Is Uranium One in the cross-hairs of another company? Last week we saw some unusual trading in the shares of UUU, which has sparked a number of rumors that another competitor or global mining giant has its eyes set on acquiring the company.

Uranium One (TSE: UUU) is a Canadian based uranium miner with operations in Kazakhstan, South Africa, Texas and Wyoming. They also have assets in Australia and other parts of the US, but the bulk of their production comes out of Kazakhstan.

Over the past year UUU has been a disastrous investment for anyone who was long. UUU is down over 80% since making its highs last spring/summer (see chart below).

The dismal performance began because of a massive correction in uranium spot prices and was only exacerbated by company specific problems like management’s inflated production expectations (note: the former CEO was fired after the company had no choice but to admit the company would not only miss their previous production guidance but they wouldn’t even come close), a sulfuric acid shortage (a key input required for uranium mining, which in part lead to the production shortfall) and power problems at their operations in South Africa.

Recent Share Activity

Over the past week, UUU’s shares are up almost 30%. Yes, part of that performance can partially be explained by uranium prices beginning to turn around, but if you compare UUU’s performance relative to its closest peers [Cameco (TSE: CCO), Paladin Energy (TSE: PDN), and Denison Mines (TSE: DML)], then you can see something else is driving the price higher.

The end of the summer trading sessions (especially the days leading up to Labour Day) are typically characterized by very low volumes… causing irratic, irrational swings in prices. But, volume in UUU over the last week has been very strong – in fact it’s been the highest it’s been all summer. This doesn’t really sound like investors (institutional or retail) simply returning to a beaten up stock.

Takeover Rumors
So have rumors of a takeover started to surface? Yes. A number of them actually. British news papers are beginning to suggest that Eurasian Natural Resources Corporation (LSE: ENRC) is set to make a major acquisition and that it’s looking at Uranium One as the target. ENRC (market cap of GBP 12.9 billion) is a global miner that produces aluminium, iron, manganese and coal in Kazakhstan. They also produce electricity. However, they don’t have any uranium assets. UUU’s portfolio of mines in Kazakhstan would fit quite well for ENRC. The company is also sitting on a pile of cash (over USD 2.5 billion), with not a whole lot of debt. So acquiring UUU (market cap of USD 1.97 billion) is more than possible. Plus, UUU has negative net debt of roughly USD 47 million (i.e., cash and cash equivalents exceed current and long term debt), which would act to reduce the acquisition price.

Others have suggested that Cameco (TSE: CCO) may be looking at Uranium One as a target. Cameco’s growth prospects depend almost entirely on their enormous Cigar Lake mine (nearly 1/10th of the world’s uranium supply), which has been plagued by floods and startup delays. The latest announcement came when CCO released quarterly results on August 15th saying that more flooding has occurred at Cigar Lake and that they have suspended remediation for the mine. Now people are suggesting that CCO needs to find other avenues for growth and with UUU being the cheapest uranium stock of the group, it’s the most logical candidate for a takeover.

Finally, in July the president of the Kazakhstan state-run mining giant Kazatomprom (who has recently been growing through acquisitions) said they wish to overtake Canada and Australia to become the world’s largest uranium producer. Since UUU is the major Canadian producer operating in Kazakhstan, it’s logical to assume Kazatomprom may have its sights set on UUU as well.

Is UUU a Worthy Takeover Candidate?
Bottom line, UUU is cheap. After last year’s sell off UUU became by far the cheapest uranium stocks in the group – since March of 2007 UUU has underperformed Cameco by over 60%, Denison Mine by over 52% and Paladin Energy by over 54%. With UUU appearing to form a bottom here, potential acquirers may become more motivated to pursue an acquisition.

Yes, the company had a litany of problems over the last year… but were these problems really worth 80% of the company’s value? Remember, we’re not talking about a uranium exploration company, this is a global producer (a major one at that) with mature assets. UUU is forecasting production of over 3 million pounds of uranium this year. Plus, management is new, long term sulfuric acid shortage issues have been alleviated with the company’s investment in a sulfuric acid plant, and spot uranium prices are beginning to recover. All things considered, UUU looks like it may be turning itself around.

Even if you don’t believe the rumors, it may finally be time for you to take a serious look at UUU.

Ownership Disclosure: I currently own units of Uranium One Inc. (TSE: UUU).

Disclaimer: Any information contained in the above article represents my opinions only, and should not be construed as personalized investment advice. I cannot assess, verify or guarantee the suitability of any particular investment to any particular situation and the reader of the article bears complete responsibility for its own investment research and should seek the advice of a qualified investment professional that provides individualized advice prior to making any investment decisions. All opinions expressed and information and data provided therein are subject to change without notice.