Denison eyeing further expansion with OmegaCorp bid

Vancouver — Denison Mines (DML-T, DNMIF-O), a company with deep roots in the Canadian uranium mining sector, is set to take on an entirely new profile after launching a $154-million offer for Australian firm OmegaCorp (OMGCF-O, OMC-A).

If the offer succeeds, it will add a portfolio of uranium properties in southern Africa to Denison’s flagship asset, a 22.5% stake in the McClean Lake uranium tailings processing facility in Saskatchewan.

Given that Denison has just completed a merger with Lundin Group company International Uranium (see story at right) it could well become the go-to company for consolidation in the global uranium sector, says Jim Mustard, mining analyst with Haywood Securities. “This deal confirms that,” Mustard says.

Denison president Ron Hochstein says the friendly cash bid is the first step in a global expansion strategy that will focus on uranium exploration and production.

“We will be looking for other acquisitions, either in the exploration arena or in projects which have resources associated with them,” Hochstein explains.

In keeping with those plans, Denison is offering to pay A$1.10 for each share of Omega, adding that the bid reflects a premium of about 25% to the volume-weighted average price in the 20 days before the offer was launched.

Shares of Denison responded by rising $1.35 to $30.70 in Toronto on the news.

Prior to a trading halt on Nov. 30, shares of OmegaCorp traded at A99.

Mustard sees the bid for OmegaCorp as a move to capitalize on rising demand, which has sent spot uranium prices soaring to US$63 per lb., from US$10 in the last four years, amid indications that they may go even higher.

Major producers like Cameco (CCO-T, CCJ-N) sell uranium under legacy contracts that are based on a formula tied to spot prices.

Denison’s offer is backed by unanimous support from OmegaCorp’s directors, who are recommending that shareholders accept the bid in the absence of a better one.

According to OmegaCorp’s website, company management and directors together own 9.2% of the company’s shares outstanding.

The most advanced project in OmegaCorp’s portfolio is its wholly owned Kariba uranium property, which is located about 200 km south of Lusaka, the capital of Zambia.

A preliminary assessment by consultants retained by the Australian firm suggests that it would cost about US$60 million to develop an open-pit mine on the property, capable of producing 1.5 million lbs. uranium annually at a cost of US$23 per lb.

Hochstein notes that since the property benefits from proximity to power lines and water, it is reasonable to assume that production could start sometime between 2009 and 2011.

“The 2011 timeframe is the most realistic for the project,” he says.

Under the offer, Denison — while retaining the uranium rights — is planning to spin off exploration properties in Mozambique, known as the Mavuzi assets, to Omega shareholders. Those assets will be spun into a new company to be listed on the Australian Stock Exchange.

During a conference call with analysts on Tuesday, Denison officials said the Lundin family is quite familiar with the operating climate in Africa, which it considers to be stable.

However, Hochstein says the Zambian government is working with the International Atomic Energy Agency to establish an appropriate regulatory environment for its uranium sector before issuing any more mining licences.