Denison and Uranium Energy fight over explorer UEX

Uranium Energy Corp. (NYSE: UEC) announced overnight that it had received a competing offer to acquire uranium exploration outfit UEX Corporation (TSX: UEX) and named Denison Mines (TSX: DML) as the bidder.

UEC announced on June 13 an all-scrip bid of 0.0831 of one UEC share in exchange for each outstanding UEX share. It provides an implied consideration of $0.43 per UEX share, which is a 50% premium to its last trading day close.

Canaccord Genuity Capital Markets analyst Katie Lachapelle views the development as a general positive for Denison, given they were ultimately considered the logical buyer of UEX.

She expects Denison to bid enough to comfortably cover the break fee plus a minimum 5% premium to shareholders, or likely more. “Despite having a strong balance sheet of $59 million cash and $155 million in physical uranium, we expect Denison’s proposal to be an all-share transaction,” said Lachapelle in a research note.

By acquiring UEX, Denison would consolidate 100% of its flagship Wheeler River project, of which it currently owns 95%. “Importantly, an acquisition of UEX would allow Denison to consolidate 100% ownership in our flagship Wheeler River project at an ideal time. [It comes] ahead of the anticipated final technical de-risking steps associated with the feasibility study in progress for the planned Phoenix in-situ recovery operation,” said Denison president and CEO David Coates in a press statement.

Based on the current project-level NAV, Lachapelle values the remaining 5% currently held by UEX at $70 million.

It also allows Denison to consolidate 100% ownership of JCU (Canada) Exploration, of which it currently owns 50%.

“The UEX assets are in Denison’s backyard. With a substantial history in the Athabasca Basin, Denison has the technical team and expertise to advance UEX’s assets from exploration through to development,” wrote Lachapelle.

In Lachapelle’s view, UEX shareholders likely held UEX shares because they specifically wanted exposure to Athabasca assets, and Denison owns one of the best-undeveloped projects in this region.

Lachapelle maintains her current estimates and valuation for both UEC and Denison until more details on the terms of the proposal are disclosed. However, she notes that this is the largest merger and acquisition deal the market has seen in nearly a decade. In her view, growing competition in the space should be viewed as a positive for the sector.

Shares in UEX rose nearly 16% on Friday to 48¢, giving it a market capitalization of $261.58 million, while UEC was up almost 5.5% at US$4.09, giving it a market capitalization of US$1.17 billion. Denison’s Toronto-quoted equity was down nearly 6% at $1.19 for a market capitalization of $1.23 billion.