Denison stokes merger flames

Denison Mines (DML-T, DNN-X) is taking another stab at Perth, Australia-based OmegaCorp (OMGCF-O, OMC-A) in an attempt at diversifying into Africa.

Toronto-based Denison bettered its own high bid from its previous takeover attempt, launched in December, by 13%. The new bid is $1.18 (A$1.30) per share, compared with its high offer of $1.04 (A$1.15) per share in May. With Denison already holding 33% of OmegaCorp, the new deal values the rest of the company at $121 million. The offer is all cash.

“The move into Africa has to do with country risk,” says Denison chief executive Peter Farmer. “It’s a big continent with lots of resources and certain countries there are miner-friendly. Zambia is not like Australia on the political side of things.”

OmegaCorp’s uranium projects include: Kariba in Zambia, Mkuju in Tanzania, and the Zambezi Valley project in Zimbabwe and Mozambique.

Kariba, however, is the company’s key asset and Denison’s improved bid is tied to a confirmation of the resource there — which is estimated at 13.7 million lbs. U3O8.

“It’s an attractive resource that we think we can get going into production by 2010 or 2011,” Farmer says. “It’s close to the surface, and while it’s a very low grade, it’s easily leachable and there’s infrastructure close by.”

Additionally, Farmer says the size of the property — roughly 2,521 sq. km — and the relatively small portion of it that has been drilled, means there’s significant exploration potential.

He says the company has roughly $200 million in the kitty, so despite the $121-million price-tag on OmegaCorp, there would be plenty of money left to explore while moving the project towards feasibility.

Another key factor driving the timing of the renewed bid is Central African Mining and Exploration Co.’s (Camec) (CFM-L, CEAMF-O) failure to acquire OmegaCorp. Camec made an all-share offer for the company in April, only to withdraw the bid on June 13.

At the time of the offer, Camec’s one-for-one share offer valued OmegaCorp at A$1.44 per share. But roughly a month after the offer was made, Camec shares had fallen more than 35%, making the deal less appealing to OmegaCorp shareholders.

Camec said it decided to withdraw the bid because the offer was conditional on OmegaCorp not disposing of assets during the bid period, and OmegaCorp had stated it would proceed with plans to spin off a copper and gold project in Mozambique — originally announced in January.

Denison’s bid represents a premium of 6.6% to the volume-weighted average price of OmegaCorp’s shares over the 20 trading days before the offer was announced on June 25. It will need the approval of 90% of OmegaCorp shareholders to go through.

The takeover attempt comes on the heels of Paris-based Areva’s (ARVCF-O) move to grow its uranium resources in Africa with a $2.5-billion cash bid for UraMin (UMN-T, UMN-L).

And while Farmer says the Areva move had nothing to do with his company’s renewed interest in OmegaCorp, he did say Denison’s merger with International Uranium Corp. (IUC) in December — a move that brought it under the Lundin Group of Companies umbrella — increased its awareness of the continent.

“There’s no question that the merger and the added information we get from being part of the Lundin Group of Companies makes us more comfortable with Zambia in particular,” Farmer says.

Denison has assets in the Athabasca basin and the southwestern United States, and anticipates producing 5 million lbs. of U3O8 per year by 2011.

In mid-June, the company announced an estimated historical resource of over 205 million lbs. U3O8 using a 0.8-lb.-per-ton cutoff grade at its Elliot Lake complex in Ontario, following an independent review of historical resources.

Denison mined Elliot Lake from 1957 to 1992, producing over 147.3 million lbs. U3O8.

While it says it isn’t yet planning to restart operations there, it will continue to “review the project in light of the continuing strength in the uranium market.”

The company also has a stake in two of the four conventional uranium mills operating in North America.

In Toronto on the day of OmegaCorp offer, Denison shares were off 44 or 3% to $13.60 on 1.4 million shares traded. In Australia, OmegaCorp shares moved towards the offering price, and were trading for A$1.31 on a volume of 320,000 shares.