Uranium Consolidation: Fission likes Denison's offer, wants to "do it all again" in Saskatchewan's Athabasca Basin

By ResourceClips


Uranium M&A activity continues with Denison Mines’ [T.DML] move to acquire Fission Energy [V.FIS]. Both companies back the plan, which would help Denison consolidate its position in Saskatchewan’s Athabasca Basin while Fission’s management would move into an aggressively “lean and hungry”—but well-financed—spinoff.

Under the binding letter of intent announced January 16, Denison would get Fission’s 60% interest in the Waterbury Lake uranium project. Fission’s other focal point, its 50% stake in the Patterson Lake South uranium project, would spin out to a new company headed by the Fission team. The deal, which values Fission at $70 million, would offer 0.355 Denison shares for each Fission share. As a result, Fission shareholders would hold about 11% of Denison as well as a proportional interest in the newly formed company.

The parties expect consummation by April. The LOI includes a reciprocal break fee of $3.5 million.

Patterson Lake South, located in the western Athabasca Basin, is currently a 50/50 joint venture between Fission and Alpha Minerals [V.AMW]. The high-grade, near-surface project has seen a steady stream of encouraging results since its discovery last fall.

In the eastern basin, Fission holds a 60% interest and 2% NSR in Waterbury Lake. A consortium led by the Korean power utility Kepco holds the remaining 40%. Waterbury’s J-Zone is an extension of the Roughrider deposit, which Rio Tinto bought from Hathor Exploration last year for $654 million. Cameco’s [T.CCO] McArthur River and Rabbit Lake mines, as well as its Millennium deposit, lie on the same trend.

Denison would also pick up the rest of Fission’s eastern basin assets, a few more in Quebec and Nunavut, and Fission’s share of two JVs in Namibia.

Denison already commands a strong position in the eastern basin, with 26 projects covering over 330,000 hectares. Included is Denison’s 60% interest in Wheeler River, a JV in which Cameco and JCU Exploration hold 30% and 10% respectively. Also in the eastern basin, Denison holds a 25.17% interest in the Midwest high-grade uranium deposits and a 22.5% stake in the McClean Lake near-surface deposits and mill, one of the world’s largest uranium processing plants.

Last November Denison acquired 13.9% of International Enexco [V.IEC], whose assets include Athabasca’s Mann Lake project, a JV in which Cameco holds 52.5% and AREVA 17.5%. Other Denison assets are located in Mongolia and Zambia.

Speaking to ResourceClips, Fission chairman/CEO Dev Randhawa says, “I think Denison’s corporate strategy is to be a dominant player like Cameco and Rio, so they acquired JNR Resources [V.JNN]] last fall and now they’re acquiring our asset next to Rio, which is just north of Denison’s Midwest project.”

The announcement comes just two days after Russia’s state-owned ARMZ made a $1.3-billion offer for Uranium One [T.UUU], a bid that Chris and Michael Berry call “strategic as well as opportunistic.” Randhawa acknowledges that “these are very difficult times for juniors. A lot of people were optimistic that they could raise more money down the road, then found it never happened. Some people thought things would get better last summer, or in the fall. Now it’s January. Something like 40% of the companies on the TSX have less than $400,000 in the bank. It’s a good time to be buying.”

But he maintains the Fission acquisition would be “a good deal for both companies. We like Denison as a company, they have a very high-grade project at Phoenix [part of Wheeler River]. So our investors get a piece of a bigger chip which is more diversified and they also get a free chip in Patterson Lake South, which we think is very exciting, especially with mineralization kicking in at 50 metres.”

Cameco, Randhawa says, “has traditionally ‘owned’ the Athabasca. But that’s changing. I could see Rio taking a run at Denison. They do need access to that mill for their Roughrider zone.”

But couldn’t Rio or Cameco go after Fission first? “That may happen,” he responds. “I never really thought Rio would come in and compete with Cameco when they first took a run at Hathor. There’s talk out there. Whoever does control the J-zone—Rio’s probably the most natural because it’s very hard not to mine something that’s 20 yards away from yours. Common sense says they should all be developed as one. But that’s pure speculation.”

As for the LOI, “we signed a deal with Denison in good faith, we have a break-up fee with them, but obviously our shareholders may be open to any offer that comes in.”

For his part, Randhawa’s looking forward to the new spinoff. “That’s really what juniors are supposed to do, right? We go out and find land, make discoveries, develop them and sell them. We want to focus on Patterson Lake and the western part of the basin. So Fission’s management team will simply go to the new company and obviously the dominant project will be Patterson Lake. Waterbury Lake is the jewel for Denison.”

He adds, “Keep in mind that Kepco is a large shareholder of Denison and also holds 40% of Waterbury Lake, so it helps consolidate Kepco’s holdings too.”

And what about the Fission team and their proposed spinoff company? “We didn’t sign a non-compete and we actually have a lot of cash, $18.8 million to be exact. So we intend to be quite active ourselves in picking up projects. We’re basically trading paper with Denison. At the same time we’ve got lots of cash and a lean, hungry group that wants to go out and do it all again.”

Fission opened January 16 at
.75, 11 cents above its previous close, then finished the day at 78 cents. At press time the company had 124.54 million shares outstanding for a market cap of $97.14 million.

Denison opened January 16 at $1.43, three cents below its previous close. The stock then reached $1.50 before closing on $1.48. With 388.8 million shares outstanding, Denison had a press-time market cap of $575.43 million.