Tuesday, November 29, 2011

Rio set to win bidding war for uranium miner

Rio Tinto is poised to win a bidding war for a Canadian uranium company after Cameco, the world’s biggest uranium producer, declined to raise its offer for a second time. Hathor Exploration, owner of a large undeveloped uranium deposit in Saskatchewan, a central province of Canada, was valued at C$654m after Rio raised its bid to C$4.70 per share this month. That followed Cameco’s earlier bids of C$3.75 and C$4.50 per share.“After careful consideration we cannot justify increasing the price beyond our current offer and, accordingly, we will let our offer lapse,” Tim Gitzel, Cameco’s chief executive, said on Monday ahead of the expiration of Cameco’s latest bid on Tuesday.

Hathor’s board has recommended both of Rio’s bids at C$4.15 and C$4.70.

The battle between two of the world’s largest producers of uranium, the fuel source of the nuclear energy industry, has highlighted opportunistic dealmaking in the sector, which has been in the doldrums since the Japanese nuclear disaster at Fukushima.

In an investor presentation in Australia on Monday Guy Elliott, Rio’s finance director, said the company remained bullish on uranium.

“Demand growth is driven primarily by China’s ongoing nuclear programme, which is expected to quadruple in size by 2020, with 24 [reactor] units under construction and many more on the drawing board,” Mr Elliott said.

“It makes strategic sense to be investing in the uranium space now,” he said, adding that the Hathor bid gave Rio “access to the highly prospective Athabasca basin.”

Rio’s bid is strategically important for the uranium industry because it gives the Anglo-Australian miner a toehold in Cameco’s industrial heartland. The Athabasca basin in northern Saskatchewan is the location of exceptionally high-grade uranium deposits and Cameco’s most productive mines.

One of Cameco’s uranium mills is 25km from the Roughrider deposit, Hathor’s core asset. Mr Gitzel noted Cameco’s “existing infrastructure and experience in the Athabasca region,” when launching its hostile C$3.75 offer in August.

This year Rio’s dealmaking activity has focused on exploration companies and early-stage deposits rather than established producers, which command higher takeover prices.

The London-based multinational bought Riversdale Mining, owners of an undeveloped coking coal asset in Mozambique, for A$4bn (US$4bn). It has also continued buying up tranches of Ivanhoe Mines, taking its stake to 49 per cent in the largest shareholder of a copper project in Mongolia.

Rio’s offer for Hathor expires on November 30 unless extended. In early trading in Toronto Hathor shares fell 7 per cent to C$4.69, reaching parity with Rio’s offer. Rio outperformed a rising index of mining shares. Shares rose 4.3 per cent to £31.64.

By William MacNamara in London

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