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Mining Weekly: Shareholders shoot down DML, FCU merger

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https://www.miningweekly.com/article/shareholders-shoot-down-denison-fission-merger-2015-10-13

Shareholders shoot down Denison, Fission merger

October 13, 2015

By Henry Lazenby

TORONTO (miningweekly.com) – A proposed takeover bid by uranium exploration and development company Denison Mines of Canadian explorer Fission Uranium has been terminated after Fission shareholders opposed the deal.

At the deadline for submission of proxies on Friday, Denison's shareholders strongly supported the arrangement, but Fission failed to garner a required two-thirds of shareholder support to move the transaction forward, despite reporting that a majority of the Fission shares voted were in favour of the plan of arrangement.

"It's not a big deal. Shareholders didn't want to give up the asset for what Denison was willing to pay," Fission CEO Dev Randhawa told Mining Weekly Online.

In July, Denison agreed to buy Fission for about C$483-million, with the aim of creating a new diversified Canadian uranium company with a portfolio of projects in the prolific Northern Saskatchewan mining region.

Under the terms of the deal, Fission shareholders would have received 1.26 Denison shares for each Fission share held and C$0.0001 a share in cash.

The offer implied a price of C$1.25 a Fission share, an 18% premium to the average volume-weighted price of Fission's shares over the preceding 30 days. With some 386.23-million shares outstanding, the offer translated into a price of about C$483-million for Fission.

Following the merger, the new entity would have been named Denison Energy, have had a market value of about C$900-million and been equally owned by Denison's and Fission's shareholders.

Headlining the asset portfolio of the combined company would be two world-class uranium exploration and development projects, including Fission's Patterson Lake South (PLS) project and Denison's 60%-owned Wheeler River project, both in the prolific Athabasca basin.

"People tend to forget that we have never stopped drilling. The idea of the merger was to get more assets and increase the market capitalisation.

"When times are tough, one bring good assets together. Neither company needed each other, it just made good sense to come together," Randhawa explained.

Fission's TSX-listed stock rose as much as 10% on Tuesday, to C$0.76 apiece.

MASSIVE ASSET

Randhawa advised that he did not expect Denison to come back with a sweetened offer. Instead, the company's recent publication of the preliminary economic assessment (PEA) on the high-grade uranium resource identified to date on the Triple R uranium deposit, at its 100%-owned PLS property, had drawn renewed interest from Asian investors, as well as those in London, UK.

An emerging 15% supply gap could signal a prolonged upturn in the uranium price through to 2024. A decline in secondary sources of yellowcake was forcing the market to increasingly rely on primary suppliers, which, when coupled with unprecedented growth in the nuclear reactor industry, foretold improved market conditions over the medium to long term.

Randhawa noted that while the PEA's publication date was uncertain, it did however draw renewed attention to the PLS project while the Denison offer was still open. The PEA had demonstrated that PLS would indeed be one of the world's lowest-cost uranium producers.

The PEA had established a base case after-tax net present value, at a 10% discount rate, of $1.02-billion for the $1.1-billion project, as well as an after-tax internal rate of return (IRR) of 34.2%. With expected operating costs of $14.02/lb and a pre-tax IRR of 46.7%, the project was expected to achieve low-cost production with a low payback and highly profitable life of mine, even at a uranium price of $65/lb.

Further, the recently discovered, high-grade R600W zone, which was not included in the PEA, had the potential to add a great deal to the project's bottom line as the Triple R continued to grow.

The PEA envisioned that a mill at PLS had the potential to become a key centrepiece for the Western Athabasca basin – with the potential to process ore from other high-grade projects in the region as they were taken into production.

The mine would potentially produce 100.8-million pounds of yellowcake over a 14-year mine life, at a metallurgical recovery of 95%. The operation could produce 77.5-million pounds of uranium oxide in the first six years of production. Average output would be about 7.2-million pounds of uranium oxide over LoM.

The PEA study considered the PLS project as a standalone mine and mill operation, which included development and extraction of the R00E and R780E zones (Triple R deposit).

The study foresaw a combination of openpit and underground mining with a dyke system (dyke and slurry wall) for water control. High-grade mineralisation (above 4% uranium oxide) was captured within the openpit, eliminating the need for expensive, specialised underground mining methods.

This hybrid of openpit and underground mining was forecast to result in Triple R potentially being one of the lowest-cost uranium producers in the world.

ONGOING EXPLORATION

Randhawa stressed that grade was king, noting that to put PLS's high-grade deposits into perspective, a uranium grade of about 2% was the gold equivalent of a grade of about 46 g/t or 1.24 oz/t, based on prices of $45/lb of uranium and $1 220/oz of gold.

The deposit was the largest undeveloped deposit in Canada's Athabasca basin region of Northern Saskatchewan, and comprised the third largest resource overall, behind McArthur River and Cigar Lake. Current resources included 79.6-million pounds of uranium at 18.21% uranium oxide (U3O8) in the indicated category, and 25.9-million pounds in the inferred category, which included 13.9-million pounds grading 26.35% U3O8.

Fission expected to spend about C$10-million on drilling campaigns this winter, and another $5-million next summer. Randhawa noted that of the more than 100 magnetic conductors identified on the property, the company had to date only tested five.

"It is business as usual for us. We will probably have to raise some capital in the future to continue drilling, but I do not think that would be a problem – there is a lot of private investor interest – the question is just at what price would it be available," Randhawa said.