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TABLE OF CONTENTS Jan 28 - Feb 3, 2013 Volume 98 Number 50 - 0 comments

Denison to buy explorer Fission

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By: Anthony Vaccaro

Denison Mines (DML-T, DNN-X) is staying true to its strategy of becoming a leading uranium explorer in the eastern Athabasca basin region of Saskatchewan by agreeing to acquire Fission Energy (FIS-V) for $70 million.

Since disinvesting its U.S. mining assets in June, Denison has been focusing on growing and expanding its portfolio in the Athabasca basin, company president and CEO Ron Hochstein says in an interview.  

The driving force behind the Fission transaction, which comes two months after Denison agreed to take over its joint-venture partner JNR Resources for nearly $10 million, is Fission’s 60%-held Waterbury Lake project.

The 402 sq. km property sits near Denison’s 25%-held Midwest uranium project and 22.5%-owned McClean Lake mill, touted as one of the world’s largest uranium processing plants.   

Hochstein says the transaction would strengthen the firm’s resource base — particularly with the Waterbury project, which contains 13 million lb. uranium in indicated and inferred — and improve Denison’s chances of exploration success.

Analysts note that mineralization at Waterbury’s J zone is continuous with Rio Tinto’s (RIO-N, RIO-L, RIO-A) Roughrider deposit, and that the two could be developed as one, suggesting that Denison could be buying Fission to attract Rio.

“This transaction ties a bow on DML for Rio Tinto to consolidate the Athabasca,” Cantor Fitzgerald analyst Rob Chang writes in a note.  

Hochstein claims the offers for JNR and Fission were “purely a move to improve our portfolio and increase our flexibility in the eastern Athabasca basin.”

But he admits having a better portfolio would increase the company’s takeout potential. “I think we would be an interesting acquisition for the current majors, or potentially for another company looking to get into the uranium space,” he says.

Raymond James analyst David Sadowski says the transaction lifts the company’s already favourable position in the uranium-rich Athabasca basin and signals four reasons to potentially own Denison, including Waterbury, the junior’s high-grading Wheeler River project, its strategic interest in the McLean mill and “suite of highly prospective exploration plays.”

“We see these assets as a natural fit for the likes of Rio Tinto that could lay the groundwork for another bidding war with Cameco,” Sadowski writes, referring to how Rio and Cameco (CCO-T, CCJ-N) locked horns for Hathor Exploration’s Roughrider deposit in November 2011.

He adds that “hungry Asian nuclear utilities may also be interested, in our view.”

As part of the transaction, Fission shareholders will receive 0.355 of a Denison share and one share of a new spin-out company for each share held. The offer represents a 49% premium to Fission’s Jan. 15 close and a 42% premium to the 20-day, volume-weighted average price, Hochstein says.  

Fission’s 50%-held Patterson Lake South discovery and $18 million in cash will be spun into the new company, headed by Fission’s current management team, including CEO Devinder Randhawa and president and chief operating officer Ross McElroy.

Denison will also pick up Fission’s other exploration interests in the Athabasca basin, as well as assets in Quebec, Nunavut and Namibia.

If the deal goes through, Fission shareholders would own 11% of the Toronto-based firm.  

A $3.5-million reciprocal break fee is attached to the agreement, with Denison having the right to match higher bids. The deal is expected to close in April, conditional upon regulatory and shareholder approval.

On the news, Fission rose 22% to 78¢, and Denison shares added nearly 2% to close Jan. 16 at $1.48. 

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