Canada reviewing Paladin’s Fission takeover on national security grounds

Paladin Energy’s (ASX: PDN) proposed takeover of Saskatchewan uranium developer Fission Uranium (TSX: FCU) has hit a fresh roadblock after the Canadian government informed the company the deal is now the subject of a national security review.

The Australian miner entered an agreement in June to acquire Fission for $1.1 billion, as strong prices for the fuel used nuclear reactors has sparked a raft of mergers and acquisitions in the uranium space.

Paladin, which would become the third-largest publicly traded uranium producer with the planned acquisition, said it was considering the notice sent by Canada’s minister of innovation, science and industry, François-Philippe Champagne.

Paladin said it is exploring its available options and evaluating the prospects of obtaining an Investment Canada Act (ICA) clearance.

The matter is also before the Supreme Court of British Columbia, which is expected to issue a final ruling on the acquisition.

“There can be no certainty that the court will grant the final order, or that ICA clearance will be forthcoming, or that the arrangement will be successfully completed,” Paladin noted.

Ottawa has turned particularly strict on Chinese investment in natural resources over the past three years, and while Paladin’s acquisition of Fission is a deal between Australian and Canadian companies, there are Chinese state-owned entities involved on both sides of the transaction.

CGN Mining Company, a subsidiary of China General Nuclear Power, owns a 11.26% stake in Fission. It formally opposed the deal in late September, but its efforts to block the deal were unsuccessful.

A second Chinese state-owned entity, China National Nuclear Corporation, holds a 25% interest in Paladin’s flagship Langer Heinrich mine in Namibia, and is one of the company’s major lenders.

Paladin said is exploring its available options and evaluating the prospects of obtaining an Investment Canada Act (ICA) clearance.

Any foreign acquisition in a Canadian company can be subject to a national security review, but investment from China has drawn most of the government’s scrutiny until now. The federal government blocked Chinese miner Shandong Gold Mining’s offer for TMAC Resources in 2020 because of the strategic Arctic location of the junior’s project. More recently, smaller investments by Chinese miners in critical minerals juniors Solaris Resources (TSX: SLS; NYSE: SLSR) and Falcon Energy Materials (TSX: SRG) were cancelled after being hung up in national security reviews.

Closer to the US

Paladin Energy chief executive officer, Ian Purdy, has said the acquisition of Fission would provide investors an alternative in an industry dominated by two major players — Canada’s Cameco (TSX: CCO; NYSE: CCJ) and Kazakhstan’s Kazatomprom (LSE: KAP). 

He told The Northern Miner in July that he didn’t expect any issues with regulatory approvals and that meetings with the federal government that month had been positive.

“We’re very comfortable with the process here in Canada,” Purdy said, adding it’s similar to Australia’s.

Fission’s asset is also attractive because of its proximity to Paladin’s major customer, the United States, offering the chance to create a hub with Paladin’s existing tenement in Canada — Michelin.

The combined group would be worth US$3.5 billion, hold dual listings in Australia and Canada, and churn out 10% of global uranium output. This would be the result of combining the output of its recently restarted Langer Heinrich Mine in Namibia with Fission’s Patterson Lake South (PLS) project in Saskatchewan, once completed.

Paladin has been hunting for growth options outside the home country, as Western Australia and Queensland ban uranium mining. The company believes there’s a shortage of primary production coming out of the ground and that the trend is set to continue.

“We’ve seen very strong demand for our Langer Heinrich product. And we expect that when we’re ready to bring our customers to underpin PLS later this decade, that demand (will) be extremely strong,” Purdy said during a July visit to Toronto.

Paladin shares dropped after the announcement, but climbed later in the day, closing up 0.51% at A$11.83 each, leaving the company with a market capitalization of A$3.5 billion (US$2.4 billion).

— With files from The Northern Miner.