Rio Tinto rethinks Sweetwater sale

Vancouver — A hot uranium market has prompted Rio Tinto (RTP-N, RIO-L) to pull the proposed sale of its Sweetwater assets in Wyoming to sxr Uranium One (SXR-T, SXRFF-O) and contemplate developing the project itself.

The major’s change of heart comes after watching U3O8 spot prices rally about 60% (from the US$45-per-lb. level to around US$72 per lb. currently) since entering the agreement last July.

Held through a wholly owned subsidiary, Rio Tinto was looking to sell the Sweetwater uranium mill and a significant land package in the basin including the Jackpot deposit (with a historic resource of 14.8 million tonnes of 0.195% U3O8).

Uranium One eyed the potential acquisition as a beachhead into the U.S. uranium industry and would have held one of only four conventional uranium mills within the country. The Sweetwater mill is a 2,700-tonne-per-day, acid-leach facility that operated from 1981-1983, processing about 2 million tonnes of ore to produce almost 1.3 million lbs. U3O8.

After emerging as the preferred bidder, Uranium One entered into an exclusivity agreement with Rio Tinto and paid US$1 million for nine months of review time to conduct due diligence and strike a deal. A proposed transaction could have seen Uranium One pay US$65 million plus issue 6.1 million shares and 2.5 million warrants for the assets.

“We are naturally very disappointed with Rio Tinto’s decision to withdraw the Sweetwater assets from sale, particularly at this stage in our negotiations,” said Uranium One CEO Neal Froneman.

Countering the blow, Uranium One has extended its exclusivity agreement with U.S. Energy (useg-q) and Crested Corp. (cbag-o) relating to the possible acquisition of the duo’s Shootaring Canyon uranium mill in southeastern Utah and uranium properties in Arizona, Colorado, Utah and Wyoming.

The Shootaring mill is a permitted 750-ton-per-day processing facility with a stockpile of about 240,000 contained pounds U3O8 onsite. Operational plans call for an annual production rate of about 1.5 million lbs. U3O8. The complex has an estimated replacement value of US$80 million.

“Our negotiations with U.S. Energy with respect to the Shootaring Canyon assets are progressing well and we look forward to finalizing definitive acquisition documentation for these assets during the first quarter of 2007,” Froneman said.

Uranium One also recently closed a major financing worth $155.25 million in convertible unsecured subordinated debentures. Funds are primarily earmarked for construction of its Dominion uranium mine in South Africa.