SXR Uranium Agrees to Buy UrAsia for $3.1 Billion

SXR Uranium One Inc. agreed to buy UrAsia Energy Ltd. for $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 ($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 Feb. 9 closing price in Toronto, the companies said today. SXR’s stock rose 6.8 percent to a record.

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 U.S. 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 climbed 6.5 rand to 102.5 rand at 2:14 p.m. in Johannesburg, valuing the company at 13.8 billion rand ($1.9 billion). The stock, which has more than doubled in the past year, earlier climbed as much as 12 percent. UrAsia’s stock jumped 13 percent to 299.5 pence at 12:16 p.m. in London.

Nuclear Industry

The price of uranium has doubled to $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.

By 2015, as many as nine new reactors may be operating in Latin and North America, seven in Europe and 23 in Asia, Jack Fuller, chief executive officer of Wilmington, North Carolina- based Global Nuclear Fuel LLC, said in October.

Belarus, hardest hit by the 1986 Chernobyl nuclear accident that released 400 times the radiation of the Hiroshima bomb, will expedite its nuclear power program as it seeks alternatives to Russian fuel, President Alexander Lukashenko said last month.

After Chernobyl

The combined company, to be known at Uranium One Inc., will have a market value of about $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-based Tlotlisa Securties Ltd., said in an interview. The combined company will have a total resource of about 400 million pounds of uranium, he added.

Uranium One will have estimated production of more than 7 million pounds of uranium in 2008 from five projects, at cash costs of about $10-$12 per pound, SXR’s executive vice president for Australia and Asia, Greg Cochran, told reporters in Sydney.

“The new Uranium One will be an exciting, low-cost, growth- orientated uranium company with five mines in operation by the first quarter of 2008,” SXR Chief Executive Officer Neal Froneman said in the statement.

Big Player

By 2012, the company will produce “upwards of between 12 and 15 million pounds per annum,” Cochran 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 Aug. 21.

“For UrAsia, the deal means getting into a less risky environment,” Steve Meintjes, a mining analyst at Imara SP Reid in Johannesburg, said in a telephone interview. Shareholders of SXR, whose projects are in South Africa, Australia and the U.S., will need to be assured that minerals rights are secure in Kazakhstan, Meintjes said.

SXR planned to acquire assets in North America, southern Africa or Australia by the end of March, Froneman said.

Listing Options

Uranium One will consider listing shares in other countries, including the U.S. and Australia, Cochran 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 March. 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.

Source: www.bloomberg.com