MUST READ: Denison Mines owns the ONLY operating Mill in the United States (White Mesa) that RSDS is planning to sell Uranium and Vanadium to. TSX:DEN has been acquiring every company even REMOTELY in their path.
Denison Mines Hot on Uranium Acquisition Trail
By Jon A. Nones
05 Dec 2006 at 07:52 PM EST
St. LOUIS (ResourceInvestor.com) -- Fresh off its merger with International Uranium [TSX:IUC], Denison Mines [TSX:DEN] has struck a deal worth about C$154 million to acquire Australia’s OmegaCorp [ASX:OMC]. With uranium currently priced at $63/lb and rising, the market is heating up!
According to the terms of the deal, Denison will pay A$1.10 per share, which reflects a premium of 25% over the average price for OmegaCorp shares in the previous 20 trading days.
“We’re very excited with our first step in our growth strategy, and believe that our offer is very fair to both Denison and shareholders of Omega,” said Denison CEO E. Peter Farmer in a conference call today.
OmegaCorp is a mineral exploration company with a portfolio of uranium projects in southern Africa, most notably the Mavuzi Project in Mozambique and Kariba project in Zambia.
The company’s 100%-owned Kariba project is the most advanced and encompasses over 1,890 square kilometres. Current inferred resources in accordance with the JORC Code (not in conformity with National Instrument 43-10) are estimated at 13.7 million pounds U3O8.
Denison COO Ron Hochstein said in the conference call that an initial scoping study pegged production at about 1.5 million per year at a cash cost of $23/lb with a capital cost of around C$60 million. The mine life is about 6-10 years and has a metallurgical recovery rate of around 90%. He said production is slated to begin in late 2009 to 2011.
The deal also involves a spinoff of the OmegaCorp’s Mavuzi assets in Mozambique to shareholders, while Denison will retain the uranium rights. Omega will distribute the shares on a one-for-four basis in a new company that will own the Mavuzi assets and be listed on the Australian bourse.
The deal has the backing of Omega's board of directors, which is recommending shareholders accept the takeover bid “in the absence of a superior offer.” Omega's directors will tender their own shares to the bid, under the same condition.
Today’s deal comes a day after Denison closed its C$1 billion merger with IUC, creating a new intermediate uranium producer with an estimated combined annual production of 5.5 million pounds U3O8 by 2010, with approximately C$118 million in working capital and no debt.
Futhermore, IUC runs the only uranium mill now operating in the United States, the White Mesa complex in Utah, and also has deposits in Mongolia and exploration projects in the Athabasca Basin.
This compliments Denison’s 22.5%-owned McClean Lake mill and 25%-owned Midwest uranium project in Saskatchewan, as well as other projects in the Athabasca Basin, Mongolia and Australia.
Both deals follow what some market experts have called a “nuclear renaissance” in the market.
The uranium price has risen almost 10-fold since early 2001, now trading at $63/lb. The price has almost doubled since the start of the year.
In the December issue of J Taylor's Energy & Energy Tech Stocks, Jay Taylor said “even existing uranium prices leave me salivating over the uranium sector,” but “we wonder if $100 - or even $200 - uranium isn’t possible even in current dollar terms.”
Uranium Outlook
Many uranium stocks including Denison have benefited from the supply squeeze generated by Cameco’s [NYSE:CCJ; TSX:CCO] disaster at Cigar Lake. In October, the company reported a catastrophic flood at its underground mine that will delay uranium shipments until at least 2008.
The mine is forecast to produce 18 million pounds of uranium per year at full production, equivalent to more than 10% of global uranium demand and more than 16% of 2005 global uranium production. By 2011, 40% to 50% of new production is slated to come from Cigar Lake.
“We were very bullish on uranium before the recent news of the Cigar Lake flood, but now we see uranium as even more of a ‘no brainer’ investment,” said Taylor.
Although uranium is a very abundant metal on the face of the earth, Taylor said it takes many years to open new mining projects, and it will not be until well after 2010 when substantial new supplies of uranium hit the market.
Taylor added that “the technical problems faced by Cameco at its Cigar Lake suggest that a full 24% of the uranium that was to come onto the market is beginning to throw the operators of the world’s existing 440 nuclear reactors into a state of low-grade panic.”
According to the World Nuclear Association, about 16% of the world's electricity was produced from 440 nuclear reactors in 2005. The world’s reactors require about 77,000 tonnes of uranium from mines and stockpiles each year. In 2005, mines only supplied roughly 48,000 tonnes of uranium (62%) and the rest was covered by inventories, according to the Uranium Information Centre.
Taylor said the stockpile of existing uranium that was built up after the fall of the Soviet Union is “now being rapidly drawn down.”
In the U.S., 103 nuclear plants are producing 20% of U.S. energy requirements. In contrast, France has 56 working plants that provide nearly 80% of its power. By year 2050, experts say the world will need 900 more plants to sustain growing power needs.
Currently, there are 28 reactors under construction around the world and another 62 are being planned. Japan intends to build 11 more by the year 2010 and China plans to add 24 to 30 by 2020.
But Taylor said uranium is the most exciting opportunity in energy now, “even if scores of new nuclear reactors are not built.”
“Unlike other commodities in this commodity bull market, uranium has not had one single price setback,” he said. “Uranium is in one of the most bullish and unique markets that I have ever seen, and … I believe its price will continue to rise, even if we were to enter a major global economic slowdown.”
Share Price Activity
On TSX today, Denison shares closed up C$1.35, or 4.6%, at $30.70, once again setting a new 52-week high.
Denison began the month trading in the low C$20s; while two months ago, it was trading around C$16.50.
Year-to-date, the stock has gained over 100%!
“Buying pressure continues as their materials go up in price,” but the share price “trend is higher,” concluded Taylor.
Due to the merger with IUC, Denison’s shares will commence trading on the TSX in two days under the new symbol “DML.”
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