Two Canadian mining companies unveiled a deal yesterday to create the world's second-largest uranium producer in an attempt to cash in on the global revival of interest in nuclear power.

UrAsia Energy said it had agreed to a US$2.9bn (€2.2bn) reverse takeover by smaller rival SXR Uranium One, sending other uranium mining shares up on hopes of more mergers and acquisitions activity. The new group, Uranium One, will have a market capitalisation of about $5bn, placing it second after market leader Cameco of Canada, valued at $14bn.

The price of uranium has shot up in the past two years, from less than $20 a pound to about $75. Many market watchers say the price will soon rise to more than $100, driven by rising demand for nuclear power and supply problems. In October, Cameco said its Cigar Lake mine in Saskatchewan would not open until 2009 because of problems caused by a large rock fall, triggering worries about shortages.

UrAsia Energy is listed in Toronto and on London's Aim market, while SXR Uranium One is listed in Toronto and Johannesburg. Neal Froneman, chief executive of SXR Uranium One, said he would look at upgrading the merged group's London listing to the main board of the London Stock Exchange if the deal went ahead.

If the group met growth targets and the uranium price remained high, it would be in a strong position to enter the FTSE 100 index.

Mr Froneman, who is due to become chief executive of the merged entity, said he had been attracted to the strong growth profile of UrAsia's uranium projects in Kazakhstan.

The company expects to produce 3m pounds this year, rising to 7m pounds in 2008 as the Dominion mine in South Africa and the Honeymoon mine in Australia come on stream. The uranium would cost between $10 to $12 a pound to extract, he added.

Shareholders of UrAsia Energy are being offered 0.45 shares in SXR Uranium One for each share in UrAsia, which SXR Uranium One said represented a premium of 13 per cent to UrAsia's closing price on Friday.

UrAsia shareholders will be left with about 60 per cent of the new shares, while SXR Uranium One executives will make up the bulk of the group's management and board.