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Taking a look inside Oakbay’s inner sanctum

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JSE-listed Oakbay Resources andamp; Energy’s annual general meeting (AGM) on Tuesday was a truly private affair.

Members of the media were expressly denied entry through the ornate metal gates in front of the door to the inner sanctum, and while it’s a listed company’s prerogative to keep the media out of an AGM, it smacks of furtiveness.

The Gupta family, which has a well-known relationship with President Jacob Zuma’s family, bought Uranium One’s Dominion mine and its state of the art uranium processing plant in 2010, and added it to their nascent mining company Oakbay Resources andamp; Energy.

But while Shiva Uranium, as Uranium One is now known, is estimated to have some of the biggest deposits of the nuclear fuel in the world, a grovelling uranium price has put the project on hold, with just opencast gold mining keeping it ticking over.

The company’s closely held secrets emerged in the Sens announcement released on Wednesday that the 3.6% shareholder, the Industrial Development Corporation (IDC), had balked at four of the resolutions the board wanted passed.

The state financier voted against management’s plan to issue shares and give “financial assistance” to unnamed related and interrelated companies to help them buy into Oakbay Resources.

IDC spokesperson Mandla Mpangase said on Friday that it was the state financier’s policy to cap share issues and company repurchase of shares at 10%. He said companies the IDC was invested in “are encouraged to approach the shareholders” if they wanted to go above this limit. Similarly, the corporation won’t give free rein to management to hand out financial assistance to “related and interrelated companies” without express approval of shareholders.

The IDC gave the Guptas a R250 million loan to buy Shiva in 2010. While this was initially repayable by 2013, last year the terms were revised – making the more than R300 million in interest payable by 2018.

The IDC also agreed to take equity in the company in lieu of the original loan.

Clearly, though, it doesn’t want to dilute its shareholding in Oakbay – or possibly doesn’t want the company to raise the R800 million to R1 billion investment it wants “for optimum uranium production” in the next financial year.

It isn’t altogether surprising that the IDC is spooking though, because while the figures might look impressive at a glance, a closer look shows a more dubious picture: Oakbay’s share price hovering at around R30 gives it a market cap of an eye-watering R30 billion. The valuation is way off kilter though, considering total assets exceeded its total liabilities by just R5.1 billion.

Several analysts said they had never heard of the company, but others said it was too illiquid to be remotely interesting. An analyst, who declined to be named and who said his understanding of the company was limited, said the shares were clearly highly illiquid, and while “you might be able to buy a few shares, you wouldn’t necessarily be able to sell them”.

There aren’t a lot of shareholders in Oakbay. The holding company, Oakbay Investments, owns 80% of the stock, the IDC owns 3.6%, and the rest is largely owned by international companies Action Investment and Saranya.

A minuscule number of trades have meant even insignificant purchases electrify the share price. On May 18, the stock soared 348% – from R11.15 to R50 a share – on a trade of R500. Even hovering at around R30 puts it 200% up from its listing price of R10.08.

But uranium is becoming an increasingly attractive resource, and local companies appear to be quietly investing in the nuclear fuel. The recent purchase by Sibanye Gold of the Cooke operations is in part to get access to uranium, in line with the company’s strategy of resource diversification.

Uranium prices have risen almost 35% to just under $40 a pound in a mere six months. This is in stark contrast to the rest of the energy market, where crude oil has led a major slide.

Varun Gupta, the 29-year-old CEO of Oakbay who was virtually ambushed into an interview after the AGM, said that by 2018, the company anticipated a 50 million ton global shortage of uranium. When that happens, “we will be well ahead of our peers. We have a brownfield operation that can be going in two years. Others have greenfield operations that will take five to seven years to get going.”

It is not a huge surprise that the meeting was a secretive affair: the politically connected Gupta family is repeatedly linked to multimillion-rand scandals in the media – at least in the outlets they don’t own.

“We are extremely media-shy,” one director said off the record. “If there was a tsunami, we would probably be blamed for it.”

But no matter the declarations of innocence, the timing of the Oakbay listing and the discussions around the state’s massively contentious trillion-rand nuclear build programme have seen eyebrows meet hairlines among jaded South Africans.

In response to the question of whether there is a link between their uranium mine and Eskom’s potential future uranium demand, Gupta said: “[A South African nuclear plant] is a long time away. I don’t want to comment on that.”

Minutes earlier, though, he had made it clear that the family was in no hurry to make profits: “We have a long-term vision … Our strategy is a long-term strategy.”

Gupta said the company was looking to supply emerging markets like China and India, where analysts predict demand is set to kick off as China builds more nuclear reactors, and as India, Russia and South Korea follow suit.

Daniel Sadowski, uranium and precious metals analyst at US-based investment firm Raymond James, said he expected the uranium price to move to $70 a pound in the next two to three years on increasing global demand and insufficient mine growth because of the low incentive price.

“It’s a pretty attractive supply and demand story,” Sadowski said.

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