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.

The FTSE 100 was in a holding pattern on Wednesday as investors weighed contradictory commentary on interest rates, falling oil prices and soft Chinese economic data.

London’s leading index was up just 4 points to 7,414 at the time of writing.

“The FTSE 100 may have recovered from the lows seen in late October, as investors react positively to the latest decisions and noises from central banks, but it is stopping short of a full-blown rally for now,” said AJ Bell investment director Russ Mould.

“The index is flat, despite more gains in the US overnight, and the debate continues to oscillate between higher rates for longer and the prospect of rate cuts in 2024. Evidence of the continuing lukewarm Covid recovery in China is also not helping sentiment with Asian markets weak.”

Weaker oil prices were also a drag on equities as oil majors fell and concerns rose about demand.

FTSE 100 movers

Marks & Spencer was the FTSE 100’s top gainer after announcing a bumper increase in profits and sales to the extent the company declared their first dividend since 2019. Investors would have been pleased to see strength in the clothing business as a turnaround strategy shows signs of success.

“The real talking point was the reintroduction of dividend payments, which should put a spring in investors’ steps. The yield is relatively low, but it marks a moment of significance for the group, and it’s a real statement of confidence around the outlook for the business from M&S’ management,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

Marks & Spencer shares were 9% at the time of writing.

Hargreaves Lansdown was at the bottom of the pile on Wednesday with losses of 3% after being downgraded to ‘sell’ by analysts at UBS who gave the wealth platform a 650p price target. Hargreaves Lansdown last traded at 705p.

Associated British Foods continued yesterday’s rally adding 2.5%.

British pub chain JD Wetherspoon announced a rise in first-quarter sales, supported by competitive pricing and consistent demand for its affordable products amid the cost of living challenges.

J D Wetherspoon shares were up by 0.8% at the time of writing.

The hospitality industry in the UK has benefited from robust customer spending, aiding its recovery from pandemic-related lows.

The group reported a 9.5% increase in like-for-like sales for the 14 weeks ending November 5, with total sales up 8.1% year-to-date.

The company, with 816 pubs in the UK and Ireland, plans to invest approximately £70 million this year to enhance its pubs.

The UK-wide-wide of living crisis remains a push factor affecting lower customer spending at pubs.

“It’s hard to tell whether punters at J. D. Wetherspoon are celebrating or drowning in their sorrows. But either way, they’re spending more on like-for-like sales in the first 14 weeks of the financial year, up 9.5%. This is all the more impressive given that the pub chain reported similar growth in the same period last year. Founder Tim Martin noted easing inflationary pressure but cautioned that suppliers (such as brewers) were still under pressure from elevated energy prices,” said Hargreaves Lansdown’s Derren Nathan.

“The company has been trimming the estate, with a further net reduction of nine pubs in the period. The balance sheet strengthened materially last year, and that’s facilitating a material uplift in investment in Spoon’s remaining sites, with Capex guided to increase from £46.9 million to £70 million,” Derren further added.

ITV shares plunged on Wednesday as the broadcaster and content creator said the advertising market continued to face difficulties in the post-COVID environment.

ITV shares had dropped by 5.2% to 61.8p at the time of writing.

ITV further announced on Wednesday that lower demand from British and international broadcasters for its content will affect its studio business in Q4, leading to lower-than-anticipated growth for the unit in 2023.

Shares in the free-to-air broadcaster are nearing levels last observed during the initial market downturn during the COVID-19 pandemic. According to AJ Bell investment director Russ Mould, “it’s just the “evidence of just how tough the advertising market continues to feed through.”

The digital segment of the business is sustaining advertising revenue more effectively, indicating a more loyal and measurable audience. The Studios division is showing strong performance. However, according to Russ Mould, these are not sufficient to make up for the poor performance of old-fashioned TV.

ITV has been working to diminish its dependence on conventional operations by expanding its digital footprint, which includes the introduction of the ITVX platform, and by investing in the ITV Studios production division.

Russ Mould further stated that “scaling back marketing is often a go-to strategy when businesses are confronted with tough economic times. The company’s linear TV looks like a particular victim, as the format is less appealing to advertisers and the amount of eyeballs watching ‘live’ continues to decline.”

“Cost cuts can take the business so far, but they can also damage the product and the brand—a similar conundrum faces Daily Mirror and Daily Express publisher Reach, which announced further job cuts today,”, he added.

Analyst price forecast compiled by the Financial Times forecast, ITV plc has a median target of 102.50p, with a high estimate of 121.00p and a low estimate of 49.00p.