Saturday, August 27, 2011

Cameco Offers $520M for Hathor Exploration

Published on Saturday August 27 2011

Cameco Corp. has launched a hostile $520-million bid for junior miner Hathor Exploration Ltd. in an attempt to take control of one of the best uranium discoveries in Saskatchewan in years.
Saskatoon-based Cameco offered $3.75 a share in cash, which represents a premium of 40% over Hathor's closing price on Thursday.

Cameco said it reached out to Hathor last week in an attempt to strike a friendly deal, but launched the hostile bid after it failed to make progress.

Cameco covets Hathor's Roughrider project, a high-grade uranium deposit that was discovered in 2008. It has indicated and inferred resources of nearly 58 million pounds of uranium.

"The market has recognized the exceptional job Hathor has done with the Roughrider deposit and the company's other properties," Cameco chief executive Tim Gitzel said in a statement.

"Given our financial strength, development expertise, existing infrastructure and experience in the Athabasca region, we feel we are in a unique position to build on that success and further advance the Roughrider deposit."

The uranium market has been in a funk since the Fukushima nuclear disaster in March, and Mr. Gitzel has hinted that he may try and take advantage of the slump and pursue acquisitions. This is his first big move as CEO since taking over in July.

Hathor's stock shot up 46% by 10 a.m. Friday, with shares trading at $3.90, above the price offered in Cameco's bid, suggesting investors expect the negotiations are not over yet.

The offer is open for 60 days and requires a minimum tender of of two-thirds of Hathor shares.

The bid implies an enterprise value of US$8.70 per pound of contained uranium, Edward Sterck, an analyst with BMO Capital Markets, said in a note Friday.

This is a bargain compared to Russian company ARMZ's purchase of Australian Mantra Resources Ltd. earlier this year (priced at US$10 per pound) but is richer than China Guangdong Nuclear Power Group's proposed offer for South African Kalahari Minerals plc (priced at US$6.30 per pound), he said.

"Given the nature of the Athabasca deposits, 58 million pounds may not constitute critical mass for the Roughrider deposit, suggesting that Cameco sees upside potential to the current resource base and sees synergies with its existing operations."

The company has said the all-cash bid will be fully funded from existing funds. Mr. Sterck noted that as of June 30, Cameco had $346-million in cash on hand, suggesting it may have to liquidate some of its $873-million in short-term investments to make the Hathor purchase.

He maintains an Outperform rating on Cameco and a share price target of $28.00. Its stock was trading down about 2% at $21.55 Friday morning after markets opened.

Rob Chang, an analyst with Versant Partners, said the offer could also spark interest in the much smaller Fission Energy Corp., a uranium producer with a market capitalization of $50.4-million. Fission's Waterbury Lake "J-Zone" discovery is directly adjacent to Hathor's Roughrider deposit.

"We believe this bid from Cameco is the positive catalyst many have been waiting for to reignite interest in the uranium space," Mr. Chang said in a note Friday.

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