Editorial: Uranium, iron ore deals take centre stage

Mergers and acquisitions continued to be the major theme of the mining sector during the week ended June 9, the twenty-third trading week of 2007.

* The week kicked off with today’s leading consolidator in the uranium subsector, SXR Uranium One, tabling a friendly $1.5-billion, all-share takeover bid for Vancouver-based uranium junior Energy Metals. In terms of publicly traded, pure-play uranium companies, the newly enlarged company would boast the world’s second-largest uranium reserve and resource base after Canada’s Cameco. However, the well-anticipated offer was already priced into Energy Metals’ stock: its shares eased up only 15 to $18.44 on heavy volume on the day SXR (soon to be renamed Uranium One) unveiled its firm bid. It’s now a week later, and no rival offer has emerged.

With nearly all of its producing and near-producing uranium assets in politically troublesome Kazakhstan, South Africa and Australia, SXR’s big move into the western U.S. with the Energy Metals takeover is a smart way to ramp up its production while at the same time watering down its moderately high political risk. The only question here is whether the company’s management is spreading itself too thin on the ground with such rapid, global growth, though it has made every effort to retain Energy Metals personnel in this deal.

* We wonder how much longer before a takeover of Cameco takes place. Its uranium assets are the world’s best, Saskatchewan is a great place for miners, there are no large controlling shareholders, there is little likelihood of a takeover being held up for national security reasons, and the stock is off a bit owing to the current Cigar Lake flooding problem. Cameco would make a nice little self-contained uranium division for any of today’s mining giants.

* In eastern Canada, there looks to be a positive shake-up in the usually non-flashy world of iron ore mining: Toronto-based junior Consolidated Thompson Iron Mines has struck a preliminary deal to buy from steelmakers Cleveland-Cliffs and Stelco a combined 71.4% interest in the Wabush Mines iron ore joint venture in Labrador and Quebec. The price tag is US$64.3 million, 3 million warrants and the assumption of liabilities.

First though, the acquisition must get past Mittal Steel subsidiary Dofasco, which owns the remaining 28.6% of the JV and has a 90-day right-of-first refusal on both stakes. With Cleveland-Cliffs having served as JV operator, and Mittal Steel not seeming particularly keen these days to play the role of miner, we’ll bet the deal goes through as is.

Consolidated Thompson is particularly well positioned financially and philosophically to spruce up and expand the Wabush assets, and profitably combine them with its nearby Bloom Lake iron ore project, which is being prepped to start mining in 2009.

* Even if it’s not quite willing to publicly admit it yet, Joe Grosso’s IMA Exploration looks to have finally hit a brick wall with its litigation over ownership of the prized Navidad silver deposit in Argentina. On June 7, the British Columbia Court of Appeals dismissed an appeal launched by IMA of an original judgment on July 14, 2006, that granted the property to Toronto-based junior Aquiline Resources.

Aquiline’s stock barely budged on the news, but IMA closed the day down 56% to 44 on 3.6 million shares traded, showing there had been more than a few true believers left on board.

While IMA officially states it will “seek leave to appeal the judgment to the Supreme Court of Canada,” the company started to lay the groundwork for a complete capitulation in a letter to its shareholders that noted that it had $7.5 million in cash and was due to get back another $18.5 million from Aquiline in return for the amount IMA had spent on work at the site. This represents almost 50 in cash per IMA share, or 25% above the share’s trading price at presstime. That kind of math is a clear incentive for IMA to get up, dust itself off, and get back to work elsewhere in Latin America, where management can make good use of its extensive and long-held contacts.