Uranium Energy’s Athabasca deals part of ‘unprecedented’ M&A wave in uranium, nuclear assets

Uranium Energy (NYSE: UEC) says it’s building a “critical mass” of uranium projects in northern Saskatchewan’s Athabasca basin, including the recent US$150-million purchase of Rio Tinto’s (ASX: RIO) Roughrider project. 

The cash-and-shares deal last Wednesday came after UEC first entered Canada’s premier uranium zone just three months ago with the $244-million purchase of UEX Corp. — besting Denison Mines (TSX: DML) for the assets — and adding the Christie Lake, Hidden Bay and Horseshoe-Raven projects on the basin’s eastern side to UEC’s portfolio. The Vancouver-based company has predominantly operated in Texas, Wyoming, Arizona, New Mexico and Paraguay. None of its assets are currently in production.

UEC has spent US$570 million in the last year to acquire Uranium One Americas, UEX and Roughrider, tripling its total resource inventory (across multiple assets it now has 198 million measured and indicated lb. uranium oxide and 68 million inferred lb.). After a technical report on Roughrider due in a few months that will convert historic resources to current, UEC chief executive officer Amir Adnani said in an interview the company hopes to increase its total measured and indicated resources to 350 million lb. That would give UEC the third-largest resources of companies operating in the region, behind Cameco (NYSE: CCJ; TSX: CCO) and French state-owned Orano.

“We’re looking at how we can bulk up with critical mass, bringing a number of projects together,” Adnani said by phone Oct. 13. “We want to keep buying assets because we think they’re cheap right now.” 

UEC is vying to become one of the leading uranium suppliers in the West as the appeal of nuclear energy recovers more than a decade after the Fukushima disaster in Japan, and amid new support from climate activists for clean energy and a power crisis in Western Europe brought on by Russia’s invasion of Ukraine. Countries such as France, Germany and Japan that had started to back away from nuclear energy are doing an about-face. And the West wants to develop its own uranium sources instead of relying on Russia-controlled assets in Kazakhstan that supply a world-leading 45% of the global market.

“The fundamentals were shaping up in a very bullish way before geopolitical uncertainty and risk was introduced into the equation,” Adnani said. “We have this surging power crisis in Western Europe and that has now becomes another reason to keep these nuclear reactors running.”

The macroeconomic appeal hasn’t been lost on others. Cameco and Brookfield Renewable Partners bought Westinghouse’s nuclear plant construction unit for US$7.9 billion within hours of the UEC deal. 

“You’re seeing quite unprecedented M&A activity in the nuclear energy and uranium sectors,” Adnani said. “That shows there really is a marked turning point in sentiment and acceptance for nuclear energy, it’s not just being discussed and debated. Real capital is being allocated.”

Brookfield runs the world’s largest fund for transitioning to clean energy with some US$52 billion in assets under management stewarded by former Bank of England and Bank of Canada governor Mark Carney. 

The Roughrider deposits hold a historic global resource of 57.9 million lb. of uranium oxide (394 million indicated tonnes at 1.98% U₃O₈ and 161.6 million inferred tonnes at 11.43% U₃O₈), according to a 2011 resource estimate. A preliminary economic assessment from that time estimated a US$1-billion net present value using a 7% discount rate and a US$70 per lb. uranium price from producing 5 million pounds a year over the 10-year life of a conventional underground mine. 

Roughrider is now UEC’s premier asset in the Athabasca basin, according to an Oct. 12 note from Haywood Capital Markets. The deal reflects an acquisition cost of about US$2.59 per lb. of uranium oxide compared with UEC’s enterprise value at US$4.23 per lb. of resource, Haywood said.

“While Roughrider could benefit from resource expansion to solidify a position in the future global production pipeline, we do believe there is potential for UEC to gain market recognition for the asset in excess of the acquisition price in a rising uranium price environment,” Haywood analyst Colin Healey wrote. 

2012 bidding war for Roughrider

Rio Tinto paid US$642 million for Roughrider in 2012 after a bidding war with Cameco, more than four times UEC’s deal. The previous sale shows the higher price threshold for Rio Tinto, the world’s second-largest miner with a market capitalization of almost US$90 billion that’s some three times the size of the entire uranium sector, Adnani said.

UEC will pay US$70 million in UEC stock to Rio Tinto at US$3.93 per share, (compared with UEC shares closing at US$3.84 the day before the announcement), giving Rio 5% of UEC. The remaining US$80 million will be funded from US$173 million in liquid assets UEC holds on its balance sheet, including 1.7 million lb. of uranium oxide valued at US$85 million using a price of US$50 per lb., Adnani said. 

When uranium prices were low last year, UEC started buying physical uranium at an average cost of US$37 per lb. and contracted several million more pounds at fixed prices to December 2025, Adnani said. UEC said in September it had expanded its warehouse storage of uranium in the United States to 5.5 million pounds. Selling the stockpile at about US$50 per lb. now helps buy Roughrider, he said. 

“It’s basically a low-cost physical stream that we engineered and structured,” he said. “If you sell that to buy an asset like Roughrider, you’re actually realizing gains and you’re putting that into buying a world class asset.”

Still, starting an underground mine in Canada generally requires a uranium price of more than $50 per lb., Adnani said. But the mine is several years away and the mega trend of achieving net-zero carbon emission targets with renewable energy continues to gather pace while nuclear power’s image problems recede in some quarters. Adnani is keen on UEC’s dual-prong strategy of developing strong in-situ recovery operations in the U.S. and high-grade ore projects in Canada, all the while considering additions.

“We’re reaching critical mass so when you look at it you’d say ‘OK, this is a company that now has the level of resources that you would otherwise see in the majors’,” he said. “There’s a lot of value to be had to be acquisitive because assets are not reflecting proper value.”