Uranium Mergers- Let the bidding startBreaking News from The Globe and Mail
Domestic miners target uranium industry
SINCLAIR STEWART, ANDREW WILLIS AND ANDY HOFFMAN
Friday, September 15, 2006
A pair of Canadian miners are competing to acquire Denison Mines Inc. in a deal that could herald the next frontier in Canada's consolidating metals sector: the emergence of a handful of powerful, mid-market uranium players.
Vancouver-based International Uranium Corp. and rival SXR Uranium One Inc. of Toronto have each been holding takeover discussions with Denison, according to two Bay Street sources familiar with the matter.
One of these sources, who spoke on condition of anonymity, said the talks with IUC are at an advanced stage, although he cautioned it is not certain the two sides will agree on terms.
Denison, which is worth almost half a billion dollars, is one of only two domestic uranium miners that can boast exploration and production capabilities in Canada, making it a highly coveted target.
Peter Farmer, chief executive officer of Toronto-based Denison, confirmed his company is talking with other industry players but declined to identify them.
“We are having discussions with all kinds of people,” he said. “We have not cut any deals.” He acknowledged that one of the options Denison has discussed with “several” partners is the creation of a mid-sized uranium producer that could help narrow the gap with industry giant Cameco Corp.
Spokespersons for SXR and IUC declined to comment on the matter.
Industry observers are expecting considerable merger activity in the uranium sector, where more than 200 hundred junior exploration companies have sprung up in hopes of cashing in on increasing demand for this metal. The price of uranium has climbed from a little more than $7 (U.S.) a pound in 2001 to a spot price yesterday of $52. Uranium miners only account for about 60 per cent of the 80,000 tonnes consumed each year by the world's nuclear reactors, with the balance coming from decommissioned warheads.
Uranium companies are being driven to merge by the classic promise of size and scale, and the ability to centralize everything from talent and technology to expertise in regulation and permits. There is also the hope, much as is the case with copper and nickel miners, that bulking up will provide uranium companies with better valuations.
“The environment is rife with discussions,” said one investment banker involved in the uranium mining sector.
“Nobody is really positioned to be the next $4-billion or $5-billion company.”
Saskatoon-based Cameco is the world's largest uranium producer, and its properties in northern Saskatchewan account for approximately 20 per cent of global production. With a market capitalization of more than $15-billion (Canadian), Cameco towers above Canada's other uranium miners and explorers. Although there are several companies valued at between $500-million and $2-billion, there is a vacuum in the mid-market that is acting as a catalyst for consolidation.
Denison is the only domestic junior miner that is involved in uranium production in Canada, through its 22.5-per-cent interest in Saskatchewan's McClean Lake property — the world's sixth-largest uranium facility. It holds a 25.2-per-cent interest in the province's Midwest Uranium Project, and has exploration activities in Mongolia, Australia, and Canada's Athabasca Basin.
Last year, the company also signed on as manager of Uranium Participation Corp., a publicly traded holding company that functions much like an exchange-traded fund: It buys the physical uranium and provides investors with a way to get exposure to the price movements of the metal.
IUC, controlled by the wealthy Lundin family, has a market value of $531-million: about $60-million more than Denison. It owns uranium deposits in Mongolia, exploration properties in Athabasca, and a uranium mill in Utah that recycles waste containing the metal.
Its chairman, the Swedish-born Lukas Lundin, is the scion of a global resources investment firm founded by his father, Adolf. Lukas Lundin, 49, lives in Vancouver and is also chairman of Lundin Mining Corp., which last month orchestrated a $3-billion merger with EuroZinc Mining Corp.
SXR, the other suitor said to be interested in Denison, was created last summer after South Africa's Aflease Gold and Uranium Resources Ltd. acquired Canada's Southern Cross Resources Inc. and renamed the company. The miner has exploration and development operations in Australia, South Africa and Canada. It is larger than both IUC and Denison, with a market capitalization of $940-million.
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