First Reserve Corporation, a private equity firm with offices in the US and London, on Thursday announced that it would be participating in the creation of a new uranium firm in South Africa.
The company said in a statement out of the US that it and two partners ? Pamodzi Investment Holdings and AMCI Capital ? would be acquiring a 60 percent interest in a new uranium company that will be created out of an agreement between Pamodzi Resources Fund and Harmony Gold Mining late last year.
In terms of the deal, Harmony's Randfontein Estates uranium and gold assets known as the Cooke Section will be sold into a new independent company for $420-million or R2.9-billion.
First Reserve and its partners will acquire a 60 percent interest in the company for an estimated $252-million or R1.6-billion while Harmony will retain a 40 percent interest.
The new uranium firm will therefore house the Cooke one, two and three shafts, a gold milling plant, a large tailings dump as well as lower-grade gold and uranium dumps.
Uranium, which is a byproduct of gold production from the mines, has accumulated in the dumps for over 20 years, which today translates into a significant above-ground resource that can be reprocessed and sold as a fuel source for the nuclear power industry.
Worldwide demand for uranium is expected to increase from 175 million pounds in 2007 to between 235 million to 275 million pounds by 2020 as a result of significant growth in nuclear power generation assets.
At a planned production level of over 2.2 million pounds per year, the new company will be the world's ninth-largest uranium producer.
"The strategic plan for this investment is to create a platform for a new world-class uranium producer at a time when uranium demand is increasing substantially," said Jeff Quake, director of First Reserve Corporation.
First Reserve, which has over $12.5-billion under management, is the oldest and largest buyout groups to focus exclusively on a strategy of diversified energy investments.
In this deal it partners with Pamodzi Investment Holdings, the fund advisor to South Africa's largest private equity fund with $1.3-billion in funds available for investment, and AMCI Capital, a resources and energy focused private equity venture managed by Hans Mende and Mike Salamon, a former executive director of BHP Billiton.
"The business plan involves purchasing the existing gold mine infrastructure and tailings dumps and constructing a new large-scale plant to reprocess the dumps for the significant uranium content," explained First Reserve Corporation managing director Alex Krueger.
A capital injection of about R2.3-billion has been earmarked for the building of a new uranium processing unit and a new gold waste site.
"The gold assets will provide near term cash flow and represent additional upside through redevelopment and expansion of the mines to produce both the gold and uranium resources," Krueger added.