bmn related news

This was posted on the PDN thread and mentions BMN with its low grade Uranium and takeover multiple value by JPMorgan.

Dated 30.11.11
By Sujit Dey

Cameco Pulls Out of Hathor Bid (Implications on PDN)

Last night, Cameco pulled out of the race to acquire uranium junior, Hathor. Cameco stated, “After careful consideration we cannot justify increasing the price beyond our current offer and accordingly, we will let our offer lapse,” said Tim Gitzel, president and CEO of Cameco. “Cameco has remained disciplined through the bid process to ensure that we make the best decisions for our company and its shareholders.” Gitzel said that allowing the bid to lapse will not adversely affect Cameco’s plan to double annual uranium production to 40 million pounds by 2018. “Our plan involves existing assets in our development pipeline and we remain on track to meet our objectives. We will continue to explore other growth opportunities, but only where there is a clear benefit to our shareholders,” Gitzel said.

Now that Cameco has missed out on Hathor, I cant help but think that PDN could be in its sights next. Looking at the recent transaction comps since Fukushima, deals are getting struck at multiple times where PDN is trading at the moment. The following shows the 4 key deals that have been announced since Fukushima, on an EV/Resource (US$/lb) basis:
• RIO/Hathor $10.74/lb
• CGNPC/KAH $4.45/lb
• Hanlong/BMN $0.88/lb
• ARMZ/MRU $9.19/lb

At first sight, there doesn’t seem to be much consistency across this sample set. This is mainly due to the vastly different capex requirements of each project. For example, KAH/EXT's Husab project requires a huge US$1.7bn of capex vs Hathor at US$458m, BMN at US$562m and MRU at US$298m. Therefore, it is important to add the capex requirement to the EV to ensure the multiple takes into consideration the future financing requirement. When I do this, there is more consistency as shown in the following chart:


As you can see, the MRU and KAH deals are being struck around US$12/lb, when I adjust for capex. Hathor and BMN are outliers for a number of reasons. Hathor was involved in an intense bidding war between two majors including one that stood to receive significant synergies. It is also one of the highest grade deposits in the world at 86,283ppm (anything higher than 1,500ppm is considered a good grade). BMN, on the other hand, involves a very low grade deposit at 194ppm. Anything less than 400ppm is considered low grade.

I've also placed PDN's trading comp on the chart. It is trading at US$3.40/lb and is largely ex-capex. Two of its mines are already producing and therefore it doesn't require the large capex that these other pre-producers need. The MRU and KAH deals were struck 3.5x higher than PDN's multiple and yet PDN is a producer, ex-capex and has higher grades (~700ppm vs MRU and EXT at ~420ppm).

It is for this reason I keep saying that the takeover of PDN can't be far away. Surely Cameco will now look at PDN after missing out on Hathor. It was only last year when Uranium One / ARMZ held a stake in PDN so I'm sure its interest is still there (now that MRU has been consumed). Also I wouldn’t be surprised if CGNPC made a move on PDN after KAH/EXT. Last year it signed a MoU with PDN, setting a framework of cooperation for, "long term sales of uranium, potential participation in Paladin’s growth strategies, and possible expansion of joint venture relationships in the Northern Territory with Energy Metals Limited (EME), in which CGNPC-URC, through the subsidiary China Uranium Development Company Limited, holds a 69.34% interest." CGNPC knows PDN's assets well and therefore we shouldn't count it out as a potential bidder.

It is also worth noting that PDN has stated its intention to sell down an interest in some of its assets. This is an important catalyst because as we have seen plenty of times in the past, often this process can lead to a full takeover offer. During asset sell down processes, I've called RIV and SDL as takeover targets because in my view buyers would realise that it makes more sense to acquire the entire company rather than pay NPV (which could imply a much larger value than the market cap). Both those stocks ended up seeing bids around the time they were conducting the asset sell down process. I think PDN may be the next one on the block to see a bid arrive after various parties undertake due diligence over its assets.