SXR Uranium One Buying Urasia Energy Ltd. – Good Deal or Bad?

by JDH on February 12, 2007

Huge news today: SXR.TO – SXR Uranium One, Inc. is buying UUU.V – Urasia Energy Ltd. for $3.1 billion, or C$7.05 per share, to form the world’s second- largest uranium producer behind CCO.TO – Cameco Corp. The new company will be the only uranium producer in Kazakhstan, South Africa, Australia, the U.S. and Canada, the five largest holders of uranium deposits. Read the full details at Bloomberg.

This sounds more like a merger than a purchase to me, since SXR Uranium One said it had offered 0.45 of its own shares for each UrAsia share. Current SXR Uranium One shareholders will own 40 percent of the new firm and UrAsia shareholders 60 percent. In other words, Urasia shareholders will control the new company, although SXR Uranium One’s chief executive will head the new firm and SXR Uranium One will nominate six people to the board while UrAsia will have three, so it appears SXR’s management will control the new company. Read more details at CNN Money.

My take on this? SXR was down 5.6% on Monday, and Urasia was up 4%, so obviously the market likes this deal from Urasia’s point of view.

Here’s the SXR chart:


There was an obvious breakout just over $11 (the horizontal red line), but today we saw a break below the blue uptrend line, and that’s bad news.

1 Year Chart
Courtesy of Yahoo! Finance
  On the other hand, you don’t need to be a genius to analyze the Urasia chart; it’s up, up and away.

You will never see a more beautiful chart than this, particularly if you bought it at the breakout point around $3.50 back in November. My cost is around $4.37, so I’m happy with Monday’s close at $6.48.

Obviously I wish I owned more.

So here’s the question: what do we do now?

I like to follow the market, which says buy Urasia and sell SXR. However, if the deal will be done at $C7.05 per share, and Urasia is already at $C6.48, there isn’t much upside left.

I think I will sell SXR and hold my Urasia shares for now, to free up cash to play the next play. Any thoughts? Am I right, or am I missing something?

{ 6 comments… read them below or add one }

Chemist February 12, 2007 at 11:34 pm

It sounds like most people did what you are comtemplating, sell their SXR and kept UUU. I didn’t do anything but waited till end of day to see how other shareholders reacted to the news. I’m going to sell my SXR tomorrow and keep my UUU shares just because I don’t want to have too much money in one company when they finally merge. What do you think about Uramin(UMN.T)? I bought it at $3.33 just before it broked out and finished at $5.55 today. I also own shares in PLD, FSY, and FRG. What will you purchase with the proceeds from SXR? The companies I’m looking at for future purchase are : Khan resources, Energy metals, or MGA. What’s your opinion?

JDH February 13, 2007 at 5:13 am

I’m not sure what I will purchase with my SXR proceeds. It was not one of my large holdings (fortunately I hold a lot more Urasia). Since the new SXR (which will be called Uranium One) will be the second largest uranium stock by market cap (behind Cameco, which I sold last year) it may be that it will need to be a larger percentage of my portfolio.

As for UraMin (UMN.TO), it has already had a huge run since being listed on the TSX last month, so I would be cautious about investing further.

FRG is currently my largest single holding, so I like it. I also own a lot of MGA.

I’ve looked at PLD and FSY in the past and haven’t bought; I’m not familiar with the others you mention, so I guess it’s time for me to do some research to see where the next opportunities will be.

eljefeford February 13, 2007 at 7:45 pm

I own no SXR but I do own a modest chunk of UUU which leads me to some questions: Why are all of you so hot to sell SXR? I would think that with uranium prices expected to break the $100 barrier that owning shares in a company that is actually producing ore and not just looking for it would be a bonus.

One would think that all of the Cameco shareholders that fled after the Cigar Lake fiasco would be looking for a alternative and SXR would seem to fit that bill. My main holdings are in FRG, JNN, MGA and PNP with a little UUU and CXX. I like a mix of explorers and producers although I do know that the juniors have more upside potential.

Chemist February 14, 2007 at 3:10 am

Initially, I think this transaction was diluitive to SXR shares on a technical basis. Longer term, it should be evident that it was a great move and obviously created a rival to Cameco. I’m liking the momentum brewing up with Energy metals (EMC:T, EMU: NYSE). The stock had some nice gains the last few days. The management rang the opening bell at the NYSE on Monday and had a nice 5% pop. This company have all of it’s deposits and all of it’s customers it is aiming at in the US. They are aggresively targeting at 1 million lbs of production in 2008. I think they deserve some attention. I now own PLD, UMN, UUU, FRG, FSY, and MGA. I’m looking closely at EMU or JNN as my next purchase on pullbacks. I was wondering what proportion of your portfolios are made up of uranium stocks? I’m heavily invested at 50% and worry about having too much in uranium. Do you have investments in other areas?

eljefeford February 14, 2007 at 8:24 am

I’m a little more diversified with around 30% in uranium stocks, 50% in energy and the rest spread out in some biotech and commodities like silver, copper, etc. I also like gold bullion as a hedge.

marvelmoney February 16, 2007 at 7:09 am

Sxr has been trading very stongly. I think you could play it either way sxr or uuu. But I believe the combined company will be the goto name in U. Especially as more linfo comes to market about cigar lake. The cameco dollars will start to flow, as they have already been, to other big producers. Like pdn and sxr.

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