Cameco challenges Rio with sweeter Hathor bid

TORONTO Mon Nov 14, 2011 3:10pm EST

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TORONTO (Reuters) - Uranium producer Cameco Corp (CCO.TO) raised its offer for Hathor Exploration HAT.TO by 20 percent on Monday, challenging a friendly takeover bid by Rio Tinto (RIO.AX) (RIO.L) for the small Canadian mining company.

The C$4.50 per share offer, which values Hathor at C$625 million ($614 million), sent the company's stock soaring 8.5 percent to C$4.85 on the Toronto Stock Exchange, as investors bet on a bidding war over the uranium junior.

Cameco's latest bid is 8 percent higher than the friendly C$4.15 a share offer from Anglo-Australian Rio Tinto, and adds 75 Canadian cents to its own previous bid of C$3.75.

At stake is Hathor's large exploration-stage Roughrider project in the uranium-rich Athabasca region of Saskatchewan in Western Canada.

The project is located just 25 km (15 miles) southeast of Cameco's Rabbit Lake mill and has the potential to produce at least 5 million pounds of uranium a year.

Cameco, which is Canada's largest uranium producer, made its hostile offer for Hathor after talks aimed at a friendly deal fell apart over price.

"Cameco, when it was offering C$3.75 a share, made a very good case that that represented the full economic value of Hathor to the company," said Raymond Goldie, a mining analyst with Salman Partners.

"Clearly, they have found 75 cents of strategic value," he added. "Maybe they think it's worth that to keep Rio Tinto out of the Athabasca region."

Rio Tinto produces aluminum, diamonds, iron ore and titanium dioxide in Canada, while its uranium assets are in Australia and Namibia. Cameco and France's Areva (AREVA.PA) are the dominant producers in the Athabasca basin.

Analysts see a rival bid from Areva as unlikely, because the French miner is partnered with Cameco on the Cigar Lake, McArthur River and Key Lake projects.

In note to clients, BMO Capital Markets analyst Edward Sterck noted that Cameco's new bid is dilutive to the value of company.

"It is possible that Cameco sees the synergies with its existing operations as being large enough to compensate for this," Sterck said.

He added that the Roughrider project would bring more flexibility to Cameco's long-term growth plans.

Cameco, which owns projects in Canada, the United States and Kazakhstan, has plans to boost its annual uranium output to 40 million pounds by 2018 from 21.7 million pounds this year.

The Saskatoon, Saskatchewan-based company's shares were up slightly at C$20.08 on Monday afternoon on the Toronto Stock Exchange. Its offer for Hathor will expire on November 29.

($1=$1.02 Canadian)

(Reporting by Julie Gordon, editing by Rob Wilson)

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