Cameco's Run At Hathor Could Ignite Uranium Market

Includes: CCJ, HTHXF
by: Investment U

By Jason Jenkins

One of the world’s largest uranium producers and a company that we've recommended in the past – Canada’s Cameco (NYSE:CCJ) – has launched a C$520 million hostile takeover bid for Hathor Exploration (OTC:HTHXF). The goal is to acquire Hathor’s high-grade Roughrider deposit in Saskatchewan’s prolific Athabasca Basin. The Roughrider deposit is a promising high-grade discovery that sits just 25 kilometers northwest of Cameco’s Rabbit Lake mill.

Cameco initiated its all-cash hostile bid for Hathor earlier this week after talks aimed at a friendly deal failed. Cameco wants to expand its output from the Athabasca Basin mining region in Western Canada.

What this move may do for the uranium market is convince investors that we’ve hit the bottom. If that’s the case, then Cameco’s action may be the catalyst for a recovery.

The uranium market has been in a freefall since the March 11 earthquake and tsunami damaged Tokyo Electric Power Co.’s Fukushima Dai-Ichi power station. The Japanese disaster created international angst regarding the safety of nuclear energy; a prime example is Germany’s decision to halt nuclear plant development and, over time, phase it out as an energy source. Italy and Switzerland have also cancelled plans to build new reactors. It doesn’t matter; uranium demand growth is coming from the developing world.

Reasons Uranium Will Rally

With depressed commodity prices you will have depressed company valuations. Cheaper valuations can be a vehicle for M&A activity. Companies on the hunt for acquisitions always seek the best price, which means they try to time their takeovers with the bottom of the market. When information concerning major merger and acquisition activity gets out, it signals to some of the industries heavy hitters that the bottom is nigh. This sort of news can help spur rallies.

There are now a total of 558 reactors under construction around the world. That number is up from 540 at the start of the year. There are 26 reactors under construction in China, with another 52 planned and a further 102 proposed. China suspended approvals of new plants in the wake of Fukushima, but at the beginning of August the China Nuclear Energy Association completed a nationwide safety inspection and observers expect the Chinese to resume new approvals shortly. India has six nuclear plants under construction and 57 planned or proposed. In Russia, there are 10 reactors being built and another 44 planned or proposed.

Overall, demand is on the verge to outpace supply in the near future. That means the price of uranium is set to rise. Market analysts are beginning to recommend that those in search of value with a long-term perspective should do quite well. Cameco’s takeover bid of Harthor Exploration could possibly be the positive catalyst that many have been waiting for to reignite interest in uranium and reward those long-term value hunters for their investments.

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