SXR Uranium One Inc agreed to buy UrAsia Energy Ltd for US$3.1 billion to form the world's second-largest uranium producer as rising demand for nuclear fuel drives prices to records.
SXR, owner of South Africa's largest undeveloped uranium deposit, offered C$7.05 (US$6.01) a share in stock for Vancouver-based UrAsia, which owns uranium mines in Central Asia. That's 13 percent more than UrAsia's Friday closing price in Toronto, the companies said on Monday.
The combined company, once all its mines are operating, will trail only Cameco Corp in production and be the only producer in Kazakhstan, South Africa, Australia, the US and Canada, the five largest holders of uranium deposits.
Uranium prices jumped more than 10-fold in five years as demand from utilities surged and stockpiles fell, spurring exploration and mine development.
"Every analyst, every commentator is talking about uranium and the need for nuclear energy," David Shapiro, a fund manager at Johannesburg-based Sasfin Holdings Ltd, said in a telephone interview. "As long as that's the case, we're going to see this kind of feeding frenzy."
Shares of Toronto-based SXR fell C$0.88, or 5.6 percent, to close at C$14.79 on the Toronto Stock Exchange on Monday, valuing the company at C$2 billion.
The stock, which has more than doubled in the past year, earlier climbed as much as 12 percent in Johannesburg. UrAsia's stock jumped 4 percent to C$6.48.
The price of uranium has doubled to US$75 a pound in the past year as supply growth strains to keep up with demand from utilities. Demand for nuclear energy is bolstered by government efforts under the Kyoto Accord to limit emissions of carbon dioxide and curb imports of fossil fuels.
Australia, home to 40 percent of the world's known uranium deposits, says it may build a nuclear industry that can compete with oil and coal within 15 years. Russia plans to make nuclear power the source of 25 percent of its needs by 2030, from 16 percent now, creating a state-run company to compete with Paris-based Areva SA.
The combined company, to be known at Uranium One Inc, will have a market value of about US$5 billion, making it the world's second-biggest uranium producer, behind Cameco, which is valued at C$15.4 billion.
"This deal is turning SXR into one of the biggest uranium companies in the world," Nick Goodwin, an analyst at Johannesburg's Tlotlisa Securties Ltd, said in an interview. The combined company will have a total resource of about 400 million pounds (181 million kilograms) of uranium, he added.
Uranium One will have estimated production of more than 7 million pounds of uranium next year from five projects, at cash costs of about US$10 to US$12 per pound, SXR's executive vice president for Australia and Asia, Greg Cochran, told reporters in Sydney.
"We see US$50 to US$70 as a sustainable long-term price," SXR finance director Jean Nortier told journalists in Johannesburg.
"At those prices, we'll still be making good margins," he added.
By 2012, the company could produce as much as 19 million pounds a year, Nortier said. Cameco, based in Saskatoon, Saskatchewan, produced 20.9 million pounds of uranium last year.
UrAsia mines 1.8 million pounds of uranium in Kazakhstan a year. The company listed its shares on the London Stock Exchange's Alternative Investment Market in August, adding to its main listing in Canada. The company has three mining and exploration projects in Kazakhstan and a fourth exploration venture in Kyrgyzstan, it said on Aug. 21.
Uranium One will consider listing shares in other countries, including the US, the UK and Australia, SXR said.
Rio Tinto Group last month decided against selling its Sweetwater uranium mill and Green Mountain deposit in Wyoming to SXR.
SXR's first mine, the Dominion project northwest of Johannesburg, is due to start production before the end of next month. Last month, the company was awarded a permit to export uranium from its Honeymoon project in Australia, which is set to become the country's fourth operating mine.
SXR Uranium is being advised by BMO Capital Markets, while UrAsia is being advised by Endeavour Financial International Corp, Canaccord Adams Ltd and Paradigm Capital Inc.
UrAsia shareholders will receive 0.45 SXR shares for each issued share of UrAsia, the companies said. UrAsia investors will own 60 percent of the new company, which will have debt of US$183 million.
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