Lotus Resources and A-Cap Energy merge to create new African uranium powerhouse

Junior Australian uranium companies Lotus Resources (ASX: LOT) and A-Cap Energy (ASX: ACB) have agreed to come together to help develop two exciting projects in Africa.

The aim of the merger is to progress Lotus’ ready-to-resurrect Kayelekera uranium project in Malawi and A-Cap’s world class Letlhakane uranium asset in Botswana.

Currently on care and maintenance, Kayelekera is ranked as the fourth largest uranium asset globally based on its historical annual production.

The project produced ~11 million pounds of triuranium octoxide (U3O8) equivalent over five-years between 2009-2014, before the asset was shutdown to preserve its longevity due to a sustained low uranium price.

Already covered by a mining licence and environmental permits and with the government as 15% owners of the projects, Lotus considers Kayelekera has all the elements to quickly return to production.

That sentiment is supported by a 2022 definitive feasibility study (DFS) which found that Kayelekera ranks as one of the lowest capital cost uranium projects globally, which could quickly recommence production once a final investment decision (FID) is made.

Globally significant undeveloped asset

A-Cap’s Letlhakane Project has been identified as one of the world’s largest undeveloped uranium deposits, with a total JORC resource of 365.7 million pounds of uranium.

The project has also been granted a mining lease which is valid to 2038.

Lotus managing director, Keith Bowes, said the uranium assets of the two companies will create a dedicated African uranium vehicle which can meet the needs of the growing uranium market.

“Lotus’s resource base will increase almost five-fold, from 51.1Mlb to 241.5Mlb (100% basis), while A- Cap shareholders will gain exposure to a production ready asset in Kayelekera. The shareholders of both groups will share in the benefits of a long-term development project complementing Kayelekera’s shorter term uranium production profile.”

Mr Bowes said the merger brings together two highly complementary and synergistic projects, both located in the same region, and both with significant leverage to the global uranium market.

Market re-rating expected

The two companies believe the merger will provide their respective shareholders with a combined mineral resource inventory of 241.5 million pounds of triuranium octoxide (U3O8) which is expected to lead to a market re-rating.

A-Cap chairman, Jiandong He, said the Letlhakane project is at a development stage where it is positioned to become a significant global uranium supplier in an ever- improving price market.

“A-Cap Shareholders will benefit from the early production at Kayelekera while also drawing greater value from the longer term development of Letlhakane. I encourage A-Cap shareholders to support the Merger and am confident of the success of the Merged Group.”

The two companies and their advisors are confident the merged entity’s project portfolio will have an enhanced potential to be developer as they will be significantly more attractive to major utilities and potential offtake partners.

They also believe that the scale of the combined assets will prove to be an attraction to future investors as they seek future debt and equity financing de-risks project development.

Scheme of arrangement details

The boards of both companies have recommended that their respective shareholders support the proposal.

Under the scheme of arrangement, Lotus will acquire 100% of A-Cap shares. Under a related share scheme, A-Cap shareholders will receive 1 new Lotus Share for every 3.54 A-Cap Shares held on the scheme record date.

The merger transaction implies an offer price of approximately $0.0521 per A-Cap Share, representing a premium of 20.7% to the closing A-Cap Share price on the last trading day for A-Cap Shares and Lotus Shares prior to the merger announcement.

Following implementation of the share scheme, Lotus shareholders will hold approximately 79.0% of the merged group and A-Cap shareholders will hold approximately 21.0%.

A-Cap’s largest shareholder, Singapore Shenke International Investment, which holds around 37.95% of the company’s shares on issue, has indicated it intends to vote all A-Cap shares it holds in favour of the share scheme.

The proposed merger has an October 2023 target for implementation.

Strong market forecasts

The uranium spot price is currently trading at $83 per pound, up from $64 last month and up from $40 one year ago.

Trading Economics is forecasting the energy commodity will trade at around $83 per pound by the end of this quarter and around $86 in 12 months time.