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Cameco Offers to Acquire Hathor Exploration at 42% Premium to GuruFocus Estimate

August 26, 2011 | About:

As a value investor you have to have faith that over time something will happen to cause a stock price to match the intrinsic value of a business. Otherwise how do you spend the long hard weeks when Mr. Market values your investment at a fraction of what you believe it to be worth?

Sometimes, that value realization comes sooner than later. And I’m happy to be on the side of a big winner today. On May 27, 2011, I wrote the linked article below asking “How long until Hathor Exploration is acquired?”


I thought Hathor was a pretty obvious candidate for acquisition. A small company that had in its possession a very large and high quality uranium discovery.

Today Cameco makes me look smart (a rare occurrence) with this offer taken directly to Hathor shareholders:

“SASKATOON - Cameco (TSX:CCO) is making a $520-million hostile takeover bid for Hathor Exploration Ltd. (TSX:HAT), a junior uranium company with operations in northern Saskatchewan.

Cameco said early Friday it made a written proposal of $3.75 per share cash to Hathor's board about a week ago but couldn't get its backing for a friendly deal.

Instead, Cameco will go directly to Hathor shareholders with the takeover bid.

The company said the takeover offer would provide Hathor shareholders to get an immediate premium for their stock.

Hathor shares closed Thursday at $2.67 on the Toronto Stock Exchange but they'll undoubtedly rise when the market reopens.

For Cameco, the main prize would be Hathor's Roughrider uranium deposit — about 25 kilometres northwest of Cameco's Rabbit Lake mill.

"Our offer provides Hathor shareholders an opportunity to receive an immediate and substantial premium for their shares and eliminate the inherent risks of a company at Hathor's early stage of development," Tim Gitzel, president and CEO of Cameco, said in a release before stock markets opened Friday.

"The market has recognized the exceptional job Hathor has done with the Roughrider deposit and the company's other properties. Given our financial strength, development expertise, existing infrastructure and experience in the Athabasca region, we feel we are in a unique position to build on that success and further advance the Roughrider deposit."

You will notice that Hathor’s management did not like the price offered and that Cameco has taken the offer directly to shareholders. The valuation work that I did back in May suggested that $3.75 would be at the very low end of a likely valuation range.

Based on what I have read in a few analyst reports that actually seems like it might be the case. Here is how it shakes out:

- Roughrider is now estimated to contain 58 million pounds of Uranium.

- Estimates for the “Far East Zone” are for another 12 million pounds which would bring the company total to roughly 70 million pounds of Uranium.

- Value per pound in the ground by the various analysts I see is about $7.

- As a reasonableness test of this you can compare to the acquisition by the company Uranium One of the company Mantra for an equivalent $10 per pound. Then consider that the property owned by Mantra is a much lower grade and is in the middle of a national park in Tanzania, not the Athabasca basin.

The numbers then are a very conservative $7 x 70 million pounds = $490 million.

Perhaps a more realistic but still conservative $10 x 70 million pounds = $700 million.

The company has a fully diluted share count of just over 120 million shares and a net cash position of about $20 million. 120 million shares x the current share price of $2.64 = $316 million.

As of this writing Hathor’s shares are considerably above the offer price indicating that the market is expecting a better offer. I will likely sell my holdings today as I have all kinds of really cheap oil producers to reinvest the cash into.

I wish everything I bought worked out so quickly.

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