In a bid to create a "focused uranium company," Johannesburg-based Aflease Gold and Uranium Resources Ltd. has agreed to swallow Toronto-based Southern Cross Resources Ltd. in a deal worth about $314-million.
The deal, announced yesterday, would combine Aflease's uranium and gold assets in South Africa with Southern Cross's uranium projects in Australia and Canada.
The pact comes at a time when uranium prices are soaring and many analysts are predicting a shortage of the commodity, used as a fuel in nuclear reactors.
China alone has announced plans to build as many as 30 reactors over the next 15 years. India and Russia are also expected to build dozens of nuclear reactors to address growing energy demand.
In a statement yesterday, Aflease and Southern Cross executives said the combined company would have a portfolio ranging from exploration properties to advanced projects, and production from two sites could begin as early as 2007.
The deal, which the companies described as a definitive premerger agreement, is subject to shareholder and regulatory approvals, including a green light from South African authorities.
The combined company would be called SXR Uranium One Inc. and would trade on the Toronto Stock Exchange, with a secondary listing on the JSE Securities Exchange in South Africa.
"The merger will enhance SXR Uranium One's access to international capital markets," Aflease chief executive officer Neal Froneman said yesterday in Johannesburg.
Aflease has no producing assets. It previously produced gold, but closed its gold mines in December, 2003. South African gold producers have been struggling with higher costs as the rand gained ground against the U.S. dollar.
In May, Aflease said it planned to raise $100-million (U.S.) by issuing debt and selling shares to allow it to start uranium production by 2007.
Aflease owns the Dominion and Rietkuil uranium properties in South Africa. In a recent presentation, Aflease said the Dominion mine was in production between 1955 and 1961. The Reitkuil mine and plant were built, but with the collapse of the uranium price in the 1980s, the plant did not go into production and was later dismantled.
It can take years to take a "greenfield," or new, uranium project through exploration, development and construction. Aflease, with Southern Cross, aims to get a jump on competitors by using existing infrastructure to get uranium to the market by 2007.
Under the terms of deal, Aflease shareholders would receive 0.90 shares of Southern Cross for each Aflease share. At closing, former Aflease shareholders will own about 83 per cent of the new company and Southern Cross shareholders will own about 17 per cent.
Southern Cross, while a much smaller company in terms of market capitalization, brings a fully permitted mine -- the Honeymoon project in Australia -- to the table.
On the Toronto Stock Exchange yesterday, Southern Cross shares rose by 7 cents (Canadian) or 7.5 per cent to close at $1.01.
Aflease shares fell by 29 rand cents (5 cents) to 4.90 rand on the Johannesburg stock exchange.
Wendy Stueck