Cameco Corp. hiked its offer for Hathor Exploration Ltd. , signalling a need to secure future production growth while trying to prevent a major competitor from muscling in on one of the world’s most prolific uranium-producing regions.
Saskatoon-based Cameco raised its hostile bid to $4.50 per share in cash on Monday, valuing Hathor at $625-million, a 20-per-cent premium to its unsolicited offer made in late August.
The latest Cameco offer, which Vancouver-based Hathor is reviewing, trumps a friendly $4.15-per-share bid made last month by Rio Tinto PLC , the world’s second-largest mining company.
Cameco chief executive officer Tim Gitzel acknowledged that Rio’s counter-offer forced the company to re-evaluate the original value placed on Hathor’s assets in the Athabasca basin of northern Saskatchewan, where about 20 per cent of the world’s uranium is produced.
“We put our team together, went back and looked again at the project at what it would mean to Cameco, what the synergies are with our northern Saskatchewan base ... and we could justify the $4.50 bid we put on the table,” Mr. Gitzel said in an interview.
Hathor isn’t necessary for Cameco to meet its goal of doubling production to 40 million pounds by 2018, Mr. Gitzel said, but would position it for growth beyond that target.
“We have to think longer-term and how we are going to sustain 40 million pounds of production. That is where the Hathor piece fit in for us. It’s a nice ore body. It’s very close to our existing facilities ... so that’s why it made sense for us.”
Hathor’s assets, including its flagship Roughrider project, are attractive to Cameco because of its long history of operating in the Athabasca region, which includes McArthur River, the world’s largest high-grade uranium mine, and milling facilities at Rabbit Lake and Key Lake. Rio wants to expand its existing uranium operations in Australia and Africa.
Both companies are counting on demand for uranium, used to fuel nuclear power plants, to bounce back from its current slump as a result of continued demand in emerging nations such as China and India.
Uranium prices have fallen as a result of Japan’s nuclear crisis on concerns that demand will drop as many countries re-examine their nuclear power programs. Uranium stocks have also slumped. Cameco and Rio are pursuing bids for Hathor after following the project for years.
Hathor shares traded above Cameco’s latest offer price on Monday, closing at $4.87 on the Toronto Stock Exchange, suggesting investors expect Rio will make a counter-offer in what could be a long and drawn-out bidding war.
Rio has the right to match any competing offer for Hathor as part of its agreement and analysts believe it is unlikely to back down without a fight.
“In our view, Rio Tinto sees a larger consolidation play developing in the Athabasca Basin,” said TD Securities analysts Greg Barnes.
Cameco is prepared for battle, too, with $1.2-billion in cash on its balance sheet and having recently hiked its credit facilities to $1.25-billion, with the potential to expand to $1.75-billion, Mr. Barnes noted.
Cameco could have offered more in its latest bid, but analysts believe the company is holding back in expectation that the bidding war will continue.
There has also been speculation the two sides could come together with a joint bid, which Mr. Gitzel didn’t rule out as a future possibility.
“Today we are not there. They have made their position. We put ours out this morning. I guess we’ll see where it goes,” Mr. Gitzel said, refusing to comment on whether the companies have discussed the option.
“We talk about a lot of things with a lot of companies, but I can’t really speak to that,” he said.
A joint bid would benefit both sides: Cameco could offer its expertise and milling capacity in the Athabasca area, where Rio would be a new player. It would also relieve Rio of concerns of possibly having to sell off a stake in Roughrider at a later date. At present, Ottawa doesn’t allow foreign companies to own more than 49 per cent of uranium-producing assets. Hathor is still an exploration company and its Roughrider project is years away from production.
Rio wouldn’t comment on joint-bid speculation, and said it will review Cameco’s revised offer. “Once our review is complete, we will announce the results of our analysis,” the company said in a statement.