Hathor Exploration‘s (HAT-T) shares have vaulted in response to Cameco‘s (CCO-T, CCJ-N) launching of a hostile, $520-million cash bid for the junior, and initiating what may become a bidding war for its world-class, high-grade Roughrider uranium project in northern Saskatchewan.
Cameco is bidding $3.75 per Hathor share, a 40% premium to its closing price of $2.67 and a 33% premium to its 20-day volume-weighted average price on Aug. 25, 2011.
“We believe the offer represents an opportunity for Hathor shareholders to monetize their investment at an attractive value, and avoid the development, financing, permitting and market risks associated with a company at Hathor’s stage of development,” Tim Gitzel, Cameco’s president and CEO, said on a conference call.
Cameco took its bid straight to Hathor’s shareholders after the two boards fell short of reaching an agreement on Aug. 19.
“The bottom line is that we couldn’t see each other’s goal posts with respect to valuation,” Gitzel explained. He complimented Hathor’s management for being cordial and professional, before adding “we couldn’t get near an agreement on valuation. So we had to go our separate ways.”
Hathor discovered Roughrider in 2008 and since then the company has delineated 57.9 million lbs. uranium oxide (U3O8). The project hosts three mineralized zones: West, East and Far East, though the current resource is based on the West and East zones.
The West zone has 394,200 indicated tonnes grading 1.98% U3O8 for 17.21 million lbs. uranium, plus 43,600 inferred tonnes at 11.03% U3O8 for 10.60 million lbs. The East zone hosts an inferred resource of 118,000 tonnes at 11.58% U3O8 for 30.13 million lbs. uranium.
“It’s a very promising deposit,” Gitzel said. “We give Hathor a lot of credit for the delineation work they have done.”
The deposit is situated 25 km northwest from Cameco’s Rabbit Lake mill, and the major foresees Roughrider as helping advance its “Double-U” strategy to increase current annual production of 20 million lbs. U3O8 to 40 million lbs. by 2018.
Based on Cameco’s experience operating uranium mines and mills in the Athabasca Basin, Gitzel said the company can offer existing infrastructure, mining expertise, a web of local contacts and financing to get Roughrider up and running.
“It’s highly unlikely for Hathor to become large enough to justify the infrastructure needed to bring it into production on a stand-alone basis,” Gitzel stated.
“It’s clearly a promising advanced exploration property, but not yet a development property. As such, we believe the development of Roughrider and its other projects will require substantial additional funds and expertise.”
Although Cameco pitches itself as a “natural buyer,” it has yet to hear what Hathor has to say.
The junior has advised its shareholders not to act on Cameco’s offer until it reviews and responds to formal bid materials.
Hathor’s communications manager, Kelsea Murray, says the company will soon draft a press release and board circular.
Murray argues Cameco’s offer pales in comparison to the recent acquisition of Mantra Resources by Uranium One (UUU-T).
Uranium One recently became the operator of the Mkuju River uranium project in Tanzania. The project hosts 101.4 million lbs. grading 0.042% U3O8.
“Mantra is a very standard uranium acquisition deal, where they were offered $10 a lb. In uranium, the grade of most projects is between 0.05% and 0.1%, and they get about $10 per lb. for that level of grade. Roughrider is 11%. So that is significantly a big difference. We have just under 60 million lbs., so if you use that basic $10 a lb. model, that valuation is too low.”
When the Mantra comparison came up in the conference call, Gitzel said: “I don’t know if the two deposits are comparable.” He added that there is a lot of work to be done in terms of financing and developing Roughrider, “so it’s not an apple-to-apple comparison of ore in the ground.”
Cameco is offering Hathor less than $9 per lb. – a valuation that is too low for a world-class project, analyst David Talbot of Dundee Securities wrote in a note on Aug. 26.
Talbot, who has a price target of $5.60 on the company, says that the $3.75-per-share offer is “opportunistic,” and that Cameco “might have to come back to the table with a better offer, or other companies looking to get into the Athabasca now have 60 days to come to the table.”
Analysts Bart Jaworski and David Sadowski of Raymond James wrote in an Aug. 29 research note that superior offers from other parties are unlikely. “Asian utilities [Kepco, CGNPC], Areva and other foreign firms are likely interested and financially capable; however, it is our understanding current government policy ensures a minimum 51% Canadian control for all production-stage uranium projects.”
They point out exemptions could be granted, if there are no other Canadian-controlled suitors.
The analysts urge investors not to tender their shares to Cameco’s current offer as it does not represent the full value of the deposit or Hathor’s additional properties.
For Cameco’s offer to go through, it would need two-thirds of Hathor’s shareholders to support the deal within the next two months.
But Murray says the company is not waiting around for a higher bid or other suitors.
“We are not sitting on our hands. We are going to keep advancing the project. We have our preliminary economic assessment coming out in about two weeks’ time.”
Talbot writes that the PEA “will help establish the Roughrider project as one of the penultimate uranium projects on the planet.”
On news of the takeover offer, Hathor shares jumped $1.21 to $3.88 per share on 25.4 million shares traded.
As a result, Raymond James has raised its rating to “outperform,” and its target price from $3.70 per share to $5.
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