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The Denison/Fission merger

Denison Mines gets Patterson Lake South while Fission Uranium joins Denison

by Greg Klein | Updated July 7, 2015

Years of speculation about one of the world’s most coveted projects ended after market closed on July 6. But the transaction wasn’t just the long-anticipated acquisition of Patterson Lake South and its Triple R deposit. Instead it was a merger of Fission Uranium TSX:FCU with Denison Mines TSX:DML on terms that demonstrated the former’s rise to prominence and, arguably, the latter’s determination to ward off rivals. Yet Fission sounded defensive when making the case to shareholders.

A binding letter agreement would combine management and assets, including “two world-class uranium exploration and development projects,” Fission’s 100%-owned PLS and Denison’s 60%-owned Wheeler River, both in Saskatchewan’s Athabasca Basin region.

The announcement also settled the question of how Fission chairperson/CEO Dev Randhawa and his crew would reinvent themselves after divesting their latest success. They get positions with the merged entity.

Denison Mines gets Patterson Lake South while Fission Uranium joins Denison

That company, Denison Energy Corp, will enjoy “an incredibly strong strategic position, with the most significant development portfolio in the world,” enthused Denison executive chairperson Ron Hochstein.

The companies call it a merger of equals but Denison’s going more than halfway to woo the relative newcomer. Subject to approvals, the deal trades 1.26 Denison shares plus $0.0001 for each Fission share. The merged company would then be held approximately 50% by each company’s existing shareholders “on a fully-diluted in-the-money basis.” Based on Denison’s 30-day volume-weighted average price of $0.99 at July 3, the offer implies a price of $1.25 for Fission shares. That represents a premium of about 18% to Fission’s 30-day volume-weighted average at July 3.

But sceptics on a July 7 conference call put Randhawa on the defensive. “Denison always outperformed us,” he replied. “We put out a monster hole with a ridiculous percent and our stock went down a penny. And suddenly some court would overturn an injunction and [Denison] would shoot up 20% and we would go up like 5%. I realized then that when the market turns, a company listed in New York with a stronger institutional base will move much faster, stronger than a company like ourselves which may have a world-class asset.”

Last January’s resource estimate “knocked it out of the park,” he maintained. “But our stock is back where it was, which tells me that market sentiment has more impact on our stock price than our drilling.”

Given an improvement in the uranium market, Randhawa argued, “we will be the best choice after Cameco and a big-enough name that big funds can come in. One of the things I run into when I go to Asia is they say I’m too small…. Some people might be frustrated but institutionally it makes a lot more sense.”

The betrothed listed several advantages, including a consolidated portfolio of 430,000 hectares, Denison’s 22.5% interest in the Basin’s McClean Lake mill, revenue from toll milling and Uranium Participation Corp management fees, increased liquidity and “various monetization options” from Denison’s African properties.

I realized then that when the market turns, a company listed in New York with a stronger institutional base will move much faster, stronger than a company like ourselves which may have a world-class asset.—Dev Randhawa, chairperson/
CEO of Fission Uranium

Combined market cap would come to an impressive $900 million, but still far south of Cameco Corp’s (TSX:CCO) nearly $7 billion.

The merged company’s management will draw from both sources. Denison’s Lukas Lundin becomes non-executive chairperson and David Cates CFO. Fission’s Randhawa becomes CEO and Ross McElroy president/COO. Five Denison directors join the new 10-person board, while Fission appoints the other five.

The parties expect to complete due diligence by July 27 and consummation by October. A shareholder vote requires two-thirds support from Fission shareholders and 50% plus one from Denison. The companies agreed not to solicit other proposals and have the right to match any superior offers. A $14-million break fee applies in certain circumstances.

Ironically, Denison came close to getting half of PLS at a deep discount back in November 2012. At the time the company was preparing to take over Fission’s predecessor Fission Energy, which held a 50% interest in PLS, along with Waterbury Lake and other uranium assets. Lundin allowed Randhawa to exclude PLS from the deal immediately following the sensational discovery hole found by Fission Energy’s joint venture partner, Alpha Minerals.


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