Uranium

Deep Yellow-Vimy Resources merger to create global uranium player with scale

Fri 01 Apr 22, 12:21pm (AEST)
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Key Points

  • A merged entity would become the ASX’s third largest active uranium company
  • Deep Yellow to buy Vimy Resources for an all scrip $658m deal
  • Combined entity will have a resource base of 389Mlbs, with annual production capacity of up to 6.5Mlbs

When it comes to mergers, timing is clearly king, and that especially goes for mining stocks that recognise more than most the need to ‘feed the ducks while they’re quacking’.

Decade-high uranium prices and positive sentiment towards the yellow metal (US$58.08/lb) - which on some projections could top US$100 a pound – is clearly a motivating factor behind a rekindled bid by Deep Yellow (ASX: DYL) to acquire fellow uranium project developer Vimy Resources (ASX: VMY).

A report by Austex Resource Opportunities which covers share price movements ranks ASX-listed uranium stocks as the second-highest (behind lithium stocks) moving group over the last 12 months. In summary, 19 uranium stocks have jumped 119% over the last year.

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Supply issues

While yet to be factored into future upside, Russia’s war with Ukraine is also expected to have a material impact on supply.

Russia’s Yakut uranium deposits, owned by Rosatom, the state corporation, holds approximately 357,1 thousand tons of uranium, making it the world’s largest.

Thumbs up

With prices up 25% since its first bid was rejected last November, Deep Yellow has revealed plans to buy Vimy Resources for an all scrip $658m deal.

The market was in no doubt as to the takeover target’s feelings towards the deal with the bid securing the immediate support of the Vimy Resources board.

Main focus

The main focus of the merged entity will be Vimy’s Mulga Rock development, an open-pit uranium mining project near Kalgoorlie WA, and  Deep Yellow’s Tumas project in Namibia.

Steven Michael CEO of Vimy clearly sees the merger as providing an attractive catalyst to the development at Mulga Rock project.

Despite the previous policy overhang confronting the mining of uranium, WA’s Labor Government has stated that uranium mines, like Mulga Rock, approved before it entered office in 2017 would be able proceed despite its stance on the extraction of the nuclear fuel.

“The Merger provides Vimy Shareholders the opportunity to share in the expected significant benefits of being part of a larger, geographically diverse Merged Group, with the expertise to develop the full portfolio of assets in the near term”, said Michael.

Scale and know-how

Deep Yellow’s CEO John Borshoff sees a merged entity – which would become the ASX’s third largest active uranium company - as a significant value-creating opportunity for both Deep Yellow and Vimy Shareholders.

Assuming Vimy shareholders give the thumbs up, Borshoff believes the deal’s milestone as the first major consolidation since the Fukushima meltdown in 2011 shouldn’t be underestimated.

“The merger combines two world class assets, both in Tier-1 mining jurisdictions, into a single group with scale and know-how,” says Borshoff.

“This transaction also builds on the pipeline of exploration assets able to add growth organically and critically, creating a platform for additional value accretive acquisitions”.

The deal: Key milestones

  • Vimy shareholders will receive 0.294 Deep Yellow shares for every Vimy share they own, which implies a 28.5c per Vimy share, representing a 35.4% premium to the 30-day volume-weighted average price and an 18.8% premium to Vimy’s latest closing price on 25 March 2022.

  • Upon implementation of the Scheme, Deep Yellow shareholders will hold 53% of the Merged Group and Vimy Shareholders will hold 47%.

  • The merger is expected to create a new global uranium player with significant scale, and cash resources of $106m.

  • The combined entity will have a resource base of 389Mlbs, with annual production capacity of up to 6.5Mlbs.

Consensus

Consensus does not cover Deep Yellow, based on Morningstar’s fair value of $1.38, the stock is undervalued.

Consensus on Vimy resources in Moderate Buy, and based on Morningstar’s fair value of $0.34, the stock is undervalued.

 Just before noon today, Deep Yellow and Vimy were down -1.46% and -1.85% respectively.

 

Written By

Mark Story

Editor

Mark is an award-winning investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics, a diploma in journalism and has completed the Institute of Directors course. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content.

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