With grades over 10 times the global average, the Athabasca basin is home to some of the world’s richest uranium deposits, and one junior is looking to lock-up a significant amount of that prospectiveness for itself.
Fission Energy (FIS-V) has tabled a friendly offer to acquire Pitchstone Exploration (PXP-V) and its 13 properties in the Eastern Athabasca, which if consummated, would create one of the largest exploration portfolios held by a junior in the Athabasca basin.
Perhaps most importantly, it would do so without cutting into Fission’s significant cash supply. As of March the company had $22 million in the kitty, and if the acquisition is completed, Fission would pick up Pitchstone’s $1.5 million in cash.
Dundee Securities analyst David Talbot believes Pitchstone shareholders will be better served by Fission’s management team driving those cash assets into exploration.
“Pitchstone management became a little too cautious and fiscally responsible, and not enough cash was being sunk into the ground to move the needle,” Talbot writes in an investment note.
Fission, on the other hand, has carved out a reputation as an aggressive explorer. It put money into the ground to define its flagship J zone deposit at its Waterbury Lake uranium project in the Athabasca basin.
“We believe it is likely this exploration style could pay off for shareholders of both companies — Pitchstone shareholders bring the projects to a company with an exploration war chest with little fear to use it, while Fission shareholders get access to a significant amount of prime real estate in the Athabasca basin at a time when Pitchstone has been beaten up somewhat,” Talbot writes.
The all-stock deal would see Pitchstone shareholders receive 0.2145 of a Fission share for each Pitchstone share held. This means Fission would have to issue roughly 9.7 million new shares, and Pitchstone shareholders would end up with an 8.4% stake in the merged company. Fission currently has 114.6 million shares outstanding.
The offer amounts to a 26% premium on Pitchstone’s 20-day, volume-weighted average trading price just before the bid.
The key driver behind Fission’s ambitions are Pitchstone’s 13 properties in the Eastern Athabasca, five of which are wholly owned. A uranium discovery was made in 2009 at Gumboot, with a highlight intercept of 2.06% uranium oxide over 0.1 metre.
Pitchstone says the geology at the property is similar to large Athabasca uranium deposits with: an electromagnetic conductor in the form of graphitic gneiss along a reverse fault; strong alteration; and high nickel and cobalt assays as a key indicator.
The EM conductor at Gumboot runs 5 km long, of which only 1.2 km has met the drill. The same conductor extends a further 15 km on to the Johnston Lake property, which is jointly held by Pitchstone (49%) and Denison Mines (DML-T, DNN-X) (51%).
The company has a 3,000-metre drill program planned on the property for the remainder of 2012.
As for Fission, its Waterbury Lake project is adjacent to Rio Tinto’s (RIO-N) recently acquired Roughrider project. Waterbury is located next to Roughrider’s boundary, right where the deposits on Roughrider trend to the west.
Waterbury’s J zone lines up well with the West and Roughrider zones on Rio Tinto’s property. All of the deposits form an almost-straight line extending west from the Roughrider deposit.
Rio’s West zone deposit has been defined up to the property boundary, and on the other side of that boundary Fission has outlined its J East zone. But the companies have not yet proven that the two deposits connect.
Pitchstone says the merged company and Fission’s deep pockets for exploration spending were major reasons its board of directors unanimously approved the deal, and Talbot believes the expanded Athabasca portfolio has enhanced Fission’s status in the region.
“[The deal] gives Fission a very good toehold in the basin, and should the Korean or Chinese utilities move in, there are more projects and opportunities to be found with Fission than perhaps some of its peers,” he writes.
Pitchstone shareholders will vote on th edeal in mid-July. Fission has already entered into lock-up agreements with the holders of 19% of Pitchstone’s shares.