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Bullboard - Stock Discussion Forum Alpha Minerals Inc ESOFD

GREY:ESOFD - Post Discussion

Alpha Minerals Inc > Canaccord says sell FCU and buy AMW
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Post by $tarbuxxonPender on Nov 22, 2013 5:39pm

Canaccord says sell FCU and buy AMW

Investment recommendation
We are removing Fission Uranium Corp from the Canaccord Genuity Focus List to reflect the increasing valuation gap with Alpha Minerals (AMW : TSX-V | Spec Buy) prior to the vote on the proposed plan of arrangement (Nov 28). However, we maintain our SPECULATIVE BUY rating as we still are strong believers in the potential value of the Patterson Lake South uranium project in the SW Athabasca Basin. We await the results of the upcoming vote to resolve the uncertainty on the plan of arrangement.

Investment highlights
  • Given the recent share performance after shareholders were notified of a litigation matter where the plaintiffs include Fission Uranium Corp., Fission Energy and Chairman/CEO Dev Rhandawa, a valuation gap was created between Alpha Minerals and Fission Uranium Corp. The matter was disclosed in the information circular filed with respect to the Plan of Arrangement between Fission Uranium Corp. and Alpha Minerals which will be voted upon at a special shareholders meeting on November 28, 2013.
  • Fission Uranium proposes to transfer its rights and interests in the Claim to the Fission Spinco. And Fission Spinco has agreed to indemnify Fission Uranium Corp. to the extent if it incurs any costs in connection with the litigation.
  • Currently, AMW trades at a ratio (AMW : FCU) of just over 5.0:1 due to the uncertainty created by the litigation on the proposed plan of arrangement. This represents a not insignificant (13-15%) discount to the current offer (5.725:1) and lies below the original offer of 5.3:1. The discount in valuation drives us to favor Alpha Minerals over Fission Uranium Corp. in the near term until the plan of arrangement is resolved one way or another.
Valuation
The Patterson Lake South’s near surface and high grade uranium mineralization can potentially be extracted with lower relative technical risk (open pit mining) than other major projects in the basin. It is one of the most attractive uranium projects in the hands of a junior since Hathor Exploration’s Roughrider project (57 Mlbs grading 4.7% U3O8) which was acquired by Rio Tinto for C$654 million, and valued the resource at ~US$11/lb U3O8. We suggest that the PLS area has the potential to delineate an equivalent critical mass (~50 Mlbs U3O8) to justify a stand-alone plant on the western side of the Athabasca Basin for a potential suitor. The project has almost completed (>95% complete) its summer drill program (C$9.2mm, 14,700m) which has successfully extended the potential of the ENE trending PL3B conductor to 1.7km and added additional pods of U3O8 mineralization for further testing.

We have not ascribed a target to Fission Uranium Corp. as the underlying asset does not have a 43-101 compliant resource. However, our estimates suggest that at our current resource estimate (28-30 Mlbs, 100% basis), Fission Uranium Corp.’s stake (50%) values the company at C$0.80 (US$7/Mlb U3O8) to C$1.20 (US$11/Mlb U3O8) which ranges from a 32% discount to a 2% premium. With a visibility to a critical mass of 50 Mlbs U3O8, we arrive at a valuation range of C$1.30 to C$1.90, which ranges from a premium of 10% to 61%.
Comment by deelong on Nov 22, 2013 6:03pm
Certainly not a ringing endorsement. However, I think 50 mmlbs is all but a given at this point and I also think once the winter drill programme is complete we will be in the range of 70 or 80 mmlbs. I have a tough time thinking this deposit will go for anything less than $9/lb so I am anticipating a $650 to $700 million buyout for the merged fcu/amw with roughly 350 million shares out. In other ...more  
Comment by $tarbuxxonPender on Nov 22, 2013 9:04pm
There will be no takeover offer of mergco. Hype from Dev which is wearing thin. Uranium in over supply for years to come. It sucks, we finally get a great discovery in the mining biz and so what. Hopefully the next big play in Saskatchewan the diamond discovery by NAR=TSXV will turn into the real thing
Comment by wateroperator on Nov 22, 2013 10:03pm
This post has been removed in accordance with Community Policy
Comment by wateroperator on Nov 22, 2013 10:04pm
This post has been removed in accordance with Community Policy
Comment by Tarquin4 on Nov 23, 2013 11:12am
If FCU could wait a little longer and prove 100M lbs., then maybe 2.50
Comment by losecash on Nov 23, 2013 11:44am
2.50 would make my bank account extremely happy. However I dont think above 2$ will happen with all the variables at work. Still a profit.
Comment by endgamer on Nov 23, 2013 12:50pm
What variables are you referring to? Expect no less than $3.
Comment by losecash on Nov 23, 2013 12:58pm
The macro picture on uranium will need years to recover. I dont think a major will wait years to buy pls. Along with Dev desire to sell quickly, I believe we wont get top dollar per pound or the time to delineate the full size of pls. That being said there is still lots of money to be made at say 60 million pounds at 9$. Possibly a double from here. The possibility of a bidding war still exists as ...more  
Comment by Tarquin4 on Nov 24, 2013 10:40am
We can fantasize all we what but in reality there's only one major right now and that's Cameco. RIO and Areva are not in the picture. If only BHP  or a big American non-U-308 miner would get active (sigh)....
Comment by bridgetonowhere on Nov 22, 2013 9:00pm
The question that immediately springs to mind is Canaccord's decision to change their investment recommendation 5 trading days before the AMW/FCU merger.  Moreover, Canaccord states that the valuation gap between AMW/FCU emerged after shareholders were notified of impending litigation in the information circulars, but anyone who has followed AMW/FCU knows that the valuation gap existed ...more  
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