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TABLE OF CONTENTS Oct 7 - 13, 2013 Volume 99 Number 34 - 0 comments

Rockgate cancels Mega merger, stays mum on Denison deal

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VANCOUVER — The planned merger between Rockgate Capital (TSX: RGT) and Mega Uranium (TSX: MGA; US-OTC: MGAFF) is off, thanks to a superior offer for Rockgate from Denison Mines (TSX: DML; NYSE-MKT: DNN).

Rockgate and Mega signed a definitive merger deal in mid-August that was to have exchanged 2.2 Mega shares for each Rockgate share. At the time, the bid valued Rockgate shares at 25¢ apiece. Rockgate shareholders were to have voted on it at a special meeting on Sept. 25.

Those plans were set aside on Sept. 17, however, when Denison tabled its own bid for Rockgate. Denison is offering 0.192 of its own share for each Rockgate share in a bid with an implied value of $26.7 million, or 23¢ a share. By the time of Denison’s bid, Mega’s share price had fallen from 11¢ to 8.5¢, which meant the per-share value of its Rockgate offer had fallen from 25¢ to 19.5¢.

As such, Denison’s offer was superior, something Rockgate confirmed in a Sept. 25 news release.

“The board of directors of Rockgate has determined that the unsolicited takeover bid from Denison Mines . . . constitutes a superior proposal,” Rockgate said. “Mega subsequently waived its right to match the Denison offer, and, as provided in the arrangement agreement, a termination fee of $1 million has been paid by Rockgate to Mega.”

That million-dollar payment likely softened the blow for Mega, which is assessing other opportunities. The company is sticking with its plan to ask shareholders to approve a 10-to-1 share consolidation and a name change to Uranium Capital at an upcoming shareholders meeting.

“We are disappointed that the Rockgate transaction did not proceed,” Richard Patricio, Mega’s executive vice-president, said in a statement. “However, we are committed to making disciplined investment decisions, and the changing fundamentals of the deal no longer represented a comfortable value proposition for Mega.”

Denison says it was prompted to make an offer for Rockgate after several of Rockgate’s largest shareholders contacted the miner, saying they were unhappy with the Mega deal. Quite a few of those discontented shareholders have since committed their shares in support of the Denison offer — Denison has entered into lock-up agreements with investors that control 36.8 million, or 31.5%, of Rockgate’s outstanding share count.

That’s a lot, but a Rockgate-Denison merger is still not certain. In announcing the termination of the Mega deal, Rockgate’s board avoided making a recommendation with regards to the Denison offer. The board offered several reasons for remaining neutral, starting with “concerns with the financial terms of the Denison offer.”

Rockgate points out that the Denison deal is structured as a change-of-control transaction, which differs from the merger of equals it had planned with Mega. Denison’s offer also includes conditions that give Denison sole discretion over whether to proceed. Finally, Denison’s offer demands a minimum tender of 90%, which is high.

Rockgate’s board says it needs more time to “assess the adequacy of the Denison offer.” Denison’s offer is open for acceptance until Oct. 25, and Rockgate’s board says it will provide a recommendation by Oct. 18, at the latest.

Rockgate’s primary physical asset is the Falea project in Mali, which is home to 29.6 million measured and indicated tonnes grading 0.086% uranium oxide (U3O8) and 15.7 million inferred tonnes at 0.05% U3O8. The deposit also contains recoverable silver and copper. A prefeasibility study on Falea is due out in mid-February. Moreover, Rockgate has $23 million in the bank.

Rockgate’s share price remained unchanged at 20.5¢ on news of the cancelled Mega deal. Denison’s share price fell 7¢ in mid-September when it tabled its Rockgate offer, and has remained near $1.12. Mega’s share price lost half a cent on news of the cancelled Rockgate deal to close at 8¢.

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Core boxes stacked at Rockgate Capital's Falea uranium project in southern Mali. Source: Rockgate Capital
Core boxes stacked at Rockgate Capital's Falea uranium ...

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