Denison eyeing expansion with OmegaCorp bid

Vancouver – Denison Mines (DML-T) a company with deep roots in the Canadian uranium mining sector, is set to take on an entirely new profile after launching a $154 million offer for Australian firm OmegaCorp (OMC-A).

If the offer succeeds, it will add a portfolio of uranium properties in southern Africa to Denison’s flaghship asset, a 22.5% stake in the McClean Lake uranium tailings processing facility in Saskatchewan.

Given that Denison has just completed a merger with Lundin Group company International Uranium (IUC-T), it could well become the go-to company for consolidation in the global uranium sector, says Jim Mustard, mining analyst with Hawywood Securities. “This deal confirms that,” Mr. Mustard said.

Denison President Ron Hockstein said the friendly cash bid is step one in a global expansion strategy that will focus on uranium exploration and production.

“We will be looking for other acquisitions, either in the exploration arena or in projects which have resources associated with them,” Mr. Hochstein said.

In keeping with those plans, Denison is offering to pay AU$1.10 per share for each share of Omega, adding that the bid reflects a premium of approximately 25% to the volume weighted average price in the 20 days before the offer was launched.

Shares of Denison responded by rising $1.35 to $30.70 in Toronto, Tuesday.Prior to a trading halt on Nov. 30, shares of OmegaCorp. shares traded at A99 cents.

Mr. Mustard sees the bid for OmegaCorp as a move to capitalize on rising demand, which has sent spot uranium prices soaring to US$63 a pound, from US$10 in the last four years, amid indications that they may go even higher.

Major producers like Cameco sell uranium under legacy contracts that are based on a formula tied to spot prices.

Denison said its offer is backed by unanimous support from OmegaCorp.’s directors, who are recommending that shareholders accept the bid in the absence of a better one.

According to OmegaCorp’s website, company management and directors together own 9.2% of the company’s shares outstanding.

The most advanced project in OmegaCorp’s portfolio is its wholly-owned Kariba uranium property, which is located about 200 kilometres south of Lusaka, the capital city of Zambia.

A preliminary assessment by consultants retained by the Australian firm suggests that it would cost about US$60 million to develop an open pit mine on the property, capable of produce 1.5 million pounds of uranium annually at a cost of US$23 per pound.

Mr. Hochstein said that since the property benefits from good proximity to power lines and water, it is reasonable to assume that production could start in the years between 2009 and 2011. “The 2011 time frame is the most realistic for the project,” he said.

Under the offer, Denison while retaining the uranium rights — is planning to spin-off to Omega shareholders, exploration properties in Mozambique known as the Mavuzi assets. Those assets will be spun into a new company to be listed on the Australian Stock Exchange.

During a conference call with analysts on Tuesday, Denison officials said the Lundin family are highly familiar with the operating climate in Africa, which they consider to be stable.

However, Mr. Hochstein said the Zambian government is working with the International Atomic Energy Agency to establish an appropriate regulatory environment for its uranium sector before issuing any more mining licenses.