quakes99 wrote: Those are some interesting thoughts, sudzie. It's amazing what pops up when you start digging deeper into the details. Let me touch on a couple of your points:
1. The strategic importance of the McClean Lake Mill - this aspect of Denison's assets seems to be completely misunderstood by investors. It's not the $9M+/year income from the mill that's important (though that income certainly is a benefit), it's the 25% capacity that is available to Denison under the McCLean Lake JV that is the strategic importance. It's the highest grade, most state-of-the-art Uranium mill in the world. To build another one like it would likely cost over $1Billion.
Under the terms of the deal between the Cigar Lake JV and McClean Lake JV, CLJV has to pay a Toll milling rate for their Cigar Lake ore. But the MLJV pays only a very low fixed cost for their processed ore through the mill... because they own it. ;-)
For ANY major producer wanting to develop a high-grade deposit on the East side of the basin, that availability of up to 8M lbs/year capacity in the world's best high-grade mill is huge. They can save a $Billion by not having to build their own mill! That's why China Nuclear says they like the married package... 5 of the top 10 Athabasca Basin deposits plus 8M lbs/year capacity in a mill. PLUS, because Denison owns the mill and has rights to all the designs, technology, and processes developed there - a duplicate mill could be built on the West side for hundreds of $millions less. No need to go through all the R&D needed to build a state-of-the-art mill - that's already been done by the MLJV. And a mill on the West side would not need to be as big or as high grade capable, as the downblending available at PLS takes care of dealing with high grade ore, and it doesn't need to be able to pump out 24M lbs/year. 1/3 of that might be sufficient, so a much lower cost mill would handle PLS, Arrow, and Shea Creek.
2. Competitive Buiding on Denison Energy Mergeco - I hadn't really seen it in those terms but you do raise an important idea. If Rio Tinto or Cameco are of the same mind as China Nuclear, wanting development and production rights for 5 Athabasca deposits plus the McClean mill, then they could, as you say, wait until after the merger before moving on a bid for the combined assets in one offer.
If they moved on PLS now, they would have potentially many other suitors to compete with in the bidding auction that could follow, and end up paying a much higher price if Denison kept matching offers and others came in to bid as well.
But, if they really want the bigger package then wait until after the merger when there will be fewer bidders with as big pockets able to bid. That could keep the overall price tag for PLS lower, while allowing them to pick up Phoenix, the highest average grade deposit in the world, for a very low cost as well. A bid for say $3/share for FCU would be about $1.2B. IF they were to bid something like $2/share for Denison Mergeco (900M shares) then for $1.8B, only $600M more, they get Phoenix, Gryphon, 22.5% of McClean mill, the Africa mines and everything else that Denison owns. For a major producer like Rio Tinto or Cameco, that could be a huge bargain! For FCU shareholders, $2.00/mergerco share x 1.26 share ratio = $2.52 per FCU share today.
Definitely worth considering... could see Rio Tinto, Cameco, China Nuclear, KEPCO, and India all interested in that more economical package deal where more costs less per lb of U3O8, plus access to a mill. And for Foreign Ownership, only 1 proposed transaction through the Canadian Government would get all those assets in one bid, saving time and money by avoiding seeking approval for multiple transactions. And lots of JV possibilities as well.
Thanks for the stimulating thinking sudzie! Your mind is good at seeing potential!
Have a great weekend... and pleasant dreams. ;-)
sudzie191 wrote:
Not therlikely. Rio Tinto, not likely either. Now listen up because I just figured out why yes might be a very good thing. listening? ha ha Instead of a rival offer for FCU by CCO now, they are most likely saying to themselves, wow this is neat, no reason to interfere, because DML and FCU are marrying, and once married, then CCO gets on the alert to be ready for a competing offer for NewCo from Rio Tinto. CCO will want the NewCo in preference to letting Rio Tinto take it over. NewCo will fit nicely with CCO as they get the 22% of the mill, all of DML's hi grade deposits which can be mined in the mill, and thru picking up FCU deposit on the east side sort of block out anyone else from getting a foothold over there. Later on, if NXE keeps drilling off good stuff, they can pick that up too. Now Rio will be interested in competing for NewCo as it would give them access to the McLean Lake mill via that 22% current DML arrangement, so in the short term they have somewhere to process their Hathor ores. If they get NewCO too, then they have all of the DML hi grade stuff to add to their Hathor deposits. So now that I know what the game is likely to be, I can vote yes, as I think the competitive bidding for NewCO will start pretty quickly after it happens. In the competitive bid for the NewCO we should get enough premium to get somewhere around $1.50 to $2 for our currently 0.80 priced FCU shares. Thanks Quakes for helping me figure this out.