Hi Guys,
Recently I have been keeping my eye on DML as a potential investment given that it is hitting new 52 week lows and may appear to be undervalued. DML has been purported by some (some analysts and many posters on the DML Bullboard) to be a potential takeover target.
As a long-term FCU/AMW investor, this got me thinking about whether DML may be a better buyout opportunity from a major's perspective. In other words, what is the likelihood of a major wanting to buyout DML
instead of FCU/AMW. If a major - say for example Rio - decided to move in on DML, it would seem very unlikely for that same major to then make a move for FCU/AMW. So if DML is the preferred choice, in my opinion the buyout prospects for FCU/AMW is significantly decreased.
Below I've compiled some information on DML's major assets. Figures are supported by links to news releases. This is meant to be an objective consideration of both DML and FCU/AMW, not a bashing or pumping session.
1. 36 million lbs at Phoenix Deposit: (total deposit = 60 million lbs; average grade 15.6%; depth approximately 400m; DML holds 60% interest).
https://www.marketwired.com/press-release/denison-announces-significant-increase-mineral-resource-estimates-phoenix-deposits-tsx-dml-1743818.htm
2. 7.8 million lbs at Waterbury Lake: ("J zone deposit"); total deposit = 12.8 million lbs; average grade 2%; depth at least 200m; DML holds 60% interest).
https://www.marketwired.com/press-release/denison-announces-ni-43-101-resource-estimates-on-midwest-a-deposit-tsx-dml-824412.htm
3. 2.5 million lbs at Midwest: ("A deposit"); total deposit = 10 million lbs; average grade 5% [estimated]; 175 to 210 m depth; DML holds 25% interest.
https://www.reuters.com/article/2013/09/12/idUSnCCN4PJJBn+1de+MKW20130912
4. Mclean Lake Facility (DML holds 22.5% interest). 5. Various other prospective properties: Hatchet Lake; Moore Lake; and low grade deposits in Mongolia and Zambia.
Given the above, I would say DML safely has 50 million lbs in the ground at high grades.
There are important differences between the two companies, though. First, PLS is located in one large deposit whereas DML's 50 million lbs are spread across 3 deposits. Second, PLS is significantly shallower than DML's deposits (PLS @ 60m to 200(ish)m and most of DML at depths starting closer to 200m). Both of these factors militiate in favour of FCU/AMW.
DML also has some beneficial attributes. First, its deposits are located closer to existing mills and developments on the west side of the basin. Second, DML holds a 22.5% interest in the McLean lake facility. To a major like Rio Tinto (who needs a processing facility), owning that interest is obviously tempting.
As of today's market close, DML had a market cap of 481.5 million and the combined FCU/AMW market cap is 336.5 million. A difference of 115 million.
Conclusions: In light of the above, I feel that FCU/AMW offers a much more compelling takeover proposition than DML does for the following reasons.
- 1. I estimate FCU/AMW have currently proven close to 50 million lbs in the ground. However, there is significant upside here. At this stage I think getting to 75 - 100 million lbs is a very reasonable and realistic possibility. Furthermore, PLS has more upside potential compared to DML's deposits. Thus, based on lbs in the ground, FCU/AMW are at least equal to DML, but likely win this category.
- 2. The shallow depth of PLS makes it extremely attractive for an open-pit mine, thus significantly decreasing costs of production. Given the current U environment, especially the reality that many producers are loosing money, the low cost of production offerred at PLS is a significant factor.
- 3. It is much easier for a major to come in and purchase ONE PROJECT (PLS) rather than a company with various holdings and projects. If you buy DML today, you have a lot of different projects to monitor. If you buy PLS today, all of your attention can be focused at one project.
In my opinion, those main factors outweigh DML's interest in the McLean Lake Mill, as well as the benefit of DML's projects being geographically closer to existing processing facilities. Assuming DML and FCU/AMW have similar lbs in the ground, I find it hard to value DML's 22.5% interest in the McLean lake at anywhere near $100 million (the difference in market cap between the two companies).
Again, this is not meant to be a bashing or pumping of either stock. It is meant to be an objective consideration of two purported buyout contendors. If anyone has any input or thoughts please contribute. Or if I am completely wrong in my analysis, please say so and why.
At this time, I believe the buyout prospects for FCU/AMW are significantly greater than for DML.