Bigger is Better: Fission Uranium Sold and the Athabasca Basin is in Play
Starting Jan 31/15 we’ve been telling anyone who would listen: the Athabasca Basin is in play, and Fission Uranium Corp. will be bought out within six months. See earlier articles here and here and here. Our investment thesis was this part of the world has too many junior companies with me-too assets, weak management and depleted treasuries, which meant the only survivors would be the lucky and the strong.
Fission made sure luck had nothing to do with it and brought home a solid deal inside the six month window. On July 6/15 Fission and Denison Mines Corp. announced a binding Letter of Intent under which Fission’s shareholders will receive 1.26 Denison shares for each Fission share. Each Fission shareholder also will receive $0.0001 per share in cash – there has to be some investment banking reason for this token but I don’t know what it is.
The Resulting Issuer will be approximately 50% owned by each of Denison’s and Fission’s existing shareholders on a fully-diluted in-the-money basis. The combined market cap will be roughly $900M.
This math implies a price per Fission common share of $1.25 and represents a premium of about 18% over the 30 day volume weighted average price for Fission’s shares as at July 3, 2015. The closing is subject to the usual adjustments and conditions.
This is a fair deal for both sides. The shareholders at both Fission and Denison should commend management and directors for working on their behalf (unlike the slow-motion disaster movie that is playing at Copper Mountain Mining Corp.) The shareholder approval needed to close the deal should be a formality.
Sometimes, a Cigar Lake is more than just a Cigar Lake. This consolidation of assets globally means bigger is better. It’s more expensive to drill here than in many other parts of the world. In the Basin all-in costs run $400 – $500 a metre to drill for uranium in fairly deep rock at 300plus metres, while in the Archaen rock of northern Ontario drill costs are less than $100 a metre. Consolidating Fission and Denison to reduce overhead and gain purchasing power makes financial sense.
It’s clear the Resulting Issuer will have a portfolio of exploration and development properties, plus the ability to eventually ramp up valuation by exploiting undervalued properties in Zambia and Mali. That mitigates risk for shareholders in the medium and long terms. What’s interesting in the short-term is free cash flow: the toll-milling of ore from the Cigar Lake Mine and management fees from Uranium Participation Corporation should provide the Resulting Issuer with free cash to help fund its activities.
There are of course weaknesses in the deal. Denison and Fission operate on opposite sides of the Basin which will reduce the operational savings otherwise expected. There will be some management reduction but not enough to materially matter. Denison’s package of assets is not as good as Fission’s, but this is offset by the free cash flow to be generated from Denison’s assets.
Overall, though, this transaction changes the game in the Basin. With over 20% of the world’s uranium coming from here, what happens in the Basin has global repercussions.
Denison and Fission hosted a joint conference call and webcast on July 7, 2015 to discuss the business combination. A live webcast of the conference call can be accessed via www.denisonmines.com or www.fissionuranium.com.