Published on Saturday October 22 2011
RIO Tinto has placed another big bet that uranium demand will rebound from its post-Fukushima decline.Following its $342 million contribution to the $500 million equity raising by troubled Ranger uranium miner ERA, Rio has now slapped down $C578 million ($A554 million) in a white-knight bid for Canada's Hathor Exploration.
But to secure control of Hathor and its super-high-grade Roughrider deposit in Canada's Athabasca Basin in northern Saskatchewan, Rio will first have to see off the home-town favourite to secure control of Hathor - Cameco.
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Cameco, which dominates the Athabasca, home to more than 23 per cent of the global supply of uranium, put Hathor in play on August 30 with a $C3.75-a-share unsolicited offer. Hathor went looking for a white knight and found one in Rio with its agreed $C4.15 a share counter-offer.Hathor shares promptly ran to $C4.40 a share as investors bet that Cameco - Canada's uranium king and owner of nearby mines in the Athabasca - would have to come back with a higher offer, one that in the first instance would have to cover the $C20 million break fee that Rio secured with Hathor.
Hathor's pride and joy is its Roughrider deposit. It is not overly big at 26,000 tonnes of uranium but its grade of more than 11 per cent uranium oxide is exceptional compared with global averages. In comparison, ERA's Ranger mine in the Northern Territory grades less than 1 per cent uranium oxide.
A preliminary economic assessment of Roughrider indicated that it had a net present value of $C1 billion. But that was based on only part of the known resource, with drilling by Hathor pointing to resource upgrades over time.Rio's agreed bid for Hathor does not have to pass Canada's ''net-benefit'' test for foreign investment because the book value of Hathor's assets falls below the trigger point for Ottawa to get involved.
It was the net-benefit test that last year brought undone BHP Billiton's $40 billion for Potash Corp. BHP walked away from the bid after a provincial political backlash to foreign control of Potash meant Ottawa was not going to give the OK.
But Rio does face a longer-term issue should it win the day with the Hathor bid and look to develop Roughrider. That is because Canada limits foreign ownership of producing uranium mines to 49 per cent. Higher levels are OK if the project is considered Canadian-controlled or if a Canadian partner cannot be found.As good as its grade is, Roughrider is years away from development, giving Rio time to sort through the foreign investment issues.
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