Denison to buy uranium explorer Fission
Denison Mines (DML-T, DNN-X) is staying true to its strategy of becoming a leading uranium explorer in the eastern Athabasca Basin region of Saskatchewan by agreeing to acquire Fission Energy (FIS-V) for roughly $70 million.
Denison, since its disinvestment of its U.S. assets in June of last year, has been focusing on growing and expanding its portfolio in the Athabasca Basin, says Ron Hochstein, the company’s president and CEO, in an interview.
The driving force behind the transaction, which comes two months after Denison agreed to takeover its joint-venture partner JNR Resources for nearly $10 million, is Fission’s 60% interest in the Waterbury Lake uranium project.
The 402-sq.-km property sits in close proximity to Denison’s 25%-held Midwest uranium project and 22.5%-owned McClean Lake mill, touted as one of the world’s largest uranium processing plants, and would increase the company's land position.
Hochstein says the transaction will strengthen the firm’s existing resource base, particularly with the Waterbury project, which contains about 13 million lbs. uranium in indicated and inferred, as well as improve its chances of exploration success.
Analysts note that the mineralization at Waterbury is continuous with Rio Tinto’s (RIO-N, RIO-L) Roughrider deposit and that the two could be developed together, suggesting that Denison is buying Fission to attract Rio’s acquisitive eye.
“This transaction ties a bow on DML for Rio Tinto to consolidate the Athabasca,” writes Rob Chang, an analyst at Cantor Fitzgerald, in a note.
Commenting on that, Hochstein says the offers for JNR and Fission were “purely a move to improve our portfolio and increase our flexibility in the eastern Athabasca Basin.”
That said, he adds Denison is positioning itself to become a likely acquisition target, with its strategic interest in the McClean mill, extensive exploration portfolio and significant resource base.
“I think we would be an interesting acquisition for the current majors or potentially for another company looking to get into the uranium space.”
Chang opines that Saskatoon-based Cameco (CCO-T, CCJ-N) will be the other major possibly interested in Denison.
As part of the transaction, Fission shareholders will receive 0.355 of a Denison share and one share of a new spin-out company for each share held. The offer represents a 49% premium to Fission’s Jan. 15 close and a 42% premium to the 20-day volume weighted average price, Hochstein says.
Certain Fission assets, notably the 50%-held Patterson Lake South discovery and $18 million in cash will be spun into the new company, which will be owned by Fission's current shareholders and led by its management.
Denison will also pick up Fission’s other exploration interests in the Athabasca Basin as well as assets in Quebec, Nunavut and Namibia.
If the deal goes through, Denison will issue roughly 44 million new shares and Fission shareholders would own about 11% of the Toronto-based firm.
The agreement includes a reciprocal break fee of $3.5 million and a non-solicitation covenant, with Denison having the right to match higher bids. The transaction still requires regulatory and shareholder approval and should to close in April 2013.
On the news, Fission rose 22% to 78¢ and Denison shares added nearly 2% to close at $1.48.