Barry FitzGerald July 10, 2006 Page 1 of 2 | Single page
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STAND by for a second bull run in local uranium exploration/development stocks — one driven by a frenzy of merger and acquisition activity.
The second bull run is just starting to take shape and already it has emerged that there is likely to be three key playmakers — Canadian/Australian Mega Uranium, John Borshoff's Paladin and Toro Energy.
They are the ones with the fancy market capitalisations that can make things happen through scrip takeover bids for their smaller brethren.
Their fancy share prices also allow them to tap, at will, the market for equity funding when the right deal comes along.
It was the first bull run in uranium stocks that gave those groups their firepower. It ran out of puff in March after 15 months on the go, with the subsequent repricing of uranium equities at lower levels in April-June setting the scene for the launch of the second, and merger-and-acquisition-driven, bull run.
The first bull run was a response to the growing acceptance that nuclear power has a key role to play in the response to global warming.
Spot uranium prices have responded to the looming surge in demand — as well as the fact that current annual consumption outstrips mine supply — by advancing steadily and are now more than $US45 a pound.
That compares with the sub-$US10 a pound level of a couple of years back. It's no wonder then that with Australia's known prospectivity for the radioactive material, uranium exploration/development is now the prime focus of no less than 80 listed companies.
The explosion of uranium explorers means that the sector is ripe for some consolidation, with the aim being to achieve some bulkiness, as well as project and country-risk diversity.
Attaining that magical mix could deliver big rewards for those that can pull it off, as the issue of global warming is not about to go away in a hurry.
Evidence that the second bull run is starting to take shape is coming in thick and fast.
Mega kicked it off in January with its $20 million acquisition of South Australian uranium explorer Hindmarsh Resources in a scrip-only takeover bid.
The agreed bid marked the return to the Australian uranium industry of Tony Grey, the Sydney-based Canadian lawyer who founded Pancontinental Mining, of Jabiluka fame, in the early 1970s.
Mega, which has the Ben Lomond and Maureen deposits in uranium-unfriendly Queensland under its belt, is now back for another acquisition.
This time it is a friendly bid worth $98 million for West Australian uranium explorer and royalty holder Redport Ltd.
Redport's royalty is over Paladin's Langer Heinrich mine in Namibia, where mining is about to start. As an aside, it was interesting to see that Paladin went into a trading halt on Friday as it is "negotiating a potentially material transaction".
Also on Friday, Valhalla Uranium, the Queensland and Northern Territory uranium explorer 83 per cent owned by Resolute Mining, went into a trading halt pending an announcement. We will know soon enough if the two trading halts are related.
Further evidence that M&A activity in the uranium sector is on the boil came last week with a $34 million bid for SA uranium explorer Marathon Resources from Hong Kong-based investment bank Crosby Capital.
Unlike the other bids in the sector, it is not friendly. It also differs on the count that it's a cash offer of 68¢ a share.
Missing in action so far is Toro, the Oxiana and Minotaur sponsored float that listed with a bang in March, but which quickly drifted back in price.
Toro rose 11.5¢ to 69¢ on Friday. It has put out some encouraging exploration results but the real reason for the share price running has been put down to Toro's expected lead role in the sector's M&A activity.
It's all well and good to have a bag of the best exploration ground in SA, but it's better to have a proven resource on the books. Expectations of more M&A action in the uranium sector helped on Friday nearly all the junior explorers that might benefit in the long run.
Some of the gains included Arafura (up 2¢ to 37¢), Giralia (up 1.5¢ to 30¢), Deep Yellow (up 1.5¢ to 15¢) and Summit (up 19¢ to $1.44).
PDN Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
(20min delay)