URANIUM DEAL
Two junior miners merging to create one large market leader.
• Junior uranium firms Denison Mines Corp. and Fission Uranium Corp. are merging in a deal that creates a clear-cut leader among the emerging companies operating in Saskatchewan’s Athabasca Basin.
The key asset in this deal is Fission’s Patterson Lake South (PLS) project, one of the top uranium finds in decades. The combined company will have greater scale and management expertise, putting it in a stronger position to move the asset towards production. Denison’s Wheeler River project is also very promising, and the company has a host of other uranium assets around the world.
Under the terms of the deal, Denison will exchange 1.26 of its shares for each Fission share, valuing Fission at $425 million (or $1.10 a share) and giving its shareholders a 13 per cent premium based on Monday’s closing prices. Denison and Fission shareholders will each own half the company after the merger, which will be named Denison Energy Corp. and will have a market value of about $900 million.
Toronto-based Denison is one of mining tycoon Lukas Lundin’s companies. In an interview with the Financial Post four months ago, Lundin spoke highly of Fission’s PLS discovery and expressed an interest in doing a transaction with the company.
He didn’t wait long. Following this deal, Lundin will become chairman of the combined entity. Fission CEO Dev Randhawa will stay on as CEO.
“This merger will create the uranium industry’s leading exploration and development company at a time when the sector is poised for growth,” Randhawa said in a statement.
Randhawa has stated he expects Fission to get acquired by a large company with the mining expertise and the capital required to develop the PLS project. Cameco Corp. was an obvious candidate.
Denison is much smaller than Cameco, but it has an experienced board and management team. Thanks to Lundin’s involvement, it has much greater access to capital than most mining companies its size.
Of course, Cameco or one of its large rivals could disrupt this deal with a rival bid for one or both companies. The break fee is a modest $14 million, which is not a major deterrent. Other potential bidders are French firm Areva SA and Anglo-Australian mining giant Rio Tinto Ltd., which are both active in the Athabasca Basin.
The most attractive asset for any potential buyer would likely be Fission’s PLS discovery.
Fission found the deposit, located on the Western side of the Athabasca, in 2012. Since then, the drilling results have been spectacular and the discovery has gotten bigger. Last January, Fission announced an initial resource of 105.5 million pounds at PLS. The company subsequently made a new discovery more than 500 metres away from the original find that is promising as well.
The merger is happening in the midst of a very rough uranium market. Prices have been stuck in a rut since the Fukushima nuclear disaster in March of 2011, and investor interest in the space has been minimal. This deal could give the entire sector a much-needed shot in the arm.