Sinosteel seeks to trump Kepco bid for Denison
Sinosteel Corp, the second-largest metals trader in China, plans to lodge a bid for a 20 per cent stake in Canadian uranium producer Denison Mines in an attempt to beat a South Korean state-owned firm to the acquisition, market sources said.
The move marks a repeat of a transaction last year where Sinosteel stepped in late to outbid a rival in an Australian iron ore acquisition and could be the start of a larger transaction.
Denison announced on April 14 that it had signed a non-binding agreement with Korea Electric Power Corp (Kepco), where the Korean company would acquire a 19.9 per cent stake in Denison and 20 per cent of the company's uranium production for C$75.4 million (HK$522.61 million).
Denison needs the money to pay off a US$125 million debt by the fourth quarter of this year.
'They have to do it because of the balance sheet and they also need off take. They also need a partner in the Athabasca Basin because it's a difficult place to mine in because of the unique geology,' said David Wargo, an energy analyst at GMP Securities.
Sinosteel's move may be part of a wider strategy that could see the company try to acquire Denison outright or buy up more uranium assets in the Athabasca Basin.
French nuclear power giant Areva owns 69.16 per cent of the Midwest deposit, where Denison holds a 25 per cent stake, and at least one source said Areva was considering whether to part with some or all of that stake or others it holds nearby.
Areva needs about Euro11 billion (HK$119.64 billion) to finance a number of ongoing projects.
Areva earlier this year divested stakes in French utility giant GDF Suez and French oil company Total. It has also talked about selling its transport and distribution business as well as its ferro-nickel mining unit. Areva could not be reached for comment.
Last year, Sinosteel paid A$1.36 billion (HK$8.58 billion) for Perth-based iron ore miner Midwest Corp after Midwest had been in talks with Australian mining firm Murchison Metals. Sources familiar with mainland resource companies say they can aggressively pursue deals when they see other rivals interested in an acquisition.
China has plans to build as many as 30 nuclear energy plants as part of a move to wean the country away from the highly polluting coal that accounts for more than 60 per cent of the nation's energy production. Mainland firms have been looking in Australia, Canada and Kazahkstan, the three largest uranium-producing countries, for future supplies for the growing nuclear energy sector.
Denison mines uranium at the Midwest deposit and McClean Lake in the Athabasca Basin in Saskatchewan, Canada. It produced 1.6 million pounds of uranium and 1.2 million pounds of vanadium last year. Estimated production this year is as much as 1.5 million pounds of uranium and 500,000 pounds of vanadium, according to the company's website. It also has exploration projects in Mongolia, Zambia, Canada and the United States.
Sinosteel and Denison declined to comment.
Kepco is paying C$1.30 a share for the stake, a 15 per cent premium to the 30-day moving average price prior to the announcement. Kepco would buy 58 million common shares in either a private placement or partial public offering, Denison said in April.
The company's shares are up 36.42 per cent to C$2.06 since then.
The agreement also allows Kepco to appoint two members of the board and take 20 per cent of any asset Denison acquires or sells.
Kepco completes due diligence today and the deal requires regulatory approval from both the Toronto and New York's Amex stock exchanges, where the company's shares trade.
Kepco said earlier this month that it would form a holding company for the investment by June 30.
