Mumbai, Oct. 28: Mukesh Ambani-owned Reliance Industries’ foray into uranium exploration in Australia appears to have run into trouble.
UXA Resources Ltd (UXA) — the uranium miner that RIL’s Australian subsidiary tied up with five years ago — is on the brink of a debt default and its shares have been suspended from trading on the Australian Stock Exchange since October 1.
UXA’s sudden meltdown was triggered when Australian Special Opportunity Fund LP (ASOP) served a “Notice of Event of Default” on October 15 with respect to an Australian $500,000 convertible note facility. The notification means that UXA will now have to pay the entire outstanding amount with interest and costs by 4 pm on November 2.
In April, UXA had worked out an arrangement under which ASOF would “provide funding for UXA’s exploration programmes, working capital and debt closure”. The Fund had also agreed to extend a further Aus$ 7 million over a two-year period starting July 2012.
UXA is now scrambling to raise funds to head off the crisis. Trouble for UXA began when the Australian Stock Exchange suspended trading in the UXA stock because it had failed to submit its audited financial accounts for the financial year ended June 30. The suspension will not be lifted till the accounts are submitted.
UXA has said it has been unable to submit the accounts till it arranges refinancing for two sets of convertible notes: an Aus$ 779,000 facility that expires on September 30, 2015 and the Aus$ 500,000 facility from ASOF which expires in April 2014.
The company can wriggle out of the debt default situation if it can lodge its full year accounts before November 2 and secure alternative funding to meet its on-going requirements on terms and with a counterparty that ASOF approves of.
That looks like a tall order with the deadline looming in five days.
The company said in an earlier filing that it was “in default on both convertible notes” — a situation that could force it to immediately pay the outstanding amounts with interest if they pressed the button. ASOF already has. La Jolla Cove Investors, which provided the other line of funds, hasn’t indicated what it plans to do.
UXA said it was exploring a number of capital-raising initiatives, including the potential sale of assets to fund working capital and reduce or completely eliminate the company’s debt.
The company has already said it might take one to two months to finalise its capital raising and asset sale before it would be in a position to submit its annual financial accounts to the ASX.
The uranium miner said it had been approached “to consider selling certain assets and is currently considering the sale of all or part of the GAA Wireline contracting business and certain exploration tenements”.
GAA provides commercial wireline logging services to the mining and exploration sectors and is principally focused on uranium and coal. Wireline logging technology involves the use of prompt fission neutron (PFN) tools for direct measurement of uranium in boreholes. RB Milestone Group is advising UXA on the financing options in North America, it added.
Reliance Australia Pty — a fully-owned subsidiary of RIL — formed a joint venture with UXA in 2007 in which it held a 49 per cent stake.
Under the terms of a farm-in agreement signed in December 2007, RIL Australia paid Aus$ 3.45 million in exchange for a 49 per cent participating interest in four of UXA’s exploration licences in South Australia and four in the Northern Territory.
RIL Australia was obligated to contribute 49 per cent of all future exploration expenditures in these tenements.
The most promising of these was Nabarlek in Australia’s mineral-rich Northern Territory which was touted as UXA’s most advanced uranium prospect that covered 221 square km.
In early September, the joint venture started a 30-hole 3,000 metre percussion drilling programme at Nabarlek North. The drilling programme was supposed to focus on three target areas and was to be completed by the end of September after which the results would be analysed.
“Drilling at Nabarlek is the company’s current exploration focus and the results will be announced in the coming weeks,” UXA said in its October 15 filing.
When RIL signed the deal with UXA, Nabarlek was described as the world’s third largest uranium mine. The mineral ore content was estimated at around 104.68 million tonnes and recoverable uranium or uranium oxide from these ores was expected to range up to 3,36,000 tonnes.
A drilling programme in 2011 along the south east corner of the Nabarlek North tenement yielded “anomalous results”.
The three new target areas were picked after a radon sampling and soil geochemical programme spanning the south and south-eastern sectors. UXA has been betting on the uranium prospect in the area because it is just 280 metres north of a big uranium strike by rival Uranium Equities. The ASOF action has, however, come as a huge setback for UXA and injects an element of uncertainty over its entire uranium exploration programme. Under the terms of arrangement, RIL provides only 49 per cent of the exploration costs.
It is not known if UXA is seeking any financial help from cash-rich Reliance Industries to tide over the crisis.