Mining giant Rio Tinto PLC has won the bidding war for Hathor Exploration Ltd. promising uranium assets in northern Saskatchewan after competitor Cameco Corp. dropped out of the contest, saying it wasn't prepared to pay more.
Cameco cited financial discipline for its decision, while others see the move as the first step for London-based Rio to eventually overtake the Saskatoon-based miner's position as the world's largest uranium producer.
Rio, the world's second-largest mining company and second-largest uranium producer, has uranium assets in Australia and Africa. Its acquisition of Hathor for $654-million is believed to be the beginning of future buys in the resource-rich Athabasca Basin, where 20 per cent of the world's uranium is produced.
Cameco said that the retreat will not have an impact on its plans to double uranium production to 40 million pounds by 2018, and that there are other acquisition opportunities around the world it can pursue.
"We are scouring the world for different plays that might make sense to Cameco," chief executive officer Tim Gitzel said in an interview after announcing the move on Monday.
Analysts have listed Denison Mines Corp., with its Wheeler River and Moore Lake exploration projects in the Athabasca Basin, as one possible target for Cameco. There has also been speculation French nuclear giant Areva will divest of some of its mining assets as part of a strategic review expected to be unveiled next month. Cameco is a partner with Areva on some projects. Rio could also be an interested buyer.
"If Areva rumours prove grounded, then Rio Tinto may end up with significantly more assets in the basin in short order," Dundee Securities analyst David Talbot said in a note.
Cameco's decision to pull its bid puts an end to a three-month battle for Vancouver-based Hathor, which began when Cameco made a hostile, all-cash bid in late August, valuing the company at $3.75 per share, or about $520-million. Hathor immediately rejected it as too low.
Rio countered two months later by striking a friendly deal with Hathor worth $4.15 per share in cash. Cameco countered at $4.50, and Rio then returned what turned out to be the winning offer of $4.70 in cash. Hathor continued to support Rio's bids.
Analysts had been expecting Cameco to come back with a higher bid, but in the end Rio was favoured to win because it had the powerful right-to-match clause in its agreement with Hathor.
"We are surprised Cameco did not give it one more shot, given a lot is at stake … However, it appears further battle against Rio's significant balance sheet may have been futile," Raymond James analyst Bart Jaworski said.
Cameco said the price just got too high.
"It looked good to us at a certain point, but we can't pay just anything for it … It's a tradition in this company that we exercise discipline and will continue to do that," Mr. Gitzel said. He added that he is not concerned about the impact Rio's entrance into Saskatchewan's uranium sector will have on Cameco's dominant status.
Rio's offer expires on Nov. 30, though it could be extended. On Monday, Rio issued a statement urging Hathor shareholders to tender their stock by 5 p.m. ET on Wednesday.
The fight between Rio and Cameco helped Hathor's shares hit a record high of $5.10 last week on the Toronto Stock Exchange. The shares closed at $4.69 on Monday, down 36 cents.
Hathor's assets, including its flagship Roughrider deposit, have been on the radar of both Rio and Cameco for years, but the drop in uranium prices and equities earlier this year as a result of the Japanese nuclear crisis has created an opportunity for them to try to buy the company.
Buying Hathor will not only give Rio a foothold in one of the world's best uranium-producing regions, but will also allow it to expand its production base.
The Hathor deal is Rio's first in Canada since making an ill-timed $38-billion purchase of Alcan in 2007, just before the global credit crisis hit. Rio also controls Iron Ore Co. of Canada, Canada's largest iron miner, as well as the Diavik diamond project in the Northwest Territories. It also has a partnership to explore for potash deposits in Saskatchewan.