Energy Fuels and Uranerz Energy have announced they’ll be merging. The move has drawn muted praise from analysts.
Energy Fuels (TSX:EFR,NYSE MKT:UUUU) and Uranerz Energy (TSX:URZ,NYSEMKT:URZ) announced Monday that they will be merging, provided shareholders approve the plan, as the uranium market continues to undergo consolidation.
In a joint press release, both bill the deal as creating “the only integrated conventional and in-situ recovery uranium mining company focused solely on the United States,” along with a combined NI 43-101 resource base that will be the largest in the US among producers and near producers.
The deal also gives a combined six uranium sales contracts extending through 2020, with one contract this year for approximately 1 million pounds of U3O8. The combined company — based on the current share price of Energy Fuels — will also be the largest publicly traded uranium company by market capitalization.
However, a report from Dundee Capital Markets authored by David Talbot is more hesitant about praising the agreement.
“While the new Energy Fuels may in fact become a more robust uranium producer, with an even longer project pipeline, we believe it comes at a cost to existing shareholders,” it reads.
The report highlights the situation regarding Uranerz’s debt. According to Dundee, once Uranerz has a new majority owner, the owner will be obligated to either repay the full extent of its debt — to the tune of $22 million — or give creditors shares. However, the report notes that Dundee has spoken with management and has been assured that creditors have signaled they will not demand the debentures be paid in cash upon the change of control.
Furthermore, the report goes on to state that the deal is positive for Uranerz, giving it a “generous” 40-percent premium in a stagnant sector, and the firm maintains a “buy rating” for Energy Fuels with a target price of $9 per share.
For his part, David Sadowski, an analyst with Raymond James, pointed out that the deal shifts away from the rationale shown by Energy Fuels so far.
“Uranerz is following the path of Ur-Energy (TSX:URE,NYSEMKT:URG), a low-cost producer. One could say it detracts somewhat from part of the rationale that people would buy Energy Fuels for, which is a highly-leveraged call option with higher uranium prices,” he said, noting that Energy Fuels doesn’t make a ton of money at current spot prices.
He did call the deal “interesting,” but noted the companies follow completely different methods of uranium production.
Despite the muted praise, both companies are enthusiastic about the deal, and have highlighted the premium price received by Uranerz shareholders as well as how the larger entity will be able to handle the tumultuous uranium market.
“By adding Uranerz to our corporate umbrella, we are creating a multi-source uranium production platform that is better positioned to respond to the dynamic and volatile nature of the uranium market,” said Stephen Antony, president and CEO of Energy Fuels, in a statement.
Uranerz shareholders will receive a 37-percent premium — based on the company’s January 2 closing price on the NYSE MKT — and a 46-percent premium compared to its 20-day volume-weighted average price on the exchange.
“It seems most of the larger shareholders have been in favor of it,” said Derek Iwanaka, manager of investor relations for Uranerz. “It gives us access to a much stronger balance sheet and contracts we didn’t have.” He added that the companies signed a letter of intent in September 2014, with talks ongoing for months beforehand.
The merger is expected to close in June 2015, with Uranerz no longer being listed on the TSX and NYSE MKT. Energy Fuels ended the day down nearly 15 percent, while Uranerz was up 3.01 percent.
Securities Disclosure: I, Nick Wells, hold no direct investment in any of the companies mentioned in this article.
Editorial Disclosure: Energy Fuels is a client of the Investing News Network. This article is not paid-for content.