UPDATE 1-Canada's Nordion, AECL settle lawsuit; sign new supply deal
Aug 20 (Reuters) - Canada's Nordion Inc said it settled a five-year-old lawsuit with its main supplier, easing concerns about the supply of the main raw material the company uses to make medical isotopes.
The settlement with Atomic Energy of Canada Ltd (AECL) pushed Nordion's shares up as much as 9 percent to C$8.40 Tuesday on the Toronto Stock Exchange.
Nordion has struggled to find an alternative supplier for molybdenum-99, the isotope at the center of the dispute. The company processes the isotope to produce radioactive tracers used in medical imaging.
Nordion said on Tuesday it would receive C$15 million ($14.44 million) in settlement of its C$244 million claim and that AECL has withdrew its claim of about C$47 million for arbitration costs.
Nordion and AECL also signed an agreement under which the state-owned nuclear energy firm would supply Nordion with the isotope starting immediately and running through October 2016.
"This AECL agreement is good news for Nordion versus our and Street expectations," analyst Douglas Miehm of RBC Capital Markets said in a note to clients.
Nordion had been seeking damages or the completion of the new Maple reactors that were set to replace the aging National Research Universal reactor in Chalk River, Ontario, which supplied the isotope.
However the project was scrapped in 2008, raising concerns about the supply of the isotopes globally. Nordion filed a lawsuit claiming C$1.6 billion in damages at that time.
Miehm said Nordion had pumped in $400 million into the project since the late 1990s. He added that while the settlement would not help recoup the money, the news could add about $1 per share to Nordion's stock.
Nordion's U.S.-listed shares were up 48 cents at $7.95 in afternoon trade.
The lawsuit and the lack of molybdenum supplies had forced the company to suspend its dividend last September and in January, it said it was exploring strategic alternatives.
While the settlement eases the concerns about the supply of molybdenum in the short term, there are still concerns about global supplies in the long term.
David Krempa of Morningstar highlighted these concerns pointing to the fact that most of the reactors globally were quite old and routinely came under maintenance.
"There are some concerns about the global supply of isotopes, especially if Nordion isn't able to find an alternative source by 2016, there is going to be a bit of a bigger issue come 2016."