ripe for takeover

This article posted on BMN board by Skipperx.
I hold BMN and URC (both mentioned), but really this article could have been written about Marenica ... even more relevant now we've got 85Mlbs. I'm staying put with 500k shares until the story plays out:

Forsys Buyout Is Off - Where Should Investors Look Now?

The long awaited buyout of Forsys Metals (FSY-TSX) and their low grade Valencia uranium by George Forrest Inc. (GFI) just got longer. This $580 million deal has been halted by Industry Canada for some reason, giving investors yet another round of gut wrenching volatility.

But for investors, the real point is that GFI was willing to pay roughly $5.80 per pound of uranium from a junior. There have been few buyouts of uranium juniors ? despite the majors like Cameco, Denison and Areva sitting on large amounts of cash.

To guess rightly in the future, we first need to look at history. I see three themes behind the very few buyouts in the uranium sector ? big size, low grade, and location.

The junior uranium companies who have been purchased all produced low to very low grade uranium. Forsys? Valencia deposit is only 120 parts per million (ppm) U3O8, though they have 61 million pounds of it. In 2007 Areva bought Uramin Resources for its Trekkopje deposit, which was about 150 ppm.

Even the new producers in the world, like Paladin Energy and Uranium One, have grades of less than 1% U3O8, and often 1/10th of 1%. Almost all the world?s new uranium production since 2005, when the uranium price moved up and the sector attracted investment, has been less than 0.5% U3O8.

Size is also a factor. Valencia has 61 million pounds and is still open; Uramin?s Trekkopje had 239 million pounds. That could be one of the reasons that the US-based deposits are not attracting suitors ? they are, generally, smaller assets.

The location theme is simple ? Namibia. This southwestern African nation of only 2.1 million people hosts the large Rossing uranium mine, which produces 7% of the world?s uranium at a grade of just over 300 ppm. It has been producing uranium ore since 1976.

But since 2005, it has been a hot-bed (if you?ll pardon the pun) of activity. Paladin?s Langer Heinrich mine has started production. Bannerman Resources and Extract Resources, both listed in Australia, are developing new bulk tonnage uranium assets there.

Bannerman and Extract are obvious buyout targets, as they fit the three criteria mentioned above. (Rio Tinto, which owns Rossing, owns 20% of Extract.) Bannerman trades on the Toronto Stock Exchange, symbol BAN, and on the Australian exchange symbol BMN. Extract trades under the symbol EXT on both Toronto and Australia.

A dark horse candidate for a buyout would be UracaResources, symbol URC on TSXv, if they can prove up their 40 million pound Double S deposit. Uracan is included because the Double S has the same grade and geology as Forsys, but trades at one tenth the value per pound in the ground. In fact, Uracan trades at the second lowest valuation I can find from over 30 uranium explorers, at roughly 56 cents per pound. The industry average is about $3.50 per pound.

Uracan?s Double S deposit is located in Quebec, Canada. So while it is not in Namibia, Quebec was voted the world?s most favourable mining jurisdiction in 2008 and 2009.

That can be important when it comes to permitting. Many industry observers see the fact that Forsys had their mining permit as the real reason it was bought out ? it is actually lower grade than both Bannerman and Extract.

There has never been a uranium mine in Quebec, so investors really don?t know how easy it will be to get Double S into production. How the Quebec government moves forward with permitting will have a major impact on stock valuations.

The uranium deposits these companies are developing are all simple, low cost earth moving operations. It?s something that investors ? institutional, retail and debt - can understand.

With all the technical problems that world leader Cameco has been having with Cigar Lake, the deep, high-grade model has not given investors much joy.

Where does history say investors should look for the uranium buyout? In companies with low grade, BIG deposits, located in good mining jurisdictions.