Stranger Holdings has completed the reverse takeover of a 70% interest in the Henkries uranium deposit and prospecting right in South Africa to form the renamed Neo Energy Markets (LON: NEO). Dealings commence on the standard list on 9 November 2023.
Neo Energy Markets will spend more money to earn the full 70% interest and complete a feasibility study. This is a prospect originally discovered by Anglo American in 1975, but it was not developed at the time because of a slump in the uranium price.
The outlook for uranium is very different in the next decade. Nuclear power is back in favour because of its efficiency. The uranium price has already risen significantly in recent years as demand rises and existing supply starts to tail off. Inventories are making up for the current shortfall, but that cannot last.
Nuclear generation capacity is expected to grow by 2.6%/year up until 2040 with a sharp increase in demand from Asia. This means that there needs to be large amounts of uranium production developed over the coming years.
That places Neo Energy Markets in a strong position. The JORC compliant mineral resource at Henkries Central and Henkries North is 4.7m lbs U3O8 with a JORC compliant exploration target of 1.1-2m lbs at Henkries North. Less than 10% of the area has been fully explored. A 7,000-metre drilling programme is planned.
The uranium mineralisation is hosted in shallow sediments, and it is generally within eight metres of the surface. That will keep the costs of mining down, with pilot scale tests suggesting 85% leach recovery. It is also in an area with the required infrastructure.
If things go well the mine could be up and running in three years. Even if it takes longer, it will come on stream at the right time to reap the benefits of falling global production.
Funding
Neo Energy Metals will raise £4.88m, but some of these shares will be issued in tranches over the coming year at 0.75p each. There is also a debt for equity swap. Quinton van der Burgh already owns 4.93% and he is subscribing for the additional shares, which would give him 28.8% of the company. He has just been appointed to the board of Shuka Minerals (LON: SKA).
There are admission costs of £472,000, plus transaction costs of £1.59m. That leaves £2.8m. This will fund the business so that it can complete the feasibility study for the project.
The shares issued were at various prices. There were 162.1 million issued at 0.2267p each, 170.5 million at 0.75p each and 12.92 million at 1.25p each. There are another 406.7 million to be issued at 0.75p each. The Stranger Holdings share price was suspended at 1.375p.
There are 260 million performance shares that will convert into ordinary shares after two individual milestones. The first 50% tranche depends on the achievement of a JORC compliant resource of more than 10 million tonnes of U3O8 at an average grade of 399ppm. The rest will be converted on the grant of the mining right for the Henkries project.
If the performance shares are issued, there are also 100 million shares issued as deferred consideration and 275.35 million warrants can be exercised, then the fully diluted share capital is 2.26 billion shares. At 1.25p/share, the diluted market capitalisation is £20.3m.
Two previous deals announced by Stranger Holdings failed. When a company reverses into a shell, sometimes there are original investors that are not attracted to the acquisition and decide to sell. This is not a reflection of the business because they probably expected an acquisition in a different sector.
Even though there may not be much selling, it could hold back the share price in the short-term and provide opportunities to buy. The project appears well timed because of the increasing gap between supply and demand. Because of the past exploration, Neo Energy Markets knows that the uranium exists it is just a question of assessing its full extent and getting it out of the ground. That will require decisions on financing.