Deep Yellow (ASX: DYL) chief executive officer John Borshoff has laid out a detailed case for mergers in the uranium sector after the company’s attempt to acquire Vimy Resources (ASX: VMY) was allowed to lapse by the target company.
He says Deep Yellow remains open to talks with Vimy, adding that an agreed merger was still the best option for the two companies.
The company has just revealed it has approached Vimy on several occasions since September with plans to merge their projects and create a tier one uranium player with assets in Namibia and Australia.
The offer would have seen Vimy shareholders having agreed to one Deep Yellow share for 3.74 Vimy shares, which repsents a premium of 14%.
‘Limited engagement’ by Vimy directors
Mr Borshoff said the attempt to acquire Vimy lapsed after “limited engagement” with the Vimy board.
He said that Deep Yellow is in a “unique” position to de-risk Vimy’s Mulga Rock project in Western Australia.
Mulga Rock has a stated capex of $393 million.
“With a market capitalisation of around $280 million and cash balance of $22 million, Vimy shareholders will be materially diluted as that company moves towards development,” he noted.
By contrast, a merged entity would be capitalised at $670 million with $95 million cash.
“As Mulga Rock will be the first uranium mine ever built in Western Australia, this carried tremendous responsibilities.
“Starting a new uranium mine like Mulga Rock has risks, with the need for managerial experience to solve technical, construction and commissioning issues, along with community engagement, environmental and government approvals,” he said.
Existing uranium juniors fragmented, unfunded
Mr Borshoff then outlined his assessment of the uranium sector at present.
While the prospects for uranium miners appear to be brightening, the result of the prolonged spot price turndown has meant many uranium miners have ceased production and, over the past decade, there has been limited development.
“The existing uranium junior miners are fragmented, inexperienced and unfunded,” he added.
As a consequence of all the above, there has been a dearth of consolidation and, meanwhile, there has been a “substantial” brain drain with talented executives either moving to other commodities or retiring.
New director with extensive mining and energy experience
In a separate development, Gregory Meyerowitz has been appointed a non-executive director at Deep Yellow.
A former senior partner at Ernst & Young, Mr Meyerowitz’s resources sector experience, which is described the by the company as “extensive”, has included working in uranium.
He is a graduate of the University of Witwatersrand in South Africa.
Deep Yellow chairman Chris Salisbury said that during the time when there is a high level of competition, the company continues to attract “tier-one” talent.