Rio Tinto takeover offer for Hathor Exploration tops rival Cameco bid

CALGARY – Rio Tinto sweetened its offer for junior uranium developer Hathor Exploration Ltd. on Thursday, putting rival bidder Cameco Corp. under increased pressure to keep the global mining giant off its home turf of northern Saskatchewan.

Hathor’s board of directors is recommending its shareholders accept Rio’s offer of $654 million or $4.70 per share and reject Cameco’s bid of $625 million or $4.50 per share.

Barry Allan, an analyst with Mackie Research, said Saskatoon-based Cameco (TSX:CCO) has more at stake in the battle for Hathor and is unlikely to back down – even if it means ponying up more than it would like to buy Hathor.

“They cannot allow someone to poach in their backyard,” he said, referring to the Athabasca Basin, where Hathor’s coveted Roughrider deposit lies.

“They need to control what’s going on there.”

Hathor shares gained 14 cents to close at $5.01 on the Toronto Stock Exchange, as at least some investors bet on Cameco to come back once again with a higher offer.

Allan said what happens next will have more to do with “corporate egos” than with what the appropriate value is for Vancouver-based Hathor (TSX:HAT).

Cameco may overpay if it decides that taking over Hathor is important enough from a strategic standpoint, he said.

“I would say that this is probably entering into that domain by virtue of the fact that I don’t think Cameco wants (Rio Tinto) operating in their primary homeground.”

Dundee Securities analyst David Talbot agreed Cameco has more to lose.

“If Rio loses, no big deal. They’re not in the basin,” he said.

“If Cameco loses, and Rio is the basin, Rio then has a competitive advantage being the bigger one of the companies. I also has the opportunity to steal all of Cameco’s personnel. That could hurt Cameco.”

There has been scuttlebutt that Rio Tinto and Cameco could join forces to take over Hathor.

Cameco works with French nuclear company Areva on many of its assets and would therefore be no stranger to a similar joint-venture with Rio. And Rio Tinto wouldn’t need to spend billions to build new mills or other infrastructure if it collaborated with Cameco, which has a dominant presence in the region.

The analysts threw cold water on that theory, however.

“I don’t see that at all. (Rio Tinto) is one of the major mining companies of the world. Why would they need Cameco?” Allan said.

Talbot said if a joint-venture were an option, Cameco and Rio Tinto wouldn’t keep one-upping one another.

“Rio needs to get something that’s big enough for Rio. It doesn’t need Cameco. And, in fact, if it did the joint venture with Cameco it would do nothing but support Cameco in the basin.”

Hathor is developing the Roughrider uranium deposit in Saskatchewan, about 25 kilometres northwest of Cameco’s Rabbit Lake mill.

Cameco first went public with its plans for Hathor in late August but has been consistently rebuffed by the junior mining company. It has said developing Roughrider would be too expensive for other companies because they don’t have the processing capacity and other infrastructure it already has in place in northern Saskatchewan.

Rio Tinto (NYSE:RIO) has extensive uranium mining experience elsewhere in the world.

In Canada, Rio 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.

Cameco is one of the world’s largest uranium producers. It has mines, mills and conversion plants in Canada, the United States and abroad and produces fuel that runs nuclear power plants around the world.

In March, a tsunami and earthquake destroyed the Fukushima Daiichi nuclear power plant in Japan, setting off a disaster that has called into question the future of the global nuclear power industry.

While it expects the crisis to reduce demand for new nuclear power plants a bit in the near-term, Cameco has said it is sticking to its target to double uranium production to 40 million pounds by 2018.

Cameco shares closed down 67 cents at $19.45 on the Toronto Stock Exchange, while Rio was down US$1.57 at $51.77 on the New York Stock Exchange.