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Denison may be takeover target after U.S. asset sale

Unprocessed ore containing uranium is seen in this file photo.

A deal by Denison Mines to sell its U.S. assets and operations to Energy Fuels makes the Toronto-based uranium producer a more attractive takeover prospect, analysts said Tuesday.

RBC Capital Markets analyst Adam Schatzker said that Denison's U.S. "assets acted as a poison pill for potential acquirers."

"The U.S. assets suffered from unpredictable grades, fluctuating production, and high cash costs," Mr. Schatzker wrote in a note to clients.

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"While they offered investors financial leverage through high operating costs, they were likely not attractive to more senior mining companies. On the other hand, the Canadian assets, located in the heart of one of the top uranium camps in the world, offer the potential for world-class discoveries."

Denison will receive roughly $106-million worth of Energy Fuels's stock in return for the assets. As a result, Denison will own about two-thirds of Energy Fuels following the transaction.

BMO Capital Markets analyst Edward Sterck also noted that "the trimmed-down Denison may be more attractive as an acquisition target (after) the transaction."

He said Denison's White Mesa mill in the U.S. and its related assets are marginal at current uranium prices, but that could change if they rise.

"Through this transaction, Denison shareholders retain exposure to the White Mesa assets whilst gaining exposure to Energy Fuels' asset base," Mr. Sterck said.

Shares in Denison were up were up 19 cents or more than 10 per cent at $1.60 on Tuesday. Energy Fuels shares were up 5 cents to 30 cents.

Energy Fuels said after the close of markets Monday that it had agreed to acquire the U.S. operations in exchange for roughly 425.4 million shares that will be distributed to Denison shareholders. Once completed, Denison shareholders, who will receive 1.106 Energy Fuels shares for each Denison share they own.

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Denison's U.S. assets include the White Mesa Mill, a uranium and vanadium processing plant near Blanding, Utah, as well as the Colorado Plateau mines. The company also owns the Daneros uranium mine and Henry Mountains uranium complex in Utah as well as and other exploration properties in the state as well as the Arizona Strip properties.

Energy Fuels president and chief executive Stephen Antony said the deal would be transformational for his company and reshape the landscape of the uranium sector within the U.S.

"It combines the highly strategic asset of the only operating uranium mill in the U.S., White Mesa, with a significant resource base that substantially increases White Mesa's available feedstock.

"The result is an unmatched production growth profile and the opportunity for both Energy Fuels and Denison shareholders to benefit from the clear operational synergies that result from this transaction."

Energy Fuels' existing assets include the Sheep Mountain project, which is currently being permitted, and the permitted, but yet to be constructed, Pinon Ridge uranium and vanadium mill, as well exploration properties in the U.S. and Canada.

In addition to regulatory and other approvals, the deal will require the support of Energy Fuels and Denison shareholders.

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The three largest shareholders of Energy Fuels, Dundee Resources Ltd., Pinetree Capital Ltd. and Mega Uranium Ltd. who collectively own a 22.7-per-cent stake, have indicated their support for the deal.

Zebra Holdings and Investments S.a.r.l. and Lorito Holdings S.a.r.l., which combined are one of the largest shareholders of Denison, with a 9.9-per-cent stake have also said they will support the transaction.

In addition to the U.S. assets, Denison owns a 22.5-per-cent stake in the McClean Lake mill in Saskatchewan as well as interests in exploration projects in the Athabasca Basin, Mongolia and Zambia.

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