Oakbay Plans to Link Share Sale With Uranium-Supply Contracts

Oakbay Resources & Energy Ltd., a mining company controlled by South Africa’s Gupta family, is seeking a strategic investor for its planned 800 million-rand ($64 million) share sale who will also buy its uranium.

The company aims to raise the money in the next 18 months in a deal that will go “hand in hand” with long-term supply contracts, Finance Director Trevor Scott, 36, said in an interview Friday.

“It’s very common for customers to take strategic equity stakes in uranium companies, so they have guaranteed supply,” he said. “The capital raise will be primarily focused on offtakers,” he said, referring to buyers with contracts that guarantee purchases.

Oakbay controls Shiva Uranium, which owns South Africa’s biggest dedicated uranium mine, having bought it in 2010 from Uranium One Inc. when it was idled after prices collapsed and production stalled. Under Chief Operating Officer Varun Gupta, 28, the company has spent the last five years developing the mine and upgrading its processing plant so that’s ready to increase output if prices rise.

Oakbay’s break-even uranium price is about $40 a pound, 11 percent above the spot price, which was $35.90 a pound at 11:45 a.m. in Johannesburg. However, only about 5 percent of the nuclear-energy fuel is traded at spot prices and long-term contracts are agreed from $15 to $25 higher than spot, Scott said.

“We’re opening out panels for us to mine, so when the price picks up, we can blast those panels and take the ore out,” Gupta said. The company currently funds its work by mining gold in a nearby operation, he said.

Oakbay’s chairman is Varun’s uncle, Atul Gupta. The family is close to President Jacob Zuma. In the past, it hired one of Zuma’s sons, Duduzane, to serve as a director on the boards of its Sahara Computer and Shiva Uranium businesses, while one of Zuma’s wives has worked for its JIC Mining Services business.

Oakbay was unchanged at 45 rand a share at 12:46 p.m. in Johannesburg, valuing the company at 36 billion rand.

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