TORONTO (miningweekly.com) - Uranium giant Cameco’s C$520-million hostile offer for Canada’s Hathor Exploration, which owns a high-grade deposit in Saskatchewan, could spark a new wave of merger and acquisition activity in the sector, analysts said on Friday.
In fact, France’s Areva might kick into action its own counterbid for the uranium junior, Versant Partners analyst Rob Chang said in an interview.
“I guess the clock’s ticking for them to decide what they’re going to do,” he said, pointing out that the parastatal might benefit from even greater synergies than Cameco if it wound up as the owner of Hathor’s flagship Roughrider deposit.
Cameco announced its hostile C$520-million, or C$3.75 a share, offer before markets opened on Friday, sending Hathor’s shares nearly 50% higher on the TSX. The stock had eased slightly by 13:32 to trade at C$3.89, still well above the offer price.
Though this may suggest investors are expecting a better bid to come along, it is common for a takeover target to initially trade higher than the initial bid.
Hathor, which gets its name from the Ancient Egyptian deity who was, among other things, the patron goddess of miners, first received Cameco’s approach on Friday last week, and the two parties met after that.
However, Cameco CEO Tim Gitzel said on a conference call that the two could not see eye to eye on valuations, leading his company to go hostile.
He laid out his argument as to why Hathor’s shareholders should accept his bid thus: Firstly, there is a lot of risk in what is still essentially an exploration company – particularly on the permitting side when it comes to uranium firms. There’s also the issue of a junior trying to raise money to build a mine in the current wobbly markets.
His second point is that, from what it’s seen, Cameco doesn’t believe the Roughrider deposit has a big enough resource to justify the infrastructure a standalone mine would require.
Gitzel’s other point is that the Athabasca basin often has complex geology, and Cameco has experience through its own operations in the area, even if it’s had to learn through mistakes.
And then, of course, there’s the 40% premium over Hathor's closing price and 33% over the 20-day volume-weighted average price on Thursday.
TS Ortslan & Associates analyst Terry Ortslan mainly agreed with these points, saying that the permitting complexities created a high barrier for entry into uranium production, and that Cameco had the skills to expedite the process.
Hathor spokesperson Kelsea Murray said the company's board will meet on Friday and draft a statement.
Why does Cameco want Hathor?
Gitzel’s predecessor Jerry Grandey had long said the company was eager on making acquisitions and had simply not found one at the right value yet.
Gitzel reiterated that sentiment on a conference call at the start of the month.
The timing most likely has to do with the Japanese nuclear disaster that pummelled uranium stocks, creating many bargain opportunities.
Companies were cautious in the months immediately following the event, but now that the dust has settled, a new slew of deals in the sector might follow, particularly now that Cameco has made a move.
Indeed, Versant Partners’ Chang said earlier this week the uranium sector had now passed the “point of maximum pessimism”, and Cameco’s bid might further instil confidence in the sector.
“It might start to unleash a bit of uranium merger and acquisition activity,” Dahlman Rose analyst Anthony Young told Mining Weekly Online, adding that “now’s a pretty good time to be a buyer”.
“This may create some urgency from other players in the sector [to get deals done].”
As far as potential bidders for Hathor goes, it could be a two-horse race, with Cameco and French nuclear giant Areva being the contenders, both of who have operations nearby Roughrider.
Areva’s McLean Lake mill is only 11 km east of Roughrider.
While Indian and Chinese firms are keen on accessing uranium supplies, the Canadian government won’t likely allow them to gain control over a uranium resource in the country.
“There’s a lot of folk shopping for uranium assets right now, seeing that they’re viewed as being at a discount,” said Young.
“Anytime someone makes an acquisition, the rival is typically taking a look.”
Cameco and Areva vie for the top uranium producer spot, with the Canadian company regaining the title last year, according to the World Nuclear Association.
According to Chang, if Cameco is successful with its bid for Hathor, an obvious next move would be to make an offer to another junior, Fission Energy.
The news on Hathor lit a fire under that company’s share price, sending it 22% higher to $0.61 apiece by early afternoon.
The reason for that, is Fission owns a property directly adjacent to Roughrider, which has the mineralisation closer to surface.
“If Cameco wants to develop Hathor, it would be easier to come in from the Fission side,” noted Chang.
Still, much water is to flow under the bridge on Cameco’s bid.
Both Chang and Ortslan believe there is potential for Cameco to sweeten its offer with more cash, as opposed to shares.
The company has given its bid an expiry date of around the end of October, by which time Hathor will most probably publish a preliminary economic assessment on Roughrider, which will likely provide the market with greater clarity on the value of the junior.
The uranium market had seen merger and acquisiton activity picking up pace prior to Japan, with Australia's Mantra Resources and Canada's Aurora Energy becoming prey.
Interest has also been expressed in Australian juniors Extract Resources and Bannerman Resources, both for the Namibian projects.