* Cameco says cannot justify increasing bid for Hathor
* Uranium miner still sees doubling output by 2018
* Rio Tinto left to buy junior miner for C$654 mln
* Hathor shares down 7 pct; Cameco shares rise 4 pct
By Euan Rocha and Julie Gordon
TORONTO, Nov 28 Cameco Corp has backed
out of a bidding war for Hathor , clearing the way for
Rio Tinto's C$654 million friendly offer and sending
shares of the Canadian uranium explorer tumbling.
For weeks, Rio Tinto and Cameco have been locked in a
battle to acquire Hathor, which controls the advanced
exploration-stage Roughrider project in the uranium-rich
Athabasca region of Saskatchewan in Western Canada.
Rio, one of the world's largest mining companies, and
Cameco, Canada's largest uranium producer, see demand for
reactor fuel growing even though the nuclear industry is under
pressure in the aftermath of the Fukushima disaster in Japan.
But the latest, C$4.70-a-share offer by the
Anglo-Australian mining giant was too rich for Cameco, which is
known for its disciplined approach to acquisitions.
"After careful consideration we cannot justify increasing
the price beyond our current offer and accordingly, we will let
our offer lapse," Tim Gitzel, chief executive of Cameco, said
in a statement on Monday announcing the decision.
Analysts said Cameco might have justified a higher bid on
strategic grounds in terms of keeping Rio out of the Athabasca
basin. That said, paying more for Hathor would have diluted for
Cameco results on most metrics.
By backing away, Cameco has conveyed a strong message to
the market, said Dundee Securities analyst David Talbot in a
note to clients.
"Most importantly, it can't be pushed into doing something
it doesn't feel comfortable doing," he wrote. "The company
remained disciplined, sticking to its corporate culture."
Cameco's shares rose 4.38 percent to C$18.13 on Monday on
the Toronto Stock Exchange, while shares of Hathor tumbled 7.33
percent to C$4.68.
WAR FOR ROUGHRIDER
Hathor went into play in August when Cameco made a hostile
C$520 million bid after talks aimed at a friendly deal fell
apart over price. Rio emerged as Hathor's white knight in
October with a C$578 million bid.
Earlier this month, Cameco raised its bid to C$625 million,
but Rio was quick to counter with a C$4.70 a share bid worth
C$654 million, leading many analysts to speculate that Cameco
would back out, as the price was already more than 25 percent
higher than its original bid.
Cameco said that allowing the bid to lapse will not set
back its plan to double annual uranium production to 40 million
pounds by 2018.
Even so, investors may worry that missing out on Hathor
will make it more difficult for Cameco to reach that goal, BMO
Capital Market analyst Edward Sterck said.
Cameco has struggled with delays at its Cigar Lake project
in Saskatchewan and with permitting issues at its U.S. assets.
"While acquiring Hathor was not essential for Cameco to
meet guidance on BMO Research's forecasts, the acquisition
would likely have provided the company with production
flexibility," said Sterck in a note to clients.
Cameco said that it is focused on developing its existing
assets and that it will explore other growth opportunities
where there is a clear benefit to shareholders.
For Rio, buying Hathor will give the Anglo-Australian miner
access to Canada's Athabasca basin, the highest-grade uranium
district in the world.
But developing the project will not be without challenge.
Under current Canadian legislation, foreign companies can own
no more than 49 percent of an operating uranium mine, meaning
Rio will need a domestic partner before it can start up
Rio will also need build a uranium mill, or gain access to
a nearby processing plant. The Roughrider project, which has
the potential to produce at least 5 million pounds a year, is
located just 25 km (15 miles) southeast of Cameco's Rabbit Lake
mill. France's Areva also owns a mill in the area.
"It would take Rio at least 10 years to get a new mill
permitted and constructed," said Salman Partners analyst
Raymond Goldie. "A permitted uranium processing plant is worth
more than a uranium deposit."