Global mining giant Rio Tinto has emerged as a white-knight bidder for Hathor Exploration Ltd. – possibly igniting a bidding war with Cameco Corp., which launched a hostile bid for the junior uranium explorer last month.
Hathor readily embraced Rio Tinto’s $578-million bid Wednesday after dismissing Cameco’s $520-million overture as predatory and too low.
The prize both companies are seeking is Hathor’s Roughrider uranium deposit in northern Saskatchewan.
Cameco said it was reviewing Hathor’s offer and will update shareholders when it decides the next step.
“The superior Rio Tinto offer provides fair value to Hathor shareholders over Cameco’s current hostile, unsolicited takeover offer,” Hathor chief executive Michael Gunning said in a statement.
“The strategic context of the Rio Tinto offer underscores the ‘best of breed’ global stature of the Roughrider uranium deposit relative to its peers of undeveloped uranium deposits around the world.”
Hathor has previously pegged the value of the Roughrider deposit at between $769 million and $1.5 billion – a view Cameco called overly optimistic.
Cameco has said developing Roughrider would be too expensive for other companies because they don’t have the processing capacity and other infrastructure the Saskatoon-based company already has in place in northern Saskatchewan.
Hathor’s board has unanimously recommended shareholders accept the offer from Rio Tinto, which has major mining and refining operations in Canada, employing more than 13,000 people at 35 sites.
Barry Allan, an analyst with Mackie Research Capital, said Rio Tinto is offering a “beautiful” valuation for Hathor shareholders.
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However, Allan doubts Cameco is going to simply walk away.
“It would be too easy for Cameco to just kind of roll up the rug here, and I don’t see why they would, given the fact that they do have the infrastructure in the area,” he said.
“They have the ability to actually increase their offer without eroding the economics to them, given that they’ve already spent significant amounts of money in the Athabasca Basin, and particularly that region of the Athabasca Basin.”
David Talbot, an analyst with Dundee Capital Markets, agreed it’s just a matter of time before Cameco makes another move.
“First of all, Rio Tinto puts another major in the Athabasca basin,” he said. “All of a sudden, Cameco’s competitive advantage goes out the window, and people may approach Rio with their projects before they approach Cameco.”
Secondly, it’s unlikely that Cameco CEO Tim Gitzel – who assumed the top job less than two months before the Hathor bid was made in late August – would back down so soon into his tenure, Talbot added.
“I do see Cameco coming in. And if Cameco comes in, I do see Rio coming in one more time. And at that point it depends who wants it worse.”
Despite troubles in the global nuclear power industry, demand for uranium is expected to grow and Saskatchewan is one of the world’s leading suppliers.
Although the Fukushima Dai-ichi nuclear plant in Japan was destroyed by a tsunami and earthquake in March, creating the world’s worst atomic crisis since Chornobyl, new plants are still being planned for China, other parts of Asia and Europe.
Doug Ritchie, chief executive of Rio Tinto Energy, said the outlook for the global uranium market is bright.
“This acquisition will allow us to build on the platform successfully laid out by Hathor and we will continue to draw on their expertise and commitment going forward,” said Ritchie.
“Canada is a country crucial to our business and growth plans and a location where Rio Tinto has a track record of delivering on major development projects to the benefit of the local community.”
Hathor shares rose 9.1 per cent to $4.41 on the Toronto Stock Exchange – above Rio Tinto’s $4.15 per-share offer, suggesting investors expect a higher offer is possible.
Cameco (TSX:CCO) shares dropped about 4.6 per cent to $20.52.
Rio Tinto (NYSE:RIO), which also trades on the London and Australian stock exchanges, is the world’s second-biggest miner, supplying aluminium, copper, diamonds, thermal and metallurgical coal, uranium, gold and industrial minerals.
In Canada, Rio Tinto owns the former Alcan, one of the world’s biggest aluminum producers, and controls Iron Ore Co. of Canada, this country’s biggest iron miner.
It also controls the Diavik diamond project in the Northwest Territories and other businesses in Canada including a partnership to explore for potash deposits in Saskatchewan.
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