But he warned that political instability isn't so easily overcome.
"I like their production profile and the deal looks interesting - but there are a lot of stocks out there to buy that don't have those potential political issues. Why waste your time and effort trying to figure it out, especially because these things tend to linger?"