workers at the Cameco McArthur River uranium mine site in northern Saskatchewan in this photo from 2007.STRINGER/CANADA/Reuters
From the FT's Lex blog
Rio Tinto is long uranium. Really long. The short-term outlook for this nuclear fuel has rarely seemed grimmer.
A fifth of Japanese reactors, and half of Germany's, are out of action; Switzerland is committed to phasing out plants after Fukushima. Inventory overhangs and uncertainties over order cancellations have caused spot prices to fall by a quarter. (Even before they did, Rio was struggling to make money from its two majority-owned mines in Australia and Namibia.) Yet the Anglo-Australian miner, the world's fourth biggest uranium producer, has chosen this moment to ride to the rescue of Hathor Exploration, a Toronto-listed explorer, under a hostile offer from Cameco, the number one.
Even by the standards of Rio Tinto, which notoriously gatecrashed Alcoa's hostile bid for Alcan four years ago, this is bullish.
Rio's recommended, $4.70-a-share offer represents an equity value of 3.4 times assets of $169-million, almost double the median multiple of comparable deals (never mind revenues or profits; there are none). This may be the price of entry into Canada's Athabasca basin, which produces just under a quarter of the world's uranium. Even if some developed economies are cooling on the idea of nuclear, there are plenty that are not. China has 14 reactors, 27 under construction and 51 more planned, according to the World Nuclear Association.
Between them, India and Russia have another 16 under construction and 31 on the drawing board.
If Hathor is worth $578-million to Rio without synergies, then it could be worth a fair bit more to Cameco, which could merge Hathor's deposit with its existing operations nearby. $158-million of net cash and $1.2-billion of unsecured credit lines give the Saskatoon company firepower. That the shares closed on Friday at $5.06 suggests investors anticipate another round, at least.