Dropping SXR from nameShareholders of Sxr Uranium One Inc. (TSX: SXR.TO) have approved a minor name change for the quickly rising uranium star just ahead of its pending takeover of Energy Metals Corp. (TSX: EMC.TO).
The rechristened Uranium One Inc., which held its annual meeting Thursday in Toronto, has offered $1.6 billion for Energy Metals in a deal the companies have said will create a new entity with a market capitalization of US$7.8 billion and give it a uranium production forecast to rival industry leader Cameco Corp. (TSX: CCO.TO) by 2013.
The arrangement exchanges 1.15 shares of Uranium One, based in South Africa, for each Energy Metals share. Energy Metals stockholders will own 21 per cent of the combined enterprise.
The takeover of Energy Metals gives the company a well balanced portfolio, CEO Neal Froneman told shareholders Thursday.
"It is a solid base to establishing what we believe will be the leading U.S. uranium producer," he said.
The deal's value, based on Uranium One's closing share price of $16.63 on June 1, represents a 28 per cent premium over the 20-day average before Energy Metals announced it was in talks for a sale.
That price is too high, said RBC Dominion Securities mining analyst Adam Schatzker, who has lowered his price target on the stock to $15 from $19.
"While we approve of the logic of the transaction as it diversifies risk and helps build a more robust production profile, we feel the price being offered is too high. As a result, we are lowering our target price," Schatzker wrote in a note to investors, in which he also pointed out many positive aspects of the deal.
"The deal would diversify the production base and political risk profile of Uranium One, diluting what we believe is a high risk in Kazakhstan," Schatzker said. "We believe EMC will provide SXR with a quality portfolio of U.S. development projects with near-term production."
Schatzker said that the dilutive effect of the takeover could reduce earnings per share by 27 per cent next year, 25 per cent in 2009, and 23 per cent in 2010, although he said the company's net asset value per share is only slightly diluted to C$10.65.
Schatzker also noted Energy Metals is locked into only one contract for delivery over six years, starting in 2010, for a total of 1.4 million pounds, making it relatively unhedged.
The company has said it expects to produce about 28 million pounds of uranium, used to fuel nuclear power plants, by 2013.
Of that, about 25 per cent is expected to come from the company's new mine in South Africa, Dominion Reefs. Uranium One said Cameco's production forecast is for more than 27 million pounds by 2011.
Froneman said the U.S. has 103 nuclear facilities with an annual demand of about 50 million pounds per year. But domestic production is only about four million pounds per year, he said.
The boards of both companies have approved the deal, Energy Metals shareholders are to vote on it in late July and it's expected to close in August.
Energy Metals has agreed to pay a break fee of C$55 million if another bidder prevails.