Miners at Cameco's McArthur River uranium mine in northern Saskatchewan. REUTERS/Dave Stobbe© STRINGER Canada / Reuters/Reuters
The battle between two mining behemoths over a small junior uranium player intensified on Thursday with Rio Tinto PLC boosting its friendly bid for Hathor Exploration Ltd – making rival bidder Cameco Corp. 's next play a critical one for its dominant status in uranium-rich Saskatchewan.
London-based Rio is now offering $4.70 per share in cash for Hathor, valuing the Vancouver-based company at $654-million. The bid, an increase from Rio's $4.15-per-share offered last month, has the support of Hathor's board.
It also trumps Saskatoon-based Cameco's latest hostile offer of $4.50 per share made earlier this week. Cameco started the bidding war in August when it made an unsolicited $3.75-per-share offer, which Hathor rejected as too low.
The fight between Rio, the world's second-largest mining company, and Cameco, the world's largest uranium producer, helped send Hathor's shares soaring above $5 for the first time on the Toronto Stock Exchange on Thursday. The stock closed at $5.01, up 2.87 per cent.
Investors anticipate the competition for Hathor to continue, given that both bidders have strong reasons to want to buy its assets in the resource-rich Athabasca basin in northern Saskatchewan.
The bids come amid a sharp drop in price for uranium and uranium equities, due to global concerns about the safety of nuclear power in the aftermath of Japan's nuclear crisis. The price of uranium, which is used to fuel nuclear power plants, fell by almost 30 per cent after Japan's nuclear meltdown in March, which was caused by an earthquake and tsunami.
Many countries are now re-examining their nuclear programs and some, including Germany, are looking to phase out nuclear power. But producers are counting on long-term demand from emerging countries such as China and India.
Rio produces uranium in Australia and Africa and is anxious to gain a foothold in the Athabasca basin, where about 20 per cent of the world's uranium is produced.
Cameco, meanwhile, needs to secure longer-term growth for its sole product and try to keep rival Rio out of its backyard.
"Cameco's next move may change the balance of power in the Athabasca basin," Dundee Capital Markets analyst David Talbot said in a note.
"Cameco didn't want to pay up for Hathor, but in choosing not to, would grant Rio ... significant access into the Athabasca. This move could be devastating for Cameco's future in maintaining its 'unique position in the Athabasca.' "
Cameco has more to lose than production growth if it walks away from Hathor. Mr. Talbot notes that Rio might poach experienced staff from the veteran uranium producer if it enters the sector in Saskatchewan.
Rio's bid expires on Nov. 30, the day after Cameco's cut-off period, which means an extension of its hostile offer is not expected.
Rio has the right to match any competing offer for Hathor as part of its friendly deal, and as a major producer of a wide-range of profitable commodities, has plenty of cash to increase its bid.
Cameco is also prepared for battle, with about $1.2-billion in cash on its balance sheet. It also recently hiked its credit facilities to $1.25-billion, with the potential to expand to $1.75-billion.
There has also been speculation the two sides could come together with a joint bid, which Cameco chief executive officer Tim Gitzel hasn't ruled out as a possibility.