Monsters of Rock: Another significant ASX uranium merger as yellowcake interest goes nuclear

Uranium prices are in the mid-50s, their best launching point for any contracting cycle according to Cameco’s Grant Isaac
A second significant merger in two years has occurred in the ASX uranium space
Lotus will take over A-Cap Energy in scrip deal valuing the Letlhakane project owner at ~$65 million

Uranium prices are having a solid 2023, one of the few commodities to be a regular winner on our Up, Up, Down, Down monthly commodity update this year.

READ: Up, Up, Down, Down: June proves a solid month for commodities as iron ore runs and lithium holds firm

At US$55.30/lb, according to Numerco today, the nuclear fuel is performing at levels around three times higher than its cyclical lows five years ago.

Behind that is a couple things. Sprott and other physical uranium investors have soaked up available tonnes on the spot market.

Meanwhile a number of utilities previously happy to buy up cheap uranium on spot prices are now turning back to long-term contracts.

We are in the midst of one of the strongest contracting years in yonks.

Grant Isaac, the CFO and executive VP from Canadian giant Cameco says “we’re in the early innings of a security of supply contracting cycle”.

“One where we just think the return to production economics is an inevitable conclusion because we’re not even at replacement rate contracting yet as evidenced by recent data from UxC and we’re already in the mid-50s for uranium prices.

“We’ve never started from this high a base before.”

Companies prepping for this predicted launch of demand are moving to beef up before it happens.

Last year we saw the merger of Deep Yellow (ASX:DYL) and Vimy Resources. Now African explorers Lotus Resources (ASX:LOT) and A-Cap Energy (ASX:ACB) have jumped into bed in an all-scrip deal which values the latter at ~$65 million.

Lotus flowers in Malawi

Lotus owns the Kayelekera mine in Malawi, which produced around 11Mlbs of U3O8 equivalent over five years between 2009 and 2014.

A DFS in August 2022 placed a US$88 million capital cost on bringing the mine back to operation.

The addition of A-Cap’s Letlhakane in Botswana would provide scale and a long-term development asset to add to Lotus’ production ready Kayelekera, with a combined resource of 241.5Mlb.

The deal already has the support of A-Cap’s board and largest shareholder Singapore Shenke International Investment Pte Ltd, which holes 37.95% of its shares.

“Combining the uranium assets of Lotus and ACap creates a dedicated African uranium vehicle that meets the needs of the growing uranium market,” Lotus MD Keith Bowes said.

“Lotus’ resource base will increase almost five-fold, from 51.1Mlb to 241.5Mlb (100% basis), while ACap shareholders will gain exposure to a production ready asset in Kayelekera.

“The shareholders of both groups will share in the benefits of a long-term development project complementing Kayelekera’s shorter term uranium production profile.”

A-Cap deputy chairman Paul Ingram said being part of a larger group would reduce development, funding and execution risk for the takeover target.

“To A-Cap Energy shareholders, this merger provides immediate value realisation at a premium. It also provides the opportunity to become a shareholder in Lotus, a larger, more liquid vehicle, while retaining meaningful exposure to Letlhakane and significant leverage to the global uranium thematic.”

Lotus shareholders, will hold 79% of the merged group, with A-Cap investors to receive 1 LOT share for every 3.54 A-Cap shares, equivalent to 21% of the larger company.

It follows significant movement from restart plays to get their mines back into production this year.

Boss Energy (ASX:BOE) expects to begin production later this year at the Honeymoon mine in South Australia, with Paladin Energy (ASX:PDN) currently reviving its Langer Heinrich mine in Namibia and Peninsula Energy (ASX:PEN) restarting the Lance ISR project in Wyoming.