Cameco Corp. is preparing to sell its interest in Centerra Gold Inc. with a public stock sale expected to raise more than $600-million and bring the uranium giant's disappointing foray into the gold business to an end.
Saskatoon-based Cameco has tasked RBC Dominion Securities and CIBC World Markets with the massive share offering, according to sources familiar with the matter. The uranium miner holds a 49-per-cent interest in Centerra, which has operations in Kyrgyzstan and Mongolia that are expected to produce about 729,000 ounces of gold this year. It is understood the shares will be sold to investors through a prospectus filed with securities regulators.
"They have been appointed to jointly place the stock," said a source close to the situation.
Cameco has long signalled its intention to unload its stake in Centerra but political issues in both Kyrgyzstan and Mongolia have thwarted deals.
The company's operations in both countries have recently stabilized, however, clearing the way for a sale.
"We plan to sell our shares in Centerra when the opportunity is right for us," Cameco spokesman Lyle Krahn said, but would not comment on the timing of a deal or whether the company had hired investment bankers to conduct the offering.
"Cameco has made no secret of its intentions, so the market is primed for some sort of deal," said one investment banker who has pitched Cameco on an exit, but is not working on a transaction.
"There is more than enough demand for gold stocks these days to soak up the whole Centerra stake, assuming the price is right."
Investment bankers say Cameco cleared a major roadblock to a share sale in April by signing an investment agreement with the government of Kyrgyzstan, where Centerra operates the Kumtor mine. Cameco tried to get a premium price for its Centerrra stake by selling the holding to a rival mining company. But none of the global gold plays were interested.
It's also understood Centerra conducted a strategic process of its own to identify potential buyers for the company, but those efforts came up empty.
"There is still a possibility that another company takes Cameco's stake, then tries to roll up the public investors [in Centerra], but the more likely option is that Cameco simply sells the entire stake into the market," said another investment banker.
Several sources said Cameco's goal was to get more than $6 a share for its Centerra holding.
The timing of the share sale has not been finalized, but industry players said a deal is likely to come soon. Centerra's stock has been on an upswing after it finalized the long-delayed investment agreement with the Kyrgyzstani government and had its operating licences reinstated at its Boroo mine in Mongolia. Centerra's shares have gained 30 per cent in a month and 61 per cent since January. The stock closed Friday at $7.16.
For Cameco, unloading its stake in Centerra will represent the final chapter in what has been a frustrating attempt to expand outside of its core business of mining uranium.
While the price of gold has increased 143 per cent (in U.S.-dollar terms) in the last five years, Centerra's shares have returned 66 per cent. In the last three years, the gold price has increased by 50 per cent while Centerra's stock has decreased by 26 per cent.
Cameco got into the gold business in 1992 and spun out its gold assets into a TSX-traded company - Centerra - in 2004.
The company's troubles began soon after. Kumtor has been plagued with accidents; a rock slide in 2006 slashed production to about 300,000 ounces. In 2007, concerns Kyrgyzstan would try to nationalize the Kumtor mine took a further toll on Centerra's stock. Demonstrators blockaded a road to the mine as the company tried to reach terms with the government on a new investment agreement.
In 2008, Centerra was stripped of exploration licences in Kyrgyzstan and its two top executives abruptly departed. It wasn't until April of this year that Centerra, Cameco and the Kyrgyzstani government finally reached a deal.
Under that arrangement, Cameco's stake in Centerra is to be reduced from 49 per cent to as little as 38 per cent. Kyrgyzstan will end up with a one-third interest in the company while the remainder of the stock will be held by the public. Cameco will issue between 14.1 million and 25.3 million of its Centerra shares to the Kyrgyzstani government. It is understood that the transfer of Cameco's shares to the Kyrgyzstani government will coincide with the public stock sale.
© The Globe and Mail
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