Energy Fuels Resources to merge with Magnum Uranium

Energy Fuels Resources (EFR-T) is a Toronto-based uranium and vanadium development company that rehabilitates formerly producing mines. It also plans to be the first company in more than 25 years to build a new uranium mill in the United States.

Magnum Uranium (MM-V) is a Vancouver-based exploration company developing uranium assets in Canada and the U.S.

The two juniors plan to pool their assets and come out ahead with a stronger resource base and C$13.5 million in cash that will allow them to weather the current downturn in the uranium market.

The boards of both companies have approved an all-share transaction in which Magnum Uranium shareholders will receive 0.78 shares of Energy Fuels for each share of Magnum they own.

At closing share prices of 20¢ per share for Energy Fuels and 11¢ per share for Magnum Uranium on the day prior to the announcement, the deal represents a 42% premium to Magnum Uranium’s shareholders.

Based on Magnum Uranium’s 29.9 million shares outstanding, Energy Fuels will have to issue about 23.33 million shares to complete the proposed acquisition.

The combined entity will trade under the name of Energy Fuels and retain its trading symbol on the Toronto Stock Exchange.

Energy Fuels brings C$9.5 million to the new balance sheet while Magnum Uranium contributes C$4 million. Neither company has any debt.

The merger will give the new company a total of 4.1 million lbs. uranium oxide in the measured and indicated category contained in 838,786 tons of mineralized material. In the inferred category, the combined company will have 3.4 million lbs. uranium oxide contained in 814,500 tons of mineralized material.

Of that amount, Energy Fuels contributes 2.7 million lbs. of measured and indicated uranium oxide resources contained in 504,586 tons of mineralized material and an additional inferred resource of 2.3 million lbs. uranium oxide contained in 497,600 tons of mineralized material.

Magnum Uranium brings 1.4 million lbs. of measured and indicated uranium oxide contained in 334,200 tons of mineralized material and an additional inferred resource of 1.1 million lbs. uranium oxide contained in 316,900 tons of mineralized material.

Subject to a final feasibility study, the 838,786 tons of measured and indicated resources have the potential to supply mill feed material for Energy Fuels’ new mill – to be called Pinon Ridge — at a rate of 500 tons per day or 175,000 tons per year for almost five years.

If the new company can convert its 814,500 tons of inferred resources to economically feasible measured and indicated tons, it would represent an additional five years of mill supply, the companies say.

Energy Fuels plans to get all approvals and start building its Pinon Ridge mill by the second quarter of 2011. The new 1,000-ton per day uranium/vanadium mill is about 19 km west of Naturita, Colorado in the Paradox Valley.

Magnum’s National Instrument 43-101 uranium resource all stems from a single property: San Rafael, which is about 200 km northwest of the Pinon Ridge mill site.

In addition to San Rafael, Magnum Uranium’s primary property holdings are in Wyoming, Utah, Idaho, and New Mexico and in Canada’s Athabasca Basin.

Magnum has a 100% interest in exploration permits covering 416,000 acres in the Athabasca Basin. Its permits are northwest of operating uranium mines at McClean Lake and Rabbit Lake.

Its primary target, the Stony Road property, is being drilled by Magnum’s joint-venture partner, Triex Minerals (TXM-V).

Energy Fuels has two fully permitted conventional uranium mines in the Colorado Plateau, the Whirlwind mine and Energy Queen, both of which it acquired in 2006.

Its Whirlwind mine is “ready to go” but is currently on standby due to low uranium prices and the lack of a milling agreement. At Energy Queen, Energy Fuels must complete refurbishment work, as the mine has to be dewatered (it hasn’t been pumped since some time in the 1990s). Once the decision is made to go ahead with it, the company said, the mine could be ready to go in six to nine months.

Energy Fuels has about 40,000 acres of uranium properties spread across Colorado, Utah, and Arizona.

Magnum has 15,000 acres of uranium properties in Utah, Idaho, New Mexico, and Wyoming, including three properties in close proximity to Cameco‘s (CCO-T, CCJ-n) Smith Ranch ISL mine in Wyoming’s Powder River Basin.

Gary Steele, Energy Fuels’ vice president of corporate marketing, said the deal was beneficial to both companies.

“It’s the extra resources to feed our mill from San Rafael and it’s C$4 million in cash that buys over another year of life in this down uranium market,” Steele said in an interview from Colorado.

He also pointed out that Magnum Uranium’s insitu properties in the Powder River Basin of Wyoming would be Energy Fuels’ first ISR properties, and that Magnum’s land in the Athabasca Basin was compelling too.

“It’s prospective acreage in elephant country for uranium, where the highest grade uranium in the world is found, and may ultimately prove to be of far more value than we are able to assess at this time.”

From Magnum Uranium’s perspective, Steele added, the deal was very attractive because they significantly improve their liquidity in the marketplace. “We’re doing significantly more volume than they do,” Steele said. “We’re on the TSX while they are on the venture exchange and have been pretty thinly traded.”

Craig Lindsay, Magnum Uranium’s president and chief executive said the combination of Magnum’s portfolio of exploration and development properties with Energy Fuels’ permitted uranium mines and milling strategy would “significantly enhance the ability of the enlarged entity to capitalize on the strengthening global nuclear power sector.”

At presstime, Magnum Uranium was trading at about 13.5¢ per share and has a 52-week trading range of 7¢-65¢ per share.

Energy Fuels trades at about 22¢ per share and has traded in a 52-week range of 11¢-$1.48 per share. Energy Fuels has about 52.8 million shares outstanding.