Denison to buy uranium explorer Fission

Denison Mines (DML-T, DNN-X) is staying true to its strategy of becoming a leading uranium explorer in the eastern Athabasca Basin region of Saskatchewan by agreeing to acquire Fission Energy (FIS-V) for roughly $70 million.

Denison, since its disinvestment of its U.S. mining assets last June, has been focusing on growing and expanding its portfolio in the Athabasca Basin, says Ron Hochstein, the company’s president and CEO, in an interview.  

The driving force behind the Fission transaction, which comes two months after Denison agreed to takeover its joint-venture partner JNR Resources for nearly $10 million, is Fission’s 60%-held Waterbury Lake project.

The 402-sq.-km property sits in close proximity to Denison’s 25%-held Midwest uranium project and 22.5%-owned McClean Lake mill, touted as one of the world’s largest uranium processing plants.   

Hochstein says the transaction will strengthen the firm’s existing resource base, particularly with the Waterbury project, containing about 13 million lbs. uranium in indicated and inferred, as well as improve Denison’s chances of exploration success.

Analysts note that the mineralization at Waterbury’s J-Zone is continuous with Rio Tinto’s (RIO-N, RIO-L) Roughrider deposit and that the two could be developed as one, suggesting that Denison is buying Fission to attract Rio’s acquisitive eye.

“This transaction ties a bow on DML for Rio Tinto to consolidate the Athabasca,” writes Rob Chang, an analyst at Cantor Fitzgerald, in a note.  

 Hochstein claims the offers for JNR and Fission were “purely a move to improve our portfolio and increase our flexibility in the eastern Athabasca Basin.”

That said, he admits having a better portfolio would increase the company’s takeout potential. “I think we would be an interesting acquisition for the current majors or potentially for another company looking to get into the uranium space.”

Raymond James analyst David Sadowski comments that the transaction lifts the company’s already favourable position in the uranium-rich Athabasca Basin and signals four reasons to potentially own Denison, including Waterbury, the junior’s high-grading Wheeler River project, its strategic interest in the McClean mill and “suite of highly prospective exploration plays.”

“We see these assets as a natural fit for the likes of Rio Tinto and could lay the groundwork for another bidding war with Cameco,” Sadowski writes, referring to how Rio and Cameco (CCO-T, CCJ-N) locked horns for Hathor Exploration’s Roughrider deposit in November 2011.

 He adds: “Hungry Asian nuclear utilities may also be interested, in our view.”

As part of the transaction, Fission shareholders will receive 0.355 of a Denison share and one share of a new spin-out company for each share held. The offer represents a 49% premium to Fission’s Jan. 15 close and a 42% premium to the 20-day volume weighted average price, Hochstein says.  

Of note, Fission’s 50%-held Patterson Lake South discovery and $18 million in cash will be spun into the new company, headed by Fission’s current management team, including CEO Devinder Randhawa and president and COO Ross McElroy.

Denison will also pick up Fission’s other exploration interests in the Athabasca Basin as well as assets in Quebec, Nunavut and Namibia.

If the deal goes through, Fission shareholders will own about 11% of the Toronto-based firm.  

A $3.5-million reciprocal break fee is attached to the agreement, with Denison having the right to match higher bids. The deal is expected to close in April, conditional upon regulatory and shareholder approval.

On the news, Fission rose 22% to 78¢ and Denison shares added nearly 2% to close Jan. 16 at $1.48.