Cameco (CCO-T, CCJ-N) has raised its all-cash hostile offer for Hathor Exploration (HAT-T) by 20%, from $3.75 per share to $4.50 per share, trumping Rio Tinto‘s (RIO-N, RIO-L, RIO-A) friendly $4.15 per share, all-cash bid.
The new offer values the fully diluted share capital of Hathor at $625 million and “makes sense for Cameco, given our unique position in the Athabasca Basin,” Tim Gitzel, Cameco’s president and chief executive, announced in a news release.
Bart Jaworski and David Sadowski of Raymond James believe “there is still room for a higher offer, given Mantra was purchased early this year by ARMZ for over nine dollars U.S. per pound, and Rio has much deeper pockets than Cameco.”
The Vancouver-based mining analysts calculate that Cameco’s latest offer represents US$8.01 per lb., based on their 78 million lb. uranium resource; 58 million lbs. of global National Instrument 43-101 resource, 30% of which is in the measured and indicated category; and their 20 million lb. modelled resource for Hathor’s Far East zone. When they adjust the purchase price for Hathor’s cash position, which they estimate to be $20 million, the new offer becomes US$7.75 per lb.
“We believe Rio is likely to match Cameco’s offer . . . the question then becomes whether Cameco is willing to top its own four-and-a-half dollar per share offer,” the analysts concluded in a research note. “Given today’s news release is very curt and does not contain any language on this being Cameco’s best and final offer, we are inclined to believe Cameco is willing to go higher. This may in turn suggest, that in the effort to be pre-emptive, Rio may offer a premium to Cameco’s offer.”
Cameco’s Nov. 14 offer will expire on Nov. 29. News of the amended bid sent Hathor’s shares up 40¢, or 9%, on the day to close at $4.87 apiece, with 16.8 million shares trading hands.
David Talbot, a senior mining analyst at Dundee Securities who has a 12-month target price on Hathor of $5.20 per share, reasoned in a note to clients that another Rio bid “is almost a given,” and argues that “these offers have more room to go before they provide full value,” adding that “the new Cameco bid is still a sixteen-percent discount to our target price, and therefore we maintain our buy.”
He asserts that Cameco would be “well advised to offer stock as well – enticing those shareholders that like the uranium sector and believe in the Roughrider deposits to share in the future upside this project could bring.”
But he also cautions that Cameco “has been fairly disciplined in the past, and the fresh blood that Tim Gitzel brings to the table as CEO might not be enough to counter that long-entrenched conservative corporate culture.”
At the same time, he says, the prospect of losing its unique position and operating synergies in the Athabasca Basin may be enough to coax a higher bid from Cameco. Talbot points out that the core of the Roughrider deposit is the fourth-highest grade deposit in the world, and Cameco has an interest in the top-three deposits: McArthur River, Cigar Lake and Phonenix. Hathor’s Roughrider deposit is 25 km northwest of Cameco’s Rabbit Lake mill.
“Sure, [Cameco] does have operating synergies now that Rio Tinto doesn’t, but if Cameco were to let Rio Tinto, the second-largest mining company in the world, into the basin, they would lose that unique position the next time a significant project came to the attention of the producers,” Talbot says. “Rio would then likely have those same synergies, and likely a good share of Cameco’s workforce, for which it would no doubt pay up to entice qualified workers to jump ship. Certainly Cameco is aware that losing this bidding war to Rio would lead to human resources challenges at its other operations in the basin.”
In separate news, in early November Hathor released final assay results from its summer drill program at Roughrider’s Far East zone. Drill hole 718 confirmed new mineralization near the unconformity at Far East, in a zone much shallower than the main zone outlined by previous drilling. The zone will be the focus of the company’s exploration drill program in the winter drill season of 2012.
Highlights from hole 718 include 49 metres of 2.22% uranium oxide (U3O8) starting 121 metres below the unconformity, and a new shallow zone 22 metres below the unconformity of 4 metres grading 0.93% U3O8.
“While results are confirmatory in nature and unlikely to move the needle much, the holes underline the exploration upside remaining at Far East,” Raymond James’ Jaworski and Sadowski wrote in a Nov. 11 research note to clients. “We believe mineralization is open to the south and east, and within the new upper zone – each of which provide highly prospective targets for next year’s winter drill program.”
A maiden resource estimate on the Far East zone is expected to be completed in the next few months.
At presstime Hathor traded at $4.83 per share within a 52-week band of $1.50-$4.88 per share, with 125.4 million shares outstanding.
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