Denison bids for JCU (Canada) Exploration

Denison Mines (TSX: DML; NYSE-AM: DNN) is offering to buy JCU (Canada) Exploration Company, a wholly owned subsidiary of Overseas Uranium Resources Development Company Ltd., for cash payments of up to $40.5 million in three instalments and the assumption of JCU’s liabilities.

JCU (Canada) Exploration Company holds a 10% stake in Denison’s 90%-owned Wheeler River project, which Denison describes as the largest undeveloped uranium project in the eastern portion of northern Saskatchewan’s Athabasca Basin.

The transaction will be subject to approval by Overseas Uranium Resources Development’s (OURD) shareholders.

Denison’s offer follows UEX Corporation’s (TSX: UEX; US-OTC: UEXCF) announcement on April 22 that it had signed a binding agreement with OURD to acquire 100% of JCU. UEX’s bid offered $12.5 million in cash and the assumption of JCU’s liabilities, which UEX estimated stood at about $34.5 million at the end of 2020.

In a press release following news of Denison’s offer, UEX said the offer was “opportunistic” and “constitutes an interference in the contractual rights existing between UEX and OURD.” The UEX agreement with OURD, it noted, “is binding and enforceable and it is not open to OURD to consider any competing proposals.”

In its press release last month, UEX Corp. said the business combination with JCU would make it “the second largest junior uranium resource owner in Canada,” and create “a compelling mid-size uranium development company with exposure to near-term uranium production with a solid pipeline of advanced resource and mid-stage exploration projects.”

JCU’s key assets are its 10% stake in Wheeler River; a 30.1% stake in Cameco’s (TSX: CCJ; NYSE: CCO) Millennium project; a 33.81% stake in the Kiggavik project (Orano Canada owns the remaining 66.2%); and a 34.45% interest in UEX’s Christie Lake project. JCU also owns minority stakes in eight grassroots and mid-stage exploration projects within Canada’s Athabasca basin.

“It should come as little surprise that Denison is making a move to acquire JCU with a premium bid to jump ahead of UEX,” Colin Healey of Haywood Capital Markets, commented in a research note. “Denison’s offer is not contingent on due diligence or financing, as Denison already has the cash resources to fund the transaction. We think Denison should aggressively pursue JCU at this price level as the transaction would be accretive.”

Healey estimated that JCU’s 10% of Wheeler River alone is worth about $165 million. “JCU’s fractional ownership in the Wheeler River asset alone would justify Denison’s premium bid in our view, although JCU owns stakes in other valuable assets in the Basin, including an  ~30.1% share in the Millennium project (Cameco, 69.9%, 104.9 million lb. U308) and others.”

“In total, JCU’s attributable resource pounds across all projects amount to ~97 million lb. U308. According to UEX, its offer for JCU reflected an acquisition cost of ~US$0.097/lb. U308 in-situ resources. Denison’s offer at $40.5 million equates to ~US$0.34/lb. (before adjusting for JCU working capital), where Denison currently trades at ~US$5.27/lb. and Athabasca Basin peers trade at an average of ~US$4.23/lb.”