05 February 2013

Is the uranium sector on the up?

M&A activity in the uranium sector could be on the verge of a revival, according to analysts, with mining companies seeing increased investment opportunities after the Fukushima disaster in March 2011 cast a distinct pall over the wider industry. If 2013 does mark an upturn in the fortunes of producers, developers and explorers, can the start of such a recovery from bear to bull be sustained?

The value of deals involving production companies operating in the uranium sector has steadily declined since 2009, according to Zephyr, the M&A database published by Bureau van Dijk. There was a total of 229 deals worth a combined USD 5,584 million in 2012 compared to 274 transactions valued at USD 9,494 million in 2011. However, 2013 activity has kicked off well, with eight deals worth a total USD 1,362 million, as at the time of writing.

Without a doubt, the largest sector deal so far this year is Russian state-owned JSC Atomredmetzoloto’s proposed acquisition of Canadian giant Uranium One for almost CAD 1,300 million (USD 1,351 million). The majority shareholder is offering to buy the remaining 49 per cent interest for almost CAD 3 per share, valuing one of the world’s largest, publicly-traded uranium producers with operations in the US, Kazakhstan and Australia, at as much as CAD 2,800 million. The deal is also one of the ten largest by value involving a uranium producer since 2004.

Meanwhile, Canadian uranium explorer and developer Laramide Resources has decided to increase its exposure and access to new investors in Australia by launching a secondary offering on the country’s stock exchange by March. The company’s flagship venture is the Southern Hemisphere asset Westmoreland in Queensland, billed as one of the largest currently held by a junior mining company. Its North American assets include La Jara Mesa in New Mexico and La Sal in the Lisbon Valley district of Utah. However, its portfolio also includes joint ventures in Australia’s Northern Territory, strategic equity positions and a collection of uranium royalties in the Grants Mineral District of New Mexico. In the meantime, Denison Mines recently signalled its intention to become a leading explorer in the Athabasca Basin. The Canadian uranium projects developer is buying Fission Energy in an all-scrip deal valued at CAD 70 million that will lead to the spin out of some of the newly-acquired assets, including the Patterson Lake South property, into a new company.

Money Morning, citing results from the World Nuclear Association, reported that total consumption of uranium was 177 million pounds in 2011 and increasing. The publication noted that total uranium output last year amounted to 135 million pounds, registering a deficit of about 40 million pounds. When supply cannot keep pace with demand the usual happens, prices begin to rise. Meanwhile, Uranium Investing News reported that analysts expected demand to increase in one of the sleepiest sectors in energy on the back of nuclear power projects in countries such as China, India, Russia and South Korea.

© Zephyr