UPDATED: Fission grows in the Athabasca

 With grades over 10 times the world average, the Athabasca basin is home to some of the most economic uranium deposits in the world and one junior is looking to lock up a significant amount of that prospectiveness for itself.

Fission Energy (FIS-V) announced a friendly offer to acquire Pitchstone Exploration (PXP-V) and its 13 properties in the Eastern Athabasca, which if consummated, would create one of the largest exploration portfolios held by a junior in the Athabasca Basin.

Perhaps most importantly, it would do so without cutting into Fission’s significant supply of cash. As of March, the company has roughly $22 million in the kitty, and if the acquisition is completed, it would pick up Pitchstone’s cash of roughly $1.5 million.

Dundee Securities analyst David Talbot believes both Pitchstone shareholders will be better served by Fission’s management team driving those cash assets into exploration.

“Pitchstone management became a little too cautious and fiscally responsible and not enough cash was being sunk into the ground to move the needle,” Talbot wrote in an investment note.

Fission, on the other hand, has carved out a reputation as an aggressive explorer as it put money into the ground to define its flagship J-Zone deposit at its Waterbury Lake project, which is also in the Athabasca basin.

“We believe it is likely this exploration style could pay off for shareholders of both companies – Pitchstone shareholders bring the projects to a company with an exploration war chest with little fear to use it, while Fission shareholders get access to a significant amount of prime real estate in the Athabasca Basin at a time when Pitchstone has been beaten up somewhat,” Talbot wrote.

The all stock deal would see Pitchstone shareholders receive 0.2145 common shares of Fission for each of their Pitchstone shares. That means Fission will have to issue roughly 9.7 million new shares and Pitchstone shareholders would end up with an 8.4% stake in the merged company. Fission currently has 114.6 million shares outstanding.

The offer amounts to a 26% premium on Pitchstones 20 day volume weighted average trading price.

The key driver behind Fission’s ambitions is Pitchstone’s 13 properties in the Eastern Athabasca, five of which are wholly owned. Chief amongst the Athabasca portfolio is Gumboot, where uranium discovery was made in 2009 with a highlight intercepts of 2.06% U3O8 over 0.1 metres.

Pitchstone says the geology at the property is similar to large scale Athabasca uranium deposits due to its hosting graphic gneiss along a reverse fault with strong alteration and high nickel and cobalt assays — which are a key indicator of uranium mineralization in the region.

An electro magnetic conductor at the property runs 5-km long, of which only 1.2 km has met the drill. The same conductor extends a further 15-km on to the Johnston Lake property which is jointly held by Pitchstone and Denison Mines (DML-T).

The company has a 3,000 metre drill program planned on the property for the remainder of 2012.

As for Fission its Waterbury Lake project is adjacent to Rio Tinto’s (RIO-N, RIO-L) recently acquired Roughrider project. Waterbury abuts Roughrider’s boundary right where the deposits on Roughrider trend to the west.

Indeed Waterbury’s J Zone lines up very well with the West Zone and the Roughrider zone on Rio Tinto’s property as all of the deposits form an almost straight line extending west from the Roughrider deposit.

In fact Rio’s West Zone deposit has been defined right up to the property boundary and on the other side of that boundary Fission has outlined its J East zone. The companies have not, however, proven that the two deposits actually connect.

Pitchstone has heralded the synergies created by a merged company and Fission’s deeper pockets for exploration spending as key reasons for its board of directors unanimously approving the deal.

As for Talbot, he believes that with the expanded Athabasca portfolio, Fission has enhanced its status as one of the prime takeover targets in the region.

“[The deal] gives Fission a very good toe hold in the basin, and should the Korean or Chinese utilities move in, there are more projects and opportunities to be found with Fission than perhaps some of its peers,” he wrote.

Pitchstone shareholders will vote on it in mid-July and Fission has already entered into lock-up agreements with the holders of 19% of Pitchstone’s shares.