Scotiabank comments on the merger between DML and FCUAccording to Scotiabank:
DML/FCU Merger Limits Choices of World-Class U3O8 Projects (Like a Junior CCO) - Positive
Rating: Sector Outperform
Target 1 - Yr: C$1.75
Key Risks to Target: Uranium outlook; exploration and development progress; CAD/USD
Event
- DML and FCU intend to merge.
Implications
- FCU shareholders will receive 1.26 shares of DML + $0.0001/sh of cash, which is the equivalent of FCU receiving $1.25/sh, or an 18% premium to the 30 – day average price. This will leave FCU and DML shareholders each owning ~50% of newco – Denison Energy Corp. Furthermore, Denison intends to initiate a 2-for-1 share consolidation.
- Lukas Lundin will become non-executive Chairman, with Dev Randhawa as CEO. Ross McElroy will become President and COO, while David Cates will be appointed CFO.
- What we like: (1) consolidation of strategic uranium assets; (2) strong management team; (3) cash flow from DML’s mill stake to fund further project de-risking; and (4) upside optionality from non-core asset sales.
Recommendation
- With two of the world’s best uranium projects now in the same portfolio (i.e., Patterson Lake South and Wheeler River), among other prospects, we believe Denison Energy Corp. should become the go-to name for those looking for uranium project torque on an eventual market recovery. This should benefit shareholders over time.