Energy Fuels to buy Strathmore for its uranium resource
Leading U.S. uranium producer, Energy Fuels Resources (EFT-T), is eyeing Strathmore Minerals’ (STM-T) nearby uranium projects in a move to boost its resources and improve operations.
Energy Fuels, which churns out a million lb. U3O8 a year or 25% of uranium in the U.S., has penned a letter of intent to acquire Strathmore through a plan of arrangement.
Under the transaction, Strathmore shareholders could exchange each share for 1.47 Energy shares, reflecting a 31% premium based on the 20-day volume weighted average price on May 22. This deal values the Vancouver-based firm at roughly $30 million, writes Rob Chang, a Cantor Fitzgerald analyst, in an email.
The driving force behind the proposed transaction is the proximity of the companies’ assets to one another, allowing for operational synergies, comments Chang, adding he does not officially cover either outfit.
Of note, Strathmore’s 28.7-million-lb.- U3O8 Roca Honda project in New Mexico is within trucking distance of Energy Fuels’ White Mesa, the only operating uranium mill in the country. The 2,000-ton-per-day mill is located in Blanding, Utah, and services uranium projects in the Four Corners region, including Arizona, New Mexico, Colorado and Utah.
This transaction would make it possible to treat Roca Honda’s ore at White Mesa rather than at a newly constructed mill, shrinking the project’s capital costs and permitting timeline, the companies outline in a joint release.
Energy Fuels adds Roca Honda could potentially become “the largest, and one of the lowest cost, producing mines” in its portfolio.
Roca Honda, a 60-40 joint-venture between Strathmore and Japan’s Sumitomo, contains 2.1 million measured and indicated tons grading 0.4% U3O8 for 16.8 million lb., plus another 1.4 million inferred tons of 0.41% U3O8 for 11.9 million lb.
Strathmore’s second core asset is the 10.9-million-lb.-U3O8 Gas Hills project, 45 km from Energy Fuels’ Sheep Mountain uranium project in Wyoming’s Fremont County.
A possible combination of the deposits could pare down costs through the use of a common process plant, equipment fleet, and personnel, as well as accelerate the development timeline for Gas Hills, the companies say.
Strathmore is currently advancing Gas Hills with South Korea’s utility giant, KEPCO, which has an option to earn up to 40% of the project by spending US$32 million over three years starting in 2013.
Strathmore also holds various mining claims contiguous with Sheep Mountain that if merged could ease the permitting process for Energy Fuels as well as trim costs. In addition, the junior has an array of other U.S.-based uranium prospects.
Moreover, this “transaction will make Energy Fuels one of the top two or three largest holders of a NI 43-101 resource in the U.S., with over 125 million lb. of uranium,” says Curtis Moore, Energy Fuels’ director of investor and public relations, in an email. “Perhaps most importantly, we have the opportunity to enhance our relationships with KEPCO and Sumitomo, who we consider key strategic partners,” he adds.
KEPCO, the largest shareholder of both companies, owns 9.1% of Energy Fuels and 11.7% of Strathmore. It intends to enter a support agreement with each company.
Once the deal closes, KEPCO will hold 9.6% of Energy Fuels and will be able to nominate a director to join the miner’s board, while Strathmore shareholders will own 21% of the company.
The transaction should wrap up in August pending shareholder and regulatory approvals, cementing Energy Fuel’s position as a leading uranium producer in the U.S.
On average, the country produces around 4 lb. of uranium a year, while consuming over 50 million lb. annually, says Chang, adding Energy Fuels is one of the world’s five publicly traded uranium producers.
Chang expects the fundamentals for uranium to pick up in the near-term and forecasts the spot price per lb. to average $46.18 in 2013, $60.63 in 2014 and $69.38 in 2015.
On the transaction news, released on May 24, Strathmore surged 30% to 23.5¢ and Energy Fuels gained nearly 10% to end at 17¢.