A-Cap Energy and Lotus Resources Merger Update: What Investors Need to Know

About A-Cap Energy

A-Cap Energy is an Australian resources company focused on developing critical minerals that will support the global transition to carbon net zero. The company's flagship asset is the Letlhakane Uranium Project in Botswana, which hosts one of the world's top 10 undeveloped uranium resources with 365.7 million pounds of contained U3O8. A-Cap is also advancing the Wilconi nickel-cobalt project in Australia to capitalize on the significant growth in battery materials demand from automakers and other industries. The company aims to build key partnerships to utilize advanced processing technologies and operate to the highest ESG standards.

Latest Developments

On September 11th, A-Cap Energy provided an update on its proposed merger with Lotus Resources Limited. The merger will be implemented through share and option schemes of arrangement that will see Lotus acquire 100% of A-Cap's issued shares and listed options.

Some key highlights from the update:

• The draft Scheme Booklet has been submitted to the Australian Securities & Investments Commission (ASIC) for review. The court hearing to approve convening the shareholder meetings for the schemes is scheduled for September 15th.
• Assuming court approval is granted and the Scheme Booklet is registered by ASIC, the booklet will be released publicly around September 15-18. It will then be distributed to A-Cap shareholders and optionholders.
• The A-Cap directors continue to unanimously recommend that shareholders and optionholders vote in favor of the schemes, subject to no superior proposal emerging.
• Shareholder meetings to approve the schemes are currently slated for October 20th. If approved, the schemes are expected to take effect in early November.
• The Scheme Implementation Deed governing the merger has been amended with certain technical changes agreed between A-Cap and Lotus.

Analysis of the Merger

The proposed merger has several implications and considerations for current A-Cap investors:

1. Significant Premium for A-Cap Shareholders

Based on the merger exchange ratio of 1 Lotus share for every 6.5 A-Cap shares, the deal values A-Cap at around A$0.385 per share. This represents a compelling 78% premium over A-Cap's last closing share price of A$0.215 before the merger was announced. Given the significant upside, the merger terms are favorable for A-Cap investors.

2. Merits of Combining Development Projects

By combining forces, A-Cap and Lotus can achieve synergies from cooperative development of their uranium assets. A-Cap's Letlhakane project in Botswana provides significant scale with its 365.7 million pounds uranium resource. Meanwhile, Lotus' Kayelekera project in Malawi gives near-term production potential. Together, the merged entity will possess a robust uranium project pipeline at a time when nuclear power demand is accelerating.

3. Enhanced Financial Strength

With a combined market capitalization approaching A$700 million, the merged company will have greater financial capacity to advance its project pipeline. This includes funding technical studies, exploration activities, permitting, and ultimately project construction. The merger also provides a stronger platform to raise capital from investors.

4. Experienced Combined Management Team

The merged company will benefit from the expertise of both A-Cap and Lotus' management teams. A-Cap Deputy Chairman Paul Ingram and CFO Adam Santa Maria are expected to remain involved. Additionally, key Lotus personnel Grant Davey, Keith Bowes, and Stephen Woodham will take on senior executive roles.

5. Unanimous Board Recommendation

The unanimous support for the merger from A-Cap's board of directors is a positive signal. The directors believe the transaction is in the best interests of shareholders based on the advice of financial and legal advisers. Unless a superior proposal emerges, investors can have confidence the deal makes strategic sense.

In summary, the proposed merger with Lotus Resources offers A-Cap shareholders a significant premium, strengthened growth prospects, and a robust platform for participating in the global uranium market upside. The unanimous board recommendation also provides reassurance that the deal is beneficial for shareholders.

Of course, full details on the schemes of arrangement will be included in the Scheme Booklet to be sent to investors. Shareholders should carefully review this document before making any voting decision on the proposed merger. But based on information available, the deal appears favorable for A-Cap investors.

Uranium Market Outlook

The proposed A-Cap-Lotus merger comes at an opportune time in the uranium market cycle. Here's an overview of key supply and demand dynamics:

• Accelerating demand growth - Nuclear power generation is seeing a global renaissance amid efforts to transition away from fossil fuel reliance. Dozens of new reactors are under construction worldwide, concentrated in China and India. This is driving uranium demand higher.
• Structural supply deficit - Years of low prices caused underinvestment in new mines. Supply from secondary sources is also declining. A structural deficit is emerging as demand outpaces available supply.
• Low inventory coverage - Uranium buyers' current uncovered requirements stretch to 2028 based on utility contract data. This underscores the supply shortfall in coming years as more reactors enter operation.
• Security of supply concerns - Russia's invasion of Ukraine exacerbated concerns on relying on uranium from geopolitically unstable jurisdictions. Western utilities are now seeking supply from allies.
• Price upside catalysts - With the spot uranium price still below the incentive level for new production, several catalysts could spark a price breakout. These include more supply cuts, utility contracting activity, financial buying, and fund capital inflows.

In summary, widening supply-demand imbalance and low inventories point to a pending uranium price recovery. The run up could be sharp given the market's reliance on so few primary suppliers. A-Cap and Lotus' combined asset base positions them well to benefit from this pending upcycle.

Conclusion

The proposed merger of A-Cap and Lotus Resources offers investors enhanced exposure to the positive uranium market outlook just as the cycle enters a more bullish phase. Key highlights for investors to consider:

• The deal offers A-Cap shareholders a significant 78% premium based on the proposed exchange ratio.
• Combining the two companies' uranium assets and management teams will accelerate development timelines and boost scale.
• The merged entity will have greater financial capacity to advance its project pipeline.
• Uranium demand growth is accelerating while supply availability shrinks, pointing to higher prices that will incentivize new production.
• With a top tier uranium resource base, the merged company will be a leading player in meeting rising nuclear fuel demand.

The unanimous recommendation of the merger from A-Cap's board suggests the deal is strategically sound and in shareholders' interests. Investors should closely review the Scheme Booklet once published and vote accordingly. But the rationale behind combining A-Cap and Lotus is sensible given the strengthening uranium market tailwinds. Overall, the proposed merger appears positive for shareholders seeking leveraged exposure to the next upleg in the uranium cycle.