The battle over Hathor Exploration (HAT-T) and its Roughrider high-grade uranium project in the Athabasca basin continues to heat up, with Rio Tinto (RIO-N, RIO-L, RIO-A) trumping Cameco‘s (CCO-T, CCJ-N) latest offer.
Rio Tinto’s latest friendly offer comes in at $4.70 per share in cash and values the company at $654 million. It’s a significant bump over a revised bid from Cameco tabled on Nov. 14 that offered $4.50 per share.
The latest round of bidding is a long way from where Cameco got things started. The company’s maiden, hostile offer in August was for just $3.75 per share. Hathor management’s quick dismissal of that offer – calling Cameco opportunistic – has proven correct.
Rio has also re-adjusted expectations since jumping into the fray in October with a white knight offer of $4.15 per share.
Despite the higher offers, and the higher Hathor share price that goes along with them, David
Talbot, an analyst with Dundee Capital Markets, maintained his buy rating on Hathor with a target price of $5.20, owing to the “ongoing momentum” that the Cameco and Rio offers have generated.
“The market believes further bids are on their way – the stock is already trading at a six-percent premium to the latest bid. However, if Cameco fails to bite again, then we would expect Hathor to be taken out at four dollars and seventy-five cents per share,” Talbot wrote in one of his research notes.
Unlike some other market pundits, however, Talbot doesn’t believe that a joint Cameco and Rio offer is likely.
“I never expected a joint venture or combined bid between these companies,” he wrote in an email. “Cameco doesn’t want Rio in the basin. Rio doesn’t need Cameco, period. Hathor is likely the only way Rio can get into the Athabasca and still have control.”
Cameco will likely take a good, hard look at the Rio offer, and will decide in the coming days if it is worthwhile to up its offer again. The company has $1.2 billion in cash, so a renewed attempt doesn’t look out of the question.
The company’s offer expires on Nov. 29 and the Rio offer expires on Nov. 30.
And while the two companies desperately want to claim the asset, their motivations are different.
For Cameco it’s about expanding an already prolific reach in the Athabasca basin. With a large presence in the area the company would be in a good position to capture more synergies and, at the same time, it would be keeping one of its largest competitors on the outside looking in.
For Rio, the play to get Hathor is about better diversification. The company’s major uranium mines are in Australia and Africa, and getting a foothold in the world’s greatest uranium region – Athabasca accounts for 20% of global uranium oxide (U3O8) production – would be a boon to its uranium division.
But Talbot cautioned that losing the asset could be more harmful to Cameco than for Rio.
“If Rio was to win, Cameco potentially loses its unique position. The core of Roughrider is the fourth-highest grade deposit in the world, and Cameco has interest in the top three [McArthur River, Cigar Lake and Phoenix],” he wrote.
Talbot goes on to say that should Rio win, it could begin to drain some of Cameco’s talent base by setting-up shop in the region.
The furious bidding for Roughrider comes despite moribund prices for uranium. Uranium prices have yet to recover from a slump that ensued after March’s Fukushima Daiichi nuclear disaster. Coming in at US$55 per lb., uranium oxide prices are off 20% from pre-disaster levels.
Roughrider is made up of three distinct zones: West, East and Far East.
The West zone was discovered first in 2008. It has indicated resources of 394,200 tonnes grading 1.98% U3O8 for 17.2 million lbs. and 43,600 tonnes grading 11.03% U3O8 for 10.6 million lbs.
The East zone has inferred resource of 118,000 tonnes grading 11.58% U3O8 for 30.13 million lbs.
The company is compiling its first resource estimate for the Far East zone.
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