Deep Yellow fails to take over Vimy, but Borshoff hasn’t given up on consolidation just yet
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DYL is in the pre-development stage at its Tumas Project in Namibia, and its growth strategy isn’t just focused on growing the existing uranium resources.
The company is also pursuing acquisitions and believes the merger with Vimy – who’s Mulga Rock project in WA has begun its early works program – would have created “a sizeable, multi-jurisdiction uranium entity with global scale and significance.”
Plus, it would have been led by DYL’s a proven and well-credentialed ex-Paladin Energy Ltd management team.
DYL said it has attempted to engage with Vimy’s board on several occasions since 17 September 2021, with the latest proposal at an offer price of 30.25 cents based on a proposed merger ratio of 1 ordinary fully paid Deep Yellow share for every 3.74 Vimy ordinary fully paid shares.
This represents a 10% premium to the previous Vimy closing share price and a 14.15% premium to the Vimy closing share price 18 November 2021.
But DYL said Vimy has allowed the proposal to lapse without any “meaningful engagement” — instead pursuing its second strategic review in 14 months.
Deep Yellow: “We await your response”
— Awful Thoughts (@HorribleDisgust) November 18, 2021
DYL managing director and CEO John Borshoff said the merger would have capitalised on the potential to “build the next Tier-1 uranium producer and drive efficiencies, by increasing scale and scope for ongoing investment in exploration and development of the combined uranium portfolio, to the benefit of all stakeholders.”
“The merger would have delivered to Vimy’s projects an experienced technical team of proven uranium mine builders, able to expedite the development of Mulga Rock,” he said.
“Completion of the merger would have achieved the market consolidation we consider necessary to establish as a first step, a company with significant size and scale to create a leading Tier-1 uranium producer, well positioned to supply a growing uranium market.”
Not to mention DYl would have brought a tidy $73 million balance sheet to the table.
And the company says the combined market cap of around $687 million (based on respective share prices as at 18 November 2021), would have provided an attractive proposition to larger institutional and ESG focused funds “as the growing importance of uranium gathers momentum as part of a zero-carbon future.”
It’s worth noting that Vimy’s leadership team has been stripped bare over the past month or so – which might have been an indication that a takeover was on the cards.
During the September Quarter, Vimy’s MD and CEO Mike Young resigned, with Steven Michael taking the helm in the interim.
The company’s CFO Marcel Hilmer also resigned on 1 November with the company engaging Qlarity Corporate Services to provide CFO services.
Plus, company secretary Matthew Foy steped down following Hilmers resignation with Sharon Coates taking the role and on 19 October, the board welcomed a new non-executive director in Wayne Bramwell.
DYL didn’t hold back when it came to the experience its board and management team could have offered to Vimy.
The company said its sector-leading uranium exploration, development and operational experience would have provided “experienced technical personnel to assist with the Mulga Rock Project and rapidly build organisational capacity.”
The company also said its experience corporate and marketing team has strong relationships with uranium utilities, end users, and financiers – having been responsible for implementing all of Paladin’s previous offtake and project financing agreements.
It’s not the first time Borschoff has slammed the lack of experience in the sector.
Earlier this month he told Stockhead that his ex-Paladin team at DYL is one of the few with experience to develop and operate a uranium project during the upcoming boom.
“Not one of them [other ASX project developers] has been involved in the complete cycle of making a uranium company,” he said.
“How much expertise has been lost since Fukushima? Who the hell is going to build a mine when you have these boards who have done nothing for five years, have no experience, and no team?
“There are many people building reactors that know what they are doing, that have expertise. Meanwhile, there are many companies with uranium deposits who don’t know what they are doing.”
“Over 75 years, only three small cap companies outside of the US have gone into production. One of those was Paladin.
“And I have that team [at Deep Yellow].”
The current uranium sector is defined by a small number of Tier-1 producers, a few mid-tier producers and a large number of junior uranium companies trying to establish a real presence in the sector.
DYL says the market needs consolidation to produce companies with scale, able to provide comfort to utilities with a pipeline of sustainable uranium production.
Borshoff has said for a long time that consolidation was an important part of the uranium sector going forward, and believes the proposal had real potential to deliver benefits to all stakeholders based on current market conditions and the advantages of creating a consolidated uranium entity.
“This merger just makes sense, and it is disappointing that the Vimy Board has chosen not to engage in our proposal, without even giving shareholders the opportunity to consider it,” he said.
But the door to consolidation might not be completely closed.
Vimy said its strategic review process will assess opportunities to rapidly build organisational capacity and de-risk the execution of Mulga Rock – but it will also consider the value that may be achieved through potential corporate transactions with recognised industry participants as an alternative to advancing Mulga Rock on an 100% Vimy basis.
“Vimy is well placed to bring into production the next uranium project in Australia and consequently, we have recently been approached by several parties seeking to become involved in Mulga Rock,” Interim CEO Steven Michael said.
“We are focused on the next major milestone for Mulga Rock but in parallel believe there is strong merit in channelling this growing external interest into a coordinated process with the goal of de-risking the project development and thereby maximising value for all Vimy’s shareholders.”
“This will also assist Vimy with decisions as to whether to expand our project development team or possibly leverage the team and skills of other recognised Uranium players if we decide to go down that path.”