Bayswater Uranium Corporation is a uranium exploration company. The merger with Kilgore Minerals for 20.5 million shares is one of the first mergers of equals in the uranium exploration business. However, larger transactions, even multi-billion dollar transactions are common among producing entities. The recent $30 billion deal between Alcoa and Alcan and the fight for the $6.0 billion takeover of Lion Ore are pacesetters.

There are about 500 uranium exploration companies in Canada, Australia and some in Africa. The consolidation phase is about to begin after most of the promising exploration entities have raised the initial capital to operate for approximately two years. The bigger base obviously helps the capital raising activities and the larger portfolio gives an opportunity for development of an exploration company.

As the only uranium explorer to have major land holdings in each of Canada's most important producing and exploration regions, the Aathabasca Basin, the Central Mineral Belt, and the Thelon Basis—Bayswater Uranium Corp. Is well positioned to be a market leader in uranium exploration. Bayswater combines the experience of its technical and managerial teams with a large, highly prospective and diverse property base. The result is a Super Junior Uranium Company with the share liquidity and an over $100 million market capitalization to provide value to both the retail and institutional investor.

The exploration phase of the uranium industry deals with underground assets and allocated appropriate market value. A share exchange program creates larger portfolios. A diversified set of mergers creates a better "exploration risk" and hence a higher market value.

BAY is the forefront of all this movement.

A World Awash with Money

There is a trail of money finding the way into the global financial network. The abundant liquidity is searching for shares and goods.

The uranium market must organize itself to "tradeable" conditions.

The total funds amount to $2.5 trillion in 2007, but estimated to reach $12.0 trillion by 2015.

Uranium explorers are competing in this market.

Bayswater Uranium reports that its due diligence review is almost complete with respect to the proposed merger with Kilgore Minerals, Ltd. Following the expected satisfactory due diligence, including an Independent Fairness Option, Tax Review, Land Title Report and Visibility Report on uranium exploration, development and mining in certain states in the United States, all of which are completed, or near completion. An Information Circular will be sent to shareholders for approval. The transaction is also subject to the approval of the TSX Venture. Closing the transaction is anticipated to occur in July, 2007.

Bayswater Uranium has a highly diversified and diverse property base, particularly after the Kilgore merger. Bayswater has land holdings in almost all four uranium bases in Canada.
Kilgore has properties in Montana and Wyoming. Technical reports indicate that an initial program of the Wyoming property is in an advanced stage, and therefore the company has near term production potential.

Bayswater is just emerging as a super junior uranium company. The capital structure of the two companies is as follows.

A Theory of Consolidation

The uranium industry is highly fragmented at the production level, but not among the power plants. They are the ultimate but demanding corner.

Let's take the three new plants the Chinese will build each year. It involves.

          Resources
          Foreign imports
          Foreign partnership

To secure reserves, production is sought in Australia, Canada and Africa. $187 million in Australian imports is a representative size.

Actually, the 500 uranium exploration companies need $40 billion in the next 5 to 8 years to develop their reserves. BAY, after the Kilgore merger, has just about a market cap of $150M.

In the 1930's Stalin forcefully collectivized the private Russian farmland.

In the early decades of the twenty-first century, the uranium industry will collectivise itself.

If an enlarged Bayswater considers a forward delivery of $150M worth of uranium, it will command a market cap of $300 million. This is 100 percent more than the current size.

Prospective History

Product Merchandise: Uranium Delivery, prospectively higher prices

Methods:       Capital

                    Acquisitions

                    Greater market cap

                    Prospective investors

Whereas Bayswater has $37 million cash, Kilgore is expanding more rapidly. It has recently been awarded ten Wyoming state uranium leases covering 8,000 acres. These are highly prospective areas for the occurrence of accelerated uranium mineralization. The selection of areas covered by the new leases was significantly aided by the evaluation of the company's extensive database on Northern Powder River Basin. Kilgore now has 100 percent ownership of 22 uranium properties in four Western states. It is engaged in exploration and development of natural resource properties and with the merger and the monetary reserves of Bayswater, the Wyoming territory is developed and advanced much more rapidly.

As we noted earlier, Kilgore will have 20.6 million shares of Bayswater. Immediately after the merger, Kilgore plans to conduct a drill program which should lead to resource definition.

It would help to establish a resource estimate and facilitate environmental studies.

In order of time and significance, the various properties of the two companies are listed below.

A Uranium Participation Certificate company has the first duty to provide cash to foster the growth of the enterprise. However, because of the fragmented nature of the industry, because of the fragmented avenues to acquire uranium, whether it is on the open market purchase, whether a purchase from the mining companies or swap arrangements, it is basically an investment banking function.

In order to have a high return on the existing uranium, one must be in contact with energy buyers, mining companies, and other uranium owners. It is not only a simple investment banking function, it is a highly specialized international banking function. Accordingly, such people who understand this business, who are willing to utilize their contacts to establish the business are very difficult to find. And, if anybody wants to engage them, it can only be done at a prohibitively high price.

It should be clearly stated that in the uranium exploration business, the value of deposits at various stages are given different market figures. Accordingly, upgrading projects contains a million pounds of uranium is valued at $12 per pound under the ground and $22 per pound once it is certified. This is a very important ingredient in judging the combined companies which will have about 125 million shares. If, for instance, a million pounds is valued at $22 per pound to be of a certain value for eventual development, every million shares could increase the value of the company by approximately $20 million. Five million pounds of uranium would represent a value of over $100 million, almost equal to 50 percent of the current capitalization of the company.

An exploration company is basically dependent on the deposits and it is aided by the monetary reserves of the company. Even so, the cash reserves at $40 million would cover exploration for two years. The enlarged company may in fact need $60 million more in order to be a viable entity that can sale until the reserves are certified for environmental study and construction of a uranium mine.

There is no question that the uranium business is highly speculative. At the same time, it is very much the business of the 21st century. Uranium mining attracts capital and people at a time when the currently producing uranium is of vital importance to the world.

The statistical figures are impressive.

1. The current production of uranium represents 17 percent of the world's electricity production. So long as the price of oil is high and is actually going higher, the demand for uranium is increasing. The world today uses 68,000 tons of yellowcake for civilian reactors, of which only 66 percent is covered by production. Mine production is 42,000 tons for the year, which would increase to 59,000 tons a year by 2010, of which 12,000 is contributed by production in 2010. See Table 4.

 

2. On May 6, 2007, the NYMEX-U.S. began to quote trading in yellowcake in 250-pound units in New York City.

 

3. The New York Mercantile Exchange has plans to be an active trader of uranium and a key source of information on the prices. The contracts are settled in cash, meaning one will have to arrange to take delivery of the yellowcake.

 

4. Meanwhile, nuclear plants are built at great speed. Twenty-one new nuclear plants are to be completed by 2010 in China and Asia, double to 45 in the following 10 years.

 

5. The price of uranium has increased from $20 four years ago to $125 in May, 2007, expected to hit $140 by December, 2007, and $160 in 2008. Accordingly, the demand for uranium is almost insatiable.

 

6. As an example, China has only one percent of its electricity supplied by uranium and it wil only increase to four percent by 2020. New uranium is found in northwest China and Inner Mongolia. The Chinese authorities began a systematic stockpile on a commercial basis, which will be meaningful by the year 2010. It its usual aggressive fashion, China is seeking natural uranium resources outside its own borders.

 

With higher uranium prices, the Bayswater-Kilgore conglomeration could afford to consider several dozen locations. Because of the growing price and growing reserves at an advanced stage, the price of the stock may permit raising $50-$100 million so that the actual work to construct a mine and deliver uranium is ahead of the company's competition.

Among the exploration companies, even among super juniors, there is a competition to get investment attention, higher stock price, more money, so that the technical staff of the company, the engineering segment, could apply itself to its basic task faster than the competition. The current use of nuclear power is meaningful in Canada itself. There are 17 nuclear power plants. Sixteen percent of the world's electricity is generated from nuclear power using uranium fuel.

The supply and demand picture, however, is shifting towards developing successful juniors. Demand for U3O8 is directly linked to the level of electricity generated by nuclear power plants. Demand for U3O8 is projected to increase significantly in the next few decades, as more countries convert to nuclear fuel and the current facilities are upgraded.

Results in a surge in the price of uranium makes exploration obviously more attractive. In various countries, the production is increasing and the search for deposits is increasing, the main countries being Canada, Australia, Niger, the U.S., and Kazakstan.

In the following page we describe the production and exploration of the uranium industry, which would give an outline that there is a revolution taking place in the energy field and this revolution, which is worldwide, is not restricted to ethanol or any other alternative energies which have been tried and sometimes failed.

The picture of Bayswater in the next two years is likely to change. In a summary table, we describe what the company may look like by the year 2010, both financially and in the development of its uranium reserves. We cannot be specific but we expect a great number of acquisitions of junior companies that would join what I called super junior uranium companies that can handle all the requirements when developing a uranium-producing entity.

Andrew Racz

(Article 53 - posted May 30, 2007)

e-mail: mlikar@aol.com

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