Denison Mines tops Mega’s offer for Rockgate

Drilling in search of uranium near Falea in western Mali, about 20 km north of the country's border with Guinea (2008). Source: Rockgate CapitalDrilling in search of uranium near Falea in western Mali, about 20 km north of the country's border with Guinea (2008). Source: Rockgate Capital

Denison Mines (TSX: DML; NYSE-MKT: DNN) has tabled a superior all-share bid for Rockgate Capital (TSX: RGT), a week before Rockgate shareholders are set to vote on a merger with Mega Uranium (TSX: MGA), claiming over 40% of Rockgate’s shareholders disapprove of that transaction.

Rockgate and Mega proposed a merger in early June and signed a definitive agreement in mid-August. Under the business combination, Mega agreed to exchange 2.2 of its shares for each Rockgate share, representing a 15% premium to Rockgate’s June 5 closing price of 22¢ and a 36% premium to its 20-day volume weighted average trading price (VWAP). Rockgate has planned a special meeting on Sept. 25 for its shareholders to vote on the transaction, which carries a reciprocal $1 million break fee.

But Denison has disrupted those plans with its counteroffer. On Sept. 17 the Toronto-based uranium miner offered to exchange 0.192 of its share for each Rockgate share. The bid implies a value of $26.7 million for the Mali-focused uranium explorer, or 23¢ a share. This represents a 47% premium over Rockgate’s Sept. 16 closing price of 15.5¢ per share and a 38% premium to both companies’ trailing VWAP.  

In a release outlining its bid, Denison says after the Mega transaction was announced several of Rockgate’s largest shareholders contacted it to say they were “unhappy” with the Mega transaction.

Demonstrating that discontent, Denison has entered lock-up agreements with Rockgate shareholders covering 20.4 million shares, or 17.4% of the company. In addition, it says 31.5% of Rockgate shareholders, including those who have locked up their shares, intend to vote against the Mega transaction. Denison adds Sprott U.S. Holdings plans to recommend its clients to vote against the Mega merger. Sprott’s clients hold 11.2% of Rockgate, bringing the percentage of Rockgate shareholders set to oppose the Mega deal to 42.7%.

“We believe the DML deal is more attractive, given its premium and DML’s superior size, liquidity, assets, management, and strategy,” David Sadowski, a Raymond James analyst, writes. He has a $2 target price and “outperform 2” rating on Denison.

Sadowski says Rockgate’s healthy cash position and 100% owned Falea uranium project in Mali attracted Denison. As of June 30, Rockgate had $23 million in cash and equivalents.

Falea contains a measured and indicated resource of 29.6 million lb. grading 0.086% uranium and an inferred resource of 15.7 million lb. of 0.05% uranium. The asset also hosts significant silver and copper credits. A prefeasibility study on the project is due in January 2014.

Denison says Falea could complement its African assets including the Mutanga uranium project in Zambia and the Dome joint venture with Rio Tinto (NYSE: RIO; LSE: RIO) in Namibia. The company intends to spin-out these assets along with Falea into a separate company so it can focus on Wheeler River and its other high-grade uranium projects in Saskatchewan’s Athabasca basin.  

The Toronto-based firm plans to file a formal offer and takeover bid circular on Sept. 19. The offer requires approval from at least 90% of Rockgate’s shareholders and will remain open until Oct. 25, unless extended or cancelled by Denison.

On the news, Rockgate soared 32% to 20.5¢ while Denison dropped nearly 6% to $1.12. Mega Uranium gained 13% to end at 8.5¢.


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