Reaction to FCU Takeover H.C. Wainwright analyst Heiko Ihle thinks Australia’s Paladin Energy Ltd. agreement to buy Canadian mining development company Fission Uranium Corp. in a friendly transaction worth $1.14-billion furthers his long-held thesis that North American uranium assets should trade for a premium.
“In addition, this transaction may also become a catalyst for a general rise in M&A activity for other uranium assets as companies seek to source uranium from more geopolitically safe jurisdiction,” he said in a research note.
On Monday, shares of Kelowna, B.C.-based Fission, which is developing the Patterson Lake South (PLS) project in the Athabasca Basin region of Saskatchewan, soared 15.5 per cent following the premarket announcement of the deal, which Mr. Ihle thinks benefits both sides.
“Although proposed to be consummated at a price that is well below our target price, the deal has the potential for unlocking shareholder value in the intermediate and longer term,” he said. “For one, the proposed transaction provides an immediate premium, and simultaneously allows Paladin to become a more prominent figure in the global clean energy sector. Looking ahead, the transaction offers Paladin a more straightforward path toward becoming a leader in clean energy, with multiple assets scheduled to be in production by 2029. In addition, the combined entity is meaningfully larger and should, therefore, have an easier time in acquiring financing for PLS. We reiterate that the proposed transaction is to be paid solely in Paladin shares, which allows Fission shareholders continued exposure to upside from PLS. In conclusion, while the deal was made at a price below our fair value for the asset, it ultimately provides growth possibilities and diversification.”
While acknowledging the sale is likely to happen below our previous net asset value projection for Fission, Mr. Ihle maintained a “buy” recommendation and $1.90 target for its shares. The average target on the Street is $2.12, according to LSEG data.
“Our overall model and valuation method for PLS therefore remain unchanged,” he said. “We also maintain our long-term uranium price estimate of $90.00 per pound (lb) (C$122.93/lb). We then add cash and the 32.8Mlbs of Fission’s additional uranium resources(at an increasingly conservative-looking average value of $8.50/lb that accounts for present spot pricing and its North American origin) to calculate our NAV. We calculate a value of $1.93 per share, which we round to our final price target of $1.90.
“We acknowledge the chance of a white knight starting an auction for PLS. In our view, there are several competing bidders that should benefit from exposure to a large-scale uranium deposit in a geopolitically safe jurisdiction. As for the rest of the market, we view this deal as a potential catalyst for increased M&A activity for uranium assets going forward.”
Elsewhere, believing the proposed deal “seems light,” Eight Capital’s Puneet Singh kept his “buy” recommendation and $2.30 target.
“In our view, NXE, FCU, and DML own the most attractive/most advanced development stage assets globally,” said Mr. Singh. “These are also the assets most strategic to the U.S. (the largest source of uranium demand today) post-2028 when the Russian uranium ban comes into full effect after the current waiver period. Considering this, we believe the significance of PLS (which would equate to 5 per cent of global supply once in production) globally is not being fully reflected in this bid. If NXE/DML were to be bought out today, we believe both would garner premium-to-NAV offers. Rather than another bidder coming over the top we believe shareholders pushing for a higher bid is the more likely outcome. A bid closer to 0.8-0.9 times Consensus NAV for FCU seems more reasonable.”